<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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INET TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 3661 75-2269056
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. employer
incorporation or organization) Classification Code number) identification number)
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WILLIAM H. MINA
SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
INET TECHNOLOGIES, INC.
1255 WEST 15TH STREET, SUITE 600 1255 W. 15TH STREET, SUITE 600
PLANO, TEXAS 75075 PLANO, TEXAS 75075
(972) 578-6100 (972) 578-6100
(Address, including zip code, and telephone number, FACSIMILE: (972) 578-6113
including area code, of the registrant's principal (Name, address, including zip code, and telephone
executive offices) number,
including area code, of agent for service)
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Copies to:
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CARMELO M. GORDIAN, ESQ. KENNETH M. SIEGEL, ESQ.
RONALD G. SKLOSS, ESQ. PAUL R. TOBIAS, ESQ.
J. MATTHEW LYONS, ESQ. S. DAWN SMITH, ESQ.
BROBECK, PHLEGER & HARRISON LLP WILSON SONSINI GOODRICH & ROSATI,
301 CONGRESS AVENUE, SUITE 1200 PROFESSIONAL CORPORATION
AUSTIN, TEXAS 78701 650 PAGE MILL ROAD
(512) 477-5495 PALO ALTO, CALIFORNIA 94304
FACSIMILE: (512) 477-5813 (650) 493-9300
FACSIMILE: (650) 493-6811
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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Common Stock, $0.001 par
value..................... 6,612,500 shares $17.00 $112,412,500 $33,162
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(1) Includes 862,500 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 24, 1998
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5,750,000 SHARES
INET TECHNOLOGIES, INC.
LOGO
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
</TABLE>
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Of the 5,750,000 shares of Common Stock offered, 4,600,000 shares are being
offered hereby in the United States and 1,150,000 shares are being offered in a
concurrent international offering outside the United States. The initial public
offering price and the aggregate underwriting discount per share will be
identical for both offerings. See "Underwriting".
Of the 5,750,000 shares of Common Stock being offered, 3,841,870 shares are
being sold by the Company and 1,908,130 shares are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders". The Company will not
receive any of the proceeds from the sale of the shares being sold by the
Selling Stockholders.
Prior to the offerings, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price per share will be between $15.00 and $17.00. For factors to be considered
in determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
Application will be made to have the Common Stock approved for quotation
on the Nasdaq National Market under the symbol "INTI", subject to official
notice of issuance.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total(3)...................... $ $ $ $
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) Before deducting estimated expenses of $740,000 payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 690,000 shares at the initial public offering
price per share, less the underwriting discount, solely to cover
over-allotments. Additionally, the Company has granted the International
Underwriters a similar option with respect to an additional 172,500 shares
as part of the concurrent International offering. If such options are
exercised in full, the total initial public offering price, underwriting
discount and proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting".
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The shares offered hereby are offered severally by the U.S. Underwriters,
as specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York, on
or about , 1998, against payment therefor in immediately
available funds.
GOLDMAN, SACHS & CO.
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN
RAUSCHER INCORPORATED
HAMBRECHT & QUIST
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The date of this Prospectus is , 1998.
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[GRAPHIC]
[Graphic depicting a human eye, part of a freestanding binocular viewer and
the Company's name superimposed upon one another on a multi-colored background.]
Text:
Upper Left corner of graphic: "An eye for surveillance"
Lower Right corner of graphic: "A mind for business"
The Company intends to furnish to its stockholders annual reports
containing audited financial statements examined by its independent auditors.
"GeoProbe", "Spider", "OpenSeven" and the Company's logo are registered
trademarks of Inet. This Prospectus also contains trade names, trademarks and
service marks of organizations other than the Company, which are the property of
their respective owners.
Unless the context requires otherwise, the terms "Inet" and the "Company"
refer to Inet Technologies, Inc. and its predecessors and consolidated
subsidiaries.
In this Prospectus, references to "dollars" and "$" are United States
dollars.
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CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
2
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[DESCRIPTION OF ARTWORK IN FOLDOUT OF INSIDE FRONT COVER]
[Graphic depicting the implementation of the Company's Geoprobe and Spectra
products within a simplified SS7 network. The elements of the SS7 network are
shown from left to right beginning with the Customer A's call routed from its
telephone to the central office of the calling party's local telephone company,
then to a Signal Transfer Point (STP) where the Geoprobe collects and processes
raw signaling data, then to another STP, then to the central office of the
receiving party's local telephone company and finally to Customer B's telephone.
Spectra is shown implemented at the STP level to conduct diagnostic testing and
monitoring of SS7 signals. In the upper right hand corner of the graphic is a
photograph of the Spectra.]
Text:
Text Down Left Margin of Graphic: "The Signaling Network. The Signaling network
carries a continuous, two-way stream of diverse messages that simultaneously
control all calls, services and elements in a telecommunications network. Some
messages carry instructions for individual calls that include dialed digits,
call status (busy or available) and the activation and deactivation of special
call services. Other messages carry instructions for maintenance functions that
include indicators for failed links, overloaded switched and other network
conditions that could affect call completion."
"The Geoprobe System. 1) Inet's Geoprobe collects all messages directly from the
signaling network. 2) The messages are processed at each collection site. Each
individual message is organized and connected in sequence with all associated
messages. The result - complete, organized and detailed data about every call,
service and maintenance condition occurring in the network. 3) The prepared data
is made available for advanced processing by surveillance, business and third-
party applications within seconds of its collection."
"The Spectra. 1) Off Line, the Spectra tests network elements and services in
development laboratories. 2) Deployed in a live network, the Spectra can be used
as a troubleshooting tool to monitor signaling traffic on connected links."
Text at Upper Left Center of Graphic: "Inet provides telecommunications hardware
and software to local, long distance, cellular and PCS carriers worldwide.
Inet's products help manufacturers and carriers evaluate and improve the
performance and revenue potential of signaling networks."
Text Below photograph of Spectra: "Conformance Testing, Load Benchmarking,
Traffic & Element Emulation, Network Troubleshooting."
Text in center of Graphic of certain data obtained by the GeoProbe from a call:
"Call Attempt: A to B. Call Time: 03:20:00 AM. Setup Time: 00:00:05. Call Route:
NY/Portland. Call Status: Answered. Call Duration: 00:03:36."
Heading at bottom of Graphic: "GEOPROBE SURVEILLANCE & BUSINESS OR THIRD-PARTY
APPLICATIONS"
Text Below Heading at bottom of Graphic:
"Surveillance. Helps to ensure that the network is running smoothly and
efficiently. Generates alarms and records statistics on network events and
conditions. Trouble-shoots network problems quickly.
"Fraud Management. Provides a real-time data feed to legacy fraud systems, which
detect suspicious activity occurring in the network. Provides an opportunity to
reduce revenue lost to wireline and wireless fraud.
"Service Quality Assurance. Verifies that customers are receiving a high
quality of service, call by call and service by service. Pinpoints network and
service usage trends. Preprocesses data for use with external applications.
"Marketing. Provides marketing data to help users make decisions regarding
growth and element deployment in the network by call volume, customer base and
services offered.
"Billing. Tracks usage of the signaling network by interconnecting networks.
Reconciles revenue between service providers for trunk connectivity, call
termination and the delivery of services.
"Third-Party Applications. Supports the development of custom software and the
formatting of data with Application Programming Interface tools."
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PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial data appearing
elsewhere in this Prospectus, including the more detailed information and the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus. Unless otherwise indicated herein, all information in this
Prospectus (i) reflects the recent reincorporation of the Company in Delaware
and a 10-for-1 split of the Common Stock and (ii) assumes no exercise of the
Underwriters' over-allotment options. See "Underwriting".
THE COMPANY
Inet provides solutions that enable telecommunications carriers to more
effectively design, deploy, diagnose, monitor and manage communications networks
that carry signaling information used to manage telephone calls. Inet's products
also address the fundamental business needs of telecommunications carriers, such
as improved billing, targeted sales and marketing, fraud prevention and enhanced
call routing. Inet provides these comprehensive solutions primarily through its
GeoProbe and Spectra product offerings.
The GeoProbe system provides real-time monitoring of Common Channel
Signaling System #7 ("SS7") networks and serves as an open platform for business
applications developed by Inet, its customers or third parties. GeoProbe's
monitoring applications enable early warning of network faults, collection of
statistics for performance evaluation, real-time call tracing and
troubleshooting. GeoProbe's associated business applications provide fraud
detection tools, reconciliation of billing between carriers, service quality
reports and marketing data. The Spectra product can be integrated within the
GeoProbe platform or used on a stand-alone basis to provide diagnostic,
emulation and load generation capabilities for use in the design, deployment,
commissioning and diagnosis of signaling networks.
Inet's objective is to be the dominant provider of advanced signaling
network management solutions and associated business applications for
telecommunications networks worldwide. Key elements of Inet's strategy to
achieve this objective include expanding its global market share, increasing its
domestic sales and penetration of its existing customer base, enhancing its
technological leadership position in SS7 network management solutions, expanding
its product offerings by leveraging its core competency in SS7, and building
relationships with strategic partners.
As of June 30, 1998, the Company had sold its solutions to over 300
customers in 40 countries. The Company's target customers include
telecommunications network carriers and equipment manufacturers throughout North
America, Latin America, Europe and the Asia/Pacific region. To date, the
Company's network carrier customers include AT&T, British Telecom, KPN Telecom,
MCI, o.tel.o communications, Portugal Telecom, Singapore Telecom, Sprint, SPT
Telecom, Telia, Telstra and Worldcom, and its equipment manufacturer customers
include DSC Communications, Ericsson, Motorola and Nortel.
The Company was incorporated in Texas as "INET, Inc." in 1989 and was
subsequently reincorporated in Delaware as "Inet Technologies, Inc." in 1998.
The Company's executive offices are located at 1255 West 15th Street, Suite 600,
Plano, Texas 75075, and its telephone number is (972) 578-6100.
3
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THE OFFERINGS
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Common Stock offered by the Company......................... 3,841,870 shares
Common Stock offered by the Selling Stockholders............ 1,908,130 shares
Common Stock to be outstanding after the offerings.......... 44,722,450 shares(1)
Use of proceeds............................................. For working capital and general
corporate purposes, including
possible acquisitions. See "Use
of Proceeds".
Proposed Nasdaq National Market symbol...................... INTI
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(1) Excludes 1,991,000 shares of Common Stock issuable upon exercise of options
outstanding at June 30, 1998, with exercise prices ranging from $0.60 to
$4.20 per share and with a weighted-average exercise price of $1.66 per
share. See "Management -- 1998 Stock Option/Stock Issuance Plan" and Note 6
of Notes to Consolidated Financial Statements.
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
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1995 1996 1997 1997 1998
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STATEMENTS OF INCOME DATA:
Revenues................................. $17,531 $42,041 $57,701 $25,090 $34,165
Income from operations................... 2,239 13,288 19,096 7,550 10,793
Net income............................... $ 1,659 $ 8,936 $12,714 $ 5,027 $ 7,248
======= ======= ======= ======= =======
Basic net income per share............... $ 0.04 $ 0.22 $ 0.31 $ 0.12 $ 0.18
Diluted net income per share............. $ 0.04 $ 0.22 $ 0.30 $ 0.12 $ 0.17
Shares used in computing basic net income
per share(1)........................... 39,600 40,998 41,244 41,237 41,256
Shares used in computing diluted net
income per share(1).................... 41,207 41,451 42,110 41,767 42,665
</TABLE>
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JUNE 30, 1998
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ACTUAL AS ADJUSTED(2)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $20,482 $ 76,909
Working capital............................................. 30,679 87,106
Total assets................................................ 49,183 105,610
Stockholders' equity........................................ 36,852 93,279
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(1) See Note 9 of Notes to Consolidated Financial Statements for the
determination of shares used in computing basic and diluted net income per
share.
(2) Adjusted to give effect to the sale by the Company of 3,841,870 shares of
Common Stock in the offerings at an assumed initial public offering price of
$16.00 per share (assuming no exercise of the Underwriters' over-allotment
options and after deducting the estimated underwriting discount and
estimated offering expenses payable by the Company). See "Capitalization"
and "Use of Proceeds".
4
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RISK FACTORS
In addition to the other information in this Prospectus, prospective
purchasers of the Common Stock offered hereby should consider carefully the
following factors in evaluating the Company and its business. All statements,
trend analysis and other information contained in this Prospectus relative to
markets for the Company's products and trends in revenue, gross margin and
anticipated expense levels, as well as other statements, including such words as
"anticipate", "believe", "estimate", "expect", "intend", "may", "plan" and
"should" and other similar expressions, constitute forward-looking statements.
These forward-looking statements are subject to business and economic risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed below as well
as those discussed elsewhere in this Prospectus.
FLUCTUATIONS IN QUARTERLY FINANCIAL RESULTS
The Company has experienced significant fluctuations in quarterly operating
results based on a number of factors, many of which are outside the Company's
control. Such factors have included the demand for the Company's products and
services; the size and timing of specific orders by the Company's customers; the
level of product and price competition encountered by the Company; the length of
the sales cycle of the Company's products; the Company's ability to develop,
introduce and market new products and technologies on a timely basis; the
introduction of products and technologies by the Company's competitors; the
market acceptance of such new products and technologies; changes in pricing
policies by the Company or its competitors; the mix of products and services
sold by the Company; the timing of product shipments and product installations
by the Company; the capital spending patterns of the Company's customers; the
mix of domestic and international sales; and changes in the timing and level of
operating expenses. The Company's operating results may fluctuate in the future
due to a number of factors, including, but not limited to, those listed above as
well as satisfaction of contractual customer acceptance criteria; the amount and
timing of recognition of revenues; the relative percentages of products sold
through the Company's direct and indirect sales channels; customer order
deferrals in anticipation of enhancements or new products offered by the Company
or its competitors; competition by existing and emerging competitors; the
Company's timing of and investments in research and development activities; the
Company's ability to implement its sales and marketing strategy; changes in the
cost or availability of materials needed to produce the Company's products; the
Company's ability to attract and retain experienced personnel; actual or
anticipated changes in government laws and regulations related to the
telecommunications market or judicial or administrative actions with respect to
such laws or regulations; the nature and pace of enforcement of the
Telecommunications Act of 1996 (the "Telecommunications Act"); the progress and
timing of the privatization of telecommunications markets and the worldwide
deregulation of the international telecommunications industry; the Company's
ability to control costs; software defects and other product quality problems
with the Company's products; intellectual property disputes; changes in the
Company's strategy; the extent of consolidation within the telecommunications
industry; expansion of the Company's international operations; currency exchange
rate fluctuations; and changes in general worldwide economic conditions.
Furthermore, a large portion of the Company's operating expenses, including
rent, salaries and capital lease expenses, are set based upon expected future
revenues. Accordingly, if revenues are below expectations, the Company's
operating results are likely to be adversely and disproportionately affected
because such operating expenses are not variable in the short term, and cannot
be quickly reduced to respond to anticipated decreases in revenues.
The amount of revenues associated with particular product sales can vary
significantly. If individual, large sales represent a greater percentage of
total revenues, as the Company anticipates may happen, the deferral or loss of
one or more significant sales could materially adversely affect
5
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operating results in a particular quarter, particularly if there are significant
sales and marketing expenses associated with the deferred or lost sales.
The Company's operating results are also likely to fluctuate due to factors
which impact the organizations that are likely to be prospective customers of
the Company's products. Expenditures by these organizations tend to vary in
cycles that reflect overall economic conditions and individual budgeting and
buying patterns. The Company's business would be adversely affected by a decline
in the economic prospects of its customers or the economy generally, which could
alter current or prospective customers' capital spending priorities or budget
cycles or extend the Company's sales cycle with respect to certain customers. In
addition, the Company's operating results historically have been influenced by
certain seasonal fluctuations, with revenues from Spectra tending to be
strongest in the fourth quarter of each year. The Company believes that this
seasonality has been due to the capital appropriation practices of many of its
customers. There can be no assurance that the capital appropriation practices of
the Company's customers will not change in the future.
As a result of all of the foregoing, the Company believes that future
revenues, expenses and operating results are likely to vary significantly from
quarter to quarter, and period-to-period comparisons of historical operating
results are not necessarily meaningful and should not be relied upon as any
indication of future performance. Moreover, although the Company's revenues have
increased in recent periods, there can be no assurance that the Company's
revenues will grow in future periods, that they will grow at past rates or that
the Company will remain profitable on a quarterly or annual basis in the future.
In addition, it is likely that in some future quarters the Company's operating
results will be below the expectations of public market analysts or investors.
In such event, or in the event that adverse conditions prevail, or are perceived
to prevail, with respect to the Company's business or generally, the market
price of the Common Stock would likely be materially and adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
DEPENDENCE ON TELECOMMUNICATIONS INDUSTRY
The Company has derived all of its revenues from sales of products and
related services to the telecommunications industry. Intense competition,
regulatory and legal uncertainty, rapid technological change and short product
life cycles characterize the telecommunications industry. In addition, the
telecommunications industry has undergone a period of rapid growth and
consolidation during the past few years. The Company's business, financial
condition and results of operations would be materially adversely affected in
the event of a significant slowdown in the growth of this industry. Further,
consolidations of prospective customers of the Company may delay or cause
cancellations of significant sales of the Company's products, which could
materially adversely affect the Company's operating results in a particular
period. See "Business -- Industry Background".
REGULATORY UNCERTAINTIES
Growth in the markets for the Company's products has been driven in part by
privatization and deregulation of certain telecommunications markets worldwide.
Privatization and deregulation have been, and can be expected to continue to be,
slow and complicated processes. Any reversal or slowdown in the pace of this
privatization or deregulation could have a material adverse effect on the
markets for the Company's products. Moreover, the consequences of deregulation
are subject to many uncertainties, including judicial and administrative
proceedings that affect the pace at which the changes contemplated by
deregulation occur, resolution of questions concerning which parties will
finance such changes, and other regulatory, economic and political factors. For
example, in the U.S. certain litigation is pending which challenges the validity
of the Telecommunications Act and the local telephone competition rules adopted
by the U.S. Federal Communications Commission ("FCC") to implement the
Telecommunications Act. Such litigation may delay implementation of the
Telecommunications Act, which could have a material adverse effect on the demand
for the
6
<PAGE> 9
Company's products. Any invalidation, repeal or modification of the requirements
imposed by the Telecommunications Act or the FCC could have a material adverse
effect on the Company's business, financial condition and results of operations.
Furthermore, the uncertainties associated with deregulation have in the past and
could in the future cause customers of the Company to delay purchasing decisions
pending the resolution of such uncertainties. See "Business -- Industry
Background -- The Telecommunications Industry".
LENGTHY SALES CYCLE
Sales of the Company's products are made predominately to large
telecommunications service providers and involve significant capital
expenditures and lengthy implementation processes. Prospective customers
generally commit significant resources to an evaluation of the Company's and its
competitors' products and require each vendor to expend substantial time, effort
and money educating the prospective customer about the value of the vendor's
solutions. Consequently, sales to this type of customer generally require an
extensive sales effort throughout the customer's organization and final approval
by an executive officer or other senior level employee. The Company frequently
experiences delays following initial contact with a prospective customer and
expends substantial funds and management effort pursuing these sales.
Additionally, delays associated with potential customers' internal approval and
contracting procedures, procurement practices, testing and acceptance processes
are common and may cause potential sales to be delayed or foregone. As a result
of these or other factors, the sales cycle for the Company's products is long,
typically ranging from six to 24 months for GeoProbe sales and up to six months
for occasional, large Spectra sales. Accordingly, the Company's ability to
forecast the timing and amount of specific sales is limited, and the deferral or
loss of one or more significant sales could materially adversely affect
operating results in a particular quarter, particularly if there are significant
sales and marketing expenses associated with the deferred or lost sales. See
"-- Fluctuations in Quarterly Financial Results" and "Business -- Sales,
Marketing and Support -- Sales and Marketing".
PRODUCT CONCENTRATION; RELIANCE ON SS7 NETWORKS
The Company's two principal products, GeoProbe and Spectra, generated
substantially all of the Company's revenues in 1996, 1997 and the six months
ended June 30, 1998 and are expected to continue to account for a substantial
majority of the Company's revenues for the foreseeable future. As a result,
factors adversely affecting GeoProbe and Spectra, such as the condition of the
telecommunications market, competition, technological change and disputes
regarding proprietary rights utilized in these products, would have a material
adverse effect on the pricing of and demand for these products. Any downturn in
the demand for either or both of such products would have a material adverse
effect on the Company's business, financial condition and results of operations.
Moreover, there can be no assurance that the Company will be successful in
developing any other products or taking any other steps to reduce the risk
associated with any slowdown in demand for GeoProbe and Spectra.
The Company's products are designed primarily as management solutions for
SS7 signaling networks. Inet's future operating results are dependent in
significant part on the continued viability and expansion of SS7 signaling
networks. There can be no assurance that the market for SS7 management solutions
and related applications will continue to grow or remain viable. The Company's
business, financial condition and results of operations would be materially
adversely affected if the market for SS7 network solutions fails to grow or
grows more slowly than the Company currently anticipates. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Industry Background".
COMPETITION
The market for SS7-based telecommunications network management applications
is relatively new, intensely competitive, both in the U.S. and internationally,
and subject to rapid technological
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<PAGE> 10
change, evolving industry standards and regulatory developments. Competition is
expected to persist, intensify and increase in the future. The Company competes
with a number of U.S. and international suppliers that vary in size and in the
scope and breadth of the products and services offered. GeoProbe principally
competes with products offered by Hewlett-Packard Company ("Hewlett-Packard").
Spectra principally competes with products offered by Hewlett-Packard, Tekelec
and Tektronix, Inc. ("Tektronix"). Certain of the Company's competitors have, in
relation to the Company, longer operating histories, larger installed customer
bases, longer-standing relationships with customers, greater name recognition
and significantly greater financial, technical, marketing, customer service,
public relations, distribution and other resources. Additionally, it is possible
that new competitors or alliances among competitors could emerge and rapidly
acquire significant market share. As a result, such competitors may be able to
more quickly develop or adapt to new or emerging technologies and changes in
customer requirements, or devote greater resources to the development, promotion
and sale of their products. Increased competition is likely to result in price
reductions, reduced margins and loss of market share. There can be no assurance
that the Company will be able to compete successfully against current or future
competitors or that competitive pressures faced by the Company will not
materially adversely affect its business, financial condition and results of
operations. See "Business -- Competition".
NEED TO MANAGE GROWTH AND EXPANSION
The Company has recently experienced rapid and significant growth that has
placed, and is expected to continue to place, a significant strain on the
Company's management, information systems and operations. For example, the
Company's revenues have increased from $12.2 million in 1994 to $57.7 million in
1997 and to $34.2 million in the six months ended June 30, 1998, and the number
of its employees has increased from 88 at December 31, 1994 to 230 at December
31, 1997 and to 310 at June 30, 1998. In addition, the Company's executive
officers have no experience managing a public company. The Company's ability to
effectively manage significant additional growth will require it to improve its
financial, operational and management information and control systems and
procedures and to effectively expand, train, motivate and manage its employees.
The failure to manage growth effectively would have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company anticipates that continued growth, if any, will require it to
recruit and hire a substantial number of new employees, particularly sales and
marketing personnel and technical personnel with SS7 knowledge and experience,
both in the U.S. and internationally. Competition for such personnel is intense,
and the Company has at times in the past experienced difficulty in recruiting
qualified personnel. The Company historically has filled a portion of its new
personnel needs with non-U.S. citizens holding temporary work visas that allow
such persons to work in the U.S. for only a limited period of time. Accordingly,
any change in U.S. immigration policy limiting the issuance of temporary work
visas could adversely affect the Company's ability to recruit new personnel.
Furthermore, the addition of significant numbers of new personnel requires the
Company to incur significant start-up expenses, including procurement of office
space and equipment, initial training costs and low utilization rates of new
personnel. There can be no assurance that the Company will successfully recruit
additional personnel as needed or that the start-up expenses incurred in
connection with the hiring of additional personnel would not materially
adversely affect the Company's future operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- The Inet Strategy".
DEPENDENCE ON KEY PERSONNEL
The Company's future success will depend to a significant extent upon the
continued service and performance of a relatively small number of key senior
management, technical, sales and marketing personnel, particularly the Company's
three founders, Samuel S. Simonian, Elie S. Akilian and Mark A. Weinzierl, none
of whom is bound by an employment agreement. The Company's
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<PAGE> 11
success also depends upon its ability to continue to attract, motivate and
retain other highly qualified management, technical, and sales and marketing
personnel, particularly personnel with SS7 knowledge and experience. The process
of locating such personnel with the combination of skills and attributes
necessary to implement the Company's strategy is lengthy. There can be no
assurance that the Company will be able to retain its key personnel or
successfully attract, assimilate or retain other sufficiently qualified key
personnel in the future. The loss of any existing key personnel or the inability
to attract, motivate and retain additional qualified personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management".
RAPID TECHNOLOGICAL CHANGE AND DEPENDENCE ON NEW PRODUCTS
The market for the Company's products is characterized by rapid
technological advances, evolving industry and customer-specific protocol
standards, changes in customer requirements and frequent new product
introductions and enhancements. The introduction of telecommunications network
management products involving superior technologies or the evolution of
alternative technologies or new industry protocol standards could render the
Company's existing products, as well as products currently under development,
obsolete and unmarketable. The Company believes its future success will depend
in part upon its ability, on a timely and cost-effective basis, to continue to:
enhance the GeoProbe and Spectra products; develop and introduce new products
for the telecommunications network management market and other markets; address
evolving industry protocol standards and changing customer needs; and achieve
broad market acceptance for its products. There can be no assurance the Company
will achieve these objectives.
The Company's future success will also depend in part on the Company's
ability to develop solutions for networks based on emerging technologies (e.g.,
Asynchronous Transfer Mode and Internet telephony) which are likely to be
characterized by continuing technological developments, evolving industry
standards and changing customer requirements. There can be no assurance that the
Company will successfully develop competitive products for these emerging
technologies, and the failure to do so could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Products -- Products Under Development" and "-- Research and
Development".
INTERNATIONAL OPERATIONS
Revenues from customers located outside of the U.S. represented 32.3%,
49.4%, 52.6% and 49.5% of the Company's total revenues in 1995, 1996, 1997 and
the six months ended June 30, 1998, respectively, and international revenues are
expected to continue to account for a significant percentage of total revenues
for the foreseeable future. Inet believes that continued growth and
profitability will require expansion of its sales in international markets.
Consequently, the risks associated with international operations could have a
material adverse effect on the Company's business, financial condition and
results of operations.
RISKS INHERENT IN INTERNATIONAL OPERATIONS. There are various risks
inherent in international operations, including: management of geographically
dispersed operations; longer accounts receivable payment cycles; the ability to
establish relationships with government-owned or subsidized telecommunications
providers; general economic conditions in each country; currency exchange rate
fluctuations; seasonal reductions in business activity particular to certain
markets; loss of revenues, property and equipment from expropriation,
nationalization, war, insurrection, terrorism and other political risks; the
overlap of different tax structures; and involuntary renegotiation of contracts
with foreign governments and telecommunications carriers. International
expansion of the Company's business will require significant management
attention and financial resources. Traditionally, international operations are
characterized by higher operating expenses, largely resulting from the
establishment of international offices, the hiring of additional personnel, the
localization and marketing of products for particular international markets, and
the development
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<PAGE> 12
of relationships with international service providers. Moreover, in order to
further expand internationally, the Company may be required to establish
relationships with additional distributors and third-party integrators. There
can be no assurance that the Company will effectively establish such
relationships. If international revenues are not adequate to offset the
additional expense of expanding international operations, the Company's
business, financial condition and results of operations could be materially
adversely affected.
During the last six months of 1997 and continuing into 1998, the
Asia/Pacific region has experienced unstable local economies and significant
devaluations in local currencies. These instabilities may continue or worsen,
which could have a material adverse effect on the Company's financial condition
and results of operations as approximately 17% of the Company's sales in 1997
were derived from customers located in this region.
FOREIGN TAX CONSIDERATIONS. The Company or its subsidiaries generally will
be subject to various taxes in foreign countries where the Company operates. The
Company's ability to claim a foreign tax credit against its U.S. federal income
taxes is subject to a number of limitations, which could result in an effective
tax rate on the Company's earnings higher than which may have been experienced
without international operations.
TECHNOLOGY EXPORT CONSIDERATIONS. The Company relies heavily on equipment
incorporating technology that is developed primarily, or in some cases
exclusively, in the U.S. The Company's current international expansion plans are
dependent upon using this U.S.-developed technology in foreign countries. Export
of technology from the U.S. or import into a foreign country may be prohibited
or may be subject to duties or other charges of possibly punitive scale, delays
from customs brokers or government agencies, and regulatory or similar issues.
Problems with technology export could have a material adverse effect on the
Company's business, financial condition and results of operations.
CURRENCY EXCHANGE RATE FLUCTUATIONS. Through June 30, 1998, international
sales have been denominated solely in U.S. dollars, and accordingly the Company
has not been exposed to fluctuations in non-U.S. currency exchange rates.
However, Inet expects that in future periods an increasing portion of
international sales may be denominated in currencies other than U.S. dollars,
thereby exposing the Company to gains and losses on non-U.S. currency
transactions. The Company may choose to limit such exposure by entering into
various hedging strategies. There can be no assurance that any such hedging
strategies undertaken by Inet would be successful in avoiding exchange-related
losses.
There can be no assurance that laws or administrative practices relating to
taxation, foreign exchange or other matters of countries in which the Company
operates or will operate will not change. Any such change could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
DEPENDENCE ON SOLE AND LIMITED SOURCE SUPPLIERS; DEPENDENCE ON SUBCONTRACTORS
AND LICENSED TECHNOLOGY
Certain components used in the Company's GeoProbe and Spectra products are
available from only a single supplier or a limited number of sources. At
present, the Company's products utilize certain semiconductors that are
available from only one manufacturer and other components that are available
from a limited number of suppliers. While alternative suppliers have been
identified for certain key components, those alternative sources have not been
qualified by the Company. The Company's qualification process could be lengthy,
and there can be no assurance that additional sources would become available to
the Company on a timely basis, or if such sources were to become available, that
the components would be comparable in price and quality to the Company's current
components. The Company has no long-term agreements with its suppliers and
generally makes its purchases with purchase orders on an "as-needed basis".
Furthermore, certain
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<PAGE> 13
components require an order lead-time of approximately six months. Other
components that currently are readily available may become difficult to obtain
in the future. Accordingly, the Company makes advance purchases of certain
components in relatively large quantities to ensure that it has an adequate and
readily available supply. The Company's failure to order sufficient quantities
of these components sufficiently in advance of product delivery deadlines could
prevent the Company from adequately responding to unanticipated increases in
customer orders. In the past, the Company has experienced delays in the receipt
of certain of its key components, which have resulted in delays in product
deliveries. There can be no assurance that deliveries of key components and
parts will occur in a timely manner in the future. The inability to obtain
sufficient key components as required or to develop alternative sources if and
as required in the future could result in delays or reductions in product
shipments or increases in product costs, which in turn could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company relies exclusively upon third-party subcontractors to
manufacture its subassemblies. The Company has also retained, from time to time,
third-party design services in the development of application-specific
integrated circuits. The Company's reliance on third-party subcontractors
involves a number of risks, including the potential absence of adequate
capacity, the unavailability of or interruption in access to certain process
technologies, and reduced control over product quality, delivery schedules,
manufacturing yields and costs. Shortages of raw materials or production
capacity constraints experienced by the Company's subcontractors could
negatively affect the Company's ability to meet its production obligations and
result in increased prices for affected parts. Any disruption in the Company's
relationships with third-party subcontractors and the Company's inability to
develop alternative sources if and as required in the future could result in
delays or reductions in product shipments or increases in product costs, which
in turn could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Manufacturing".
The Company relies upon certain software that it licenses from third
parties, including software that is integrated with the Company's internally
developed software and used in its products to perform key functions. There can
be no assurance that these third-party software licenses will continue to be
available to the Company on commercially reasonable terms. The inability to
maintain any such software licenses could result in shipment delays or
reductions until equivalent software could be developed or licensed and
integrated into the Company's products, which could materially adversely affect
the Company's business, financial condition and results of operations. See
"Business -- Proprietary Rights".
POTENTIAL ACQUISITIONS
The Company may in the future pursue acquisitions of businesses, products
and technologies, or the establishment of joint venture arrangements, that could
complement or expand the Company's business. The negotiation of potential
acquisitions or joint ventures as well as the integration of an acquired or
jointly developed business, technology or product could cause diversion of
management's time and resources. Future acquisitions by the Company could result
in potentially dilutive issuances of equity securities, the incurrence of debt
and contingent liabilities, amortization of goodwill and other intangibles,
research and development write-offs and other acquisition-related expenses.
Further, no assurance can be given that any acquired business or joint venture
will be successfully integrated with the Company's operations. If any such
acquisition or joint venture were to occur, there can be no assurance that the
Company will receive the intended benefits of the acquisition or joint venture.
Future acquisitions and joint ventures, whether or not consummated, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
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<PAGE> 14
PROPRIETARY RIGHTS
The telecommunications industry is characterized by the existence of a
large number of patents and frequent allegations of patent infringement. The
Company has received, and may receive in the future, notices from holders of
patents that raise issues as to possible infringement by the Company's products.
As the number of telecommunications network management products increases and
the functionality of these products further overlaps, the Company believes that
it may become increasingly subject to allegations of infringement. To date, the
Company has engaged in correspondence with third-party holders of patents as a
result of two such notices. The Company believes that its products do not
infringe any valid patents cited in the notices received. However, questions of
infringement and the validity of patents in the field of telecommunications
signaling technologies involve highly technical and subjective analyses. There
can be no assurance that any such patent holders or others will not in the
future initiate legal proceedings against the Company or that, if any such
proceedings were initiated, the Company would be successful in defending against
such proceedings. Any such proceeding could be time consuming and expensive to
defend or resolve, result in substantial diversion of management resources,
cause product shipment delays, or force the Company to enter into royalty or
license agreements rather than dispute the merits of any such proceeding
initiated against the Company. There can be no assurance that any such royalty
or license agreements would be available on terms acceptable to the Company, if
at all. Any such claims against the Company, with or without merit, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company's continued success is dependent in part upon its proprietary
technology. To protect its proprietary technology, the Company relies on a
combination of technical innovation, trade secret, copyright and trademark laws,
non-disclosure agreements and, to a lesser extent, patents, each of which
affords only limited protection. In addition, the laws of some foreign countries
do not protect the Company's proprietary rights in the products to the same
extent as do the laws of the U.S. Moreover, although the Company holds one U.S.
patent, has additional patent applications pending and is in the process of
preparing additional patent applications for filing, there can be no assurance
that the Company will receive additional patents. Despite the measures taken by
the Company, it may be possible for a third party to copy or otherwise obtain
and use the Company's proprietary technology and information without
authorization. Policing unauthorized use of the Company's products is difficult,
and litigation may be necessary in the future to enforce the Company's
intellectual property rights. Any such litigation could be time consuming and
expensive to prosecute or resolve, result in substantial diversion of management
resources, and have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will be successful in protecting its proprietary technology or that
the Company's proprietary rights will provide a meaningful competitive advantage
to the Company. See "Business -- Proprietary Rights".
PRODUCT LIABILITY
Products as complex as those offered by the Company may contain undetected
defects or errors when first introduced or as enhancements are released that,
despite testing by the Company, are not discovered until after a product has
been installed and used by customers, which could result in delayed market
acceptance of the product or damage to the Company's reputation and business.
While the Company has on occasion released products containing defects or
errors, to date the Company's business, financial condition and results of
operations have not been materially adversely affected by products containing
defects or errors. The Company attempts to include provisions in its agreements
with customers that are designed to limit the Company's exposure to potential
liability for damages arising out of defects or errors in or the use of the
Company's products. However, the nature and extent of such limitations tend to
vary from customer to customer and it is possible that such limitations may not
be effective as a result of unfavorable judicial decisions or laws enacted in
the future. Although the Company has not experienced any
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<PAGE> 15
product liability suits to date, the sale and support of the Company's products
entails the risk of such claims. The Company's defense against such suits in the
future, regardless of their merit, could result in substantial expense to the
Company, diversion of management time and attention, and damage to the Company's
business reputation and its ability to retain existing customers or attract new
customers. Any successful product liability claim brought against the Company
could materially adversely affect the Company's business, financial condition
and results of operations, particularly given that the Company's products are
frequently used by customers in business critical applications. See "-- Year
2000 Compliance" and "Business -- Products -- Products Under Development" and
"-- Research and Development".
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon completion of the offerings, Messrs. Simonian, Akilian and Weinzierl
will beneficially own 28.0%, 28.2% and 28.1% of the outstanding shares of Common
Stock (27.5%, 27.7% and 27.5%, respectively, if the Underwriters' over-allotment
options are exercised in full). Consequently, two or more of such individuals,
acting together, will be able to control the outcome of all matters submitted
for stockholder action, including the election of the Board of Directors of the
Company and the approval of significant corporate transactions, and will
effectively control the management and affairs of the Company, which may have
the effect of delaying or preventing a change in control of the Company. In
addition, Messrs. Simonian, Akilian and Weinzierl will constitute three of the
six members of the Board of Directors and will have significant influence in
directing the actions taken by the directors. See "Management" and "Principal
and Selling Stockholders".
YEAR 2000 COMPLIANCE
Many currently-installed computer systems and software products are coded
to accept only two-digit entries in date code fields. These date code fields
will need to accept four-digit entries to distinguish 21st century dates from
20th century dates. As a result, telecommunications equipment, computer systems
and/or software used by many companies may need to be upgraded to comply with
such "Year 2000" requirements. Significant uncertainty exists in the
telecommunications and software industries concerning the potential effects
associated with such compliance.
The Company believes that the purchasing patterns of customers and
potential customers may be significantly affected by Year 2000 issues. Many
companies are expending significant resources to correct or replace their
current software systems to achieve Year 2000 compliance. These expenditures may
result in reduced funds available to purchase products such as those offered by
the Company. Many potential customers may also defer purchasing Year 2000
compliant products until they believe it is absolutely necessary, thus resulting
in potentially deferred sales. Conversely, Year 2000 issues may cause other
companies to accelerate purchases, thereby causing an increase in short-term
demand and a consequent decrease in long-term demand for products. Additionally,
Year 2000 issues could cause a significant number of companies, including
current customers of the Company, to reevaluate their current system needs and
as a result consider switching to other systems or suppliers. These Year 2000
issues could materially adversely affect the Company's business, financial
condition and results of operations.
The products currently offered by the Company have been designed to be Year
2000 compliant, and its current contracts with customers frequently require that
the Company warrant Year 2000 compliance. The Company has in the past sold
versions of Spectra that are not Year 2000 compliant, and the Company has
developed and is offering to customers an upgrade to bring such older versions
into compliance with Year 2000 requirements. Nonetheless, there can be no
assurance that the Company's products, particularly when such products
incorporate third-party software, contain all date code changes necessary to
ensure Year 2000 compliance. Although the Company has not experienced any Year
2000-related product liability claims or lawsuits to date, the sale and support
of products that are not Year 2000 compliant entail the risk of such claims and
lawsuits. The Company's defense against any future lawsuits, regardless of their
merit, could result
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in substantial expense to the Company as well as the diversion of management
time and attention. In addition, Year 2000 product liability claims, regardless
of the merit or eventual outcome of such claims, could affect the Company's
business reputation and its ability to retain existing customers or attract new
customers which, in turn, could have a material adverse effect on the Company's
business, financial condition and results of operations. See "-- Product
Liability".
For internal software application requirements, the Company utilizes
off-the-shelf and custom software developed internally and by third parties. The
Company has reviewed its internal management information and other systems in
order to identify those products, services or systems that are not Year 2000
compatible. The total cost of these Year 2000 compliance activities is not
anticipated to be material to the Company's business, financial condition or
results of operations.
SECURITY
The Company has included security features in certain of its products that
are intended to protect the privacy and integrity of customer data. Despite the
existence of these security features, the Company's products may be vulnerable
to breaches in security due to defects in the security mechanisms, as well as
vulnerabilities inherent in the operating system or hardware platform on which
the product runs, and/or the networks linked to that platform. Security
vulnerabilities, regardless of origin, could jeopardize the security of
information stored in and transmitted through the computer systems of the
Company's customers. Solving any security problems may require significant
capital expenditures and adversely affect the Company's reputation and product
acceptance which, in turn, could have a material adverse effect on the Company's
business, financial condition and results of operations. See "-- Product
Liability".
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of discouraging, delaying or preventing a change in control
of the Company or unsolicited acquisition proposals that a stockholder may
consider favorable, including provisions: authorizing the issuance of "blank
check" preferred stock; providing for a classified Board of Directors with
staggered, three-year terms; prohibiting cumulative voting in the election of
directors; requiring super-majority voting to effect certain amendments to the
Certificate of Incorporation and Bylaws; limiting the persons who may call
special meetings of stockholders; prohibiting stockholder action by written
consent; and establishing advance notice requirements for nominations for
election to the Board of Directors or for proposing matters that can be acted
upon at stockholders meetings. Certain provisions of Delaware law and the
Company's stock incentive plans may also have the effect of discouraging,
delaying or preventing a change in control of the Company or unsolicited
acquisition proposals. See "Management -- 1998 Stock Option/Stock Issuance Plan"
and "Description of Capital Stock -- Certain Anti-Takeover, Limited Liability
and Indemnification Provisions".
NO PRIOR PUBLIC MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF SHARE PRICE
Prior to the offerings, there has been no public market for the Common
Stock and there can be no assurance that an active trading market will develop
or be sustained after the offerings. The initial public offering price for the
Common Stock will be determined by negotiations among the Company, the Selling
Stockholders and the representatives of the Underwriters, and may not be
representative of the price that will prevail in the open market. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
Factors that may cause the market price of the Common Stock to fluctuate
significantly after the offerings include variations in the Company's results of
operations; future sales of additional shares of Common Stock; the announcement
of technological innovations or new products by the Company, its competitors and
others; market analysts' estimates of the Company's performance;
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and general market conditions. The public markets have experienced volatility
that has particularly affected the market prices of securities of many
technology companies for reasons that have often been unrelated to operating
results. Such volatility may adversely affect the market price of the Common
Stock and the Company's visibility and credibility in its markets.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock after the offerings
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through the sale of equity securities. Upon
completion of the offerings, the Company will have outstanding 44,722,450 shares
of Common Stock (45,584,950 shares if the Underwriters' over-allotment options
are exercised in full), assuming no exercise of options after June 30, 1998. Of
these shares, the 5,750,000 shares offered hereby (6,612,500 shares if the
Underwriters' over-allotment options are exercised in full) will be freely
tradable without restriction or further registration under the Securities Act of
1933, as amended (the "Securities Act"), unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act ("Rule
144"). The remaining 38,972,450 shares of Common Stock outstanding upon
completion of the offerings will be "restricted securities" as that term is
defined in Rule 144.
Upon the expiration of lock-up agreements between the Company's
stockholders and the Underwriters (the "Lock-Up Agreements"), beginning 180 days
after the date of this Prospectus, 37,871,500 shares held by certain
stockholders of the Company will become eligible for sale pursuant to the
volume, manner of sale and notice requirements of Rule 144 and 1,191,950 shares
held by certain other stockholders of the Company will become eligible for sale
without regard to the volume limitations and manner of sale and notice
requirements of Rule 144. In addition, as of June 30, 1998, there were
outstanding options to purchase an aggregate of 1,991,000 shares of Common
Stock. Pursuant to the lock-up provisions set forth in the stock option
agreements used under the Company's 1995 Employee Stock Option Plan, 1,097,000
shares underlying such options will become eligible for sale pursuant to Rule
701 under the Securities Act ("Rule 701") beginning 180 days after the date of
this Prospectus, and the remaining 894,000 shares underlying such options will
become eligible for sale pursuant to Rule 701 more than 180 days after the date
of this Prospectus as such options vest. See "Shares Eligible for Future Sale".
IMMEDIATE SUBSTANTIAL DILUTION
The initial public offering price will be substantially higher than the
book value per share of the outstanding Common Stock. As a result, purchasers of
Common Stock in the offerings will incur immediate, substantial dilution. In
addition, the Company has issued options to acquire Common Stock at prices
substantially below the initial public offering price. To the extent such
options are exercised, there will be further dilution. See "Dilution".
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USE OF PROCEEDS
Based on an assumed initial public offering price of $16.00 per share, the
Company will receive approximately $56.4 million from the sale of shares of
Common Stock to be sold by the Company pursuant to the offerings (approximately
$69.3 million if the Underwriters' over-allotment options are exercised in full)
after deducting the estimated underwriting discount and estimated offering
expenses payable by the Company.
The principal purposes of the offerings are to increase the Company's
equity capital, to create a public market for the Common Stock, to facilitate
future access by the Company to public equity markets, to provide liquidity for
certain of the Company's existing stockholders and to provide increased
visibility of the Company in a marketplace where many of its competitors are
publicly held companies.
The Company currently intends to use the net proceeds of the offerings for
working capital and general corporate purposes, including financing accounts
receivable and capital expenditures made in the ordinary course of its business.
The Company may also apply a portion of the proceeds of the offerings to acquire
businesses, products and technologies, or enter into joint venture arrangements,
that are complementary to the Company's business and product offerings. Although
the Company has not identified any specific businesses, products, technologies
or joint ventures that it may acquire or enter into, nor are there any current
agreements or negotiations with respect to any such transactions, the Company
from time to time evaluates such opportunities. Pending such uses, the net
proceeds will be invested in government securities and other short-term,
investment-grade, interest-bearing instruments. The Company will not receive any
proceeds from the sale of Common Stock by the Selling Stockholders.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital
stock since 1993 and does not intend to pay any cash dividends on its Common
Stock in the foreseeable future. Future dividends, if any, will be determined by
the Board of Directors. The Company's revolving credit facility restricts the
payment of cash dividends without the bank's consent.
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DILUTION
The net tangible book value of the Company at June 30, 1998 was $36.9
million, or $0.90 per share of Common Stock. Net tangible book value represents
the amount of total tangible assets of the Company reduced by the amount of its
total liabilities. After giving effect to the Company's sale of 3,841,870 shares
of Common Stock in the offerings at an assumed initial public offering price of
$16.00 per share (assuming no exercise of the Underwriters' over-allotment
options and after deducting the estimated underwriting discount and estimated
offering expenses payable by the Company), the Company's pro forma net tangible
book value at June 30, 1998 would have been $93.3 million, or $2.09 per share of
Common Stock. This represents an immediate increase in net tangible book value
of $1.19 per share to the Company's existing stockholders and an immediate
dilution in net tangible book value of $13.91 per share to new investors
purchasing shares of Common Stock in the offerings. The following table
illustrates the per share dilution in net tangible book value to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $16.00
Net tangible book value per share as of June 30, 1998..... $ 0.90
Increase per share attributable to new investors.......... 1.19
------
Pro forma net tangible book value per share after the
offerings................................................. 2.09
------
Dilution per share to new investors in the offerings........ $13.91
======
</TABLE>
The following table sets forth, as of June 30, 1998, the differences in the
number of shares purchased, consideration paid and the average price per share
paid to the Company by existing stockholders and by investors purchasing shares
of Common Stock in the offerings at an assumed initial public offering price of
$16.00 (assuming no exercise of the Underwriters' over-allotment options and
before deducting the estimated underwriting discount and estimated offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 40,880,580 91.4% $ 37,000 0.1% *(2)
New investors(1)........... 3,841,870 8.6 61,469,920 99.9 $16.00
---------- ----- ----------- -----
Total............ 44,722,450 100.0% $61,506,920 100.0%
========== ===== =========== =====
</TABLE>
- ---------------
(1) The net effect of sales by the Selling Stockholders in the offerings will be
to reduce the number of shares held by existing stockholders to 38,972,450
or 87.1% of the total number of shares of Common Stock outstanding after the
offerings, and to increase the number of shares held by new investors to
5,750,000 or 12.9% of the total number of shares of Common Stock outstanding
after the offerings.
(2) Less than $0.01 per share.
The preceding table assumes no exercise of any stock options outstanding as
of June 30, 1998. As of June 30, 1998, there were outstanding stock options to
purchase a total of 1,991,000 shares of Common Stock, with exercise prices
ranging from $0.60 to $4.20 per share and with a weighted-average exercise price
of $1.66 per share. To the extent these options are exercised, new investors
will experience further dilution. See "Management -- 1998 Stock Option/Stock
Issuance Plan" and Note 6 of Notes to Consolidated Financial Statements.
17
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998, and such capitalization as adjusted to reflect the sale by the Company
of 3,841,870 shares of Common Stock in the offerings at an assumed initial
public offering price of $16.00 per share. See "Use of Proceeds".
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Preferred Stock, $0.001 par value, no shares authorized;
and 25,000,000 shares authorized and none issued....... $ -- $ --
Common Stock, $0.001 par value, 175,000,000 shares
authorized; 40,919,422 shares issued; and 44,722,450
shares issued, as adjusted(1).......................... 41 45
Additional paid-in capital................................ 648 56,854
Treasury stock, at cost (38,842 shares)................... (217) --
Retained earnings......................................... 36,380 36,380
------- -------
Total stockholders' equity............................. 36,852 93,279
------- -------
Total capitalization................................... $36,852 $93,279
======= =======
</TABLE>
- ---------------
(1) Excludes 1,991,000 shares of Common Stock issuable upon exercise of options
outstanding as of June 30, 1998, with exercise prices ranging from $0.60 to
$4.20 per share and with a weighted-average exercise price of $1.66 per
share. See "Management -- 1998 Stock Option/ Stock Issuance Plan" and Note 6
of Notes to Consolidated Financial Statements.
18
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", the Consolidated Financial Statements and the Notes
thereto and the other financial information included elsewhere in this
Prospectus. The statements of income data for the years ended December 31, 1995,
1996 and 1997 and the balance sheet data at December 31, 1996 and 1997 are
derived from the Consolidated Financial Statements included elsewhere in this
Prospectus which have been audited and reported on by Ernst & Young LLP,
independent auditors. The statements of income data for the years ended December
31, 1993 and 1994 and the balance sheet data at December 31, 1993, 1994 and 1995
are derived from financial statements not included herein which have been
audited and reported on by Ernst & Young LLP, independent auditors. The
statements of income data for the six months ended June 30, 1997 and 1998 and
the balance sheet data as of June 30, 1998 have been derived from unaudited
interim consolidated financial statements. The unaudited interim consolidated
financial statements reflect all adjustments (consisting only of normal
recurring entries) which, in the opinion of the Company's management, are
necessary for a fair presentation of the results for the interim periods
presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues.................................... $12,036 $12,247 $17,531 $42,041 $57,701 $25,090 $34,165
Cost of revenues............................ 3,172 2,358 4,305 11,138 12,579 5,196 7,693
------- ------- ------- ------- ------- ------- -------
Gross profit.............................. 8,864 9,889 13,226 30,903 45,122 19,894 26,472
Operating expenses:
Sales and marketing....................... 446 1,588 2,699 5,566 7,069 4,015 3,563
General and administrative................ 3,452 3,899 4,323 7,530 14,181 6,045 9,084
Research and development.................. 1,418 2,697 3,965 4,519 4,776 2,284 3,032
------- ------- ------- ------- ------- ------- -------
Total operating expenses............ 5,316 8,184 10,987 17,615 26,026 12,344 15,679
------- ------- ------- ------- ------- ------- -------
Income from operations...................... 3,548 1,705 2,239 13,288 19,096 7,550 10,793
Other income (expense):
Interest income........................... 46 24 75 20 147 49 322
Interest expense.......................... (15) (10) (6) (42) (123) (44) --
Other..................................... (14) (17) (5) (6) (8) 2 --
------- ------- ------- ------- ------- ------- -------
Income before provision for income taxes.... 3,565 1,702 2,303 13,260 19,112 7,557 11,115
Provision for income taxes.................. 1,235 468 644 4,324 6,398 2,530 3,867
------- ------- ------- ------- ------- ------- -------
Net income.................................. $ 2,330 $ 1,234 $ 1,659 $ 8,936 $12,714 $ 5,027 $ 7,248
======= ======= ======= ======= ======= ======= =======
Basic net income per share.................. $ 0.06 $ 0.03 $ 0.04 $ 0.22 $ 0.31 $ 0.12 $ 0.18
Diluted net income per share................ $ 0.06 $ 0.03 $ 0.04 $ 0.22 $ 0.30 $ 0.12 $ 0.17
Shares used in computing basic net income
per share(1).............................. 39,600 39,600 39,600 40,998 41,244 41,237 41,256
Shares used in computing diluted net income
per share(1).............................. 39,600 39,600 41,207 41,451 42,110 41,767 42,665
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
------ ------ ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 243 $ 166 $ 181 $ 742 $ 3,386 $20,482
Working capital........................................ 3,746 4,569 6,130 15,101 24,290 30,679
Total assets........................................... 5,472 7,551 18,641 27,105 38,308 49,183
Stockholders' equity................................... 4,737 5,971 7,629 16,614 29,386 36,852
</TABLE>
- ---------------
(1) See Note 9 of Notes to Consolidated Financial Statements for the
determination of shares used in computing basic and diluted net income per
share.
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus. This discussion contains forward-looking statements that are
subject to business and economic risks and uncertainties. All statements, trends
and other information contained in this Prospectus relative to markets for the
Company's products and trends in revenue, gross margin and anticipated expense
levels, as well as other statements, including such words as "anticipate",
"believe", "plan", "estimate", "expect", "intend", "may" and "should" and other
similar expressions, constitute forward-looking statements. The Company's actual
results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, those
set forth under "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
Inet was founded in 1989, and during the early stages of its operations it
focused primarily on developing and selling diagnostic tools that addressed a
predecessor to the SS7 signaling protocol. As the telecommunications industry
increasingly adopted SS7, the Company shifted its focus to developing and
deploying SS7-based solutions as well as broadening its product offerings.
Spectra was first introduced in December 1990 and is currently in its ninth
generation release. Beginning in 1993, the Company focused a significant portion
of its product development efforts on developing a complete monitoring and
surveillance solution for SS7 networks, culminating in the introduction of
GeoProbe in late 1995. The Company continues to focus significant resources on
the development of enhancements to Spectra and enhancements and add-on
applications to GeoProbe.
Historically, the Company has generated substantially all of its revenues
from Spectra and GeoProbe. Revenues attributable to Spectra represented a
majority of total revenues in 1997. Revenues attributable to GeoProbe
represented a majority of total revenues in the six months ended June 30, 1998.
Although Inet expects Spectra revenues to continue to represent a significant
portion of total revenues for the foreseeable future, Spectra sales are expected
to continue to decline as a percentage of total revenues as a result of
increasing sales of GeoProbe. The remaining revenues are derived from sales of
other products and training, warranty and support services related to the
Company's products.
Revenues from GeoProbe sales are recognized when the system has been
delivered to the customer and installed at the customer's premises. Unbilled
receivables represent GeoProbe revenues recognized but not billable pursuant to
the individual contract until formal customer acceptance. Formal customer
acceptance generally has been received within 60 days of installation. Revenues
from sales of Spectra and other products are recognized upon shipment.
During the last three years, a substantial and increasing portion of the
Company's total revenues were derived from customers located outside of the
U.S., and Inet believes that continued growth and profitability will require
expansion of its sales in international markets. The Company currently maintains
a product support facility and a sales support facility outside London, England
and a product development facility in the Republic of Armenia, and expects to
establish additional international sales and other offices in the future.
Through June 30, 1998, international sales have been denominated solely in U.S.
dollars, and accordingly the Company has not been exposed to fluctuations in
non-U.S. currency exchange rates. However, Inet expects that in future periods
an increasing portion of international sales may be denominated in currencies
other than U.S. dollars, thereby exposing the Company to gains and losses on
non-U.S. currency transactions. The Company may choose to limit such exposure by
entering into various hedging strategies. There can be no assurance that any
such hedging strategies undertaken by Inet would be successful in
20
<PAGE> 23
avoiding exchange rate-related losses. For a discussion of a number of other
risks associated with international operations, see "Risk
Factors -- International Operations".
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of total revenues represented by certain items reflected in the Company's
consolidated statements of income:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ -------------
1995 1996 1997 1997 1998
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
PERCENTAGE OF TOTAL REVENUES:
Revenues............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................................... 24.6 26.5 21.8 20.7 22.5
----- ----- ----- ----- -----
Gross profit...................................... 75.4 73.5 78.2 79.3 77.5
----- ----- ----- ----- -----
Operating expenses:
Sales and marketing............................... 15.4 13.2 12.2 16.0 10.4
General and administrative........................ 24.6 17.9 24.6 24.1 26.6
Research and development.......................... 22.6 10.8 8.3 9.1 8.9
----- ----- ----- ----- -----
Total operating expenses.................. 62.6 41.9 45.1 49.2 45.9
----- ----- ----- ----- -----
Income from operations.............................. 12.8 31.6 33.1 30.1 31.6
Other income (expense).............................. 0.3 (0.1) 0.0 0.0 0.9
----- ----- ----- ----- -----
Income before provision for income taxes............ 13.1 31.5 33.1 30.1 32.5
Provision for income taxes.......................... 3.6 10.2 11.1 10.1 11.3
----- ----- ----- ----- -----
Net income.......................................... 9.5% 21.3% 22.0% 20.0% 21.2%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 AND 1998
REVENUES
The Company's revenues increased 36.2% from $25.1 million in the six months
ended June 30, 1997 to $34.2 million in the six months ended June 30, 1998,
primarily due to increased sales of GeoProbe. International revenues increased
in absolute dollars from $13.8 million in the six months ended June 30, 1997 to
$16.9 million in the six months ended June 30, 1998, but decreased from 55.0% of
total revenues in the 1997 period to 49.5% of total revenues in the 1998 period.
COST OF REVENUES
Cost of revenues consists primarily of hardware expenses related to the
manufacturing of GeoProbe and Spectra. Cost of revenues increased 48.1% from
$5.2 million in the six months ended June 30, 1997 to $7.7 million in the six
months ended June 30, 1998. Cost of revenues represented 20.7% and 22.5% of
total revenues in the six months ended June 30, 1997 and 1998, respectively. The
increase in cost of revenues in absolute dollars primarily resulted from
increased costs directly associated with an increase in the number of GeoProbe
and Spectra units sold. The Company believes that for at least the remainder of
1998, cost of revenues should not vary significantly as a percentage of total
revenues from the level experienced in the six months ended June 30, 1998.
OPERATING EXPENSES
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of personnel, travel and facilities expenses related to sales and
marketing, distributor commissions and expenses of trade shows and advertising.
Such expenses decreased 11.3% from $4.0 million in the six months ended June 30,
1997 to $3.6 million in the six months ended June 30, 1998. The decrease in
21
<PAGE> 24
absolute dollars was primarily related to reduced trade show activities and
reduced commissions paid to distributors. Sales and marketing expenses as a
percentage of total revenues were 16.0% and 10.4% in the six months ended June
30, 1997 and 1998, respectively. The decrease as a percentage of total revenues
during the 1998 period was primarily due to relatively higher growth in total
revenues in combination with decreased trade show activities and reduced
commissions paid to distributors. The Company believes that sales and marketing
expenses will increase, both in absolute dollars and, for at least the remainder
of 1998, as a percentage of total revenues from the levels experienced in the
six months ended June 30, 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of personnel, facilities and other costs of the finance,
administrative and executive departments of the Company as well as fees and
expenses associated with legal and accounting requirements. Such expenses
increased 50.3% from $6.0 million in the six months ended June 30, 1997 to $9.1
million in the six months ended June 30, 1998. The increase in absolute dollars
was primarily related to increased staffing and related costs associated with
the growth of the Company's business during the 1998 period, as well as
increased depreciation expense associated with a new management information
system. General and administrative expenses as a percentage of total revenues
were 24.1% and 26.6% in the six months ended June 30, 1997 and 1998,
respectively. The Company anticipates that general and administrative expenses
will continue to increase in absolute dollars for the foreseeable future as the
Company accommodates its growth, adds related infrastructure and incurs expenses
related to being a public company.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses have
historically consisted primarily of salaries and other compensation expenses
associated with the Company's research and development activities. Such expenses
increased 32.7% from $2.3 million in the six months ended June 30, 1997 to $3.0
million in the six months ended June 30, 1998, representing 9.1% and 8.9% of
total revenues, respectively. The increase in absolute dollars was primarily due
to increased staffing and related personnel costs associated with the Company's
research and development efforts. The Company expects that research and
development expenses in future periods will increase in absolute dollars as
these investments are crucial to the Company's ability to evolve its
technologies and expand its product offerings to meet its customers' needs.
In accordance with Statement of Financial Accounting Standards No. 86,
software development costs are expensed as incurred until technological
feasibility has been established, at which time subsequent costs are capitalized
until the product is available for general release to customers. To date, either
the establishment of technological feasibility of the Company's products and
their general release have substantially coincided or costs incurred subsequent
to the achievement of technological feasibility have not been material. As a
result, software development costs qualifying for capitalization have been
insignificant, and the Company has not capitalized any software development
costs.
OTHER INCOME (EXPENSE)
Other income (expense) increased from $7,000 in the six months ended June
30, 1997 to $322,000 in the six months ended June 30, 1998. The increase
resulted from increased interest earned on higher balances of cash and cash
equivalents resulting from increased cash flow from operations and decreased
interest expense due to the repayment of substantially all of the Company's
indebtedness in November 1997.
PROVISION FOR INCOME TAXES
The Company recorded income tax expense of $2.5 million and $3.9 million in
the six months ended June 30, 1997 and 1998, respectively. The Company's
effective income tax rates were 33.5% and 34.8% in the six months ended June 30,
1997 and 1998, respectively. The increase in the
22
<PAGE> 25
Company's effective tax rate is due to growth in the Company's net income and a
higher percentage of revenues from domestic sources in the six months ended June
30, 1998.
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
REVENUES
Total revenues increased 139.8% from $17.5 million in 1995 to $42.0 million
in 1996, and increased an additional 37.2% from 1996 to $57.7 million in 1997.
The increase from 1995 to 1996 was primarily due to revenues attributable to
GeoProbe, which were first recognized in 1996. The increase from 1996 to 1997
was primarily due to increased unit sales of both GeoProbe and Spectra. Revenues
from other sources collectively accounted for less than 5% of total revenues in
1996 and 1997. International revenues represented 32.3%, 49.4% and 52.6% of
total revenues in 1995, 1996 and 1997, respectively.
COST OF REVENUES
Cost of revenues increased 158.7% from $4.3 million in 1995 to $11.1
million in 1996, and increased an additional 12.9% from 1996 to $12.6 million in
1997. Cost of revenues represented 24.6%, 26.5% and 21.8% of total revenues in
1995, 1996 and 1997, respectively. The increase both in absolute dollars and as
a percentage of total revenues during 1996 primarily resulted from additional
start-up manufacturing, materials and integration expenses associated with the
initial release of GeoProbe. The decrease as a percentage of total revenues
during 1997 primarily resulted from the absence of such start-up expenses as
well as a decrease in the cost of semiconductor memory chips. There can be no
assurance that additional expenses associated with the initial release of other
new products will not be incurred in the future. New product offerings or
changes in the Company's product mix can affect the cost of revenues as a
percentage of total revenues.
OPERATING EXPENSES
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 106.2%
from $2.7 million in 1995 to $5.6 million in 1996, and increased an additional
27.0% from 1996 to $7.1 million in 1997. The increase in absolute dollars in
1996 was primarily related to increased commissions paid to distributors,
increased staffing as the Company established new domestic sales offices and
increased marketing and promotional activities. The increase in absolute dollars
in 1997 was primarily related to increased staffing as the Company established
new domestic sales offices and increased marketing and promotional activities,
partly offset by reduced commissions paid to distributors. Such expenses as a
percentage of total revenues were 15.4%, 13.2% and 12.2% in 1995, 1996 and 1997,
respectively. The decreases as a percentage of total revenues during 1996 and
1997 were primarily due to relatively higher growth in total revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 74.2% from $4.3 million in 1995 to $7.5 million in 1996, and increased
an additional 88.3% to $14.2 million in 1997. The increases in absolute dollars
were primarily related to increased staffing and related costs associated with
the growth of the Company's business and, to a lesser extent in 1997, the
establishment of bad debt reserves. Such expenses as a percentage of total
revenues were 24.6%, 17.9% and 24.6% in 1995, 1996 and 1997, respectively. The
decrease as a percentage of total revenues during 1996 was primarily due to
relatively higher growth in total revenues and the Company's ability to leverage
its base of resources to support a larger organization. General and
administrative expenses increased as a percentage of total revenues during 1997
primarily due to increased staffing and related costs incurred in anticipation
of future growth and because the Company had not previously established bad debt
reserves.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 14.0% from $4.0 million in 1995 to $4.5 million in 1996, and increased
an additional 5.7% to $4.8 million in 1997. The increases in absolute dollars
were primarily due to costs associated with increased staffing dedicated to
research and development activities. Such expenses represented 22.6%,
23
<PAGE> 26
10.8% and 8.3% of total revenues during 1995, 1996 and 1997, respectively. The
decreases as a percentage of total revenues in 1996 and 1997 were primarily
attributable to increased revenues relative to research and development
expenditures.
OTHER INCOME (EXPENSE)
Other income (expense) was $64,000, ($28,000) and $16,000 in 1995, 1996 and
1997, respectively. The decrease in 1996 resulted from increased interest
expense attributable to additional indebtedness incurred to finance the growth
of the Company's business and decreased interest earned on reduced balances of
cash and cash equivalents. The increase in 1997 resulted from increased interest
earned on higher balances of cash and cash equivalents resulting from increased
cash flow from operations, partially offset by increased interest expense
attributable to additional indebtedness.
PROVISION FOR INCOME TAXES
The Company recorded income tax expense of $644,000, $4.3 million and $6.4
million in 1995, 1996 and 1997, respectively. The Company's effective income tax
rates were 28.0%, 32.6% and 33.5% in 1995, 1996 and 1997, respectively. The
effective income tax rate was higher in 1996 and 1997 than in 1995 primarily due
to higher levels of income.
SELECTED QUARTERLY FINANCIAL RESULTS
The following tables set forth unaudited consolidated statements of income
data for the ten quarters ended June 30, 1998, as well as such data expressed as
a percentage of the Company's total revenues for such periods. This data has
been derived from unaudited interim consolidated financial statements that, in
the opinion of management, have been prepared on a basis consistent with the
Consolidated Financial Statements included elsewhere herein and include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of such information when read in conjunction with the
Consolidated Financial Statements and the Notes thereto. The operating results
for any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------------
1996 1997 1998
-------------------------------------- -------------------------------------- -----------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
------- ------- -------- ------- ------- ------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $15,824 $6,349 $ 4,764 $15,104 $11,608 $13,482 $12,136 $20,475 $15,512 $18,653
Cost of revenues............ 5,556 1,306 1,289 2,987 2,580 2,616 3,345 4,039 3,645 4,048
------- ------- -------- ------- ------- ------- ------- ------- ------- -------
Gross profit............... 10,268 5,043 3,475 12,117 9,028 10,866 8,791 16,436 11,867 14,605
------- ------- -------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing........ 640 989 1,183 2,754 2,109 1,906 1,718 1,336 1,544 2,019
General and
administrative........... 1,866 1,654 1,632 2,377 2,951 3,094 3,480 4,655 4,718 4,366
Research and development... 1,202 1,115 1,141 1,062 1,155 1,129 1,293 1,199 1,156 1,876
------- ------- -------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 3,708 3,758 3,956 6,193 6,215 6,129 6,491 7,190 7,418 8,261
------- ------- -------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations................. 6,560 1,285 (481) 5,924 2,813 4,737 2,300 9,246 4,449 6,344
Interest income............. 6 6 6 2 31 18 43 55 125 197
Interest expense............ (4) (12) (20) (6) (18) (26) (68) (12) -- --
Other income (expense)...... -- (3) -- (3) 3 (1) -- (9) -- --
------- ------- -------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
provision for income
taxes...................... 6,562 1,276 (495) 5,917 2,829 4,728 2,275 9,280 4,574 6,541
Provision (benefit) for
income taxes............... 2,140 416 (162) 1,930 947 1,583 762 3,106 1,537 2,330
------- ------- -------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)........... $ 4,422 $ 860 $ (333) $ 3,987 $ 1,882 $3,145 $ 1,513 $ 6,174 $ 3,037 $ 4,211
======= ======= ======== ======= ======= ======= ======= ======= ======= =======
Basic net income per
share...................... $ 0.11 $ 0.02 $ (0.01) $ 0.10 $ 0.05 $ 0.08 $ 0.04 $ 0.15 $ 0.07 $ 0.10
Diluted net income per
share...................... $ 0.11 $ 0.02 $ (0.01) $ 0.10 $ 0.05 $ 0.08 $ 0.04 $ 0.15 $ 0.07 $ 0.10
Shares used in computing
basic net income per
share(1)................... 40,391 41,200 41,200 41,200 41,224 41,250 41,250 41,250 41,250 41,263
Shares used in computing
diluted net income per
share(1)................... 41,197 41,200 41,200 41,746 41,756 41,778 42,415 42,491 42,664 42,665
</TABLE>
- ---------------
(1) See Note 9 of Notes to Consolidated Financial Statements for the
determination of shares used in computing basic and diluted net income per
share.
24
<PAGE> 27
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------------
1996 1997 1998
-------------------------------------- -------------------------------------- -----------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
------- ------- -------- ------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF TOTAL
REVENUES:
Revenues.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............ 35.1 20.6 27.1 19.8 22.2 19.4 27.6 19.7 23.5 21.7
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit............... 64.9 79.4 72.9 80.2 77.8 80.6 72.4 80.3 76.5 78.3
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Sales and marketing........ 4.0 15.6 24.8 18.2 18.2 14.1 14.1 6.5 9.9 10.8
General and
administrative........... 11.8 26.0 34.2 15.8 25.4 23.0 28.6 22.7 30.4 23.4
Research and development... 7.6 17.6 24.0 7.0 10.0 8.4 10.7 5.9 7.5 10.1
Total operating
expenses............ 23.4 59.2 83.0 41.0 53.6 45.5 53.4 35.1 47.8 44.3
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations................. 41.5 20.2 (10.1) 39.2 24.2 35.1 19.0 45.2 28.7 34.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Interest income............. 0.0 0.1 0.1 0.0 0.3 0.2 0.4 0.2 0.8 1.1
Interest expense............ (0.0) (0.2) (0.4) (0.0) (0.1) (0.2) (0.6) (0.1) (0.0) 0.0
Other income (expense)...... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
provision for income
taxes...................... 41.5 20.1 (10.4) 39.2 24.4 35.1 18.8 45.3 29.5 35.1
Provision (benefit) for
income taxes............... 13.6 6.6 (3.4) 12.8 8.2 11.8 6.3 15.1 9.9 12.5
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)........... 27.9% 13.5% (7.0)% 26.4% 16.2% 23.3% 12.5% 30.2% 19.6% 22.6%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The Company's operating results historically have been influenced by
certain seasonal fluctuations, with revenues from Spectra tending to be
strongest in the fourth quarter of each year. The Company believes that this
seasonality has been due to the capital appropriation practices of many of its
customers. Notwithstanding this historical seasonality, the levels of revenues
and net income achieved during the quarter ended March 31, 1996 were
disproportionately high relative to the levels of revenues and net income
achieved during any other quarter of 1996 primarily due to the initial release
of GeoProbe.
Except for the quarter ended March 31, 1996, cost of revenues fluctuated
between 19.4% and 27.6% of total revenues during the ten quarters ended June 30,
1998. Such costs were 35.1% of total revenues in the quarter ended March 31,
1996 primarily due to additional start-up manufacturing, materials and
integration expenses associated with the initial release of GeoProbe.
Sales and marketing expenses generally decreased as a percentage of total
revenues during each quarter of 1997 primarily due to decreased sales through
indirect sales channels, which typically require the payment of higher
commissions than sales through the Company's direct sales organization. Sales
through indirect sales channels may increase in future periods.
General and administrative expenses increased in absolute dollars during
each quarter from the quarter ended September 30, 1996 through the quarter ended
March 31, 1998. General and administrative expenses fluctuated between 11.8% and
34.2% of total revenues during the ten quarters ended June 30, 1998. The growth
of general and administrative expenses in absolute dollars has been primarily
due to increases in personnel and related costs required to support the growth
of the Company. Such expenses have fluctuated as a percentage of total revenues
primarily due to variability in total revenues and because certain of such
expenses were incurred in anticipation of future revenues.
Research and development expenses in absolute dollars remained relatively
flat during the nine quarters preceding the quarter ended June 30, 1998, during
which quarter research and development spending increased. However, such
expenses fluctuated between 5.9% and 24.0% of total revenues during those
periods primarily due to variability in total revenues. The Company expects that
research and development expenses in future periods will increase as a
percentage of total revenues as these investments are crucial to the Company's
ability to evolve its technologies and expand its product offerings to meet its
customers' needs.
Other than during the quarter ended September 30, 1996, income from
operations fluctuated between 19.0% and 45.2% of total revenues during the ten
quarters ended June 30, 1998. During the quarter ended September 30, 1996, loss
from operations represented 10.1% of total revenues
25
<PAGE> 28
primarily due to lower revenues. A large portion of the Company's operating
expenses, including rent, salaries and capital lease expenses, are set based
upon expected future revenues. Accordingly, if revenues are below expectations,
operating results are likely to be adversely and disproportionately affected
because such operating expenses are not variable in the short term, and cannot
be quickly reduced to respond to anticipated decreases in revenues.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has funded its operations and met its
capital expenditure requirements primarily through cash flows from operations
and bank borrowings. The Company had working capital of $30.7 million at June
30, 1998, compared with $24.3 million at December 31, 1997. At June 30, 1998,
the Company had $20.5 million in cash and cash equivalents, an increase of $17.1
million from $3.4 million in cash and cash equivalents at December 31, 1997.
The Company currently maintains a $10.0 million revolving credit facility
with a commercial bank that expires in June 2000. Up to $5.0 million of the
credit facility may be used to issue letters of credit. At the Company's option,
borrowings under the credit facility bear interest at either (i) the bank's
prime rate less up to 0.50% or (ii) the London interbank offered rate (LIBOR),
as adjusted to meet specified Federal Reserve requirements with respect to
Eurocurrency liabilities, plus up to 1.50%. The credit facility is secured by
all of the Company's accounts receivable, inventories, property, equipment and
investments and contains customary restrictive covenants, including covenants
requiring the Company to maintain certain financial ratios and restricts the
payment of cash dividends without the bank's consent, and requires the payment
of a commitment fee equal to 0.125% of the unused portion of the facility. At
June 30, 1998, no amounts were outstanding under the credit facility, and the
amount available to the Company, after considering outstanding letters of
credit, was $9.4 million.
Cash provided by operating activities was $759,000, $1.8 million and $7.7
million in 1995, 1996 and 1997, respectively, and $1.0 million and $19.2 million
in the six months ended June 30, 1997 and 1998, respectively. Operating cash
flows have increased primarily due to increased levels of income from
operations, offset in 1996 by an increase in trade accounts receivable and a
decrease in deferred revenue, and offset in 1997 by increases in trade accounts
and unbilled receivables and a decrease in accounts payable. Operating cash
flows during the six months ended June 30, 1998 increased primarily due to
increased levels of income from operations, an increase in deferred revenue and
a decrease in trade accounts and unbilled receivables. Cash used in investing
activities was primarily related to purchases of property and equipment, and
aggregated $1.0 million, $2.1 million and $3.8 million in 1995, 1996 and 1997,
respectively, and aggregated $1.5 million and $2.2 million in the six months
ended June 30, 1997 and 1998, respectively. Financing activities related
primarily to proceeds of borrowings and repayment of borrowings and provided
cash of $300,000 and $837,000 in 1995 and 1996, respectively, used cash of $1.3
million in 1997 and provided cash of $1.0 million in the six months ended June
30, 1997. At June 30, 1998, the Company did not have any material commitments
for capital expenditures.
The Company may in the future pursue acquisitions of businesses, products
or technologies, or enter into joint venture arrangements, that could complement
or expand the Company's business and product offerings. Any material acquisition
or joint venture could result in a decrease in the Company's working capital
depending on the amount, timing and nature of the consideration to be paid. See
"Risk Factors -- Potential Acquisitions".
Inet believes that the net proceeds received by the Company from the
offerings, together with current cash balances, potential cash flows from
operations and available borrowings under its revolving credit facility will be
sufficient to meet its anticipated cash needs for working capital, capital
expenditures and other activities for at least the next 12 months. Thereafter,
if current sources are not sufficient to meet the Company's needs, it may seek
additional equity or debt financing. In addition, any material acquisition of
complementary businesses, products or technologies or
26
<PAGE> 29
material joint venture could require the Company to obtain additional equity or
debt financing. There can be no assurance that such additional financing would
be available on acceptable terms, if at all.
YEAR 2000 COMPLIANCE
The products currently offered by the Company have been designed to be Year
2000 compliant, and its current contracts with customers frequently require that
the Company warrant Year 2000 compliance. The Company has in the past sold
versions of Spectra that are not Year 2000 compliant, and the Company has
developed and is offering to customers an upgrade to bring such older versions
into compliance with Year 2000 requirements. Nonetheless, there can be no
assurance that the Company's products, particularly when such products
incorporate third-party software, contain all date code changes necessary to
ensure Year 2000 compliance. Although the Company has not experienced any Year
2000-related product liability claims or lawsuits to date, the sale and support
of products that are not Year 2000 compliant entail the risk of such claims and
lawsuits. The Company's defense against any future lawsuits, regardless of their
merit, could result in substantial expense to the Company as well as the
diversion of management time and attention. In addition, Year 2000 product
liability claims, regardless of the merit or eventual outcome of such claims,
could affect the Company's business reputation and its ability to retain
existing customers or attract new customers which, in turn, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
For internal software application requirements, the Company utilizes
off-the-shelf and custom software developed internally and by third parties. The
Company has reviewed its internal management information and other systems in
order to identify those products, services or systems that are not Year 2000
compliant. The total cost of these Year 2000 compliance activities is not
anticipated to be material to the Company's business, financial condition or
results of operations. See "Risk Factors -- Year 2000 Compliance".
27
<PAGE> 30
BUSINESS
OVERVIEW
Inet provides solutions that enable telecommunications carriers to more
effectively design, deploy, diagnose, monitor and manage communications networks
that carry signaling information used to manage telephone calls. Inet's products
also address the fundamental business needs of telecommunications carriers, such
as improved billing, targeted sales and marketing, fraud prevention and enhanced
call routing. Inet provides these comprehensive solutions primarily through its
GeoProbe and Spectra product offerings.
The GeoProbe system provides real-time monitoring of Common Channel
Signaling System #7 ("SS7") networks and serves as an open platform for business
applications developed by Inet, its customers or third parties. GeoProbe's
monitoring applications enable early warning of network faults, collection of
statistics for performance evaluation, real-time call tracing and
troubleshooting. GeoProbe's associated business applications provide fraud
detection tools, reconciliation of billing between carriers, service quality
reports and marketing data. The Spectra product can be integrated within the
GeoProbe platform or used on a stand-alone basis to provide diagnostic,
emulation and load generation capabilities for use in the design, deployment,
commissioning and diagnosis of signaling networks.
Inet's objective is to be the dominant provider of advanced signaling
network management solutions and associated business applications for
telecommunications networks worldwide. Key elements of Inet's strategy to
achieve this objective include expanding its global market share, increasing its
domestic sales and penetration of its existing customer base, enhancing its
technological leadership position in SS7 network management solutions, expanding
its product offerings by leveraging its core competency in SS7, and building
relationships with strategic partners.
As of June 30, 1998, the Company had sold its solutions to over 300
customers in 40 countries. The Company's target customers include
telecommunications network carriers and equipment manufacturers throughout North
America, Latin America, Europe and the Asia/Pacific region. To date, the
Company's network carrier customers include AT&T, British Telecom, KPN Telecom,
MCI, o.tel.o communications, Portugal Telecom, Singapore Telecom, Sprint, SPT
Telecom, Telia, Telstra and Worldcom, and its equipment manufacturer customers
include DSC Communications, Ericsson, Motorola and Nortel.
INDUSTRY BACKGROUND
THE TELECOMMUNICATIONS INDUSTRY
Historically, telecommunications carriers operated in a highly regulated
environment with little or no competition. Recently, governments worldwide have
begun to deregulate the telecommunications industry in order to reduce costs and
improve service. Deregulation has allowed the emergence of many new
telecommunications carriers and has increased the level of competition. New
entrants to the global telecommunications landscape include competitive long
distance and local exchange carriers; competitors to government post, telephone
and telegraph companies ("PTTs") outside the U.S.; wireless carriers; resellers
such as calling card providers; and Internet telephony providers.
Greater competition is forcing telecommunications carriers to differentiate
themselves by providing advanced, value-added services and features. Examples of
these services include toll-free "800" numbers, prepaid calling cards, Caller
ID, customized routing and billing and voice messaging. Carriers in a growing
number of markets are also being required to provide Local Number Portability
("LNP"), which enables open access to competitors by allowing telephone numbers
to be moved, or "ported", from one carrier to another.
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<PAGE> 31
Telecommunications network architectures have significantly increased in
complexity in order to accommodate the functionality requirements of value-added
services and LNP. These "intelligent networks" allow various functions and
service resources to be created and distributed flexibly throughout the network.
For example, intelligent network functions enable carriers to provision, monitor
and bill for multiple services in an efficient manner, which reduces cost and
increases quality of service to the customer.
The growth of intelligent networks, coupled with a significant worldwide
increase in demand for telecommunications and Internet-related data services,
has resulted in corresponding demand for telecommunications infrastructure and
advanced networking technologies, including network management and diagnostic
systems. Telecommunications networks operate in real time and are
mission-critical to their end users. Thus, telecommunications carriers must
provide the very highest quality and reliability of service to remain
competitive.
SS7 AND MODERN TELECOMMUNICATIONS NETWORK ARCHITECTURES
A telecommunications network not only must convey information between
points, it also must determine the best routes for connections, control the
allocation of resources used to transfer the information and keep transaction
records for billing and measurement purposes. A simple telephone call, or other
network service such as voice message retrieval or a conference call, involves
two types of information: the call content (voice, computer data or video) and
information about the call (such as the party initiating the call and the number
being called) which is required to connect, manage and bill for the transaction.
This information about a telephone call or other service is generally referred
to as "signaling".
The first generation of telephone networks were designed to pass both call
content and signaling over a single internal network path, called a "trunk",
from the source of the call to the called destination. Signaling information was
passed via audio tones or voltage changes on the telephone line or trunk
connection. It became apparent, however, that the "single path" method of
transferring both call content and signaling becomes inefficient and unreliable
as network traffic grows, leading to network congestion and service quality
problems. Single path signaling also lacks flexibility because the control
information cannot be separated easily from the call content flowing over a
trunk. As a result, advanced services cannot be offered in networks in which
single path signaling is used.
These problems were first recognized during the 1960s and were subsequently
resolved through the development and deployment of "Common Channel Signaling".
In Common Channel Signaling, the call content is separated from the signaling
information. The signaling information is then passed over an entirely separate
path through the carrier's network, while the call content is passed over a
trunk. Signaling paths in the network are connected to a set of systems that
control and monitor the progress of calls and other transactions and route the
signaling information as required. The signaling paths, or "links", and
signaling network control systems comprise a separate network infrastructure,
called a "signaling network", that operates in parallel with the network of
trunks used to convey call content. The technique is called Common Channel
Signaling because signaling information for multiple calls passes over a shared,
or "common", set of signaling channels. This method of combining signaling
information for multiple calls results in much higher overall network
efficiency.
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<PAGE> 32
The following illustration depicts a simplified carrier network
incorporating Common Channel Signaling:
[ILLUSTRATION]
[Illustration of two boxes, each representing a telephone switching office, each
connected to separate customer telephones. The two switching offices are
connected by two lines. The top connecting line depicts the voice path between
the two switched offices. A second line depicting the signaling link extends
from the bottom of each switching office and connects at a bubble in the center
of the illustration depicting the signaling network.]
Modern signaling networks are based on a globally standardized architecture
and set of protocols called SS7, or sometimes referred to internationally as
"C7". Since the mid-1980s, SS7 has been implemented by telecommunications
carriers worldwide, including incumbent carriers, emerging competitive service
providers, Internet service providers, and wireless carriers. SS7 utilizes
digital packet-switching technology and is designed to be robust, flexible, and
scalable, enabling telecommunications carriers to provide new services quickly
and to optimize the network bandwidth used for trunk connections. When a call is
placed, the originating location's call switching equipment uses the SS7 network
to "look ahead" and determine whether the destination is busy or otherwise
unavailable before allocating a trunk to the call and connecting both parties.
The look ahead operation also enables information such as Caller ID to be passed
before the call is actually connected. The SS7 network's speed and power allow
these operations to occur almost instantly, which significantly reduces the time
required to process each call and improves service to the end user.
The principal components of an SS7 network are:
- SIGNALING SERVICE POINT ("SSP"). A subsystem of a telephone switch
that connects to the SS7 network and processes signaling information
associated with that particular switch. SSPs are the origination and
termination points for SS7 messages in the network. SSPs exchange
messages with other SSPs, STPs, and SCPs throughout the network.
- SIGNAL TRANSFER POINT ("STP"). A router that controls the flow of
messages among the other elements in the SS7 network. An STP may
include additional functionality that allows it to access external
databases in addition to performing simple routing based on the
source and destination address information included in network
messages.
- SERVICE CONTROL POINT ("SCP"). A database server that provides
additional information for call routing, billing and other services.
- LINKS. A set of dedicated digital channels through which the SS7
messages flow among SSPs, STPs, SCPs and other devices throughout
the network. These are typically 56 or 64 kilobits-per-second (kbps)
standard digital connections.
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<PAGE> 33
The following illustration depicts the basic architecture of an SS7
signaling network:
[ILLUSTRATION]
[Illustration depicting a telephone at the bottom left (labeled 'New York
Caller') and a telephone at the bottom right (labeled 'Inet Operator'), each
linked linearly to a circle (representing an SSP) and then a box (representing
an STP), with each STP connected to a bubble labeled 'Telecommunications
Carrier's Network.']
SS7: AN ILLUSTRATIVE EXAMPLE
In order to better illustrate the critical role of the SS7 network in
modern telecommunications and to demonstrate the complexity of this network,
consider the example of a person in New York who wishes to call the toll-free
"800" number for Inet. The caller picks up the telephone and dials
1-800-WOW-INET. At the caller's local phone company's central office, an SSP
collects the dialed digits and analyzes them, attempting to determine the
destination location. Since the number dialed is an "800" number, the SSP uses
the SS7 network to query an SCP database. The SCP translates the "800" number
into the local phone number assigned to Inet's headquarters (972-578-6100), and
returns the number through the SS7 network back to the SSP.
The originating SSP then sends a "call setup" message, indicating the 972
number, to the nearest STP. This STP determines that the call must be routed
through the long distance carrier associated with the "800" number, and forwards
the message through the particular long distance carrier's STP, which in turn
determines that the call should terminate at Inet's office in Plano, Texas. The
message is then routed by the long distance company's STP to the local phone
company's STP in Dallas, and finally to the SSP at the local central office in
Plano that will deliver the call to Inet's internal telephone system.
When the SSP in Plano receives the call setup message, it first checks to
see if Inet's number is busy. If the number is available to receive a call, the
SSP in Plano acknowledges the call setup message by sending an acknowledgement
message back to the originating SSP through the SS7 network, and simultaneously
sends SS7 messages to set up a voice channel between the two central offices.
All of these interactions take place in less than one second. At this point,
Inet's phone begins to ring.
When Inet's operator answers the phone, the SSP in Plano sends an "answer"
message through the SS7 network back to the originating SSP, which completes the
voice connection. After both parties hang up the phone and the call ends,
additional messages are sent through the SS7 network to close the call, free up
the voice trunks, and bill for the call.
THE NEED FOR SS7 NETWORK MANAGEMENT SOLUTIONS
As the example above demonstrates, even a relatively simple transaction
like an "800" call requires a sophisticated series of SS7 network operations.
Long-distance authorization codes, pre-paid calling cards, cellular phones, LNP
and other advanced services increase the number of SS7
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<PAGE> 34
messages required for each network transaction, which in turn tends to increase
the number of STPs, SCPs and links required in the network.
Each SS7 network typically contains equipment and software manufactured by
multiple vendors. Moreover, multiple SS7 networks are connected between
carriers, often spanning international boundaries. The entire "network of
networks" must operate as a seamless whole, in real time, with a minimal number
of errors. Any indication of trouble in the network must be detected and
diagnosed as quickly as possible. Network capacity utilization must be monitored
continuously for "bottlenecks" and other conditions. To maintain reliability,
each new connection between two carriers' networks must be certified and
approved by the engineering staffs at both carriers before traffic is allowed to
flow through the connection.
In the past, when SS7 networks were used exclusively on wireline networks
to complete standard telephone calls, it was sufficient for carriers to employ
localized diagnostic equipment and a large number of technicians who could be
dispatched in reasonable time to any point where trouble was suspected or where
new connections were being installed. However, this approach is not readily
scalable. It requires significant numbers of personnel with specialized domain
expertise and does not adequately provide for diagnosis of network-wide,
interrelated conditions that tend to arise in complex environments. The
combination of new and different types of interconnected SS7 networks (such as
satellite and cellular networks), increased traffic levels and complexity within
each SS7 network and strict performance requirements has led to an increased
need for systems and software that enable carriers to get a complete picture of
all signaling network facilities and monitor any or all SS7 message traffic in
real time. Comprehensive network management solutions are required to enable
advanced intelligent networks to reach their full potential.
There is also a growing need for SS7 network management systems to be fully
integrated into the overall collection of systems that manage all aspects of a
carrier's operations, such as billing, service order entry, provisioning,
repair, and service definition. Seamless integration of SS7 management with
applications that enable a carrier to use and leverage the information gathered
in its SS7 network allows a carrier to improve its customer service, reduce
costs, and increase operational efficiency. To provide a carrier with these
advantages, an SS7 network management system must offer a suite of software
applications above and beyond more traditional management functions such as
monitoring and diagnostics.
THE INET SOLUTION
Inet provides solutions that enable telecommunications carriers to more
effectively design, deploy, diagnose, monitor and manage communications networks
that carry signaling information used to manage telephone calls. Inet's products
also address the fundamental business needs of carriers, such as improved
billing, targeted sales and marketing, fraud prevention and enhanced call
routing. Inet provides these comprehensive solutions primarily through its
GeoProbe and Spectra product offerings.
Inet's GeoProbe system provides real-time, network-wide monitoring and
serves as an open platform for business applications developed by Inet, its
customers or third parties. GeoProbe's monitoring applications enable early
warning of network faults, collection of statistics for performance evaluations,
real-time call tracing and troubleshooting. GeoProbe's associated business
applications provide fraud detection tools, reconciliation of billing between
carriers, service quality reports and marketing data. GeoProbe provides many
advantages, including:
- GLOBAL NETWORK VIEW. GeoProbe is designed to provide a comprehensive view
of a carrier's entire SS7 network. This design ensures that all relevant
events and/or signaling throughout the carrier's network, regardless of
their point of origin, path and termination point, are properly
correlated and processed for presentation to network management systems
or personnel. In the absence of such a global approach, carriers must
rely on a patchwork of systems scattered throughout their networks in
order to diagnose problems. Inet's
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<PAGE> 35
proprietary call tracking technology enables a carrier to reconstruct an
entire call and its related transactions at any time during or after the
call. Traditional sampling techniques, by contrast, tend to produce
erroneous and inaccurate results because collected data is usually
incomplete and only local in scope.
- REAL-TIME FUNCTIONALITY. GeoProbe is designed to collect, process and
present data in real time, even under extreme network load conditions.
This key attribute makes real-time management and operation of SS7
networks possible. Without a real-time monitoring system, carrier
networks are more vulnerable to overloads, fraud and delayed problem
resolution, which can lead to customer dissatisfaction and compromised
network integrity.
- ADVANCED ENGINEERING AND PLANNING CAPABILITIES. GeoProbe continuously
provides an accurate and detailed view of real-time and historical
statistics on a carrier's SS7 network usage and the service applications
delivered through the network. This allows carriers to implement network
designs optimized for cost and performance, and to refine network
configuration over time based on changes in demand. For example, a
carrier can use data collected by GeoProbe to identify a point in the
network that is constricting traffic flow. The carrier can then install
additional equipment at that point, increasing the throughput of its
entire network.
- FAST, COST-EFFECTIVE DIAGNOSTICS. GeoProbe's software applications
rapidly isolate problems between interconnected SS7 elements and
networks, enabling telecommunications carriers to reduce downtime,
maintenance and costs.
- REDUNDANCY AND RELIABILITY. GeoProbe is available with various levels of
redundancy in order to guard against data loss and help ensure that
critical applications remain operational. Available redundancy features
include power, interfaces, processors, storage devices and transport
network access, and certain business applications such as billing.
- VENDOR INDEPENDENCE. All GeoProbe applications are based on data captured
directly from the SS7 network, as opposed to information provided in
vendor-specific format by individual network elements such as STPs and
SCPs. As a result, carriers can use GeoProbe regardless of which vendors'
equipment is deployed in their SS7 network.
The Spectra product is a vendor-independent tool that provides diagnostic,
emulation and load generation capabilities for use in the design, deployment,
commissioning and diagnosis of SS7 networks. Spectra can be integrated within
the GeoProbe platform or used on a stand-alone basis with a carrier's own
equipment. Spectra can also be used by equipment manufacturers to design and
test SS7 network equipment. Key benefits of Inet's Spectra product are:
- EASE OF USE. Spectra provides a multitude of easy-to-access emulation and
diagnostic functions. These capabilities allow testing and
troubleshooting personnel to quickly and effectively perform tasks that
would otherwise require lengthy set-up times and programming efforts.
- COMPREHENSIVE CAPABILITIES. Spectra provides customers with the ability
to monitor, emulate and generate signaling data for use in
troubleshooting, validation, conformance and regression testing of
switches and other network equipment. Spectra's load generation
capabilities and multiple emulation functions can test the various layers
of the SS7 protocol, up to and including the signaling information
involved with complex applications, such as LNP.
- MULTIPLE PROTOCOL SUPPORT. Spectra enables network equipment
manufacturers and telecommunications carriers to perform end-to-end
testing of applications utilizing multiple signaling protocols, such as
country-specific variations of SS7. Spectra alleviates the need to use
multiple diagnostic tools and provides easy and consolidated access to
test results.
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<PAGE> 36
- VERSATILE CONFIGURATION AND COMPATIBILITY WITH GEOPROBE. Inet offers
Spectra in a rack-mounted version that supports up to 16 links and a
portable version that supports up to eight links. Spectra's versatility
is enhanced by its portability and the ability to integrate with the
GeoProbe system.
Together, GeoProbe and Spectra represent an integrated and comprehensive
set of solutions for signaling network design, monitoring, management, testing
and diagnosis.
THE INET STRATEGY
Inet's objective is to be the dominant provider of advanced signaling
network management solutions and associated business applications for
telecommunications networks. Key elements of Inet's strategy to achieve this
objective include:
EXPAND GLOBAL MARKET SHARE. The Company is pursuing business in markets
throughout the world that are in the process of being deregulated or privatized.
The percentage of the Company's revenues attributable to international markets
exceeded 50% of its revenues in 1997 and is expected to remain a substantial
portion of the Company's revenues going forward. The Company believes that its
future growth and profitability require continued expansion in international
markets. Inet also selectively pursues incumbent carriers in newly emerging
markets and in advanced but monopolistic markets in order to establish its
presence in these markets prior to the time at which such a market is
deregulated or privatized. The Company intends to expand its international
presence by adding offices in key global markets.
ACCELERATE DOMESTIC SALES AND INCREASE PENETRATION OF EXISTING CUSTOMER
BASE. Inet intends to seek additional revenue opportunities by working closely
with its installed customer base to identify opportunities for the sale of
additional GeoProbe systems, add-on business applications and other products.
Based on experience with its existing customers, the Company believes that
achieving early widespread deployment of the GeoProbe in a particular carrier's
network provides significant ongoing opportunities for sales of additional
GeoProbe systems and add-on applications. The Company is expanding its domestic
sales force in order to pursue opportunities with its installed customer base,
as well as first-time sales to new customers.
ENHANCE TECHNOLOGY LEADERSHIP POSITION. The Company intends to maintain its
position as a technological leader in SS7 network management and associated
business solutions. To accomplish this objective, the Company intends to, among
other things, continue investing in research and development, including new
product development and enhancements to its current products.
EXPAND PRODUCT OFFERINGS. Inet believes that it has gained significant
expertise in SS7 technologies in the course of the design, development and
implementation of its Spectra and GeoProbe product offerings and through its
work with its existing customer base. The Company intends to leverage its core
competency in SS7 to expand its current product offerings and to develop new
product offerings for complementary signaling environments such as ISDN,
Asynchronous Transfer Mode and Internet telephony.
BUILD RELATIONSHIPS WITH STRATEGIC PARTNERS. Inet intends to build
strategic relationships with complementary software vendors and signaling
equipment manufacturers worldwide in order to integrate the Company's product
offerings with others' products and/or to create joint-marketing opportunities.
In addition, the Company intends to augment its sales efforts by establishing
and expanding relationships with other telecommunications equipment vendors,
systems consulting and integration firms and network management providers.
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PRODUCTS
GEOPROBE
The GeoProbe system contains the following key elements:
- A core hardware platform designed as a scalable, distributed,
RISC-based multi-processing data I/O platform, which captures
network data traffic and processes that data through multiple
software applications.
- Advanced SS7 network monitoring software applications.
- The Company's OpenSeven application programming interface ("API"),
which enables customers and third party developers to customize
and extend the features of the system.
- A suite of business software applications which enable a carrier
to leverage the data collected by the GeoProbe system, such as
call billing and usage measurement, customer quality assurance,
LNP and traffic engineering.
The following illustration depicts the functional architecture of the
GeoProbe system:
[TARGET CHART]
[Illustration of four concentric circles depicting the functional architecture
of the GeoProbe system. In the outermost circle (which a legend indicates to be
the Business-Level Applications) is text describing the following types of
applications: 'Real-Time Fraud Data Feed,' 'Third Party Applications,'
'Marketing Applications,' 'Service Quality Assurance (in beta testing)' and
'Interconnect Billing Reconciliation.' The next circle inward is the interface
to the Application Programming Interface tools labeled 'OpenSeven API.' The next
inward circle contains the following Surveillance-Level Applications: 'Alarms,'
'Network Performance,' 'Call Completion Stats,' 'Mass Call Detection,' 'Global
Call Trace,' 'Service Performance' and 'Signal Unit Storage.']
The GeoProbe system provides a network-wide view regardless of topology or
number of protocols in use. GeoProbe passively (i.e., non-intrusively) monitors
all messages that flow over each signaling link and can automatically correlate
these messages to reconstruct every call in a carrier's network. This capability
provides comprehensive call analysis for troubleshooting, problem detection, and
network integrity assurance. In addition, the information collected by GeoProbe
improves a carrier's ability to optimize its network and provide enhanced
services to its customers.
GeoProbe provides call data and network status information to users via a
graphical user interface and through Web-based reporting applications. GeoProbe
displays maps that represent network elements (e.g., SSPs, STPs and SCPs). When
failures or user-specified events occur, an icon representing the affected
network element changes to alert the user to potential trouble or the
35
<PAGE> 38
occurrence of the failure or event. GeoProbe also provides users with a wide
range of flexibility to configure their system to set up triggers (i.e., event
detection), filters, alarms and statistics.
The GeoProbe platform contains three elements: SpIprobes, SpIstations and
SpIservers. This modular design accommodates growth in a carrier's network and
facilitates the implementation of enhanced features simply by adding processor
cards to the SpIprobes or deploying additional SpIstations. The following
illustration depicts the elements of the GeoProbe platform in a simplified SS7
network environment:
[ILLUSTRATION]
[Illustration depicting the elements of the GeoProbe platform in a simplified
SS7 network environment. One the left of the graphic is a PC workstation labeled
'SpIstation' contained in a shaded box and denoted as the 'Regional Operations
Center(s)'. Below this picture is an elliptical bubble made up of dashed lines
and connected to the shaded box by a dashed line. Inside the bubble are the
words 'Transport Network (TCP/IP).' Below the bubble is a shaded box also
connected to the bubble by dashed lines. Inside the shaded box denoted as the
'Centralized Network Operations Center' is a computer server labeled 'SpIserver'
and a PC workstation labeled 'SpIstation.' On the right side of the graphic is a
second bubble containing the following elements of the SS7 Network
interconnected by solid black lines: STP, SCP, STP and SSP. Also within the
second bubble are two SpIprobes, each connected to one of the STPs in the second
bubble and also connected by dashed lines to the elliptical bubble on the left
side of the graphic.]
SPIPROBE. SpIprobes are typically co-located with the carrier's STPs
because STPs have the greatest concentration of links and all SS7 messages must
traverse through the STPs. The SpIprobe passively monitors each link at each STP
site. The SpIprobe contains four primary subsystems:
- An Interface subsystem that provides a passive, non-intrusive physical
interface to the monitored links.
- A Processor subsystem based on RISC architecture that processes data
passed from the Interface.
- A Controller subsystem that provides command and control for redundancy,
communication and other "housekeeping" activities.
- A Storage subsystem which provides storage for captured signal units and
statistics.
SPISERVER. SpIserver is a UNIX-based computer that acts as a central file
server for the GeoProbe system. SpIserver is located at the carrier's Network
Operations Center and serves as the processing core for the alarm distribution,
system configuration and database functions of GeoProbe. SpIservers are scalable
so that additional applications and system upgrades can be easily added without
the need for additional SpIservers.
SPISTATION. SpIstations are UNIX-based workstations that can be located
wherever the customer needs network information. Each SpIstation features a
graphical user interface through which the user can view network information
provided by GeoProbe. This displayed information includes SS7 network
configuration and status.
GEOPROBE SOFTWARE APPLICATIONS. Inet has developed a number of software
applications for use with GeoProbe. These applications incorporate Oracle's
relational database and the X-Windows OSF/Motif toolkit. In addition, Inet's
OpenSeven API provides the carrier's personnel or a third party
36
<PAGE> 39
software developer with the ability to expand or customize existing applications
or develop new applications to meet their needs.
The following applications are available for use in the GeoProbe system:
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------
APPLICATION FUNCTIONALITY
- ------------------------------------------------------------------------------------
Surveillance Alarms
Statistics
- ------------------------------------------------------------------------------------
Billing Call billing
Usage measurement
- ------------------------------------------------------------------------------------
Fraud Management Feed to real-time fraud
detection systems
- ------------------------------------------------------------------------------------
Marketing Customer quality assurance
Local Number Portability
Traffic engineering
- ------------------------------------------------------------------------------------
Service Quality Assurance Performance monitoring
(in beta testing)
- ------------------------------------------------------------------------------------
</TABLE>
Pricing for a GeoProbe system varies based on a number of factors, such as
the amount of network traffic, number of links monitored, network configuration,
number of protocols present, and number and type of add-on applications.
GeoProbe prices generally have ranged from $350,000 to $8.6 million, and in 1997
averaged approximately $1.4 million. GeoProbe system add-ons are priced
according to similar metrics. Since 1995, the Company has sold GeoProbe systems
to over 30 customers worldwide.
SPECTRA
Inet's Spectra diagnostic unit, designed to serve either as a stand-alone
tool or to be integrated with GeoProbe, provides telecommunications carriers
with the ability to quickly and cost-effectively design, deploy and maintain
their networks. Spectra offers a wide array of filters, traps, traces and other
diagnostic capabilities. Spectra also can be used by equipment manufacturers in
the design of new products through its extensive emulation and conformance
packages and its ability to simulate network conditions.
Spectra is a multi-protocol diagnostic tool targeted to the needs of
advanced SS7/C7, PCS, GSM, IS-41, X.25 and ISDN networks and development
environments. Spectra is designed for ease-of-use, with an intuitive user
interface featuring pop-up menus and single-keystroke commands. Spectra can be
configured by the user to change message text and monitoring scenarios and to
save commonly used configurations, filters, tests and other settings for quick
setup. Spectra translates complex SS7 messages into plain language, and its
display format shows network statistics and test results in an
easy-to-understand format.
Spectra can be purchased in either a portable version, capable of
monitoring up to eight full-duplex links, or in a rack-mounted configuration
that can monitor up to 16 full-duplex links. Depending on configuration and
enhancements, prices for a Spectra unit generally have ranged from $30,000 to
$120,000. Since the first Spectra sale in 1990, over 2,000 Spectras have been
sold to over 300 customers worldwide.
OTHER CURRENT PRODUCTS - SPIDER
The Company also produces a wireless modem known as Spider for use by law
enforcement, field service, sales force automation and other wireless data
applications. One of the most compact wireless CDPD modems on the market today,
Spider is a single Type III PCMCIA computer card and does not rely on external
power. Spider provides a full duplex, RC4 data-encrypted, 19.2 kbps
37
<PAGE> 40
cellular packet data link to LANs, intranets and other networks, including the
Internet. Spider comes bundled with management software to enable the user to
manage signal strength while simplifying installation and use.
PRODUCTS UNDER DEVELOPMENT
The Company utilizes a common standards-based open architecture approach in
the design of its products. This approach facilitates and accelerates the
development of new applications and products and permits the Company to enhance
existing products by substituting new hardware or software modules. This modular
approach also helps to extend the life cycles of the Company's products, ensure
compatibility among successive generations of products and simplify the
manufacturing process.
Some of the Company's current and planned product development efforts
include a number of add-on marketing applications built on its Service Quality
Assurance application that will enable carriers to offer improved customizable
services to corporate clients; a high speed link interface module for GeoProbe;
and an ISDN interface which should be available to address the needs of its
current customers to interface with ISPs, in late 1998. Among the enhancements
being developed for Spectra are an API to provide access to the new testing
automation tools on the market today and a Japanese interface.
Products as complex as those currently under development by the Company
frequently are subject to delays, and there can be no assurance that the Company
will not encounter difficulties that could delay or prevent the successful and
timely development, introduction and marketing of these potential new products.
Moreover, even if such potential new products are developed and introduced,
there can be no assurance that they will achieve any significant degree of
market acceptance. Failure to release these or any other potential new products
on a timely basis, or failure of these or any other potential new products, if
and when released, to achieve any significant degree of market acceptance, could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Risk Factors -- Rapid Technological Change and
New Products" and "-- Product Liability".
CUSTOMERS
As of June 30, 1998, the Company had sold versions of its products to over
300 customers in over 40 countries. In 1997, British Telecom accounted for
approximately 14% of the Company's revenues. No customer accounted for 10% or
more of the Company's revenues in 1996. The Company's target customers include
telecommunications network carriers and equipment manufacturers throughout North
America, Latin America, Europe and the Asia/Pacific region.
38
<PAGE> 41
The following is a list of customers in various market segments which have
purchased in excess of $250,000 worth of the Company's products since 1996.
<TABLE>
<CAPTION>
LONG DISTANCE CARRIERS (IXCS) WIRELESS CARRIERS PTTS EQUIPMENT MANUFACTURERS
- ------------------------------- --------------------- ---------------- -----------------------
<S> <C> <C> <C>
AT&T 3608 Communications British Telecom Ascend
MCI Airtouch Cable & Wireless Bellcore
Sprint AT&T Wireless KPN Telecom Cisco
Worldcom Bell Atlantic Mobile Latvia PTT DSC
Bell South Mobility o.tel.o Ericsson
LOCAL EXCHANGE CARRIERS Cellular One-Maryland communications Motorola
Entel-Chile Portugal Telecom Nortel
Brooks Fiber LA Cellular SPT Telecom PT NEC Nusantara
Cincinnati Bell Startel Telecom Italia Communication
Frontier Telebahia Telia
Intermedia Western Wireless Telstra
Communications
LDI
</TABLE>
SALES, MARKETING AND SUPPORT
SALES AND MARKETING
The Company sells the GeoProbe and Spectra to telecommunications carriers
and equipment manufacturers globally through both direct and indirect channels.
The direct channel is used domestically for both product lines with the
Company's sales force structured around a two-tier model -- strategic accounts
and geographic accounts. Internationally, the Company uses both
channels -- GeoProbe is sold directly and in cooperation with system
integrators, distributors and consultants, while Spectra is sold primarily via
distributors. The Company maintains six sales offices in the U.S. and a sales
support facility outside London, England. The Company plans to open a sales
office in Germany in 1998.
The GeoProbe sales cycle (excluding the cycle for subsequent applications
and enhancements, which varies widely) ranges from six to 24 months between
initial customer contact and commitment to purchase. A GeoProbe system requires
a relatively large investment and is subject to the attendant delays frequently
associated with customers' internal procedures to approve large capital
expenditures and lengthy decision-making processes. The sales cycle for GeoProbe
can also be expected to be subject to a number of significant risks, including
carriers' budgetary constraints and technology assessments and other internal
acceptance review over which the Company has little or no control. The sales
cycle for Spectra is typically 90 days, consisting mostly of a technical
evaluation process. However, the sales cycle for occasional, large Spectra sales
can range up to six months. See "Risk Factors -- Lengthy Sales Cycle".
The Company's primary marketing activities include raising potential
customer awareness of the benefits of actively managed SS7 networks and
identification of new opportunities with existing customers. To accomplish these
tasks, Inet uses direct sales and marketing efforts, advertising in trade
magazines, exhibitions at industry trade shows and presence on the Internet via
the Company's website. These activities focus on generating qualified sales
leads and demonstration opportunities for the Company's products.
The Company provides extensive training and support for its direct sales
force and its worldwide distributors, including classroom training, product
brochures, demonstration systems and promotional literature.
39
<PAGE> 42
SERVICES, SUPPORT AND WARRANTY
The Company believes that customer service, support and training are
important to building and maintaining strong customer relationships. The Company
services, repairs and provides technical support for its products. Support
services include 24-hour technical support, remote access diagnostic and
servicing capabilities, installation support and advance replacements for
emergency situations. The extent and nature of customer interaction with the
support organization are shared with the sales organization via a common
database.
The Company maintains an in-house repair facility and provides on-going
telephone assistance to customers from its support center in Plano, Texas. In
addition, the Company services its European customers from a product support
office outside London, England. As Inet's customers become more geographically
diverse, the Company may open service centers in other key locations.
The Company typically warrants its products against defects in materials
and workmanship for one year after the sale and thereafter offers extended
service warranties.
RESEARCH AND DEVELOPMENT
The Company's product development efforts include expenditures for research
and development, new product design and enhancement of existing products.
Research and development expenses were $4.0 million, $4.5 million, $4.8 million
and $3.0 million in 1995, 1996, 1997 and the six months ended June 30, 1998,
respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
The Company's primary development facilities are located in its Plano,
Texas headquarters. In 1997, the Company opened a development facility in the
Republic of Armenia, and at June 30, 1998 employed 12 individuals at such
facility. The Company believes that recruiting and retaining highly skilled
engineering personnel is essential to its success. To the extent that the
Company is not successful in attracting and retaining qualified technical
personnel, its business, financial condition and results of operations would be
materially adversely affected.
The Company's products are designed to comply with a significant number of
standards and regulations, some of which are evolving as new technologies are
deployed. For sales to customers in the U.S., the Company's products must comply
with various standards established by Bellcore and the American National
Standards Institute. Internationally, the Company's products must comply with
standards established by telecommunications authorities in various countries as
well as with recommendations of the International Telecommunications Union and
the European Telephone Standards Institute. The failure of the Company's
products to comply, or delays in compliance, with the various existing and
evolving standards could have a material adverse effect on the Company's
business and operating results.
MANUFACTURING
Inet's production process consists of procurement and inspection of
components, final assembly, burn-in, quality control testing and packaging. Inet
outsources the manufacturing of its hardware to a number of Dallas, Texas-area
contract manufacturers. The Company has obtained ISO 9001 certification for
in-house processes and has obtained the CE certification for shipments to the
European Community.
Inet generally uses industry-standard components for its products which are
available from multiple sources. However, a few key components are currently
available from only a single supplier or a limited number of sources. The
Company attempts to minimize the need for these components. If any such
components should become unavailable, Inet believes that it could design similar
functionality into the product using other components. See "Risk
Factors -- Dependence on Sole and Limited Source Suppliers; Dependence on
Subcontractors and Licensed Technology".
40
<PAGE> 43
COMPETITION
The market for SS7-based telecommunications network management applications
is relatively new, intensely competitive, both in the U.S. and internationally,
and subject to rapid technological change, evolving industry standards and
regulatory developments. Competition is expected to persist, intensify and
increase in the future. The Company competes with a number of U.S. and
international suppliers that vary in size and in the scope and breadth of the
products and services offered. GeoProbe principally competes with products
offered by Hewlett-Packard. Spectra principally competes with products offered
by Hewlett-Packard, Tekelec and Tektronix. Certain of the Company's competitors
have, in relation to the Company, longer operating histories, larger installed
customer bases, longer-standing relationships with customers, greater name
recognition and significantly greater financial, technical, marketing, customer
service, public relations, distribution and other resources. Additionally, it is
possible that new competitors or alliances among competitors could emerge and
rapidly acquire significant market share. As a result, such competitors may be
able to more quickly develop or adapt to new or emerging technologies and
changes in customer requirements, or devote greater resources to the
development, promotion and sale of their products. Increased competition is
likely to result in price reductions, reduced margins and loss of market share.
The Company believes that its ability to compete successfully depends on
numerous factors, both within and outside the Company's control, including:
responsiveness to telecommunications service providers' needs; the Company's
ability to support existing and new industry standards; the development of
technical innovations; the attraction and retention of qualified personnel;
regulatory changes; the quality, reliability and security of the Company's and
its competitors' products and services; sufficient market presence by the
Company; the ability to execute a strategy of rapid expansion; ease of use of
the Company's products; the pricing policies of the Company's competitors and
suppliers; the timing of introductions of new products and services by the
Company and its competitors; and general market and economic conditions. There
can be no assurance that the Company will be able to compete successfully
against current or future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business, financial condition
and results of operations.
PROPRIETARY RIGHTS
The telecommunications industry is characterized by the existence of a
large number of patents and frequent allegations of patent infringement. The
Company has received, and may receive in the future, notices from holders of
patents that raise issues as to possible infringement by the Company's products.
As the number of telecommunications network management products increases and
the functionality of these products further overlaps, the Company believes that
it may become increasingly subject to allegations of infringement. To date, the
Company has engaged in correspondence with third-party holders of patents as a
result of two such notices. The Company believes that its products do not
infringe any valid patents cited in the notices received. However, questions of
infringement in the field of telecommunications signaling technologies involve
highly technical and subjective analyses. There can be no assurance that any
such patent holders or others will not in the future initiate legal proceedings
against the Company or that, if any such proceedings were initiated, the Company
would be successful in defending against such proceedings. Any such proceeding
could be time consuming and expensive to defend, prosecute or resolve, result in
substantial diversion of management resources, cause product shipment delays, or
force the Company to enter into royalty or license agreements rather than
dispute the merits of any such proceeding initiated against the Company. There
can be no assurance that any such royalty or license agreements would be
available on terms acceptable to the Company, if at all. Any such claims against
the Company, with or without merit, could have a material adverse effect on the
Company's business, financial condition and results of operations.
41
<PAGE> 44
The Company's continued success is dependent in part upon its proprietary
technology. To protect its proprietary technology, the Company relies on a
combination of technical innovation, trade secret, copyright and trademark laws,
non-disclosure agreements and, to a lesser extent, patents, each of which
affords only limited protection. In addition, the laws of some foreign countries
do not protect the Company's proprietary rights in the products to the same
extent as do the laws of the U.S. Moreover, although the Company holds one U.S.
patent, has additional patent applications pending and is in the process of
preparing additional patent applications for filing, there can be no assurance
that the Company will receive additional patents. Despite the measures taken by
the Company, it may be possible for a third party to copy or otherwise obtain
and use the Company's proprietary technology and information without
authorization. Policing unauthorized use of the Company's products is difficult,
and litigation may be necessary in the future to enforce the Company's
intellectual property rights. Any such litigation could be time consuming and
expensive to prosecute or resolve, result in substantial diversion of management
resources, and have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will be successful in protecting its proprietary technology or that
the Company's proprietary rights will provide a meaningful competitive advantage
to the Company.
The Company relies upon certain software that it licenses from third
parties, including software that is integrated with the Company's internally
developed software and used in its products to perform key functions. There can
be no assurance that these third-party software licenses will continue to be
available to the Company on commercially reasonable terms. The inability to
maintain any such software licenses could result in shipment delays or
reductions until equivalent software could be developed or licensed and
integrated into the Company's products, which could materially adversely affect
the Company's business, financial condition and results of operations.
EMPLOYEES
As of June 30, 1998, the Company had 310 employees, of whom 167 were
engaged in product development, 33 were engaged in sales and marketing, 54 were
engaged in customer support services, 21 were engaged in manufacturing and 35
were engaged in administrative and other business support functions. The Company
believes it has experienced good employee relations to date.
FACILITIES
The Company is headquartered in Plano, Texas, where it currently leases
67,000 square feet of office space, of which 50,000 square feet are occupied.
The Company also leases sales offices in Georgia, New Jersey, Maryland, Illinois
and California. Additionally, the Company leases three international offices,
two outside of London, England which provide product and sales support to many
of the Company's customers located in Europe, and another in the Republic of
Armenia which serves as a research and development facility. The Company
currently plans to open a sales office in Germany in 1998. Although the Company
is evaluating the lease of additional space for its headquarters operations, the
Company believes that its existing facilities are adequate for its current needs
and that additional space will be available as needed.
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<PAGE> 45
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information concerning the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Samuel S. Simonian.......... 43 President, Chief Executive Officer and Director
Elie S. Akilian............. 42 Executive Vice President and Director
Mark A. Weinzierl........... 34 Executive Vice President, Secretary and Director
William H. Mina............. 53 Senior Vice President, Chief Financial Officer and Director
Robert G. Mechaley, Jr...... 47 Director Nominee
</TABLE>
SAMUEL S. SIMONIAN co-founded and has served as President and director of
Inet since 1989, and as its Chief Executive Officer since March 1994. Mr.
Simonian holds a B.S. in Electrical Engineering from the University of Texas at
Arlington. Prior to co-founding Inet, Mr. Simonian worked from 1979 to 1989 at
Electrospace Systems, Inc. in its antenna control systems division and its
switching department. Currently, Mr. Simonian also serves as Inet's chief
technical officer. Mr. Simonian is the nephew of William H. Mina's spouse.
ELIE S. AKILIAN co-founded Inet in 1989 and has served as Executive Vice
President and director of the Company since March 1989. Mr. Akilian received his
B.S. in Electrical Engineering from the University of Texas at Arlington. Prior
to co-founding Inet, Mr. Akilian worked from 1980 to 1989 at Electrospace
Systems, Inc. in its switching department. Currently, Mr. Akilian oversees
Inet's sales and marketing organization.
MARK A. WEINZIERL co-founded Inet in 1989 and has served as Executive Vice
President, Secretary and director of the Company since March 1990. Mr. Weinzierl
received his B.S. in Electrical Engineering from Iowa State University in 1986
and attended the University of Texas at Dallas M.B.A. program. Prior to
co-founding Inet, Mr. Weinzierl worked from 1986 to 1989 at Electrospace
Systems, Inc. in its switching department. Currently, Mr. Weinzierl oversees
Inet's support services and manufacturing organizations.
WILLIAM H. MINA has served as Senior Vice President and Chief Financial
Officer of the Company since February 1997 and as a director of the Company
since June 1996. From 1985 to February 1997, Mr. Mina was employed by Wafra
Investment Advisory Group Inc. ("Wafra"), a New York based investment banking
firm. While at Wafra, he served in various positions, including Senior Vice
President and Chief Financial Officer. Mr. Mina holds an M.B.A. from Southern
Methodist University and a B.A. in Business Administration from Dallas Baptist
University. Mr. Mina is married to Samuel Simonian's aunt.
ROBERT G. MECHALEY, JR. has consented to become a director of the Company
upon consummation of the offerings. Mr. Mechaley has served as a Director and
President and Chief Executive Officer of Wildfire Communications, Inc. since
August 1996. Prior to that time, Mr. Mechaley served as Senior Vice President
with AT&T Wireless Services from June 1993 to July 1996.
BOARD OF DIRECTORS
The Board of Directors is currently composed of four members. Upon
consummation of the offerings, the Company intends to increase the number of
directors to six and elect Mr. Mechaley and one additional non-employee to fill
the two resulting vacancies. Within 90 days following the completion of the
offerings, the Company intends to establish a Compensation Committee and an
43
<PAGE> 46
Audit Committee of the Board of Directors. Each director holds office until the
next annual meeting of the stockholders or until his successor is duly elected
and qualified. The Company's Certificate of Incorporation and Bylaws provide
that, beginning with the first annual meeting of stockholders following the
offerings, the Board of Directors will be divided into three classes, with each
class serving staggered, three-year terms. See "Description of Capital
Stock -- Certain Anti-Takeover, Limited Liability and Indemnification
Provisions -- Certificate of Incorporation and Bylaw Provisions".
The Company anticipates that, for an undetermined period following the
offerings, directors of the Company will not be paid any fees or compensation
for service as members of the Board of Directors or any committee thereof, but
will be reimbursed for any reasonable out-of-pocket expenses incurred in
connection with attending meetings of the Board of Directors and any committees
thereof. In addition, directors who are not employees of the Company or any of
its subsidiaries periodically receive automatic grants of non-qualified options
under the Company's 1998 Stock Option/Stock Issuance Plan. See "-- 1998 Stock
Option/Stock Issuance Plan".
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide for mandatory indemnification of directors and
officers to the fullest extent permitted by Delaware law. Prior to consummation
of the offerings, the Company intends to obtain directors' and officers'
liability insurance and expects to enter into indemnification agreements with
all of its directors and executive officers. In addition, the Company's
Certificate of Incorporation limits the liability of directors of the Company to
the Company or its stockholders for breaches of the directors' fiduciary duties
to the fullest extent permitted by Delaware law. See "Description of Capital
Stock--Certain Anti-Takeover, Limited Liability and Indemnification Provisions".
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, the Company had no compensation committee or other committee
of the Board of Directors performing similar functions. Decisions concerning
compensation of executive officers were made during such year by the Board of
Directors, each member of which also served as an executive officer.
EMPLOYMENT CONTRACTS
The officers serve at the discretion of the Board of Directors. The Company
does not presently have an employment contract in effect with any of its
executive officers.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and the other
executive officers of the Company whose
44
<PAGE> 47
salary and bonus exceeded $100,000 for services rendered in all capacities to
the Company and its subsidiaries during 1997 (collectively, the "Named
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------- -------------
NAME AND OTHER ANNUAL OPTIONS ALL OTHER
PRINCIPAL POSITION(S) SALARY BONUS COMPENSATION(1) (# OF SHARES) COMPENSATION
--------------------- -------- -------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Samuel S. Simonian......... $201,400 $355,253 $16,500 -- $ 216(2)
President and Chief
Executive Officer
Elie S. Akilian............ 201,400 328,573(3) 16,500 -- 216(2)
Executive Vice President
Mark A. Weinzierl.......... 201,400 323,573(3) 16,500 -- 216(2)
Executive Vice President
and Secretary
William H. Mina(4)......... 155,833 107,500(5) 16,500 110,000 16,379(6)
Senior Vice President and
Chief Financial Officer
</TABLE>
- ---------------
(1) Represents a retainer and fees received for services rendered as a director
of the Company.
(2) Represents life insurance premiums paid on behalf of such officer.
(3) Includes $3,323 earned during 1996 but paid in 1997.
(4) Mr. Mina commenced employment with the Company in February 1997. Prior to
that time, Mr. Mina had served on the Company's Board of Directors.
(5) Includes $57,500, the fair market value as determined by the Board of
Directors on the date of issuance of 50,000 shares of Common Stock issued to
Mr. Mina as a bonus in connection with his commencement of employment with
the Company.
(6) Consists of contributions to Mr. Mina's participation in the Company's
401(k) plan.
OPTION GRANTS
The following table provides certain information concerning stock options
granted to each of the Named Officers during 1997. No stock appreciation rights
were granted to these individuals during such year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(2)
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION -------------------------
NAME GRANTED(1) IN 1997 PER SHARE DATE 5% 10%
---- ---------- ---------- -------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Samuel S. Simonian....... -- -- -- -- -- --
Elie S. Akilian.......... -- -- -- -- -- --
Mark A. Weinzierl........ -- -- -- -- -- --
William H. Mina.......... 110,000(1) 29% $ 1.15 2/28/07 $79,555 $201,608
</TABLE>
- ---------------
(1) The options were granted on March 1, 1997 and will become fully vested and
exercisable upon the consummation of the offerings.
(2) Future value assumes appreciation in the market value of the Common Stock of
5% and 10% per year over the ten-year option period. The actual value
realized may be greater than or less than the potential realizable values
set forth in the table.
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<PAGE> 48
YEAR-END OPTION VALUES
No options were exercised by the Named Officers during 1997. The following
table provides certain information concerning option holdings at December 31,
1997 with respect to each of the Named Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1997 AT DECEMBER 31, 1997
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Samuel S. Simonian.................... -- -- -- --
Elie S. Akilian....................... -- -- -- --
Mark A. Weinzierl..................... -- -- -- --
William H. Mina....................... -- 110,000(1) -- $485,870(2)
</TABLE>
- ---------------
(1) The options will become fully exercisable upon the consummation of the
offerings.
(2) Value is determined by subtracting the exercise price from the fair market
value of the Common Stock at December 31, 1997 ($5.57 per share), as
determined by independent appraisal, multiplied by the number of shares
underlying the options.
1998 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's 1998 Stock Option/Stock Issuance Plan (the "1998 Plan") is
intended to serve as the successor equity incentive program to the Company's
existing 1995 Employee Stock Option Plan (the "Predecessor Plan"). The 1998 Plan
became effective on July 23, 1998 upon adoption by the Board of Directors and
was subsequently approved by the stockholders on July 23, 1998. Common Stock has
initially been authorized for issuance under the 1998 Plan in the amount of
6,750,000. In addition, the share reserve will automatically be increased on the
last trading day of January each calendar year, beginning in January 2000, by a
number of shares equal to one percent (1%) of the total number of shares of
Common Stock outstanding on the last trading day of the immediately preceding
calendar year, but no such annual increase shall exceed 500,000 shares. However,
in no event may any one participant in the 1998 Plan receive option grants or
direct stock issuances for more than 1,000,000 shares in the aggregate per
calendar year.
Outstanding options under the Predecessor Plan will be incorporated into
the 1998 Plan upon the date of the offerings, and no further option grants will
be made under the Predecessor Plan. The incorporated options will continue to be
governed by their existing terms, unless the Plan Administrator elects to extend
one or more features of the 1998 Plan to those options. However, except as
otherwise noted below, the outstanding options under the Predecessor Plan
contain substantially the same terms and conditions summarized below for the
Discretionary Option Grant Program in effect under the 1998 Plan.
The 1998 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers, non-employee Board members and
consultants) may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock at an exercise price determined by
the Plan Administrator, (ii) the Stock Issuance Program under which such
individuals may, in the Plan Administrator's discretion, be issued shares of
Common Stock directly, through the purchase of such shares at a price determined
by the Plan Administrator or as a bonus tied to the performance of services and
(iii) the Automatic Option Grant Program under which option grants will
automatically be made at periodic intervals to eligible non-employee Board
members to purchase
46
<PAGE> 49
shares of Common Stock at an exercise price equal to 100% of the fair market
value of those shares on the grant date.
The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee of the Board. The Compensation
Committee, as Plan Administrator, will have complete discretion to determine
which eligible individuals are to receive option grants or stock issuances, the
time or times when such option grants or stock issuances are to be made, the
number of shares subject to each such grant or issuance, the status of any
granted option as either an incentive stock option or a non-statutory stock
option under the U.S. federal tax laws, the vesting schedule to be in effect for
the option grant or stock issuance and the maximum term for which any granted
option is to remain outstanding. The administration of the Automatic Option
Grant Program is self-executing in accordance with the express provisions of
that program.
The exercise price for the shares of Common Stock subject to option grants
made under the Plan may be paid in cash or in shares of Common Stock valued at
fair market value on the exercise date. The option may also be exercised through
a same-day sale program without any cash outlay by the optionee. In addition,
the Plan Administrator may provide financial assistance to one or more
participants in the 1998 Plan in connection with their acquisition of shares, by
allowing such individuals to deliver a full-recourse, interest-bearing
promissory note in payment of the option exercise price and or direct issue
price any associated withholding taxes incurred in connection with such
acquisition.
In the event of an acquisition of the Company, whether by merger or asset
sale or a sale by the stockholders of more than 50% of the total combined voting
power of the Company recommended by the Board, each outstanding option under the
Discretionary Option Grant Program which is not to be assumed by the successor
corporation or otherwise continued will automatically accelerate in full, and
all unvested shares under the Discretionary Option Grant and Stock Issuance
Programs will immediately vest, except to the extent the Company's repurchase
rights with respect to those shares are to be assigned to the successor
corporation or otherwise continued in effect. The Plan Administrator will have
the authority under the Discretionary Option Grant Program to provide that the
shares subject to options granted under that program will automatically vest (i)
upon an acquisition of the Company, whether or not those options are assumed or
continued, (ii) a hostile change in control of the Company effected through a
successful tender offer for more than 50% of the Company's outstanding voting
stock or by proxy contest for the election of Board members or (iii) in the
event the individual's service is terminated, whether involuntarily or through a
resignation for good reason, within a designated period (not to exceed eighteen
(18) months) following an acquisition in which those options are assumed or
otherwise continued in effect or a hostile change in control. The vesting of
outstanding shares under the Stock Issuance Program may be accelerated upon
similar terms and conditions. Options currently outstanding under the
Predecessor Plan will accelerate either at the time of an acquisition or a
change in control or upon the termination of the optionee's service following an
acquisition or change in control.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from the
Company equal to the excess of (i) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution may be made in
cash or in shares of Common Stock. There are currently no outstanding stock
appreciation rights under the Predecessor Plan.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the Predecessor Plan) in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of the Common Stock on the new grant
date.
47
<PAGE> 50
Under the Automatic Option Grant Program, each individual who is serving as
a non-employee member of the Board on the date the underwriting agreement for
the offerings is executed and who has not previously been in the employ of the
Company will receive at that time an option grant for 20,000 shares of Common
Stock with a exercise price equal to the price per share at which the Common
Stock is to be sold in the offerings. Each individual who first joins the Board
after the effective date of the offerings as a non-employee Board member will
also receive an option grant for 20,000 shares of Common Stock at the time of
his or her commencement of Board service, provided such individual has not
otherwise been in the prior employ of the Company. In addition, at each Annual
Stockholders Meeting, beginning with the 1999 Annual Meeting, each individual
who is to continue to serve as a non-employee Board member will receive an
option grant to purchase 10,000 shares of Common Stock, whether or not such
individual has been in the prior employ of the Company.
Each automatic grant will have an exercise price equal to the fair market
value per share of Common Stock on the grant date and will have a maximum term
of 10 years, subject to earlier termination following the optionee's cessation
of Board service. Each automatic option will be immediately exercisable;
however, any shares purchased upon exercise of the option will be subject to
repurchase, at the option exercise price paid per share, should the optionee's
service as a non-employee Board member cease prior to vesting in the shares. The
20,000-share grant will vest in three equal and successive annual installments
over the optionee's period of Board service. Each additional 10,000-share grant
will vest upon the optionee's completion of one year of Board service measured
from the grant date. However, each outstanding option will immediately vest upon
(i) certain changes in the ownership or control of the Company or (ii) the death
or disability of the optionee while serving as a Board member.
The Board may amend or modify the 1998 Plan at any time, subject to any
required stockholder approval. The 1998 Plan will terminate on the earliest of
(i) July 23, 2008, (ii) the date on which all shares available for issuance
under the 1998 Plan have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with certain changes in
control or ownership of the Company.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors on July 23, 1998 and approved by the
stockholders on July 23, 1998. The Purchase Plan is designed to allow eligible
employees of the Company and participating subsidiaries to purchase shares of
Common Stock, at semi-annual intervals, through their periodic payroll
deductions under the Purchase Plan. A reserve of 750,000 shares of Common Stock
has been established for this purpose.
The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of 24 months. However, the initial
offering period will begin on the day the Underwriting Agreement is executed in
connection with the offerings and will end on the last business day in July
2000. The next offering period will commence on the first business day in August
2000, and subsequent offering periods will commence as designated by the Plan
Administrator.
Individuals who are eligible employees on the start date of any offering
period may enter the Purchase Plan on that start date or on any subsequent
semi-annual entry date (February 1 or August 1 each year). Individuals who
become eligible employees after the start date of the offering period may join
the Purchase Plan on any subsequent semi-annual entry date within that period.
Payroll deductions may not exceed 15% of the participant's base salary for
each semi-annual period of participation, and the accumulated payroll deductions
will be applied to the purchase of shares on the participant's behalf on each
semi-annual purchase date (the last business day in January and July each year),
at a purchase price per share not less than eighty-five percent (85%)
48
<PAGE> 51
of the lower of (i) the fair market value of the Common Stock on the
participant's entry date into the offering period or (ii) the fair market value
on the semi-annual purchase date. In no event, however, may any participant
purchase more than 1,000 shares, nor may all participants in the aggregate
purchase more than 187,500 shares on any one semi-annual purchase date. Should
the fair market value of the Common Stock on any semi-annual purchase date be
less than the fair market value of the Common Stock on the first day of the
offering period, then the current offering period will automatically end and a
new offering period will begin, based on the lower fair market value.
The Board may amend or modify the Purchase Plan following any semi-annual
purchase date. The Purchase Plan will terminate on the last business day in July
2008, unless sooner terminated by the Board.
CERTAIN TRANSACTIONS
In February 1997, the Company issued 50,000 shares of Common Stock to Mr.
Mina, the Company's Senior Vice President and Chief Financial Officer, as a
bonus in connection with the commencement of Mr. Mina's employment with the
Company.
Pursuant to a Registration Rights Agreement dated as of July 17, 1998 (the
"Registration Rights Agreement") by and among the Company and Messrs. Simonian,
Akilian and Weinzierl, the Company has agreed to provide such stockholders with
certain rights to include their respective shares of Common Stock in any
Company-initiated registered offering of shares of Common Stock ("piggyback
rights"). In addition, under the Registration Rights Agreement, beginning 180
days after the date of this Prospectus, such stockholders have the right,
subject to certain conditions and limitations, to require the Company to file up
to six registration statements under the Securities Act covering all or part of
such stockholders' shares of Common Stock. The Company has agreed to bear
substantially all expenses associated with offerings by such stockholders under
the Registration Rights Agreement, other than underwriting commissions and
discounts attributable to sales by such stockholders. The Company and each such
stockholder have agreed to indemnify the others from certain liabilities which
may arise in connection with any offering made pursuant to the Registration
Rights Agreement.
Since the beginning of the Company's 1997 fiscal year, Wildfire
Communications, Inc. ("Wildfire") has purchased approximately $87,600 of the
Company's products. Robert G. Mechaley, a nominee to become a director of the
Company, is the President and Chief Executive Officer and a director of
Wildfire.
All future transactions, including loans, between the Company and its
officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
disinterested directors on the Board of Directors, and will continue to be on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties.
49
<PAGE> 52
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 30, 1998, and as adjusted to
reflect the sale of shares offered hereby, by (i) each person who is known by
the Company to own beneficially more than five percent of the Company's Common
Stock, (ii) each of the Company's directors, director-nominees and Named
Officers, (iii) all current executive officers, directors and director-nominees
as a group, and (iv) each of the other Selling Stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERINGS(1) NUMBER OFFERINGS(1)(2)
------------------------ OF SHARES -----------------------
BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
---------------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Samuel S. Simonian(3)........... 13,037,000(4) 31.9% 500,000 12,537,000(4) 28.0%
Elie S. Akilian(3).............. 13,134,000(5) 32.1 500,000 12,634,000(5) 28.2
Mark A. Weinzierl(3)............ 13,057,500 31.9 500,000 12,557,500 28.1
William H. Mina................. 193,000(6) * 50,000 143,000(6) *
Robert G. Mechaley, Jr.......... 0 -- 0 0 *
All executive officers,
directors and
director-nominees as a group
(five persons)................ 39,421,500(7) 96.2 1,550,000 37,871,500(7) 84.5
Other Selling Stockholders:
Brandenburg Life Foundation... 15,000 * 1,000 14,000 *
Pierce Brockman............... 280,000 * 120,000 160,000 *
Chad Harper................... 40,000 * 20,000 20,000 *
Roy Henke..................... 40,000 * 25,000 15,000 *
Steve Holcomb................. 40,000 * 29,000 11,000 *
Mike Reiman................... 280,000 * 120,000 160,000 *
Gary Ruwaldt.................. 131,580 * 13,130 118,450 *
George Zahar.................. 400,000 * 30,000 370,000 *
</TABLE>
- ---------------
* Indicates less than 1%.
(1) Beneficial ownership is calculated in accordance with the rules of the
Securities and Exchange Commission under Rule 13d-3(d)(i). In computing the
number of shares beneficially owned by a person and the percentage ownership
of that person, shares of Common Stock subject to options held by that
person that are currently exercisable or become exercisable within 60 days
following June 30, 1998 are deemed outstanding. However, such shares are not
deemed outstanding for the purpose of computing the percentage ownership of
any other person. Unless otherwise indicated in the footnotes to this table,
the persons and entities named in the table have sole voting and sole
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable.
(2) Assumes no exercise of the Underwriters' over-allotment options.
(3) The address for such stockholder is 1255 W. 15th Street, Suite 600, Plano,
Texas 75075.
(4) Includes 264,000 shares held by such stockholder's minor children.
(5) Includes 176,000 shares held by such stockholder's minor children.
(6) Includes 110,000 shares purchasable upon the exercise of options and 33,000
shares held jointly by such stockholder and his spouse.
(7) Includes 110,000 shares purchasable upon the exercise of options. See notes
(4), (5) and (6) above.
The Company will pay all costs and expenses of the offerings, other than
the underwriting discount relating to shares sold by the Selling Stockholders,
the fees and disbursements of legal counsel and other advisors to the Selling
Stockholders and stock transfer and other taxes attributable to the sale of
shares by the Selling Stockholders which will be borne by the Selling
Stockholders.
50
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The authorized capital stock of the Company consists of 175,000,000 shares
of Common Stock, par value $0.001 per share, and 25,000,000 shares of Preferred
Stock, par value $0.001 per share ("Preferred Stock"). The following summary is
qualified in its entirety by reference to the Company's Certificate of
Incorporation and Bylaws, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. In
addition, the Company's revolving credit facility restricts the payment of cash
dividends without the bank's consent. See "Dividend Policy". In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable, and the shares of Common Stock to be issued in the
offerings will be fully paid and nonassessable.
As of June 30, 1998, there were outstanding 40,880,580 shares of Common
Stock and options to purchase 1,991,000 shares of Common Stock. Upon completion
of the offerings, 44,722,450 shares of Common Stock (45,584,950 shares if the
Underwriters' over-allotment options are exercised in full) will be outstanding,
assuming no exercise of options after June 30, 1998.
PREFERRED STOCK
The Board of Directors has the authority to issue the Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders and
may adversely affect the voting and other rights of the holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. No shares of Preferred Stock are outstanding, and the
Company has no current plans to issue any shares of Preferred Stock.
CERTAIN ANTI-TAKEOVER, LIMITED LIABILITY AND INDEMNIFICATION PROVISIONS
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to Section 203 ("Section 203") of the Delaware
General Corporation Law (the "DGCL") which subject to certain exceptions,
prohibits a Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder, unless (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction that resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
51
<PAGE> 54
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer,
or (iii) on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder.
Section 203 defines business combinations to include (i) any merger or
consolidation involving the corporation and the interested stockholder, (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder, (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder, (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder, or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more or the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The Company's Certificate of Incorporation and Bylaws include provisions
that may have the effect of discouraging, delaying or preventing a change in
control of the Company or an unsolicited acquisition proposal that a stockholder
might consider favorable, including a proposal that might result in the payment
of a premium over the market price for the shares held by stockholders. These
provisions are summarized in the following paragraphs.
CLASSIFIED BOARD OF DIRECTORS. The Certificate of Incorporation and Bylaws
provide, beginning with the first annual meeting of stockholders following the
offerings, for the Board of Directors to be divided into three classes of
directors serving staggered, three-year terms. The classification of the Board
of Directors has the effect of requiring at least two annual stockholder
meetings, instead of one, to replace a majority of members of the Board of
Directors.
SUPERMAJORITY VOTING. The Certificate of Incorporation requires the
approval of the holders of at least 66 2/3% of the Company's combined voting
power to effect certain amendments to the Certificate of Incorporation. The
Bylaws may be amended by either (a) a majority of the Board of Directors or (b)
the holders of a majority of the Company's voting stock, provided that certain
amendments approved by stockholders require the approval of at least 66 2/3% of
the Company's combined voting power.
AUTHORIZED BUT UNISSUED OR UNDESIGNATED CAPITAL STOCK. The Company's
authorized capital stock consists of 175,000,000 shares of Common Stock and
25,000,000 shares of Preferred Stock. No Preferred Stock will be designated upon
consummation of the offerings. After the offerings, the Company will have
outstanding 44,722,450 shares of Common Stock (45,584,950 shares if the
Underwriters' over-allotment options are exercised in full). The authorized but
unissued (and in the case of Preferred Stock, undesignated) stock may be issued
by the Board of Directors in one or more transactions. In this regard, the
Company's Certificate of Incorporation grants the Board of Director broad power
to establish the rights and preferences of authorized and unissued Preferred
Stock. The issuance of shares of Preferred Stock pursuant to the Board of
Directors' authority described above could decrease the amount of earnings and
assets available for distribution to holders of Common Stock and adversely
affect the rights and powers, including voting rights, of such holders and may
have the effect of delaying, deferring or preventing a change in control of the
52
<PAGE> 55
Company. The Board of Directors does not currently intend to seek stockholder
approval prior to any issuance of Preferred Stock, unless otherwise required by
law.
SPECIAL MEETINGS OF STOCKHOLDERS. The Bylaws provide that special meetings
of stockholders of the Company may be called only by the Board of Directors, or
by the Company's Chairman of the Board, President or Chief Executive Officer.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT. The Certificate of Incorporation
and the Bylaws provide that an action required or permitted to be taken at any
annual or special meeting of the stockholders of the Company may only by taken
at a duly called annual or special meeting of stockholders. This provision
prevents stockholders from initiating or effecting any action by written
consent, and thereby taking actions opposed by the Board of Directors.
NOTICE PROCEDURES. The Bylaws establish advance notice procedures with
regard to all stockholder proposals, including proposals entered relating to the
nomination of candidates for election as directors, the removal of directors and
amendments to the Certificate of Incorporation or Bylaws to be brought before
meetings of stockholders of the Company. These procedures provide that notice of
such stockholder proposals must be timely given in writing to the Secretary of
the Company prior to the meeting. Generally, to be timely, notice must be
received by the Secretary of the Company not more than 60 days nor less than 10
days prior to the meeting. The notice must contain certain information specified
in the Bylaws.
LIMITATION OF DIRECTOR LIABILITY. The Certificate of Incorporation limits
the liability of directors of the Company (in their capacity as directors but
not in their capacity as officers) to the Company or its stockholders to the
fullest extent permitted by the DGCL. Specifically, directors of the Company
will not be personally liable for monetary damages for breach of a director's
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involves intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, which relates to
unlawful payments of dividends or unlawful stock repurchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit.
INDEMNIFICATION ARRANGEMENTS. The Certificate of Incorporation and Bylaws
require the directors and officers of the Company to be indemnified and permit
the advancement to them of expenses in connection with actual or threatened
proceedings and claims arising out of their status as such, to the fullest
extent permitted by the DGCL. Prior to consummation of the offerings, the
Company will enter into indemnification agreements with each of its directors
and executive officers that provide for indemnification and expense advancement
to the fullest extent permitted under the DGCL.
OTHER ANTI-TAKEOVER PROVISIONS
See "Management -- 1998 Stock Option/Stock Issuance Plan" for a discussion
of certain provisions of the 1998 Plan which may have the effect of
discouraging, delaying or preventing a change in control of the Company or
unsolicited acquisition proposals.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C., 2323 Bryan Street, Suite 2300, Dallas, Texas
75201, telephone: (214) 965-2235.
53
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offerings, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices and impair the Company's ability
to raise capital through the sale of equity securities.
Upon completion of the offerings, the Company will have outstanding
44,722,450 shares of Common Stock (45,584,950 shares if the Underwriters'
over-allotment options are exercised in full), assuming no exercise of options
after June 30, 1998. Of these shares, the 5,750,000 shares offered hereby
(6,612,500 shares if the Underwriters' over-allotment options are exercised in
full) will be freely tradable without restriction or further registration under
the Securities Act, unless purchased by "affiliates" of the Company as that term
is defined in Rule 144 under the Securities Act. The remaining 38,972,450 shares
of Common Stock outstanding upon completion of the offerings will be "restricted
securities" as that term is defined in Rule 144.
Upon the expiration of the Lock-Up Agreements beginning 180 days after the
date of this Prospectus, 37,871,500 shares held by certain stockholders of the
Company will become eligible for sale pursuant to the volume limitations, manner
of sale and notice requirements of Rule 144 and 1,191,950 shares held by certain
other stockholders of the Company will become eligible for sale without regard
to the volume limitations, manner of sale and notice requirements of Rule 144.
In addition, as of June 30, 1998, there were outstanding options to purchase an
aggregate of 1,991,000 shares of Common Stock. Pursuant to the lock-up
provisions set forth in the stock option agreements used under the Company's
1995 Employee Stock Option Plan, 1,097,000 shares underlying such options will
become eligible for sale pursuant to Rule 701 beginning 180 days after the date
of this Prospectus, and the remaining 894,000 shares underlying such options
will become eligible for sale pursuant to Rule 701 more than 180 days after the
date of this Prospectus as such options vest.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who owns shares that were purchased from the
Company (or any affiliate thereof) at least one year previously, is entitled to
sell in "brokers' transactions" or to market makers, within any three-month
period commencing 90 days after the date of this Prospectus, a number of shares
that does not exceed the greater of (i) one percent of the then outstanding
shares of Common Stock (approximately 447,000 shares immediately after the
offerings, or approximately 456,000 shares if the Underwriters' over-allotment
options are exercised in full) or (ii) the average weekly trading volume in the
Common Stock during the four calendar weeks preceding the date on which the
required notice of such sale is filed with the Securities and Exchange
Commission. Sales under Rule 144 are generally subject to the availability of
current public information about the Company. Any person (or persons whose
shares are aggregated) who owns shares that were purchased from the Company (or
any affiliate thereof) at least two years previously and who has not been an
affiliate of the Company at any time during the 90 days preceding a sale, would
be entitled to sell such shares under Rule 144(k) without regard to the volume
limitations or manner of sale, public information or notice requirements of Rule
144. Under Rule 701, persons who purchase shares from the Company upon exercise
of options granted prior to the date of this Prospectus are entitled to sell
such shares in the public markets commencing 90 days after the date of this
Prospectus in reliance on Rule 144 without having to comply with the holding
period requirements thereof and, in the case of non-affiliates of the Company,
without having to comply with the volume limitations or public information or
notice requirements thereof.
Within 90 days after the date of this Prospectus, the Company intends to
file registration statements under the Securities Act covering the shares of
Common Stock reserved for issuance under the Company's stock incentive plans and
not eligible for sale pursuant to Rule 701. See "Management -- 1998 Stock
Option/Stock Issuance Plan" and "-- Employee Stock Purchase Plan". Such
registration statements will become effective upon filing, thus permitting the
resale of
54
<PAGE> 57
such shares in the public markets without restriction under the Securities Act
subject, however, to applicable lock-up arrangements and limitations applicable
to affiliates.
Commencing 180 days after the date of this Prospectus, the holders of
37,728,500 shares of Common Stock will be entitled to certain "piggyback" and
demand registration rights under the Securities Act with respect to such shares.
Such rights are scheduled to expire not later than October 2003. See "Certain
Transactions".
55
<PAGE> 58
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain anticipated United States
federal income tax consequences of the purchase, ownership and disposition of
the Common Stock by a "Non-U.S. Holder". A Non-U.S. Holder is a person that, for
U.S. federal income tax purposes, (i) is not a "U.S. person," (ii) is not, and
has not been, engaged in a U.S. trade or business, (iii) is not subject to tax
pursuant to provisions of U.S. tax laws applicable to certain former U.S.
citizens or residents and (iv) in the case of an individual, is not present in
the U.S. for 183 days or more during the relevant tax year of the ownership and
disposition of the Common Stock. A U.S. person means a citizen or resident of
the U.S. for U.S. federal income tax purposes, a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any state thereof, an estate the income of which is subject to U.S. federal
income taxation regardless of its source, or a trust that meets the following
two tests: (A) a U.S. court is able to exercise primary supervision over the
administration of the trust, and (B) one or more U.S. persons have the authority
to control all substantial decisions of the trust.
The following discussion does not consider specific facts and circumstances
that may be relevant to the taxation of a particular Non-U.S. Holder.
Specifically, this discussion does not address the U.S. tax consequences to any
person who might own, or be considered as owning under certain attribution
rules, 5% or more of the outstanding shares of the Common Stock or who acquired
or holds Common Stock other than for investment. In addition, the following
discussion assumes that the investment in the Common Stock will be characterized
for U.S. federal income tax purposes in a manner consistent with such
investment. While counsel believes that such characterization should be given
such investment, there can be no assurance that the U.S. Internal Revenue
Service ("IRS") will not assert that a different characterization should apply.
The discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), judicial decisions, administrative pronouncements, and existing
and proposed Treasury Regulations issued by the U.S. Department of the Treasury
now in effect. Each prospective investor should understand that future
legislative, administrative and judicial changes could modify the tax
consequences described below, possibly with retroactive effect. The following
discussion is limited to U.S. federal income tax consequences and does not
address any state, local or non-U.S. consequences of the purchase, ownership and
disposition of the Common Stock.
EACH NON-U.S. HOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR
WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE COMMON STOCK, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL AND NON-U.S. TAX LAWS AND PROPOSED CHANGES IN
APPLICABLE LAWS.
DIVIDENDS
The Company does not anticipate paying a dividend to stockholders in the
foreseeable future. In the event a dividend is paid by the Company, the payment
will be a taxable dividend for U.S. federal income tax purposes to the extent of
the current or accumulated earnings and profits of the Company. Each Non-U.S.
Holder who receives a taxable dividend will be subject to withholding of U.S.
federal income tax equal to 30% of the taxable dividend unless such Non-U.S.
Holder is eligible for a reduced tax rate or tax exemption under an applicable
income tax treaty.
Currently, for purposes of determining whether tax is to be withheld at the
30% rate or at a reduced treaty rate, the Company will ordinarily presume that
dividends paid to an address in a foreign country are paid to a resident of such
country absent knowledge that such presumption is not warranted. Under the Final
Regulations (defined below) effective for payments made after December 31, 1999,
Non-U.S. Holders will be required to satisfy certain applicable certification
56
<PAGE> 59
requirements to claim treaty benefits. Other recently adopted Treasury
Regulations provide special rules to determine whether, for purposes of
determining the applicability of a tax treaty, dividends paid to a Non-U.S.
Holder that is an entity should be treated as paid to the entity or those
holding an interest in that entity.
GAIN ON DISPOSITIONS
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
on gain realized on the sale or exchange of Common Stock.
FEDERAL ESTATE TAXES
Common Stock held by an individual Non-U.S. Holder at the date of his or
her death will be included in his or her gross estate for United States federal
estate tax purposes unless an applicable estate tax treaty provides otherwise.
BACKUP WITHHOLDING AND INFORMATION REPORTING
DIVIDENDS
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to and the tax withheld, if any, with respect to such
holder. These information reporting requirements apply regardless of whether
withholding was reduced by an applicable tax treaty. Copies of these information
returns may also be available under the provisions of a specific treaty or
agreement with the tax authorities in the country in which the Non-U.S. Holder
resides.
DISPOSITIONS OF COMMON STOCK
The payment of the proceeds from the disposition of shares of Common Stock
through the U.S. office of a broker will be subject to information reporting and
backup withholding unless the holder, under penalties of perjury, certifies,
among other things, its status as a Non-U.S. Holder, or otherwise establishes an
exemption. Generally, the payment of the proceeds from the disposition of shares
of Common Stock to or through a non-U.S. office of a broker will not be subject
to backup withholding and will not be subject to information reporting. In the
case of the payment of proceeds from the disposition of shares of Common Stock
through a non-U.S. office of a broker that is a U.S. person or a U.S.-related
person (as defined by U.S. tax laws) information reporting (but not backup
withholding) is required on the payment unless the broker has documentary
evidence in its files of the holder's Non-U.S. Holder status and has no actual
knowledge to the contrary.
Any amounts withheld from a payment to a Non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such holder's U.S. federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the IRS. Non-U.S. Holders should consult
their tax advisors regarding the application of these rules to their particular
situations, the availability of an exemption therefrom and the procedures for
obtaining such an exemption, if available.
On October 6, 1997, the U.S. Department of the Treasury issued final
Treasury Regulations (the "Final Regulations") regarding the withholding and
information reporting rules. The Final Regulations are generally effective for
payments made after December 31, 1999, subject to certain transition rules. The
Final Regulations generally do not alter the substantive withholding and
information reporting requirements, but rather unify current certification
procedures and forms and clarify reliance standards. PROSPECTIVE INVESTORS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE EFFECT TO THEM, IF ANY,
OF THE FINAL REGULATIONS.
57
<PAGE> 60
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders by Brobeck, Phleger & Harrison LLP, Austin,
Texas. Certain legal matters in connection with the offerings will be passed
upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California.
EXPERTS
The Consolidated Financial Statements of the Company at December 31, 1995,
1996 and 1997, and for each of the three years in the period ended December 31,
1997, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules to the Registration Statement. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed as a part of the Registration Statement. Statements contained in
this Prospectus concerning the contents of any contract or any other document
are not necessarily complete; reference is made in each instance to the copy of
such contract or any other document filed as an exhibit to the Registration
Statement. Each such statement is qualified in all respects by such reference to
such exhibit. The Registration Statement, including exhibits and schedules
thereto, may be inspected without charge at the Commission's principal office in
Washington, D.C., and copies of all or any part thereof may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7 World
Trade Center, 13th Floor, New York, New York 10048 after payment of fees
prescribed by the Commission. The Commission also maintains a Web site which
provides online access to reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at the address http://www.sec.gov.
58
<PAGE> 61
INET TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and 1997
and June 30, 1998 (Unaudited)............................. F-3
Consolidated Statements of Income for the Years ended
December 31, 1995, 1996, and 1997 and the Six Months ended
June 30, 1997 and 1998 (Unaudited)........................ F-4
Consolidated Statements of Stockholders' Equity for the
Years ended December 31, 1995, 1996 and 1997 and the Six
Months ended June 30, 1998 (Unaudited).................... F-5
Consolidated Statements of Cash Flows for the Years ended
December 31, 1995, 1996, and 1997 and the Six Months ended
June 30, 1997 and 1998 (Unaudited)........................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 62
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Inet Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Inet
Technologies, Inc. (the Company), as of December 31, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the three years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Inet
Technologies, Inc. at December 31, 1996 and 1997, and the consolidated results
of its operations and its cash flows for the three years then ended in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
------------------------------------
Dallas, Texas
February 17, 1998
except for Note 1,
as to which the date is
July 23, 1998
F-2
<PAGE> 63
INET TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1996 1997 1998
-------- -------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 742 $ 3,386 $20,482
Trade accounts receivable, net of allowance for doubtful
accounts of $50,000 and $500,000 at December 31, 1996
and 1997, respectively, and $663,000 at June 30,
1998.................................................. 13,236 15,832 11,438
Unbilled receivables..................................... 3,413 5,355 2,208
Inventories.............................................. 6,513 6,963 7,279
Other current assets..................................... 304 1,565 1,508
------- ------- -------
Total current assets............................. 24,208 33,101 42,915
Property and equipment, net................................ 2,893 5,162 6,194
Other assets............................................... 4 45 74
------- ------- -------
Total assets..................................... $27,105 $38,308 $49,183
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 3,434 $ 1,329 $ 1,814
Accrued compensation and benefits........................ 1,076 2,237 2,042
Foreign sales commissions payable........................ 881 256 425
Deferred revenue......................................... 2,339 3,271 6,512
Deferred income taxes.................................... 773 759 118
Other accrued liabilities................................ 604 959 1,325
------- ------- -------
Total current liabilities........................ 9,107 8,811 12,236
Deferred tax liabilities................................... 34 111 95
Note payable............................................... 1,350 -- --
Commitments
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares -- 25,000,000
Issued shares -- None................................. -- -- --
Common stock, $.001 par value:
Authorized shares -- 175,000,000
Issued shares -- 40,850,422 and 40,900,422 at December
31, 1996 and 1997, respectively, and 40,919,422 at
June 30, 1998....................................... 41 41 41
Additional paid-in capital............................... 372 430 648
Retained earnings........................................ 16,418 29,132 36,380
Treasury stock, 38,842 common shares at December 31, 1996
and 1997 and June 30, 1998, at cost................... (217) (217) (217)
------- ------- -------
Total stockholders' equity....................... 16,614 29,386 36,852
------- ------- -------
Total liabilities and stockholders' equity....... $27,105 $38,308 $49,183
======= ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 64
INET TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues............................. $17,531 $42,041 $57,701 $25,090 $34,165
Cost of revenues......................... 4,305 11,138 12,579 5,196 7,693
------- ------- ------- ------- -------
Gross profit................... 13,226 30,903 45,122 19,894 26,472
Operating expenses:
Sales and marketing expenses........... 2,699 5,566 7,069 4,015 3,563
General and administrative expenses.... 4,323 7,530 14,181 6,045 9,084
Research and development expenses...... 3,965 4,519 4,776 2,284 3,032
------- ------- ------- ------- -------
10,987 17,615 26,026 12,344 15,679
------- ------- ------- ------- -------
Income from operations......... 2,239 13,288 19,096 7,550 10,793
Other income (expense):
Interest income........................ 75 20 147 49 322
Interest expense....................... (6) (42) (123) (44) --
Other.................................. (5) (6) (8) 2 --
------- ------- ------- ------- -------
Other income (expense), net.............. 64 (28) 16 7 322
------- ------- ------- ------- -------
Income before provision for
income taxes................. 2,303 13,260 19,112 7,557 11,115
Provision for income taxes............... 644 4,324 6,398 2,530 3,867
------- ------- ------- ------- -------
Net income..................... $ 1,659 $ 8,936 $12,714 $ 5,027 $ 7,248
======= ======= ======= ======= =======
Basic net income per common share........ $ 0.04 $ 0.22 $ 0.31 $ 0.12 $ 0.18
======= ======= ======= ======= =======
Diluted net income per common share...... $ 0.04 $ 0.22 $ 0.30 $ 0.12 $ 0.17
======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 65
INET TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
------------------- PAID-IN RETAINED --------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
---------- ------ ---------- -------- ------ ------ -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994...................... 39,250,422 $39 $109 $ 5,823 -- $ -- $ 5,971
Net income................ -- -- -- 1,659 -- -- 1,659
---------- --- ---- ------- ------ ----- -------
Balance at December 31,
1995...................... 39,250,422 39 109 7,482 -- -- 7,630
Issuance of common stock
upon exercise of
employee stock
options................ 1,600,000 2 2 -- -- -- 4
Income tax benefit from
exercise of employee
stock options.......... -- -- 261 -- -- -- 261
Purchase of common stock
of the Company......... -- -- -- -- 38,842 (217) (217)
Net income................ -- -- -- 8,936 -- -- 8,936
---------- --- ---- ------- ------ ----- -------
Balance at December 31,
1996...................... 40,850,422 41 372 16,418 38,842 (217) 16,614
Issuance of common
stock.................. 50,000 -- 58 -- -- -- 58
Net income................ -- -- -- 12,714 -- -- 12,714
---------- --- ---- ------- ------ ----- -------
Balance at December 31,
1997...................... 40,900,422 41 430 29,132 38,842 (217) 29,386
Issuance of common stock
(unaudited)............ 19,000 -- 106 -- -- -- 106
Net income (unaudited).... -- -- -- 7,248 -- -- 7,248
Stock option compensation
expense (unaudited).... -- -- 112 -- -- -- 112
---------- --- ---- ------- ------ ----- -------
Balance at June 30, 1998
(unaudited)............... 40,919,422 $41 $648 $36,380 38,842 $(217) $36,852
========== === ==== ======= ====== ===== =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 66
INET TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 1,659 $ 8,936 $12,714 $ 5,027 $ 7,248
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 602 1,038 1,521 632 1,139
Deferred income taxes.................. 12 857 63 -- (848)
Stock option compensation expense...... -- -- -- -- 112
Tax benefit of employee stock
options............................. -- 261 -- -- --
Change in assets and liabilities:
(Increase) decrease in trade
accounts receivable............... (2,388) (5,891) (2,596) 1,952 4,394
(Increase) decrease in unbilled
receivables....................... -- (3,413) (1,942) (511) 3,147
(Increase) decrease in
inventories....................... (7,988) 2,222 (450) (792) (316)
(Increase) decrease in other
assets............................ (234) 176 (1,303) (3,953) 219
Increase (decrease) in accounts
payable........................... 633 2,057 (2,105) (1,331) 485
Increase (decrease) in accrued
compensation and benefits......... 274 633 1,161 345 (195)
Increase (decrease) in foreign sales
commissions payable............... 125 733 (624) (698) 169
Increase (decrease) in deferred
revenue........................... 7,861 (5,809) 932 258 3,241
Increase in accrued liabilities..... 203 43 355 55 366
------- ------- ------- ------- -------
Net cash provided by operating
activities............................. 759 1,843 7,726 984 19,161
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...... (1,044) (2,119) (3,790) (1,496) (2,171)
------- ------- ------- ------- -------
Net cash used in investing activities.... (1,044) (2,119) (3,790) (1,496) (2,171)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of stock option exercises....... -- 4 -- -- --
Treasury stock purchase.................. -- (217) -- -- --
Issuance of common stock................. -- -- 58 58 106
Payments of note payable................. (400) (3,400) (7,068) (2,950) --
Proceeds from note payable............... 700 4,450 5,718 3,900 --
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities............................. 300 837 (1,292) 1,008 106
------- ------- ------- ------- -------
Net increase in cash and cash
equivalents............................ 15 561 2,644 496 17,096
Cash and cash equivalents at beginning of
period................................. 166 181 742 742 3,386
------- ------- ------- ------- -------
Cash and cash equivalents at end of
period................................. $ 181 $ 742 $ 3,386 $ 1,238 $20,482
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES:
Interest paid............................ $ 6 $ 42 $ 123 $ 44 $ --
======= ======= ======= ======= =======
Income taxes paid........................ $ 409 $ 3,511 $ 6,390 $ 5,480 $ 3,925
======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 67
INET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Inet Technologies, Inc. (the "Company") provides solutions that enable
telecommunications carriers to more effectively design, deploy, diagnose,
monitor and manage communications networks that carry signaling information used
to manage telephone calls. The Company's products also address the fundamental
business needs of telecommunications carriers, such as improved billing,
targeted sales and marketing, fraud prevention and enhanced call routing. The
Company provides these comprehensive solutions primarily through its GeoProbe
and Spectra product offerings.
In connection with its planned initial public offering, in July 1998 the
Company changed its state of incorporation from Texas to Delaware (the
"Reincorporation"), also changing its name from Inet, Inc. to Inet Technologies,
Inc. With the Reincorporation, the Company effected a change in par value of the
Company's common stock from no par value to $.001 par value, an increase in
authorized common stock from 25,000,000 to 175,000,000 shares and created a
preferred class of stock with 25,000,000 authorized shares. Also in July 1998,
the Company's Board of Directors approved a ten-for-one split of the Company's
common stock to be paid as a stock dividend on July 23, 1998, to shareholders of
record on July 23, 1998. The accompanying financial statements have been
retroactively restated to reflect these actions including the effect of the
stock split on all applicable share and per share amounts. In connection with
these actions the treasury shares held at June 30, 1998 will be retired.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company's
wholly-owned subsidiaries. Intercompany balances and transactions have been
eliminated.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements as of
June 30, 1998 and for the six months ended June 30, 1997 and 1998 have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with Rule 10-01 of Securities and Exchange Commission
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. They do reflect all adjustments (consisting only of normal
recurring entries) which, in the opinion of the Company's management, are
necessary for a fair presentation of the results for the interim periods
presented.
The results of operations for the six months ended June 30, 1998 are not
necessarily indicative of results that may be expected for any other interim
period or for the full year.
CASH AND CASH EQUIVALENTS
All highly liquid securities with original maturities of three months or
less are classified as cash equivalents. The carrying value of cash equivalents
approximates fair market value.
F-7
<PAGE> 68
INET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventories are valued at the lower of standard cost, which approximates
actual cost determined on a first-in, first-out basis, or market. Inventories
consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------- JUNE 30
1996 1997 1998
------ ------ -------
<S> <C> <C> <C>
Raw materials............................................ $3,603 $3,401 $2,969
Work-in-process.......................................... 2,077 1,940 2,355
Finished goods........................................... 833 1,622 1,955
------ ------ ------
$6,513 $6,963 $7,279
====== ====== ======
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization and are depreciated on a straight-line basis over their estimated
useful lives, as follows:
<TABLE>
<S> <C>
Computers and other equipment....................... 3-5 Years
Software............................................ 3 Years
Office furniture and fixtures....................... 7 Years
Leasehold improvements.............................. Term of lease
</TABLE>
DEFERRED REVENUE
Deferred revenue primarily represents amounts billed to customers under
terms specified in contracts in which completion of contractual terms or
delivery of the product has not occurred and revenue is not yet recognized.
RESEARCH AND DEVELOPMENT EXPENDITURES
In accordance with Statement of Financial Accounting Standards No. 86,
software development costs are expensed as incurred until technological
feasibility has been established, at which time subsequent costs are capitalized
until the product is available for general release to customers. To date, either
the establishment of technological feasibility of the Company's products and
their general release have substantially coincided or costs incurred subsequent
to the achievement of technological feasibility have not been material. As a
result, software development costs qualifying for capitalization have been
insignificant, and the Company has not capitalized any software development
costs. Research and development expenditures are charged to expense in the
period incurred.
REVENUE RECOGNITION
Revenue is generally recognized when the Company has completed
substantially all manufacturing and/or software development to customer
specifications, factory testing has been completed, and the product has been
shipped. For systems where installation and system integration are the
responsibility of the Company, revenue is recognized when the system has been
delivered to and installed at the customer's premises. Unbilled receivables
represent revenue recognized but not billable pursuant to the individual
contract until formal customer acceptance. Formal customer acceptance generally
has been received within 60 days of installation.
F-8
<PAGE> 69
INET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective January 1, 1998, the Company adopted the provisions of Statement
of Position (SOP) 97-2, Software Revenue Recognition, which did not require a
significant change to the Company's revenue recognition policies.
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), in accounting for its
employee stock options. Under APB 25, if the exercise price of an employee's
stock options equals or exceeds the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of trade accounts receivable. The
Company sells products and services to customers associated with the
telecommunications industry, both within the United States and internationally.
The Company continually evaluates the creditworthiness of its customers'
financial condition and generally does not require collateral. The Company has
not experienced significant losses on uncollectible accounts.
RISKS AND UNCERTAINTIES
The Company's future results of operations and financial condition could be
impacted by the following factors, among others: timely introduction of new
products by the Company, market acceptance of new products introduced by the
Company, trends in the telecommunications industry, intense customer
competition, and changes in the terms and conditions of its customer sales
contracts.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 128, Earnings per Share. Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130
In 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income.
Statement 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements, and was effective for the Company beginning January 1,
1998. For all periods presented, the Company had no components of comprehensive
income other than net income.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 131
In 1997, the FASB issued Statement No. 131, Disclosures about Segments of
an Enterprise and Related Information. Statement 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
F-9
<PAGE> 70
INET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reports issued to shareholders. Statement 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and will be
adopted by the Company in connection with its 1998 annual financial statements.
The adoption of Statement 131 will have no impact on the Company's consolidated
results of operations, financial condition, or cash flows.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1996 1997 1998
------ ------ --------
<S> <C> <C> <C>
Computer and other equipment............................ $4,019 $5,664 $ 7,052
Software................................................ 624 2,049 2,683
Office furniture, fixtures, and leasehold
improvements.......................................... 641 1,311 1,460
------ ------ -------
5,284 9,024 11,195
Less accumulated depreciation and amortization.......... 2,391 3,862 5,001
------ ------ -------
$2,893 $5,162 $ 6,194
====== ====== =======
</TABLE>
3. NOTE PAYABLE
The Company has had available a line of credit facility with a bank
providing for borrowings of up to $10,000,000. This line of credit facility was
renewed effective June 15, 1998, and extended through June 15, 2000. In
connection with the renewal and extension, the per annum useage fee on unused
portions of the line was reduced from 1/4% to 1/8%. At December 31, 1997,
$369,646 was used to support letters of credit under this line. Borrowings under
this facility bear interest payable quarterly at LIBOR plus 1.5% (7.47% at
December 31, 1997) and are collateralized by the Company's accounts receivable,
inventories, and property and equipment.
An additional $563,172 of letters of credit were outstanding at another
bank at December 31, 1997, which are collateralized by an equal amount of the
Company's cash balances.
4. INCOME TAXES
Components of the provision for income taxes were as follows (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- -----------------
1995 1996 1997 1997 1998
----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Current federal provision................ $556 $3,222 $5,706 $2,256 $4,431
Current state provision.................. 75 245 616 244 285
Deferred federal expense (benefit)....... 13 857 (82) (32) (698)
Current foreign provision................ -- -- 13 5 --
Deferred state expense................... -- -- 145 57 (151)
---- ------ ------ ------ ------
Total income tax provision..... $644 $4,324 $6,398 $2,530 $3,867
==== ====== ====== ====== ======
</TABLE>
F-10
<PAGE> 71
INET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes is reconciled with the federal statutory
rate as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- -----------------
1995 1996 1997 1997 1998
----- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Provision computed at federal statutory
rate................................. $ 783 $4,508 $6,689 $2,646 $3,890
Utilization of research and development
tax credits.......................... (186) (63) (305) (121) (46)
Foreign Sales Corporation income
exemption............................ (43) (287) (500) (198) (329)
State income taxes, net of federal tax
effect............................... 50 162 481 190 282
Other.................................. 40 4 33 13 70
----- ------ ------ ------ ------
$ 644 $4,324 $6,398 $2,530 $3,867
===== ====== ====== ====== ======
</TABLE>
The significant components of the Company's deferred tax liabilities and
assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1996 1997 1998
----- ------- --------
<S> <C> <C> <C>
Deferred tax liabilities:
Deferred revenue....................................... $(869) $(1,524) $ (951)
Depreciation........................................... (34) (62) (46)
Other, net............................................. (49) (49) (49)
----- ------- ------
Total deferred tax liabilities................. (952) (1,635) (1,046)
Deferred tax assets:
Reserves and other accrued expenses not currently
deductible for tax purposes......................... 145 765 1,024
----- ------- ------
Total deferred tax assets...................... 145 765 1,024
----- ------- ------
Deferred income tax liabilities, net of deferred income
tax assets............................................. $(807) $ (870) $ (22)
===== ======= ======
</TABLE>
5. OPERATING LEASES
The Company leases its corporate office facility as well as certain
equipment under noncancelable operating lease agreements. Rental expense for
these operating leases was $470,517, $586,588, and $867,893 in 1995, 1996, and
1997, respectively.
At December 31, 1997, future minimum lease payments under noncancelable
operating leases are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 772
1999........................................................ 575
2000........................................................ 4
------
$1,351
======
</TABLE>
F-11
<PAGE> 72
INET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCK OPTIONS
The Company has had an Employee Stock Option Plan (the "1995 Plan" or the
"Predecessor Plan" -- see below ) which provides for incentive options and
nonqualified options that may be granted to key employees, officers, directors,
and consultants of the Company. At December 31, 1997, the Company had reserved
6,000,000 shares of its common stock for issuance in connection with the 1995
Plan, which is administered by the Stock Option Committee of the Company's Board
of Directors (the "Committee"). Options have been granted generally at prices
not less than the fair value of the Company's common stock as determined by the
Committee at the dates of grant based on fair market valuation studies performed
by a nationally recognized independent investment banking firm. Options granted
under the 1995 Plan vest at rates established by the Committee and expire ten
years after the date of grant. The exercisability of options granted under the
1995 plan is also subject to various conditions as determined by the Committee
including, among other things, an initial public offering of the Company's
stock. Options granted in the first quarter of 1998 at $4.20 per share had a
fair market value of $5.57 per share, which will result in a total of $692,000
compensation expense which will be recognized ratably over the vesting period of
three years beginning in the first quarter.
Stock option transactions for the years ended December 31, 1995, 1996, and
1997 and the six months ended June 30, 1998, are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
---------------------------------------------------------------------- JUNE 30,
1995 1996 1997 1998
--------------------- ---------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- -------- ----------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period:.............. 1,620,000 $0.003 2,914,000 $ 0.27 1,220,000 $ 0.64 1,531,750 $0.80
Granted................... 1,435,000 0.60 145,000 0.96 381,750 1.31 506,000 4.20
Exercised................. -- -- (1,600,000) 0.003 -- -- -- --
Forfeited................. (141,000) 0.52 (239,000) 0.60 (70,000) 0.86 (46,750) 1.10
---------- ----------- ---------- ----------
Outstanding at end of
period.................. 2,914,000 0.27 1,220,000 0.64 1,531,750 0.80 1,991,000 1.66
========== =========== ========== ==========
Exercisable at end of
period.................. 1,600,000 0.003 -- -- -- -- -- --
========== =========== ========== ==========
Weighted-average fair
value of options granted
during the period....... $ 1.43 $ 1.93 $ 2.59 $ 21.22
========== =========== ========== ==========
</TABLE>
At December 31, 1997, 4,468,250 shares were available for future grants to
employees under the 1995 Plan.
Information related to options outstanding at December 31, 1997, is
summarized below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------
WEIGHTED AVERAGE
OUTSTANDING AT REMAINING
EXERCISE PRICES DECEMBER 31, 1997 CONTRACTUAL LIFE
--------------- ----------------- ----------------
<S> <C> <C>
$0.60............................. 1,088,000 7.5
1.15............................. 423,750 9.0
4.20............................. 20,000 9.5
</TABLE>
F-12
<PAGE> 73
INET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation," (SFAS 123) requires the disclosure of pro forma net income
and earnings per share information computed as if the Company had accounted for
its employee stock options granted subsequent to December 31, 1994, under the
fair value method set forth in SFAS 123. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
no volatility and the following weighted-average assumptions for 1995, 1996 and
1997, respectively: risk-free interest rates of 7.79%, 6.33%, and 6.29%; no
dividends; and an expected life of 3.5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. In addition,
because options vest over several years and additional option grants are
expected, the effects of these hypothetical calculations are not likely to be
representative of similar future calculations.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for per share information):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Pro forma net income.................................. $1,613 $8,863 $12,609
Pro forma net income per common share................. $ 0.04 $ 0.22 $ 0.31
Pro forma net income per common share -- assuming
dilution............................................ $ 0.04 $ 0.21 $ 0.30
</TABLE>
The Company's 1998 Stock Option/Stock Issuance Plan (the "1998 Plan") is
intended to serve as the successor equity incentive program to the Company's
existing 1995 Employee Stock Option Plan (the "Predecessor Plan"). The 1998 Plan
became effective on July 23, 1998 upon adoption by the Board of Directors and
was subsequently approved by the stockholders on July 23, 1998. Common Stock has
initially been authorized for issuance under the 1998 Plan in the amount of
6,750,000 shares. In addition, the share reserve will automatically be increased
on the last trading day of January each calendar year, beginning in January
2000, by a number of shares equal to one percent (1%) of the total number of
shares of Common Stock outstanding on the last trading day of the immediately
preceding calendar year, but no such annual increase shall exceed 500,000
shares. However, in no event may any one participant in the 1998 Plan receive
option grants or direct stock issuances for more than 1,000,000 shares in the
aggregate per calendar year.
Outstanding options under the Predecessor Plan will be incorporated into
the 1998 Plan upon the date of the offerings, and no further option grants will
be made under the Predecessor Plan. The incorporated options will continue to be
governed by their existing terms, unless the Plan Administrator elects to extend
one or more features of the 1998 Plan to those options. However, except as
otherwise noted below, the outstanding options under the Predecessor Plan
contain substantially the same terms and conditions summarized below for the
Discretionary Option Grant Program in effect under the 1998 Plan.
F-13
<PAGE> 74
INET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 1998 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers, non-employee Board members and
consultants) may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock at an exercise price determined by
the Plan Administrator, (ii) the Stock Issuance Program under which such
individuals may, in the Plan Administrator's discretion, be issued shares of
Common Stock directly, through the purchase of such shares at a price determined
by the Plan Administrator or as a bonus tied to the performance of services and
(iii) the Automatic Option Grant Program under which option grants will
automatically be made at periodic intervals to eligible non-employee Board
members to purchase shares of Common Stock at an exercise price equal to 100% of
the fair market value of those shares on the grant date.
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors on July 23, 1998 and approved by the
stockholders on July 23, 1998. The Purchase Plan is designed to allow eligible
employees of the Company and participating subsidiaries to purchase shares of
Common Stock, at semi-annual intervals, through their periodic payroll
deductions under the Purchase Plan. A reserve of 750,000 shares of Common Stock
has been established for this purpose.
The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of 24 months. However, the initial
offering period will begin on the day the Underwriting Agreement is executed in
connection with the offerings and will end on the last business day in July
2000. The next offering period will commence on the first business day in August
2000, and subsequent offering periods will commence as designated by the Plan
Administrator.
7. OPERATIONS
The Company operates in a single industry segment and markets its products
through its sales personnel and certain foreign distributors. The distribution
of the Company's revenues as a percent of total net revenues is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- ----------------
1995 1996 1997 1997 1998
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
United States........................... 67.7% 50.6% 47.4% 45.0% 50.5%
Export:
Asia-Pacific Region................... 16.4 15.7 17.4 18.2 9.1
Europe................................ 10.0 29.5 31.0 33.6 34.9
Other................................. 5.9 4.2 4.2 3.2 5.5
----- ----- ----- ----- -----
Total export sales............ 32.3 49.4 52.6 55.0 49.5
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
In 1995 and 1997, the Company had one customer each year which accounted
for approximately 10% and 14%, respectively, of net revenues.
8. EMPLOYEE BENEFIT PROGRAM
The Company has a retirement savings plan structured under Section 401(k)
of the Internal Revenue Code (the "Code"). The plan covers substantially all
employees meeting minimum service
F-14
<PAGE> 75
INET TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
requirements. Under the plan, employees may elect to reduce their current
compensation by up to 15%, subject to certain maximum dollar limitations
prescribed by the "Code", and have the amount contributed to the plan as salary
deferral contributions. The Company may make contributions to the plan at the
discretion of the Board of Directors. The Company accrued a discretionary
contribution to the plan totaling $233,242, $700,291, and $1,040,164 in 1995,
1996, and 1997, respectively.
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except share and per share data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Numerator:
Net income for basic and
diluted earnings per
share...................... $ 1,659 $ 8,936 $ 12,714 $ 5,027 $ 7,248
=========== =========== =========== =========== ===========
Denominator:
Denominator for basic
earnings per share --
weighted average shares.... 39,600,000 40,997,800 41,243,610 41,237,290 41,256,300
Effect of dilutive
securities:
Employee stock options..... 1,607,410 453,550 866,330 529,550 1,408,320
----------- ----------- ----------- ----------- -----------
Dilutive potential common
shares..................... 1,607,410 453,550 866,330 529,550 1,408,320
----------- ----------- ----------- ----------- -----------
Denominator for diluted
earnings per share --
adjusted weighted-average
shares and assumed
conversion................. 41,207,410 41,451,350 42,109,940 41,766,840 42,664,620
=========== =========== =========== =========== ===========
Net income per common share.... $ 0.04 $ 0.22 $ 0.31 $ 0.12 $ 0.18
=========== =========== =========== =========== ===========
Net income per common
share -- assuming dilution... $ 0.04 $ 0.22 $ 0.30 $ 0.12 $ 0.17
=========== =========== =========== =========== ===========
</TABLE>
For additional disclosures regarding the employee stock options, see Note
6.
F-15
<PAGE> 76
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the U.S.
Underwriters named below, and each of such U.S. Underwriters, for whom Goldman,
Sachs & Co., Dain Rauscher Wessels, a division of Dain Rauscher Incorporated
("Dain Rauscher Wessels"), and Hambrecht & Quist LLC are acting as
representatives, has severally agreed to purchase from the Company and the
Selling Stockholders, the respective number of shares of Common Stock set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
----------- ---------
<S> <C>
Goldman, Sachs & Co. .......................................
Dain Rauscher Wessels.......................................
Hambrecht & Quist LLC.......................................
---------
Total............................................. 4,600,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $ per share. The U.S. Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.
The Company and the Selling Stockholders have entered into an underwriting
agreement (the "International Underwriting Agreement") with the underwriters of
the international offering (the "International Underwriters") providing for the
concurrent offer and sale of 1,150,000 shares of Common Stock in an
international offering outside the United States. The offering price and
aggregate underwriting discounts and commissions per share for the two offerings
are identical. The closing of the offering made hereby is a condition to the
closing of the international offering, and vice versa. The representatives of
the International Underwriters are Goldman Sachs International, Dain Rauscher
Wessels, and Hambrecht & Quist LLC.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
a part of the distribution of the shares offered as a part of the international
offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell
U-1
<PAGE> 77
or deliver shares of Common Stock (a) in the United States or to any U.S.
persons or (b) to any person who it believes intends to reoffer, resell or
deliver the shares in the United States or to any U.S. Persons, and (ii) cause
any dealer to whom it may sell such shares at any concession to agree to observe
a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of the Prospectus to purchase up to an aggregate of 690,000
shares of Common Stock to cover over-allotments, if any. If the U.S.
Underwriters exercise their over-allotment option, the U.S. Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of the
U.S. Underwriters shown in the foregoing table bears to the 4,600,000 shares of
Common Stock offered. The Company has granted the International Underwriters a
similar option to purchase up to an aggregate of 172,500 additional shares of
Common Stock.
The Company and its stockholders have agreed, during the period beginning
from the date of this Prospectus and continuing to and including the date 180
days after the date of this Prospectus, not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any securities of the Company
(other than pursuant to employee stock incentive plans existing, or on the
conversion or exchange of convertible or exercisable securities outstanding, on
the date hereof) which are substantially similar to the shares of Common Stock
or which are convertible or exchangeable into shares of Common Stock or any
securities which are substantially similar to the shares of Common Stock,
without the prior written consent of Goldman, Sachs & Co. on behalf of the
Underwriters, except for the shares of Common Stock offered in connection with
the concurrent U.S. and international offerings.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters have discretionary
authority to exceed five percent of the total number of shares of Common Stock
offered by them.
Prior to the offerings, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated among the
Company, the Selling Stockholders and the representatives of the Underwriters.
Among the factors to be considered in determining the initial public offering
price of the Common Stock, in addition to prevailing market conditions, are the
Company's historical performance, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management and
the consideration of the above factors in relation to market valuation of
companies in related businesses.
In connection with the offerings, the Underwriters may purchase and sell
the Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover short
positions created by the Underwriters in connection with the offerings.
Stabilizing transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Common Stock; and
short positions created by the Underwriters involve the sale by the Underwriters
of a greater number of Common Stock than they are required to purchase from the
Company in the offerings. The Underwriters also may impose a penalty bid,
whereby selling concessions allowed to broker-dealers in respect of the
securities sold in the offering may be reclaimed by the Underwriters if such
shares of Common Stock are repurchased by the Underwriters in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the Common Stock, which may be higher than the price
that might otherwise prevail in the open market; and these activities, if
commenced, may be discontinued at any time. These transactions may be effected
on the Nasdaq National Market, in the over-the-counter market or otherwise.
U-2
<PAGE> 78
Application will be made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "INTI", subject to official notice
of issuance.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
U-3
<PAGE> 79
DESCRIPTION OF ARTWORK ON INSIDE BACK COVER
[Picture of an individual dressed in a business suit looking through a
free-standing, binocular viewer. In the upper left corner is the Company's
logo.]
Text:
Text at Upper Right Corner, Flush Right: "Inet's hardware and software solutions
help local, long distance and wireless telecommunications carriers worldwide
develop, deploy and optimize their intelligent networks and advanced services.
These solutions can
improve efficiency, increase profitability, manage fraud, test services and
evaluate network elements in the growing telecommunications market. Inet's
products help carriers and manufacturers see how operational changes impact
their customers. So they can manage their networks and their business better."
Text superimposed over middle of picture: "An eye for surveillance, a mind for
business"
<PAGE> 80
------------------------------------------------------
------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR THE SOLICITATION OF ANY OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 5
Use of Proceeds............................ 16
Dividend Policy............................ 16
Dilution................................... 17
Capitalization............................. 18
Selected Consolidated Financial Data....... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 20
Business................................... 28
Management................................. 43
Certain Transactions....................... 49
Principal and Selling Stockholders......... 50
Description of Capital Stock............... 51
Shares Eligible for Future Sale............ 54
Certain U.S. Federal Income Tax
Considerations for Non-U.S. Holders of
Common Stock............................. 56
Legal Matters.............................. 58
Experts.................................... 58
Additional Information..................... 58
Index to Consolidated Financial
Statements............................... F-1
Underwriting............................... U-1
</TABLE>
---------------------
UNTIL , 1998 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
5,750,000 SHARES
INET TECHNOLOGIES, INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
---------------------
[INET LOGO]
---------------------
GOLDMAN, SACHS & CO.
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
HAMBRECHT & QUIST
REPRESENTATIVES OF THE UNDERWRITERS
------------------------------------------------------
------------------------------------------------------
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
All capitalized terms used and not defined in Part II of this Registration
Statement shall have the meaning assigned to them in the Prospectus which forms
a part of this Registration Statement.
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the registrant in connection with the sale of
Common Stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 33,162
NASD fee.................................................... 11,742
Nasdaq National Market listing fee.......................... 17,500
Printing and engraving expenses............................. 100,000
Legal fees and expenses..................................... 350,000
Accounting fees and expenses................................ 190,000
Blue sky fees and expenses.................................. 10,000
Transfer agent fees......................................... 15,000
Miscellaneous............................................... 12,596
--------
Total............................................. $740,000
========
</TABLE>
- ---------------
* To be included by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (a) of Section 145 ("Section 145") of the DGCL empowers a
corporation to indemnify any person who was or is a party or is threatened,
pending or completed action, suit or proceeding whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interest of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect to any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
such action, suit or proceeding referred
II-1
<PAGE> 82
to in subsections (a) and (b) of Section 145 or in the defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith; that the indemnification provided for by Section 145 shall not be
deemed exclusive of any other rights which the indemnified party may be
entitled; that indemnification provided by Section 145 shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of such
person's heirs, executors and administrators; and empowers the corporation to
purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of the director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit.
Article VI of the registrant's Charter provides that, to the fullest extent
permitted by the DGCL as the same exists or as it may hereafter be amended, no
director of the registrant shall be personally liable to the registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Section 11.1 of the registrant's Bylaws further provides that the
registrant shall, to the maximum extent and in the manner permitted by the DGCL,
indemnify each of its directors and officers against expenses (including
attorneys' fees), judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any proceeding, arising by reason of the
fact that such person is or was an agent of the registrant.
Prior to consummation of the offerings, the registrant will enter into
indemnification agreements with each of its directors and executive officers
that provide for indemnification and expense advancement to the fullest extent
permitted under the DGCL.
Prior to consummation of the offerings, the registrant intends to obtain
officers' and directors' liability insurance.
Reference is made to Section 9 of the Underwriting Agreements filed as
Exhibits 1.1 and 1.2 hereto, indemnifying the officers and directors of the
registrant against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since July 1, 1995, the registrant has issued and sold or otherwise
transferred the below listed unregistered securities. These issuances were
deemed exempt from registration under the Securities Act in reliance on Rule 701
promulgated under the Securities Act or Section 4(2) of the Securities Act.
1. In March 1996, the registrant issued and sold 1,600,000 shares (net of
repurchases) of its Common Stock to employees for an aggregate purchase
price of $4,000 pursuant to exercises of options granted by the
registrant.
2. In February 1997, the registrant issued 50,000 shares of its Common
Stock to William H. Mina as a bonus in connection with the commencement
of his employment with the Company.
II-2
<PAGE> 83
3. The Company has from time to time granted stock options to employees.
The following table sets forth certain information regarding such
grants:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- --------------
<S> <C> <C>
July 1, 1995 through June 30, 1996.................... 50,000 $0.60
July 1, 1996 through June 30, 1997.................... 456,750 1.15
July 1, 1997 through the date hereof.................. 526,000 4.20
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<C> <S>
1.1 Form of U.S. Underwriting Agreement.
1.2 Form of International Underwriting Agreement.
3.1 Certificate of Incorporation.
3.2 Bylaws.
4.1* Specimen Common Stock certificate.
4.2 See Exhibits 3.1 and 3.2 for provisions of the Certificate
of Incorporation and Bylaws of the registrant defining the
rights of holders of Common Stock.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Lease dated as of May 1, 1996 by and among Pitman Partners,
Ltd., Rosewood Property Company and the registrant.
10.2 Loan Agreement dated as of June 26, 1997 by and between
NationsBank of Texas, N.A. and the registrant.
10.3 Inet Technologies, Inc. 1998 Stock Option/Stock Issuance
Plan.
10.4 Form of Indemnification Agreement between the registrant and
each of its directors and executive officers.
10.5 Form of Registration Rights Agreement, dated as of July 17,
1998 by and among the registrant, Samuel S. Simonian, Elie
S. Akilian and Mark A. Weinzierl.
10.6 Renewal, Extension and First Amendment to Loan Agreement
entered into to be effective as of June 15, 1998 between the
Company and NationsBank, N.A.
10.7 Fourth Amendment to Office lease dated as of July 15, 1998
by and among Pitman Partners, Ltd., Rosewood Property
Company and the registrant.
21.1 Subsidiaries of the registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in the
opinion filed as Exhibit 5.1).
24.1 Power of attorney pursuant to which amendments to this
registration statement may be filed (included on the
signature page in Part II hereof).
27.1 Financial data schedule for the period ended June 30, 1998.
27.2 Financial data schedule for the period ended June 30, 1997.
27.3 Financial data schedule for the period ended December 31,
1997.
27.4 Financial data schedule for the period ended December 31,
1996.
27.5 Financial data schedule for the period ended December 31,
1995.
99.1 Consent of Robert G. Mechaley, Jr.
</TABLE>
- ---------------
* To be included by amendment.
II-3
<PAGE> 84
(b) Financial Statement Schedules:
The following financial statement schedule of the Company is included in
Part II of this registration statement:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors on Financial Statement
Schedule.................................................. S-1
Schedule II -- Valuation and Qualifying Accounts............ S-2
</TABLE>
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
Consolidated Financial Statements or the Notes thereto.
ITEM 17. UNDERTAKINGS.
The registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the DGCL, the Certificate of Incorporation or the Bylaws
of the registrant, the Underwriting Agreement, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 85
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Plano,
State of Texas, on this 24th day of July, 1998.
INET TECHNOLOGIES, INC.
By: /s/ SAMUEL S. SIMONIAN
------------------------------------
Samuel S. Simonian
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Samuel S. Simonian and William H. Mina
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to sign any registration statement for the
same offering covered by this registration statement that is to be effective
upon filing pursuant to Rule 462(b) promulgated under the Securities Act of
1933, and all post-effective amendments thereto, and to file the same, with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ SAMUEL S. SIMONIAN President, Chief Executive Officer July 24, 1998
- ----------------------------------------------------- and Director (principal
Samuel S. Simonian executive officer)
/s/ ELIE S. AKILIAN Executive Vice President and July 24, 1998
- ----------------------------------------------------- Director
Elie S. Akilian
/s/ MARK A. WEINZIERL Executive Vice President and July 24, 1998
- ----------------------------------------------------- Director
Mark A. Weinzierl
/s/ WILLIAM H. MINA Senior Vice President, Chief July 24, 1998
- ----------------------------------------------------- Financial Officer and Director
William H. Mina (principal financial and
accounting officer)
</TABLE>
II-5
<PAGE> 86
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Inet Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Inet
Technologies, Inc. (the Company) as of December 31, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997, and have
issued our report thereon dated February 17, 1998, except for Note 1, as to
which the date is July 23, 1998, (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedule listed in
Item 16(b) of this Registration Statement. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
------------------------------------
Dallas, Texas
February 17, 1998
except for Note 1,
as to which the
date is July 23, 1998
S-1
<PAGE> 87
INET TECHNOLOGIES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS(1) YEAR
----------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Deducted from asset accounts --
Allowance for doubtful accounts............ $50 $ 58 $63 $ 45
=== ==== === ====
Year ended December 31, 1996:
Deducted from asset accounts --
Allowance for doubtful accounts............ $45 $ 12 $ 7 $ 50
=== ==== === ====
Year ended December 31, 1997:
Deducted from asset accounts --
Allowance for doubtful accounts............ $50 $452 $ 2 $500
=== ==== === ====
</TABLE>
- ---------------
(1) Activity includes uncollectible accounts written off, net of recoveries.
S-2
<PAGE> 88
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of U.S. Underwriting Agreement.
1.2 Form of International Underwriting Agreement.
3.1 Certificate of Incorporation.
3.2 Bylaws.
4.1* Specimen Common Stock certificate.
4.2 See Exhibits 3.1 and 3.2 for provisions of the Certificate
of Incorporation and Bylaws of the registrant defining the
rights of holders of Common Stock.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Lease dated as of May 1, 1996 by and among Pitman Partners,
Ltd., Rosewood Property Company and the registrant.
10.2 Loan Agreement dated as of June 26, 1997 by and between
NationsBank of Texas, N.A. and the registrant.
10.3 Inet Technologies, Inc. 1998 Stock Option/Stock Issuance
Plan.
10.4 Form of Indemnification Agreement between the registrant and
each of its directors and executive officers.
10.5 Form of Registration Rights Agreement, dated as of July 17,
1998 by and among the registrant, Samuel S. Simonian, Elie
S. Akilian and Mark A. Weinzierl.
10.6 Renewal, Extension and First Amendment to Loan Agreement
entered into to be effective as of June 15, 1998 between the
Company and NationsBank, N.A.
10.7 Fourth Amendment to office lease dated as of July 15, 1998
by and among Pitman Partners, Ltd., Rosewood Property
Company and the registrant.
21.1 Subsidiaries of the registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in the
opinion filed as Exhibit 5.1).
24.1 Power of attorney pursuant to which amendments to this
registration statement may be filed (included on the
signature page in Part II hereof).
27.1 Financial data schedule for the period ended June 30, 1998.
27.2 Financial data schedule for the period ended June 30, 1997.
27.3 Financial data schedule for the period ended December 31,
1997.
27.4 Financial data schedule for the period ended December 31,
1996.
27.5 Financial data schedule for the period ended December 31,
1995.
99.1 Consent of Robert G. Mechaley, Jr.
</TABLE>
- ---------------
* To be included by amendment.
<PAGE> 1
EXHIBIT 1.1
INET TECHNOLOGIES, INC.
COMMON STOCK, PAR VALUE $.001 PER SHARE
UNDERWRITING AGREEMENT
(U.S. VERSION)
_______________ ___, 1998
Goldman, Sachs & Co.,
Dain Rauscher Wessels, a division
of Dain Rauscher Incorporated
Hambrecht & Quist LLC,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Inet Technologies, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of _______shares and, at the election of the Underwriters, up to
_________additional shares of Common Stock, par value $.001 per share ("Stock"),
of the Company and the stockholders of the Company named in Schedule II hereto
(the "Selling Stockholders") propose, subject to the terms and conditions stated
herein, to sell to the Underwriters an aggregate of _______shares of Stock. The
aggregate of _________shares to be sold by the Company and the Selling
Stockholders is herein called the "Firm Shares" and the _________additional
shares to be sold by the Company are herein called the "Optional Shares." The
Firm Shares and the Optional Shares that the Underwriters elect to purchase
pursuant to Section 2 hereof are herein collectively called the "Shares."
It is understood and agreed to by all parties that the Company and the
Selling Stockholders are concurrently entering into an agreement (the
"International Underwriting Agreement") providing for the sale by the Company
and the Selling Stockholders of up to a total of ________shares of Stock (the
"International Shares"), including the overallotment option thereunder, through
arrangements with certain underwriters outside the United States (the
"International Underwriters"), for whom Goldman Sachs International is acting as
lead manager. Anything herein or therein to the contrary notwithstanding, the
respective closings under this Agreement and the International Underwriting
Agreement are hereby expressly made conditional on one another. The Underwriters
hereunder and the International Underwriters are simultaneously entering into an
Agreement between U.S. and International Underwriting Syndicates (the "Agreement
between Syndicates") which provides, among other things, for the transfer of
shares of Stock between the two syndicates. Two forms of prospectus are to be
used in connection with the offering and sale of shares of Stock contemplated by
the foregoing, one relating to the Shares hereunder and the other relating to
the International Shares. The latter form of prospectus will be identical to the
former except for certain substitute pages. Except as used in Sections 2, 3, 4,
9 and 11 herein, and except as the context may otherwise require, references
hereinafter to the Shares shall include all the shares of Stock which may be
sold pursuant to either this Agreement or the International Underwriting
Agreement, and references herein
<PAGE> 2
to any prospectus whether in preliminary or final form, and whether as amended
or supplemented, shall include both the U.S. and the international versions
thereof.
1. (a) The Company represents and warrants to, and agrees
with, each of the Underwriters that:
(i) A registration statement on Form S-1 (File
No. 333-________) (the "Initial Registration Statement") in respect of the
Shares has been filed with the Securities and Exchange Commission (the
"Commission"); the Initial Registration Statement and any post-effective
amendment thereto, each in the form heretofore delivered to you, and, excluding
exhibits thereto, for each of the other Underwriters, have been declared
effective by the Commission in such form; other than a registration statement,
if any, increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended (the "Act"), which became effective upon filing, no other document with
respect to the Initial Registration Statement has heretofore been filed with the
Commission, except for the registration statement on Form 8-A filed pursuant to
the Securities Exchange Act of 1934, as amended; and no stop order suspending
the effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any, has been
issued and no proceeding for that purpose has been initiated or threatened by
the Commission (any preliminary prospectus included in the Initial Registration
Statement or filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Act is hereinafter called a "Preliminary
Prospectus"; the various parts of the Initial Registration Statement and the
Rule 462(b) Registration Statement, if any, including all exhibits thereto and
including the information contained in the form of final prospectus filed with
the Commission pursuant to Rule 424(b) under the Act in accordance with Section
5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the
Initial Registration Statement at the time it was declared effective or such
part of the Rule 462(b) Registration Statement, if any, became or hereafter
becomes effective, each as amended at the time such part of the Initial
Registration Statement became effective, are hereinafter collectively called the
"Registration Statement"; and such final prospectus, in the form first filed
pursuant to Rule 424(b) under the Act, is hereinafter called the "Prospectus");
(ii) No order preventing or suspending the use of
any Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of the
Commission thereunder, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein or by a
Selling Stockholder expressly for use in the preparation of the answers therein
to Items 7 and 11(m) of Form S-1;
(iii) The Registration Statement conforms, and the
Prospectus and any further amendments or supplements to the Registration
Statement or the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date as to
the Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder
expressly for use in the preparation of the answers therein to Items 7 and 11(m)
of Form S-1;
(iv) Neither the Company nor any of its
subsidiaries has sustained since the date of the latest audited financial
statements included in the Prospectus any material loss or interference with its
business
-2-
<PAGE> 3
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Prospectus; and,
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the capital stock
or stock options of the Company or any of its subsidiaries or in the
consolidated long-term debt of the Company and its subsidiaries, taken as a
whole, or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, taken as a whole, otherwise than as set forth
or contemplated in the Prospectus;
(v) The Company and its subsidiaries have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are described in the Prospectus
or such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held under
lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
(vi) The Company and each of its subsidiaries own
or possess adequate licenses or other rights to use all patents, patent rights,
inventions, trade secrets, copyrights, trademarks, service marks, trade names,
technology and know-how currently employed or proposed to be employed by them in
connection with their business as described in the Prospectus; the Company is
not obligated to pay a royalty, grant a license, or provide other consideration
to any third party in connection with its patents, copyrights, trademarks,
service marks, trade names, technology or know-how other than pursuant to the
Binary Development and Distribution Agreement with SunSoft, Inc. dated January
30, 1998 and as otherwise disclosed in the Prospectus, and, except as disclosed
in the Prospectus, neither the Company nor any of its subsidiaries has received
any notice of infringement or conflict with (and neither the Company nor any of
its subsidiaries knows of any infringement or conflict with) rights of others
with respect to any patents, patent rights, inventions, trade secrets,
copyrights, trademarks, service marks, trade names, technology or know-how which
could result in any material adverse effect upon the Company and its
subsidiaries, taken as a whole; and, except as disclosed in the Prospectus, the
discoveries, inventions, products or processes of the Company and its
subsidiaries referred to in the Prospectus do not, to the best knowledge of the
Company or any of its subsidiaries, infringe or conflict with any right or
patent of any third party, or any discovery, invention, product or process which
is the subject of a patent application filed by any third party, known to the
Company or any of its subsidiaries, which could have a material adverse effect
on the Company and its subsidiaries, taken as a whole; and no third party,
including any academic or governmental organization, possesses rights to the
Company's patents, copyrights, trademarks, service marks, trade names,
technology or know-how which, if exercised, could enable such third party to
develop products competitive to those of the Company or could have a material
adverse effect on the ability of the Company to conduct its business in the
manner described in the Prospectus.
(vii) The Company and its subsidiaries possess all
consents, licenses, certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a materially adverse effect on or constitute a material adverse
change, or constitute a development involving a prospective material adverse
change, in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, taken as whole, otherwise than as set forth or contemplated in the
Prospectus;
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<PAGE> 4
(viii) The Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
State of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and has been
duly qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such qualification,
or is subject to no material liability or disability by reason of the failure to
be so qualified in any such jurisdiction; and each subsidiary of the Company has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation;
(ix) The execution and delivery of the Agreement
and Plan of Merger effective as of [JUNE 30], 1998 (the "Merger Agreement")
between INET, Inc., a Texas corporation (the "Texas Corporation"), and the
Company, effecting the reincorporation of the Texas Corporation under the laws
of the State of Delaware, was duly authorized by all necessary corporate action
on the part of each of the Texas Corporation and the Company; and each of the
Texas Corporation and the Company had all corporate power and authority to
execute and deliver the Merger Agreement and the Certificate of Merger and
Articles of Merger attached as exhibits thereto which they are a party, to file
such Certificate of Merger with the Secretary of State of State of Delaware, to
file such Articles of Merger with the Secretary of the State of Texas and to
consummate the reincorporation contemplated by the Merger Agreement, and the
Merger Agreement at the time of execution and immediately prior to the
effectiveness of the Merger constituted a valid and binding obligation of each
of the Texas Corporation and the Company;
(x) The Company has an authorized capitalization
as set forth in the Prospectus, and all of the issued shares of capital stock of
the Company have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description of the Stock contained in the
Prospectus; and all of the issued shares of capital stock of each subsidiary of
the Company have been duly and validly authorized and issued, are fully paid and
non-assessable and (except for directors' qualifying shares) are owned directly
or indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims;
(xi) The unissued Shares to be issued and sold by
the Company to the Underwriters hereunder and under the International
Underwriting Agreement have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein and therein, will be
duly and validly issued and fully paid and non-assessable and will conform to
the description of the Stock contained in the Prospectus;
(xii) The issue and sale of the Shares to be sold
by the Company hereunder and under the International Underwriting Agreement and
the compliance by the Company with all of the provisions of this Agreement and
the International Underwriting Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or result in
a breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the Company
of the transactions contemplated by this Agreement and the International
Underwriting Agreement, except the registration under the Act of the Shares and
such consents, approvals, authorizations, registrations or qualifications as may
be required by the National Association of Securities Dealers, Inc. (the "NASD")
and under state or foreign securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters and the
International Underwriters;
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<PAGE> 5
(xiii) Neither the Company nor any of its
subsidiaries is in violation of its Certificate of Incorporation or By-laws or
in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound;
(xiv) The statements set forth in the Prospectus
under the caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock and under the caption
"Underwriting", insofar as they purport to describe the provisions of the laws
and documents referred to therein, are accurate, complete and fair;
(xv) Other than as set forth in the Prospectus,
there are no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the Company or
any of its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate have
a material adverse effect on the current or future consolidated financial
position, stockholders' equity or results of operations of the Company and its
subsidiaries; and, to the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by others;
(xvi) Except for the Shares, all outstanding
shares of Stock, and all securities convertible into or exercisable or
exchangeable for Stock, are subject to valid and binding agreements
(collectively, the "Lock-up Agreements") that restrict the holders thereof from
selling, making any short sale of, granting any option for the purchase of,
pledging, or otherwise transferring or disposing of, any of such shares of
Stock, or any such securities convertible into or exercisable or exchangeable
for Stock, for a period of 180 days after the date of the Prospectus without the
prior written consent of Goldman, Sachs & Co.
(xvii) The Company (i) has notified each holder of
any outstanding shares of Stock and each holder of any securities convertible
into or exercisable or exchangeable for Stock that none of such options or
shares may be sold or otherwise transferred or disposed of for a period of 180
days after the date of the Prospectus and (ii) has imposed a stop-transfer
instruction with the Company's transfer agent in order to enforce the foregoing
lock-up provision imposed pursuant to the Plans.
(xviii) The Company is not and, after giving effect
to the offering and sale of the Shares, will not be an "investment company" or
an entity "controlled" by an "investment company," as such terms are defined in
the Investment Company Act of 1940, as amended (the "Investment Company Act");
(xix) Neither the Company nor any of its
affiliates does business with the government of Cuba or with any person or
affiliate located in Cuba within the meaning of Section 517.075, Florida
Statutes; and
(xx) Ernst & Young LLP, who have certified
certain financial statements of the Company and its subsidiaries, are
independent public accountants as required by the Act and the rules and
regulations of the Commission thereunder.
(b) Each of the Selling Stockholders severally represents
and warrants to, and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and
orders necessary for the execution and delivery by such Selling Stockholder of
this Agreement, the International Underwriting Agreement, the Power of Attorney
and the Custody Agreement hereinafter referred to, and for the sale and delivery
of the Shares to be sold by such Selling Stockholder hereunder and under the
International Underwriting Agreement, have been obtained; and such Selling
Stockholder has full right, power and authority to enter into this Agreement,
the International
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<PAGE> 6
Underwriting Agreement, the Power of Attorney and the Custody Agreement and to
sell, assign, transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder and under the International Underwriting Agreement;
(ii) The sale of the Shares to be sold by such
Selling Stockholder hereunder and under the International Underwriting Agreement
and the compliance by such Selling Stockholder with all of the provisions of
this Agreement, the International Underwriting Agreement, the Power of Attorney
and the Custody Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach or violation
of any of the terms or provisions of, or constitute a default under, any
statute, indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which such Selling Stockholder is a party or by which such
Selling Stockholder is bound, or to which any of the property or assets of such
Selling Stockholder is subject, nor will such action result in any violation of
the provisions of the Certificate of Incorporation or By-laws of such Selling
Stockholder if such Selling Stockholder is a corporation, the Partnership
Agreement of such Selling Stockholder if such Selling Stockholder is a
partnership or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over such Selling Stockholder or
the property of such Selling Stockholder;
(iii) Such Selling Stockholder has, and
immediately prior to First Time of Delivery (as defined in Section 4 hereof)
such Selling Stockholder will have, good and valid title to the Shares to be
sold by such Selling Stockholder hereunder and under the International
Underwriting Agreement, free and clear of all liens, encumbrances, equities or
claims other than as created pursuant to this Agreement, the International
Underwriting Agreement, the Custody Agreement and the Power of Attorney; and,
upon delivery of such Shares and payment therefor pursuant hereto and pursuant
to the International Underwriting Agreement, good and valid title to such
Shares, free and clear of all liens, encumbrances, equities or claims, will pass
to the several Underwriters or the International Underwriters, as the case may
be;
(iv) During the period beginning from the date
hereof and continuing to and including the date 180 days after the date of the
Prospectus, without the prior written consent of Goldman, Sachs & Co. on behalf
of the Underwriters, it will not, (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Stock or any
securities convertible into or exercisable or exchangeable for Stock or (ii)
enter into any swap or other arrangement that transfers to another, in whole or
in part, any of the economic consequences of ownership of Stock, whether any
such transaction described in clause (i) or (ii) above is to be settled by
delivery of Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (a) the sale of the Shares to the Underwriters
pursuant to this Agreement or the International Underwriting Agreement, or (b)
transactions relating to Stock or other securities acquired in open market
transactions after the completion of the First Time of Delivery (as hereinafter
defined). Notwithstanding the foregoing restrictions on transfer, such Selling
Stockholder shall be permitted to make the following transfers: (x) transfers
made by a bona fide gift, will or intestacy, provided the donee or other
transferee thereof agrees in writing to be bound by the terms hereof, and (y) to
any trust for the direct or indirect benefit of such Selling Stockholder or the
immediate family of such Selling Stockholder, provided that the trustee of the
trust agrees to be bound by the terms hereof, and provided further that any such
transfer shall not involve a disposition for value. For purposes hereof,
"immediate family" shall mean any relationship by blood marriage or adoption,
not more remote than first cousin;
(v) Such Selling Stockholder has not taken and
will not take, directly or indirectly, any action which is designed to or which
has constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares;
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<PAGE> 7
(vi) To the extent that any statements or
omissions made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto are made in reliance upon and
in conformity with written information furnished to the Company by such Selling
Stockholder expressly for use therein, such Preliminary Prospectus and the
Registration Statement did, and the Prospectus and any further amendments or
supplements to the Registration Statement and the Prospectus, when they become
effective or are filed with the Commission, as the case may be, will conform in
all material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder and will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading;
(vii) In order to document the Underwriters'
compliance with the reporting and withholding provisions of the Tax Equity and
Fiscal Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or at the
First Time of Delivery (as hereinafter defined) a properly completed and
executed United States Treasury Department Form W-9 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof);
(viii) Certificates in negotiable form representing
all of the Shares to be sold by such Selling Stockholder hereunder and under the
International Underwriting Agreement have been placed in custody under a Custody
Agreement, in the form heretofore furnished to you (the "Custody Agreement"),
duly executed and delivered by such Selling Stockholder to_________________, as
custodian (the "Custodian"), and such Selling Stockholder has duly executed and
delivered a Power of Attorney, in the form heretofore furnished to you (the
"Power of Attorney"), appointing the persons indicated in Schedule II hereto,
and each of them, as such Selling Stockholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver this Agreement and
the International Underwriting Agreement on behalf of such Selling Stockholder,
to determine the purchase price to be paid by the Underwriters and the
International Underwriters to the Selling Stockholders as provided in Section 2
hereof, to authorize the delivery of the Shares to be sold by such Selling
Stockholder hereunder and otherwise to act on behalf of such Selling Stockholder
in connection with the transactions contemplated by this Agreement, the
International Underwriting Agreement and the Custody Agreement; and
(ix) The Shares represented by the certificates
held in custody for such Selling Stockholder under the Custody Agreement are
subject to the interests of the Underwriters hereunder and the International
Underwriters under the International Underwriting Agreement; the arrangements
made by such Selling Stockholder for such custody, and the appointment by such
Selling Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to
that extent irrevocable; the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the death or incapacity
of any individual Selling Stockholder or, in the case of an estate or trust, by
the death or incapacity of any executor or trustee or the termination of such
estate or trust, or in the case of a partnership or corporation, by the
dissolution of such partnership or corporation, or by the occurrence of any
other event; if any individual Selling Stockholder or any such executor or
trustee should die or become incapacitated, or if any such estate or trust
should be terminated, or if any such partnership or corporation should be
dissolved, or if any other such event should occur, before the delivery of the
Shares hereunder, certificates representing the Shares shall be delivered by or
on behalf of the Selling Stockholders in accordance with the terms and
conditions of this Agreement, of the International Underwriting Agreement and of
the Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant to
the Powers of Attorney shall be as valid as if such death, incapacity,
termination, dissolution or other event had not occurred, regardless of whether
or not the Custodian, the Attorneys-in-Fact, or any of them, shall have received
notice of such death, incapacity, termination, dissolution or other event.
2. Subject to the terms and conditions herein set forth, (a) the
Company and each of the Selling Stockholders agree, severally and not jointly,
to sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company and each of the Selling
Stockholders, at a purchase
-7-
<PAGE> 8
price per share of $__________, the number of Firm Shares (to be adjusted by you
so as to eliminate fractional shares) determined by multiplying the aggregate
number of Firm Shares to be sold by the Company and each of the Selling
Stockholders as set forth opposite their respective names in Schedule II hereto
by a fraction, the numerator of which is the aggregate number of Firm Shares to
be purchased by such Underwriter as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the aggregate
number of Firm Shares to be purchased by all of the Underwriters from the
Company and all of the Selling Stockholders hereunder and (b) in the event and
to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at the purchase price per share set forth in clause
(a) of this Section 2, that portion of the number of Optional Shares as to which
such election shall have been exercised (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying such number of Optional
Shares by a fraction the numerator of which is the maximum number of Optional
Shares which such Underwriter is entitled to purchase as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the maximum number of Optional Shares that all of the Underwriters are entitled
to purchase hereunder.
The Company, as and to the extent indicated in Schedule II
hereto, hereby grants, to the Underwriters the right to purchase at their
election up to _________Optional Shares, at the purchase price per share set
forth in the paragraph above, for the sole purpose of covering overallotments in
the sale of the Firm Shares. Any such election to purchase Optional Shares may
be exercised only by written notice from you to the Company, given within a
period of 30 calendar days after the date of this Agreement and setting forth
the aggregate number of Optional Shares to be purchased and the date on which
such Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery (as defined in Section 4 hereof) or,
unless you and the Company otherwise agree in writing, earlier than two or later
than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm
Shares, the several Underwriters propose to offer the Firm Shares for sale upon
the terms and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter
hereunder, in definitive form, and in such authorized denominations and
registered in such names as Goldman, Sachs & Co. may request upon at least
forty-eight hours' prior notice to the Company and the Selling Stockholders
shall be delivered by or on behalf of the Company and the Selling Stockholders
to Goldman, Sachs & Co., through the facilities of The Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company and the Custodian to
Goldman, Sachs & Co. at least forty-eight hours in advance. The Company will
cause the certificates representing the Shares to be made available for checking
and packaging at least twenty-four hours prior to the Time of Delivery (as
defined below) with respect thereto at the office of DTC or its designated
custodian (the "Designated Office"). The time and date of such delivery and
payment shall be, with respect to the Firm Shares, 9:30 a.m., New York City
time, on ___________ ___, 1998 or such other time and date as Goldman, Sachs &
Co. and the Company may agree upon in writing, and, with respect to the Optional
Shares, 9:30 a.m., New York City time, on the date specified by Goldman, Sachs &
Co. in the written notice given by Goldman, Sachs & Co. of the Underwriters'
election to purchase such Optional Shares, or such other time and date as
Goldman, Sachs & Co. and the Company may agree upon in writing. Such time and
date for delivery of the Firm Shares is herein called the "First Time of
Delivery", such time and date for delivery of the Optional Shares, if not the
First Time of Delivery, is herein called the "Second Time of Delivery", and each
such time and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of
Delivery by or on behalf of the parties hereto pursuant to Section 7 hereof,
including the cross-receipt for the Shares and any additional documents
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<PAGE> 9
requested by the Underwriters pursuant to Section 7(m) hereof, will be delivered
at the offices of ____________________________________________ (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
each Time of Delivery. A meeting will be held at the Closing Location at 6:00
p.m., New York City time, on the New York Business Day next preceding each Time
of Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 4, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you
and to file such Prospectus pursuant to Rule 424(b) under the Act not later than
the Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus which
shall be disapproved by you promptly after reasonable notice thereof; to advise
you, promptly after it receives notice thereof, of the time when any amendment
to the Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and to
furnish you copies thereof; to advise you, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or Prospectus, of
the suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or Prospectus or suspending any
such qualification, promptly to use its best efforts to obtain the withdrawal of
such order;
(b) Promptly from time to time to take such action as you
may reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may reasonably request and to
comply with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New
York Business Day next succeeding the date of this Agreement and from time to
time, to furnish the Underwriters with copies of the Prospectus in New York City
in such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months after
the time of issue of the Prospectus in connection with the offering or sale of
the Shares and if at such time any events shall have occurred as a result of
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such period to amend or
supplement the Prospectus in order to comply with the Act, to notify you and
upon your request to prepare and furnish without charge to each Underwriter and
to any dealer in securities as many copies as you may from time to time
reasonably request of an amended Prospectus or a supplement to the Prospectus
which will correct such statement or omission or effect such compliance, and in
case any Underwriter is required to deliver a prospectus in connection with
sales of any of the Shares at any time nine months or more after the time of
issue of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as you
may request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
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<PAGE> 10
(d) To make generally available to its securityholders as
soon as practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c) under
the Act), an earnings statement of the Company and its subsidiaries (which need
not be audited) complying with Section 11(a) of the Act and the rules and
regulations of the Commission thereunder (including, at the option of the
Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the Prospectus,
not to offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, except as provided hereunder and under the International
Underwriting Agreement, any securities of the Company that are substantially
similar to the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to receive,
Stock or any such substantially similar securities (other than pursuant to
employee stock option plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Agreement), without your prior written consent;
(f) To furnish to its stockholders as soon as practicable
after the end of each fiscal year an annual report (including a balance sheet
and statements of income, stockholders' equity and cash flows of the Company and
its consolidated subsidiaries certified by independent public accountants) and,
as soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), consolidated summary financial information of
the Company and its subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date
of the Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale
of the Shares pursuant to this Agreement and the International Underwriting
Agreement in the manner specified in the Prospectus under the caption "Use of
Proceeds;"
(i) To use its best efforts to list for quotation the
Shares on the National Association of Securities Dealers Automated Quotations
National Market System ("NASDAQ");
(j) To file with the Commission such information on Form
10-Q or Form 10-K as may be required by Rule 463 under the Act;
(k) If the Company elects to rely upon Rule 462(b), the
Company shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of
this Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act;
(l) The Company will (i) cooperate with the Underwriters
to enforce the terms of each Lockup Agreement (as defined in Section 1 (a)
(xvi)), (ii) issue stop-transfer instructions to the transfer agent for the
Stock with respect to any transaction or contemplated transaction that would
constitute a breach of or default under the applicable Lock-up Agreement and
(iii) upon written request of Goldman, Sachs & Co., release from the Lock-
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<PAGE> 11
up Agreements those shares of Stock held by those holders set forth in such
request. In addition, except with the prior written consent of Goldman, Sachs &
Co., the Company agrees (i) not to amend or terminate, or waive any right under,
any Lock-up Agreement, or take any other action that would directly or
indirectly have the same effect as an amendment or termination, or waiver of any
right under, any Lock-up Agreement, that would permit any holder of shares of
Stock, or any securities convertible into, or exercisable or exchangeable for,
Stock, to (x) offer, pledge, sell, offer to sell, contract to sell, sell any
option or contract to purchase, purchase any option to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, such shares of Stock or other securities, or (y) enter into any swap
or other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of such shares of Stock or other securities, and (ii)
not to consent to any sale, short sale, grant of an option for the purchase of,
or other disposition or transfer of shares of Stock, or securities convertible
into or exercisable or exchangeable for Stock, subject to a Lock-up Agreement;
and
(m) The Company will place a restrictive legend on any
shares of Stock acquired pursuant to the exercise, after the date hereof and
prior to the expiration of the 180-day period after the date of the Prospectus,
of any option granted under the Plans, which legend shall restrict the transfer
of such shares prior to the expiration of such 180-day period. In addition, the
Company agrees that, without the prior written consent of Goldman, Sachs & Co.,
it will not release any stockholder or option holder from the market standoff
provision agreed to between such stockholder or option holder and the Company
(or, if allowed, imposed by the Company) pursuant to the terms of the Plans
earlier than 180 days after the date of the Prospectus.
6. The Company and each of the Selling Stockholders, jointly and
severally, covenant and agree with one another and with the several Underwriters
that (a) the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the International Underwriting
Agreement, the Agreement between Syndicates, the Selling Agreements, the Blue
Sky Memorandum, closing documents (including any compilations thereof) and any
other documents in connection with the offering, purchase, sale and delivery of
the Shares; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws as provided in Section
5(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky survey; (iv) all fees and expenses in connection with listing the
Shares on the NASDAQ; (v) the filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with, securing any
required review by the NASD of the terms of the sale of the Shares; (vi) the
cost of preparing stock certificates; (vii) the cost and charges of any transfer
agent or registrar; (viii) the fees and expenses of the Attorneys-in-Fact and
the Custodian; (ix) the costs and expenses of travel, lodging and meals of the
Company's employees in connection with the "roadshow" and any other meeting with
prospective investors in the Shares (other than as shall have been specifically
approved by the Representatives to be paid for by the Underwriters); and (x) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section; and
(b) each Selling Stockholder will pay or cause to be paid all costs and expenses
incident to the performance of such Selling Stockholder's obligations hereunder
which are not otherwise specifically provided for in this Section, including (i)
any fees and expenses of counsel for such Selling Stockholder (if other than the
Company's counsel) and (ii) all expenses and taxes incident to the sale and
delivery of the Shares to be sold by such Selling Stockholder to the
Underwriters hereunder. In connection with Clause (b) (ii) of the preceding
sentence, Goldman, Sachs & Co. agrees to pay New York State stock transfer tax,
and the Selling Stockholder agrees to reimburse Goldman, Sachs & Co. for
associated carrying costs if such tax payment is not rebated on the day of
payment and for any portion of such tax payment not rebated. It is understood,
however, that the Company shall bear, and the Selling Stockholders shall not be
required to pay or to reimburse the Company for, the cost of any other matters
not directly relating to the sale and purchase of the Shares pursuant to this
Agreement, and that, except as provided in this
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Section, and Sections 8 and 11 hereof, the Underwriters will pay all of their
own costs and expenses, including the fees of their counsel, stock transfer
taxes on resale of any of the Shares by them, and any advertising expenses
connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the
Shares to be delivered at each Time of Delivery as the Company and at the First
Time of Delivery as to the Selling Stockholders, shall be subject, in their
discretion, to the condition that all representations and warranties and other
statements of the Company and of the Selling Stockholders herein are, at and as
of such Time of Delivery, true and correct, the condition that the Company and
the Selling Stockholders shall have performed all of its and their obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Act and in accordance
with Section 5(a) hereof; if the Company has elected to rely upon Rule 462(b),
the Rule 462(b) Registration Statement shall have become effective by 10:00
P.M., Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and all requests for additional
information on the part of the Commission shall have been complied with to your
reasonable satisfaction;
(b) Wilson Sonsini Goodrich & Rosati, counsel for the
Underwriters, shall have furnished to you such written opinion or opinions,
dated such Time of Delivery, with respect to the matters covered in paragraphs
(i), (ii), (x), (xiv) and (xvi) of subsection (c) below as well as such other
related matters as you may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to enable
them to pass upon such matters;
(c) Brobeck, Phleger & Harrison LLP, counsel for the
Company, shall have furnished to you their written opinion, dated such Time of
Delivery, in form and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
State of Delaware, with full corporate power and authority to own its properties
and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization
as set forth in the Prospectus, and all of the issued shares of capital stock of
the Company (including the Shares being delivered at such Time of Delivery) have
been duly and validly authorized and issued and are fully paid and
non-assessable; and the Shares conform to the description of the Stock contained
in the Prospectus;
(iii) Except as set forth in the Prospectus, the
Company does not have outstanding any options to purchase, or any statutory
preemptive rights, or to the best knowledge of such counsel, any other
preemptive rights, or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations;
(iv) The Company has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, or is subject to
no material liability or disability by reason of failure to be so qualified in
any such jurisdiction (such counsel being entitled to rely in respect of the
opinion in this clause upon opinions of local counsel and in respect of matters
of fact upon certificates of officers of the Company, provided that such counsel
shall state that they believe that both you and they are justified in
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<PAGE> 13
relying upon such opinions and certificates, and that copies of such opinions
and certificates be provided to counsel for the Underwriters);
(v) Each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation; and all of the issued shares of
capital stock of each such subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable, and (except for directors' qualifying
shares) are owned directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims;
(vi) The Company and its subsidiaries have good
and marketable title in fee simple to all real property owned by them, in each
case free and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company and its subsidiaries; and the lease for the
Company's headquarters is a valid, subsisting and enforceable lease with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and building by the Company;
(vii) The execution and delivery of the Merger
Agreement, effecting the reincorporation of the Texas Corporation under the laws
of the State of Delaware, was duly authorized by all necessary corporate action
on the part of each of the Texas Corporation and the Company;
(viii) Each of the Texas Corporation and the
Company had all full corporate power and authority necessary to execute and
deliver the Merger Agreement, to execute and file the Articles of Merger with
the Secretary of the State of Texas and the Certificate of Merger with the
Secretary of the State of Delaware and to consummate the reincorporation
contemplated by the Merger Agreement, and the Merger Agreement at the time of
execution and immediately prior to the effectiveness of the Merger constituted a
valid and binding obligation of each of the Texas Corporation and the Company;
(ix) To the best of such counsel's knowledge and
other than as set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is a party
or of which any property of the Company or any of its subsidiaries is the
subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material adverse
effect on the current or future consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries; and, to
such counsel's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(x) This Agreement and the International
Underwriting Agreement have been duly authorized, executed and delivered by the
Company;
(xi) The issue and sale of the Shares being
delivered at such Time of Delivery to be sold by the Company and the compliance
by the Company with all of the provisions of this Agreement and the
International Underwriting Agreement and the consummation of the transactions
herein and therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any statute or any
order, rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its subsidiaries
or any of their properties;
(xii) No consent, approval, authorization, order,
registration or qualification of or with any such court or governmental agency
or body is required for the issue and sale of the Shares or the consummation
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<PAGE> 14
by the Company of the transactions contemplated by this Agreement and the
International Underwriting Agreement, except the registration under the Act of
the Shares, and such consents, approvals, authorizations, registrations or
qualifications as may be required by the NASD and under state or foreign
securities or Blue Sky laws in connection with the purchase and distribution of
the Shares by the Underwriters and the International Underwriters;
(xiii) Neither the Company nor any of its
subsidiaries is in violation of its Certificate of Incorporation or By-laws or
in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound;
(xiv) The statements set forth in the Prospectus
under the caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock and under the caption
"Underwriting", insofar as they purport to describe the provisions of the laws
and documents referred to therein, are accurate, complete and fair;
(xv) The Company is not an "investment company"
or an entity "controlled" by an "investment company," as such terms are defined
in the Investment Company Act;
(xvi) The Registration Statement and the
Prospectus and any further amendments and supplements thereto made by the
Company prior to such Time of Delivery (other than the financial statements and
related schedules therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the Act and
the rules and regulations thereunder; although they do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, except for those
referred to in the opinion in subsection (xiv) of this Section 7(c), they have
no reason to believe that, as of its effective date, the Registration Statement
or any further amendment thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules therein, as
to which such counsel need express no opinion) contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that, as
of its date, the Prospectus or any further amendment or supplement thereto made
by the Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel need express
no opinion) contained an untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that, as of such
Time of Delivery, either the Registration Statement or the Prospectus or any
further amendment or supplement thereto made by the Company prior to such Time
of Delivery (other than the financial statements and related schedules therein,
as to which such counsel need express no opinion) contains an untrue statement
of a material fact or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and they do not know of any amendment to the Registration
Statement required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration Statement or
required to be described in the Registration Statement or the Prospectus which
are not filed or described as required.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than the federal securities
laws of the United States, the Delaware General Corporation Law and the laws of
the State of Texas. With respect to the opinions set forth in subparagraph (v)
above, to the extent such opinions address questions of law other than the
federal securities laws of the United States, the Delaware General Corporation
Law and the laws of the State of Texas, such counsel may deliver opinions of
local counsel reasonably acceptable to the Underwriters as to such matters;
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<PAGE> 15
(d) Each of Samra & Associates, special counsel for the
Company, and Fulbright & Jaworski LLP, special counsel for the Company, shall
have furnished to you its written opinion, dated such Time of Delivery, in form
and substance satisfactory to you, to the effect that:
(i) [scope to be determined upon completion of
due diligence]
(e) Brobeck, Phleger & Harrison LLP, special counsel for
each of the Selling Stockholders, shall have furnished to you its written
opinion with respect to each of the Selling Stockholders for whom they are
acting as counsel, dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) A Power of Attorney and a Custody Agreement
have been duly executed and delivered by such Selling Stockholder and constitute
valid and binding agreements of such Selling Stockholder in accordance with
their terms;
(ii) This Agreement and the International
Underwriting Agreement have been duly executed and delivered by or on behalf of
such Selling Stockholder; and the sale of the Shares to be sold by such Selling
Stockholder hereunder and thereunder and the compliance by such Selling
Stockholder with all of the provisions of this Agreement and the International
Underwriting Agreement, the Power of Attorney and the Custody Agreement and the
consummation of the transactions herein and therein contemplated will not
conflict with or result in a breach or violation of any terms or provisions of,
or constitute a default under, any statute, or material indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument known to such
counsel to which such Selling Stockholder is a party or by which such Selling
Stockholder is bound, or to which any of the property or assets of such Selling
Stockholder is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of such Selling
Stockholder if such Selling Stockholder is a corporation, the Partnership
Agreement of such Selling Stockholder if such Selling Stockholder is a
partnership or any order, rule or regulation known to such counsel of any court
or governmental agency or body having jurisdiction over such Selling Stockholder
or the property of such Selling Stockholder;
(iii) To such counsel's knowledge, no consent,
approval, authorization or order of any court or governmental agency or body is
required for the consummation of the transactions contemplated by this Agreement
and the International Underwriting Agreement in connection with the Shares to be
sold by such Selling Stockholder hereunder or thereunder, except such as have
been obtained under the Act and such as may be required by the NASD and under
state or foreign securities or Blue Sky laws in connection with the purchase and
distribution of such Shares by the Underwriters or the International
Underwriters;
(iv) Immediately prior to such Time of Delivery
such Selling Stockholder had good and valid title to the Shares to be sold at
such Time of Delivery by such Selling Stockholder under this Agreement and the
International Underwriting Agreement, free and clear of all liens, encumbrances,
equities or claims, and full right, power and authority to sell, assign,
transfer and deliver the Shares to be sold by such Selling Stockholder hereunder
and thereunder; and
(v) Good and valid title to such Shares, free
and clear of all liens, encumbrances, equities or claims, has been transferred
to each of the several Underwriters or International Underwriters, as the case
may be, who have purchased such Shares in good faith and without notice of any
such lien, encumbrance, equity or claim or any other adverse claim within the
meaning of the Uniform Commercial Code.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than the federal securities
laws of the United States, the Delaware General Corporation Law and the laws of
the State of Texas. With respect to the opinions set forth in subparagraphs (i),
(ii) and (iii) above, to the extent that such opinions address questions of law
not involving the federal securities laws of the United States, the Delaware
General Corporation Law or laws of the State of Texas, such counsel may deliver
opinions of local
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<PAGE> 16
counsel as to such matters. In addition, in rendering the opinion in
subparagraph (iv) above, such counsel may rely upon a certificate of such
Selling Stockholder in respect of matters of fact as to ownership of, and liens,
encumbrances, equities or claims on the Shares sold by such Selling Stockholder,
provided that such counsel shall state that they believe that both you and they
are justified in relying upon such certificate;
(f) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the effective
date of any post-effective amendment to the Registration Statement filed
subsequent to the date of this Agreement and also at each Time of Delivery,
Ernst & Young LLP shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory to you,
to the effect set forth in Annex I hereto (the executed copy of the letter
delivered prior to the execution of this Agreement is attached as Annex I(a)
hereto and a draft of the form of letter to be delivered on the effective date
of any post-effective amendment to the Registration Statement and as of each
Time of Delivery is attached as Annex I(b) hereto);
(g) (i) Neither the Company nor any of its subsidiaries
shall have sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus, and (ii) since the
respective dates as of which information is given in the Prospectus there shall
not have been any change in the capital stock, stock options or long-term debt
of the Company or any of its subsidiaries or any change, or any development
involving a prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the Company
and its subsidiaries, taken as a whole, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case described
in Clause (i) or (ii), is in the judgment of the Representatives so material and
adverse as to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of Delivery
on the terms and in the manner contemplated in the Prospectus;
(h) On or after the date hereof (i) no downgrading shall
have occurred in the rating accorded the Company's debt securities or preferred
stock by any "nationally recognized statistical rating organization," as that
term is defined by the Commission for purposes of Rule 436(g)(2) under the Act,
and (ii) no such organization shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating of any
of the Company's debt securities or preferred stock;
(i) On or after the date hereof there shall not have
occurred any of the following: (i) a suspension or material limitation in
trading in securities generally on the New York Stock Exchange or on NASDAQ;
(ii) a suspension or material limitation in trading in the Company's securities
on NASDAQ; (iii) a general moratorium on commercial banking activities declared
by either Federal or New York or Texas State authorities; or (iv) the outbreak
or escalation of hostilities involving the United States or the declaration by
the United States of a national emergency or war, if the effect of any such
event specified in this Clause (iv) in the judgment of the Representatives makes
it impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the terms and
in the manner contemplated in the Prospectus;
(j) The Shares to be sold by the Company and the Selling
Stockholders at such Time of Delivery shall have been duly listed for quotation
on NASDAQ;
(k) The Company shall have obtained and delivered to the
Underwriters executed copies of an agreement from each stockholder and
optionholder of the Company, substantially to the effect set forth in
Subsections 1(a)(xvi) and 1(b)(iv) hereof in form and substance satisfactory to
you;
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<PAGE> 17
(l) The Company shall have complied with the provisions
of Section 5(c) hereof with respect to the furnishing of prospectuses on the New
York Business Day next succeeding the date of this Agreement; and
(m) The Company and the Selling Stockholders shall have
furnished or caused to be furnished to you at such Time of Delivery certificates
of officers of the Company and of the Selling Stockholders, respectively,
satisfactory to you as to the accuracy of the representations and warranties of
the Company and the Selling Stockholders, respectively, herein at and as of such
Time of Delivery, as to the performance by the Company and the Selling
Stockholders of all of their respective obligations hereunder to be performed at
or prior to such Time of Delivery, and as to such other matters as you may
reasonably request, and the Company shall have furnished or caused to be
furnished certificates as to the matters set forth in subsections (a) and (g) of
this Section, and as to such other matters as you may reasonably request.
8. (a) The Company and each of Samuel S. Simonian, Elie S.
Akilian, Mark A. Weinzierl and William H. Mina (collectively, the "Management
Selling Stockholders"), jointly and severally, will indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse each Underwriter for
any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that the Company and the Management
Selling Stockholders shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman, Sachs &
Co. expressly for use therein; provided further, that the liability of each
Management Selling Stockholder pursuant to this subsection (a) shall not exceed
the product of the number of Shares sold by such Management Selling Stockholder
and the public offering price of the Shares as set forth in the Prospectus.
(b) Each of the Selling Stockholders (other than the
Management Selling Stockholders) will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Selling Stockholder expressly for use therein; and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that such Selling
Stockholder shall not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman, Sachs &
Co. expressly for use therein; provided, further, that the liability of a
Selling Stockholder
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<PAGE> 18
pursuant to this subsection (b) shall not exceed the product of the number of
Shares sold by such Selling Stockholder and the public offering price of the
Shares as set forth in the Prospectus.
(c) Each Underwriter will indemnify and hold harmless the
Company and each Selling Stockholder against any losses, claims, damages or
liabilities to which the Company or such Selling Stockholder may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company and each Selling
Stockholder for any legal or other expenses reasonably incurred by the Company
or such Selling Stockholder in connection with investigating or defending any
such action or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be made
against an indemnifying party under such subsection, notify the indemnifying
party in writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (which shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(e) If the indemnification provided for in this Section 8
is unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Stockholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholders on
-18-
<PAGE> 19
the one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares purchased
under this Agreement (before deducting expenses) received by the Company and the
Selling Stockholders bear to the total underwriting discounts and commissions
received by the Underwriters with respect to the Shares purchased under this
Agreement, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, each of the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this subsection (e)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (e). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (e) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling
Stockholders under this Section 8 shall be in addition to any liability which
the Company and the respective Selling Stockholders may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
any Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company (including any
person who, with his or her consent, is named in the Registration Statement as
about to become a director of the Company) and to each person, if any, who
controls the Company or any Selling Stockholder within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or other
parties to purchase such Shares on the terms contained herein. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Shares, then the Company and the Selling Stockholders shall
be entitled to a further period of thirty-six hours within which to procure
another party or other parties satisfactory to you to purchase such Shares on
such terms. In the event that, within the respective prescribed periods, you
notify the Company and the Selling Stockholders that you have so arranged for
the purchase of such Shares, or the Company and the Selling Stockholders notify
you that they have so arranged for the purchase of such Shares, you or the
Company and the Selling Stockholders shall have the right to postpone such Time
of Delivery for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you and
the Company and the Selling Stockholders as provided in subsection (a)
-19-
<PAGE> 20
above, the aggregate number of such Shares which remains unpurchased does not
exceed one-eleventh of the aggregate number of all of the Shares to be purchased
at such Time of Delivery, then the Company and the Selling Stockholders shall
have the right to require each non-defaulting Underwriter to purchase the number
of Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you and
the Company and the Selling Stockholders as provided in subsection (a) above,
the aggregate number of such Shares which remains unpurchased exceeds
one-eleventh of the aggregate number of all of the Shares to be purchased at
such Time of Delivery, or if the Company and the Selling Stockholders shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company or the Selling Stockholders, except
for the expenses to be borne by the Company and the Selling Stockholders and the
Underwriters as provided in Section 6 hereof and the indemnity and contribution
agreements in Section 8 hereof; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and the
several Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person of
any Underwriter, or the Company, or any of the Selling Stockholders, or any
officer or director or controlling person of the Company, or any controlling
person of any Selling Stockholder, and shall survive delivery of and payment for
the Shares.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company and the Selling Stockholders as provided herein, the Company and, if the
Company fails to do so, each of the Selling Stockholders pro rata (based on the
number of Shares to be sold by the Company and such Selling Stockholder
hereunder), will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company and
the Selling Stockholders shall then be under no further liability to any
Underwriter in respect of the Shares not so delivered except as provided in
Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of
the Underwriters, and the parties hereto shall be entitled to act and rely upon
any statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 9th Floor, New York, New York 10004, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling
-20-
<PAGE> 21
Stockholder at its address set forth in Schedule II hereto; and if to the
Company shall be delivered or sent by mail, telex or facsimile transmission to
the address of the Company set forth in the Registration Statement, Attention:
Chief Financial Officer; provided, however, that any notice to an Underwriter
pursuant to Section 8 (c) hereof shall be delivered or sent by mail, telex or
facsimile transmission to such Underwriter at its address set forth in its
Underwriters' Questionnaire or telex constituting such Questionnaire, which
address will be supplied to the Company or the Selling Stockholders by you upon
request. Any such statements, requests, notices or agreements shall take effect
upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and the Selling Stockholders and, to
the extent provided in Sections 8 and 10 hereof, the officers and directors of
the Company and each person who controls the Company, any Selling Stockholder or
any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement. As used
herein, the term "business day" shall mean any day when the Commission's office
in Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us seven counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters, the
Company and each of the Selling Stockholders. It is understood that your
acceptance of this letter on behalf of each of the Underwriters is pursuant to
the authority set forth in a form of Agreement among Underwriters (U.S.
Version), the form of which shall be submitted to the Company and the Selling
Stockholders for examination upon request, but without warranty on your part as
to the authority of the signers thereof.
-21-
<PAGE> 22
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly appointed
as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-Fact to take
such action.
Very truly yours,
INET TECHNOLOGIES, INC.
By:
-----------------------------------------
Name:
Title:
SAMUEL S. SIMONIAN
ELIE S. AKILIAN
MARK A. WEINZIERL
[NAMES OF OTHER SELLING STOCKHOLDERS]
By:
-----------------------------------------
Name:
Title:
As Attorney-in-Fact acting on behalf of
each of the Selling Stockholders named
in Schedule II to this Agreement.
Accepted as of the date hereof:
GOLDMAN, SACHS & CO.
DAIN RAUSCHER WESSELS, A DIVISION
OF DAIN RAUSCHER INCORPORATED
HAMBRECHT & QUIST LLC
By:
-----------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
-22-
<PAGE> 23
SCHEDULE I
<TABLE>
<CAPTION>
TOTAL NUMBER NUMBER OF OPTIONAL
OF FIRM SHARES SHARES TO BE PURCHASED IF
TO BE MAXIMUM OPTION
UNDERWRITER PURCHASED EXERCISED
- ------------------------------------------------------------------ --------------- -------------------------
<S> <C> <C>
Goldman, Sachs & Co..............................................
Dain Rauscher Wessels............................................
Hambrecht & Quist LLC............................................
Total
</TABLE>
<PAGE> 24
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
TOTAL NUMBER OF SHARES TO BE SOLD IF
FIRM SHARES MAXIMUM OPTION
TO BE SOLD EXERCISED
--------------- --------------------
<S> <C> <C>
The Company ..........................................
The Selling Stockholders:
Samuel S. Simonian...........................
Elie S. Akilian..............................
Mark A. Weinzierl............................
.............................................
.............................................
Total
</TABLE>
Each of the Selling Stockholders is represented by Brobeck, Phleger &
Harrison LLP, 301 Congress Avenue, Suite 1200, Austin, Texas 78701 and has
appointed _____________________ and ______________, and each of them, as his
Attorneys-in-Fact.
<PAGE> 25
ANNEX I
Pursuant to Section 7(f) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations thereunder; and, if applicable, they have made a review in
accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim
financial statements, selected financial data, pro forma financial
information, financial forecasts and/or condensed financial statements
derived from audited financial statements of the Company for the
periods specified in such letter, as indicated in their reports
thereon, copies of which have been separately furnished to the
representatives of the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus as indicated in their reports thereon copies
of which have been separately furnished to the Representatives; and on
the basis of specified procedures including inquiries of officials of
the Company who have responsibility for financial and accounting
matters regarding whether the unaudited condensed consolidated
financial statements referred to in paragraph (vi)(A)(i) below comply
as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations, nothing came to their attention that caused them to
believe that the unaudited condensed consolidated financial statements
do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the
Prospectus agrees with the corresponding amounts (after restatements
where applicable) in the audited consolidated financial statements for
such five fiscal years which were included;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K
and on the basis of limited procedures specified in such letter nothing
came to their attention as a result of the foregoing procedures that
caused them to believe that this information does not conform in all
material respects with the disclosure requirements of Items 301, 302,
402 and 503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available
interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included in
the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
<PAGE> 26
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of
the Act and the related published rules and regulations, or (ii)
any material modifications should be made to the unaudited
condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows
included in the Prospectus for them to be in conformity with
generally accepted accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements
included in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in Clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in Clause (B)
were not determined on a basis substantially consistent with the
basis for the audited consolidated financial statements included
in the Prospectus;
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply
as to form in all material respects with the applicable
accounting requirements of the Act and the published rules and
regulations thereunder or the pro forma adjustments have not
been properly applied to the historical amounts in the
compilation of those statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital
stock upon exercise of options and stock appreciation rights,
upon earn-outs of performance shares and upon conversions of
convertible securities, in each case which were outstanding on
the date of the latest financial statements included in the
Prospectus) or any increase in the consolidated long-term debt
of the Company and its subsidiaries, or any decreases in
consolidated net current assets or stockholders' equity or other
items specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as compared
with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in Clause (E) there were any decreases in
consolidated net revenues or operating profit or the total or
per share amounts of consolidated net income or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
the comparable period of the preceding year and with any other
period of corresponding length specified by the Representatives,
except in each case for decreases or increases which the
Prospectus discloses have occurred or may occur or which are
described in such letter; and
-2-
<PAGE> 27
(vii) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (vi) above, they have carried out certain
specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives, which are derived from the general accounting records
of the Company and its subsidiaries, which appear in the Prospectus, or
in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared certain
of such amounts, percentages and financial information with the
accounting records of the Company and its subsidiaries and have found
them to be in agreement.
<PAGE> 1
INET TECHNOLOGIES, INC.
COMMON STOCK, PAR VALUE $.001 PER SHARE
UNDERWRITING AGREEMENT
(INTERNATIONAL VERSION)
__________, 1998
Goldman Sachs International,
Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated
Hambrecht & Quist LLC
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman Sachs International,
Peterborough Court,
133 Fleet Street,
London EC4A 2BB, England
Ladies and Gentlemen:
Inet Technologies, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an
aggregate of _____________shares and, at the election of the Underwriters, up
to ___________additional shares of Common Stock, par value $.001 per share
("Stock"), of the Company and the stockholders of the Company named in Schedule
II hereto (the "Selling Stockholders") propose, subject to the terms and
conditions stated herein, to sell to the Underwriters an aggregate of
________shares of Stock. The aggregate of ___________shares to be sold by the
Company and the Selling Stockholders is herein called the "Firm Shares" and
_________additional shares to be sold by the Company are herein called the
"Optional Shares." The Firm Shares and the Optional Shares which the
Underwriters elect to purchase pursuant to Section 2 hereof are herein
collectively called, the "Shares."
It is understood and agreed to by all parties that the Company and the
Selling Stockholders are concurrently entering into an agreement, a copy of
which is attached hereto (the "U.S. Underwriting Agreement"), providing for the
sale by the Company and the Selling Stockholders of up to a total of
_________shares of Stock (the "U.S. Shares"), including the overallotment
option thereunder, through arrangements with certain underwriters in the United
States (the "U.S. Underwriters"), for whom Goldman, Sachs & Co., Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated and Hambrecht & Quist LLC are
acting as representatives. Anything herein or therein to the contrary
notwithstanding, the respective closings under this Agreement and the U.S.
Underwriting Agreement are hereby expressly made conditional on one another.
The Underwriters hereunder and the U.S. Underwriters are simultaneously
entering into an Agreement between U.S. and International Underwriting
Syndicates (the "Agreement between Syndicates") which provides, among other
things, for the transfer of shares of Stock between the two syndicates and for
consultation by the Lead Manager hereunder with Goldman, Sachs & Co. prior to
exercising the rights of the Underwriters under Section 7 hereof. Two forms of
prospectus are to be used in connection with the offering and sale of shares of
Stock contemplated by the foregoing, one relating to the Shares hereunder and
the other relating to the U.S. Shares. The latter form of prospectus will
<PAGE> 2
be identical to the former except for certain substitute pages. Except as used
in Sections 2, 3, 4, 9 and 11 herein, and except as context may otherwise
require, references hereinafter to the Shares shall include all of the shares
of Stock which may be sold pursuant to either this Agreement or the U.S.
Underwriting Agreement, and references herein to any prospectus whether in
preliminary or final form, and whether as amended or supplemented, shall
include both the U.S. and the international versions thereof.
In addition, this Agreement incorporates by reference certain
provisions from the U.S. Underwriting Agreement (including the related
definitions of terms, which are also used elsewhere herein) and, for purposes
of applying the same, references (whether in these precise words or their
equivalent) in the incorporated provisions to the "Underwriters" shall be to
the Underwriters hereunder, to the "Shares" shall be to the Shares hereunder as
just defined, to "this Agreement" (meaning therein the U.S. Underwriting
Agreement) shall be to this Agreement (except where this Agreement is already
referred to or as the context may otherwise require) and to the representatives
of the Underwriters or to Goldman, Sachs & Co. shall be to the addressees of
this Agreement and to Goldman Sachs International ("GSI"), and, in general, all
such provisions and defined terms shall be applied mutatis mutandis as if the
incorporated provisions were set forth in full herein having regard to their
context in this Agreement as opposed to the U.S. Underwriting Agreement.
1. The Company and each of the several Selling Stockholders
hereby make to the Underwriters the same respective representations, warranties
and agreements as are set forth in Section 1 of the U.S. Underwriting
Agreement, which Section is incorporated herein by this reference.
2. Subject to the terms and conditions herein set forth, (a) the
Company and each of the Selling Stockholders agree, severally and not jointly,
to sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company and each of the Selling
Stockholders, at a purchase price per share of $_________, the number of Firm
Shares (to be adjusted by you so as to eliminate fractional shares) determined
by multiplying the aggregate number of Firm Shares to be sold by the Company
and each of the Selling Stockholders as set forth opposite their respective
names in Schedule II hereto by a fraction, the numerator of which is the
aggregate number of Firm Shares to be purchased by such Underwriter as set
forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the aggregate number of Firm Shares to be purchased by
all the Underwriters from the Company and all the Selling Stockholders
hereunder and (b) in the event and to the extent that the Underwriters shall
exercise the election to purchase Optional Shares as provided below, the
Company agrees to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company,
at the purchase price per share set forth in clause (a) of this Section 2, that
portion of the number of Optional Shares as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Company, as and to the extent indicated in Schedule II hereto,
hereby grants to the Underwriters the right to purchase at their election up
to__________Optional Shares, at the purchase price per share set forth in the
paragraph above, for the sole purpose of covering overallotments in the sale of
the Firm Shares. Any such election to purchase Optional Shares may be
exercised only by written notice from you to the Company, given within a period
of 30 calendar days after the date of this Agreement and setting forth the
aggregate number of Optional Shares to be purchased and the date on which such
Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery (as defined in Section 4 hereof) or,
unless you and the Company otherwise agree in writing, earlier than two or
later than ten business days after the date of such notice.
3. Upon the authorization by GSI of the release of the Firm
Shares, the several Underwriters propose to offer the Firm Shares for sale upon
the terms and conditions set forth in the Prospectus and in the forms of
2
<PAGE> 3
Agreement among Underwriters (International Version) and Selling Agreements,
which have been previously submitted to the Company by you. Each Underwriter
hereby makes to and with the Company and the Selling Stockholders the
representations and agreements of such Underwriter as a member of the selling
group contained in Sections 3(d) and 3(e) of the form of Selling Agreements.
4. (a) The Shares to be purchased by each Underwriter
hereunder, in definitive form, and in such authorized denominations and
registered in such names as Goldman, Sachs & Co. may request upon at least
forty-eight hours' prior notice to the Company and the Selling Stockholders
shall be delivered by or on behalf of the Company and the Selling Stockholders
to Goldman, Sachs & Co., through the facilities of The Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf
of such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company and the Custodian to
Goldman, Sachs & Co. at least forty-eight hours in advance. The Company will
cause the certificates representing the Shares to be made available for
checking and packaging at least twenty-four hours prior to the Time of Delivery
(as defined below) with respect thereto at the office of DTC or its designated
custodian (the "Designated Office"). The time and date of such delivery and
payment shall be, with respect to the Firm Shares, 9:30 a.m., New York City
time, on _________, 1998 or such other time and date as Goldman, Sachs & Co.
and the Company may agree upon in writing, and, with respect to the Optional
Shares, 9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co.
in the written notice given by Goldman, Sachs & Co. of the Underwriters'
election to purchase such Optional Shares, or such other time and date as
Goldman, Sachs & Co. and the Company may agree upon in writing. Such time and
date for delivery of the Firm Shares is herein called the "First Time of
Delivery", such time and date for delivery of the Optional Shares, if not the
First Time of Delivery, is herein called the "Second Time of Delivery", and
each such time and date for delivery is herein called a "Time of Delivery."
(b) The documents to be delivered at each Time of
Delivery by or on behalf of the parties hereto pursuant to Section 7 of the
U.S. Underwriting Agreement, including the cross-receipt for the Shares and any
additional documents requested by the Underwriters pursuant to Section 7(m) of
the U.S. Underwriting Agreement, will be delivered at the offices of Brobeck,
Phleger & Harrison LLP, 301 Congress Avenue, Suite 1200, Austin, Texas 78701
(the "Closing Location"), and the Shares will be delivered at the Designated
Office, all at each Time of Delivery. A meeting will be held at the Closing
Location at 6:00 p.m., New York City time, on the New York Business Day next
preceding each Time of Delivery, at which meeting the final drafts of the
documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this Section 4, "New
York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York are
generally authorized or obligated by law or executive order to close.
5. The Company hereby makes with the Underwriters the same
agreements as are set forth in Section 5 of the U.S. Underwriting Agreement,
which Section is incorporated herein by this reference.
6. The Company, each of the Selling Stockholders, and the
Underwriters hereby agree with respect to certain expenses on the same terms as
are set forth in Section 6 of the U.S. Underwriting Agreement, which Section is
incorporated herein by this reference.
7. Subject to the provisions of the Agreement between Syndicates,
the obligations of the Underwriters hereunder shall be subject, in their
discretion, at each Time of Delivery to the condition that all representations
and warranties and other statements of the Company, and the Selling
Stockholders herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company and the Selling Stockholders shall have
performed all of their respective obligations hereunder theretofore to be
performed, and additional conditions identical to those set forth in Section 7
of the U.S. Underwriting Agreement, which Section is incorporated herein by
this reference.
3
<PAGE> 4
8. (a) The Company and each of Samuel S. Simonian, Elie S.
Akilian, Mark A. Weinzierl and William H. Mina (collectively, the "Management
Selling Stockholders"), jointly and severally, will indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that the Company and
the Management Selling Stockholders shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through GSI expressly for use therein; provided further, that the liability of
each Management Selling Stockholder pursuant to this subsection (a) shall not
exceed the product of the number of Shares sold by such Management Selling
Stockholder and the public offering price of the Shares as set forth in the
Prospectus.
(b) Each of the Selling Stockholders (other than the
Management Selling Stockholders) will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Selling Stockholder expressly for use therein;
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that
such Selling Stockholder shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein; provided, further, that
the liability of a Selling Stockholder pursuant to this subsection (b) shall
not exceed the product of the number of Shares sold by such Selling Stockholder
and the public offering price of the Shares as set forth in the Prospectus.
(c) Each Underwriter will indemnify and hold harmless the
Company and each Selling Stockholder against any losses, claims, damages or
liabilities to which the Company or such Selling Stockholder may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in
any Preliminary Prospectus, the Registration Statement or the Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any
such
4
<PAGE> 5
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through GSI expressly
for use therein; and will reimburse the Company and each Selling Stockholder
for any legal or other expenses reasonably incurred by the Company or such
Selling Stockholder in connection with investigating or defending any such
action or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be made
against an indemnifying party under such subsection, notify the indemnifying
party in writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(e) If the indemnification provided for in this Section 8
is unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Selling Stockholders on
the one hand and the Underwriters on the other from the offering of the Shares.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company and the Selling Stockholders on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Shares purchased under this Agreement (before deducting expenses) received by
the Company and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the Underwriters with respect to the
Shares purchased under this Agreement, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the Selling
Stockholders on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, each of the Selling
Stockholders and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (e) were
5
<PAGE> 6
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (e). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (e) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling
Stockholders under this Section 8 shall be in addition to any liability which
the Company and the respective Selling Stockholders may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations of
the Underwriters under this Section 8 shall be in addition to any liability
which the respective Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of the Company
(including any person who, with his or her consent, is named in the
Registration Statement as about to become a director of the Company) and to
each person, if any, who controls the Company or any Selling Stockholder within
the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or other
parties to purchase such Shares on the terms contained herein. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Shares, then the Company and the Selling Stockholders
shall be entitled to a further period of thirty-six hours within which to
procure another party or other parties satisfactory to you to purchase such
Shares on such terms. In the event that, within the respective prescribed
periods, you notify the Company and the Selling Stockholders that you have so
arranged for the purchase of such Shares, or the Company and the Selling
Stockholders notify you that they have so arranged for the purchase of such
Shares, you or the Company and the Selling Stockholders shall have the right to
postpone such Time of Delivery for a period of not more than seven days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person
had originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you and
the Company and the Selling Stockholders as provided in subsection (a) above,
the aggregate number of such Shares which remains unpurchased does not exceed
one-eleventh of the aggregate number of all the Shares to be purchased at such
Time of Delivery, then the Company and the Selling Stockholders shall have the
right to require each non-defaulting Underwriter to purchase the number of
shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
6
<PAGE> 7
(c) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you and
the Company and the Selling Stockholders as provided in subsection (a) above,
the aggregate number of such Shares which remains unpurchased exceeds
one-eleventh of the aggregate number of all the Shares to be purchased at such
Time of Delivery, or if the Company and the Selling Stockholders shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter or the Company or the Selling Stockholders,
except for the expenses to be borne by the Company and the Selling Stockholders
and the Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and
the several Underwriters, as set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement, shall remain in full
force and effect, regardless of any investigation (or any statement as to the
results thereof) made by or on behalf of any Underwriter or any controlling
person of any Underwriter, or the Company or any of the Selling Stockholders,
or any officer or director or controlling person of the Company or any
controlling person of any Selling Stockholders, and shall survive delivery of
and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, neither the Company nor the Selling Stockholders shall then be under
any liability to any Underwriter except as provided in Section 6 and Section 8
hereof; but, if for any other reason, any Shares are not delivered by or on
behalf of the Company and the Selling Stockholders as provided herein, the
Company and, if the Company fails to do so, each of the Selling Stockholders
pro rata (based on the number of Shares to be sold by the Company and such
Selling Stockholder hereunder), will reimburse the Underwriters through GSI for
all out-of-pocket expenses approved in writing by GSI, including fees and
disbursements of counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the Shares not so
delivered, but the Company and the Selling Stockholders shall then be under no
further liability to any Underwriter in respect of the Shares not so delivered
except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of
the Underwriters, and the parties hereto shall be entitled to act and rely upon
any statement, request, notice or agreement on behalf of any Underwriter made
or given by you jointly or by GSI on behalf of you as the representatives of
the Underwriters; and in all dealings with any Selling Stockholder hereunder,
you and the Company shall be entitled to act and rely upon any statement,
request, notice or agreement on behalf of such Selling Stockholder made or
given by any or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to the Underwriters in care of GSI, Peterborough
Court, 133 Fleet Street, London EC4A 2BB, England, Attention: Equity Capital
Markets, Telex No. 94012165, facsimile transmission No. (071) 774-1550; if to
any Selling Stockholder shall be delivered or sent by mail, telex or facsimile
transmission to such Selling Stockholder at its address set forth in Schedule
III hereto; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Chief Financial Officer; provided, however,
that any notice to an Underwriter pursuant to Section 8(c) hereof shall be
delivered or sent by mail, telex or facsimile transmission to such Underwriter
at its address set forth in its Underwriters' Questionnaire, or telex
constituting such Questionnaire, which address will be supplied to the Company
or the Selling Stockholders by GSI upon request. Any such statements,
requests, notices or agreements shall take effect upon receipt thereof.
7
<PAGE> 8
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and the Selling Stockholders and, to
the extent provided in Sections 8 and 10 hereof, the officers and directors of
the Company and each person who controls the Company, any Selling Stockholder
or any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
16. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us seven counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters, the
Company and each of the Selling Stockholders. It is understood that your
acceptance of this letter on behalf of each of the Underwriters is pursuant to
the authority set forth in a form of Agreement among Underwriters
(International Version), the form of which shall be furnished to the Company
and the Selling Stockholders for examination upon request, but without warranty
on your part as to the authority of the signers thereof.
8
<PAGE> 9
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly
appointed as Attorney-in-Fact by such Selling Stockholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-Fact
to take such action.
Very truly yours,
INET TECHNOLOGIES, INC.
By:
---------------------------------
Name:
Title:
SAMUEL S. SIMONIAN
ELIE S. AKILIAN
MARK A. WEINZIERL
WILLIAM H. MINA
[NAMES OF OTHER SELLING STOCKHOLDERS]
By:
---------------------------------
Name:
Title:
As Attorney-in-Fact acting on behalf of each
of the Selling Stockholders named in Schedule
II to this Agreement.
Accepted as of the date hereof:
GOLDMAN SACHS INTERNATIONAL
DAIN RAUSCHER WESSELS, A DIVISION OF
DAIN RAUSCHER INCORPORATED,
HAMBRECHT & QUIST LLC
BY: GOLDMAN SACHS INTERNATIONAL
By:
----------------------------------
(Attorney-in-fact)
On behalf of each of the Underwriters
9
<PAGE> 10
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
-------------------------------------------------------------- ---------------- -----------------
<S> <C> <C>
Goldman, Sachs & Co. . . . . . . . . . . . . . . . . . . . . .
Dain Rauscher Wessels . . . . . . . . . . . . . . . . . . . . .
Hambrecht & Quist LLC . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 11
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF SOLD IF
FIRM SHARES MAXIMUM OPTION
TO BE SOLD EXERCISED
--------------- ----------------
<S> <C> <C>
The Company. . . . . . . . . . . . . . . . . . . . . . . . . .
The Selling Stockholders:
Samuel S. Simonian . . . . . . . . . . . . . . . . . .
Elie S Akilian . . . . . . . . . . . . . . . . . . . .
Mark A. Weinzierl . . . . . . . . . . . . . . . . . .
William H. Mina . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
Each of the Selling Stockholders has appointed William H. Mina and
Mark A. Weinzierl, and each of them, as his Attorneys-in-Fact.
<PAGE> 12
SCHEDULE III
SELLING STOCKHOLDERS
Samuel S. Simonian
Elie S. Akilian
Mark A. Weinzierl
William H. Mina
<PAGE> 1
EXHIBIT 3.1
------------------------------------
CERTIFICATE OF INCORPORATION
OF
INET TECHNOLOGIES, INC.
------------------------------------
ARTICLE I.
The name of this Corporation shall be Inet Technologies, Inc.
ARTICLE II.
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, State
of Delaware. The name of the registered agent at that address is The Corporation
Trust Company.
ARTICLE III.
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
ARTICLE IV.
The name and mailing address of the incorporator of the Corporation is:
Mark A. Weinzierl
1255 West 15th Street
Plano, TX 75075-7270
ARTICLE V.
A. Authorized Shares. The aggregate number of shares that the Corporation
shall have authority to issue is 200,000,000, (i) 175,000,000 shares of which
shall be Common Stock, par value $0.001 per share, and 25,000,000 of which shall
be Preferred Stock, par value $0.001 per share.
B. Common Stock. Each share of Common Stock shall have one vote on each
matter submitted to a vote of the stockholders of the Corporation. Subject to
the provisions of applicable law and the rights of the holders of the
outstanding shares of Preferred Stock, if any, the holders of shares of Common
Stock shall be entitled to receive, when and as declared by the Board of
Directors of the Corporation, out of the assets of the Corporation legally
available therefor, dividends or other distributions, whether payable in cash,
property or securities of the
<PAGE> 2
Corporation. The holders of shares of Common Stock shall be entitled to receive,
in proportion to the number of shares of Common Stock held, the net assets of
the Corporation upon dissolution after any preferential amounts required to be
paid or distributed to holders of outstanding shares of Preferred Stock, if any,
are so paid or distributed.
C. Preferred Stock. The Preferred Stock may be issued from time to time
by the Board of Directors as shares of one or more series. The description of
shares of each additional series of Preferred Stock, including any designations,
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption shall be as set forth in resolutions adopted by the Board of
Directors.
The Board of Directors is expressly authorized, at any time, by adopting
resolutions providing for the issuance of, or providing for a change in the
number of, shares of any particular series of Preferred Stock and, if and to the
extent from time to time required by law, by filing certificates of amendment or
designation which are effective without stockholder action, to increase or
decrease the number of shares included in each series of Preferred Stock, but
not below the number of shares then issued, and to set in any one or more
respects the designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications, or terms and
conditions of redemption relating to the shares of each such series. The
authority of the Board of Directors with respect to each series of Preferred
Stock shall include, but not be limited to, setting or changing the following:
a. the dividend rate, if any, on shares of such series, the times of
payment and the date from which dividends shall be accumulated, if
dividends are to be cumulative;
b. whether the shares of such series shall be redeemable and, if so,
the redemption price and the terms and conditions of such
redemption;
c. the obligation, if any, of the Corporation to redeem shares of
such series pursuant to a sinking fund;
d. whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class of classes
and, if so, the terms and conditions of such conversion or
exchange, including the price or prices or the rate or rates of
conversion or exchange and the terms of adjustment, if any;
e. whether the shares of such series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the
extent of such voting rights;
f. the rights of the shares of such series in the event of voluntary
or involuntary liquidation, dissolution or winding-up of the
Corporation; and
- 2 -
<PAGE> 3
g. any other relative rights, powers, preferences, qualifications,
limitations or restrictions thereof relating to such series.
ARTICLE VI.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
ARTICLE VII.
The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by, or in the
manner provided in, the Bylaws of the Corporation.
ARTICLE VIII.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE IX.
Election of directors at an annual or special meeting of stockholders
need not be by written ballot unless the Bylaws of the Corporation shall so
provide.
ARTICLE X.
A. At each annual meeting of stockholders, directors of the Corporation
shall be elected to hold office until the expiration of the term for which they
are elected, and until their successors have been duly elected and qualified;
except that if any such election shall not be so held, such election shall take
place at a stockholders' meeting called and held in accordance with the Delaware
General Corporation Law. At the first annual meeting of stockholders (the "First
Public Company Annual Meeting") following the closing of the initial public
offering of the Corporation's capital stock pursuant to an effective
registration statement filed under the Securities Act of 1933, as amended (the
"Initial Public Offering"), the directors
- 3 -
<PAGE> 4
of the Corporation shall be divided into three classes as nearly equal in size
as is practicable, hereby designated as Class I, Class II and Class III. The
term of office of the initial Class I directors shall expire at the next
succeeding annual meeting of stockholders, the term of office of the initial
Class II directors shall expire at the second succeeding annual meeting of
stockholders and the term of office of the initial Class III directors shall
expire at the third succeeding annual meeting of stockholders. For the purposes
hereof, the initial Class I, Class II and Class III directors shall be those
directors designated and elected at the First Public Company Annual Meeting. At
each annual meeting after the First Public Company Annual Meeting, directors to
replace those of a Class whose terms expire at such annual meeting shall be
elected to hold office until the third succeeding annual meeting and until their
respective successors shall have been duly elected and qualified. If the number
of directors is hereafter changed, any newly created directorships or decrease
in directorships shall be so apportioned among the classes as to make all
classes as nearly equal in number as is practicable.
B. Vacancies occurring on the Board of Directors for any reason may be
filled by vote of a majority of the remaining members of the Board of Directors,
although less than a quorum, at a meeting of the Board of Directors. A person so
elected by the Board of Directors to fill a vacancy shall hold office until the
next succeeding annual meeting of stockholders of the Corporation and until his
or her successor shall have been duly elected and qualified.
ARTICLE XI.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.
ARTICLE XII.
Effective upon the closing of the Initial Public Offering, stockholders
of the Corporation may not take action by written consent in lieu of a meeting
but must take any actions at a duly called annual or special meeting.
ARTICLE XIII.
Notwithstanding any other provisions of this Certificate of Incorporation
or any provision of law which might otherwise permit a lesser vote or no vote,
but in addition to any affirmative vote of the holders of the capital stock
required by law or this Certificate of Incorporation, the affirmative vote of
the holders of at least two-thirds (2/3) of the combined voting power of all of
the then-outstanding shares of the Corporation entitled to vote shall be
required to alter, amend or repeal Articles X, XII or XIII or any provisions
thereof.
- 4 -
<PAGE> 5
ARTICLE XIV.
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred on stockholders herein
are granted subject to this reservation.
[Signature page follows]
- 5 -
<PAGE> 6
THE UNDERSIGNED, being the incorporator named herein, for the purpose of
forming a corporation to do business both within and without the State of
Delaware and pursuant to the General Corporation Law of the State of Delaware,
does make and file this Certificate of Incorporation of Inet Technologies, Inc.,
hereby declaring and certifying that the facts herein stated are true, and
accordingly has hereunto set his hand this ___ day of ______, 1998.
--------------------------------------
Mark A. Weinzierl
Executive Vice President and Secretary
[SIGNATURE PAGE TO CERTIFICATE OF INCORPORATION]
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
INET TECHNOLOGIES, INC.,
A DELAWARE CORPORATION
______ ___, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I Offices..................................................... 1
Section 1.1 Registered Office........................... 1
Section 1.2 Other Offices............................... 1
ARTICLE II Corporate Seal.............................................. 1
ARTICLE III Stockholders' Meetings...................................... 1
Section 3.1 Place of Meetings........................... 1
Section 3.2 Annual Meeting.............................. 2
Section 3.3 Special Meetings............................ 3
Section 3.4 Notice of Meetings.......................... 4
Section 3.5 Quorum...................................... 4
Section 3.6 Adjournment and Notice of Adjourned
Meetings.................................... 4
Section 3.7 Voting Rights............................... 5
Section 3.8 Joint Owners of Stock....................... 5
Section 3.9 List of Stockholders........................ 5
Section 3.10 No Action Without Meeting................... 6
Section 3.11 Organization................................ 6
ARTICLE IV Directors................................................... 6
Section 4.1 Number and Term of Office; Classification... 6
Section 4.2 Powers...................................... 7
Section 4.3 Vacancies................................... 7
Section 4.4 Resignation................................. 7
Section 4.5 Removal..................................... 8
Section 4.6 Meetings.................................... 8
(a) Annual Meetings...................... 8
(b) Regular Meetings..................... 8
(c) Special Meetings..................... 8
(d) Telephone Meetings................... 8
(e) Notice of Meetings................... 8
(f) Waiver of Notice..................... 9
Section 4.7 Quorum and Voting........................... 9
Section 4.8 Action Without Meeting...................... 9
Section 4.9 Fees and Compensation....................... 9
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
Section 4.10 Committees.................................. 10
(a) Executive Committee.................. 10
(b) Other Committees..................... 10
(c) Term................................. 10
(d) Meetings............................. 10
Section 4.11 Organization................................ 11
ARTICLE V Officers.................................................... 11
Section 5.1 Officers Designated......................... 11
Section 5.2 Tenure and Duties of Officers............... 11
(a) General.............................. 11
(b) Duties of Chairman of the Board of
Directors............................ 12
(c) Duties of President.................. 12
(d) Duties of the Chief Executive and
Chief Operating Officers............. 12
(e) Powers and Duties of the Vice
Chairman of the Board................ 12
(f) Duties of Vice Presidents............ 13
(g) Duties of Secretary.................. 13
(h) Assistant Secretaries................ 13
(i) Duties of Treasurer.................. 13
(j) Assistant Treasurers................. 14
Section 5.3 Delegation of Authority..................... 14
Section 5.4 Resignations................................ 14
Section 5.5 Removal..................................... 14
ARTICLE VI Execution of Corporate Instruments and Voting of Securities
Owned by the Corporation.................................... 14
Section 6.1 Execution of Corporate Instruments.......... 14
Section 6.2 Voting of Securities Owned by the
Corporation................................. 15
ARTICLE VII Shares of Stock............................................. 15
Section 7.1 Form and Execution of Certificates.......... 15
Section 7.2 Lost Certificates........................... 16
Section 7.3 Transfers................................... 16
Section 7.4 Fixing Record Dates......................... 16
Section 7.5 Registered Stockholders..................... 17
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VIII Other Securities of the Corporation......................... 17
Section 8.1 Execution of Other Securities............... 17
ARTICLE IX Dividends................................................... 18
Section 9.1 Declaration of Dividends.................... 18
Section 9.2 Dividend Reserve............................ 18
ARTICLE X Fiscal Year................................................. 18
ARTICLE XI Indemnification of Directors, Officers, Employees and Other
Agents...................................................... 18
Section 11.1 Directors and Executive Officers............ 18
Section 11.2 Other Officers, Employees and Other Agents.. 19
Section 11.3 Good Faith.................................. 19
Section 11.4 Expenses.................................... 20
Section 11.5 Enforcement................................. 20
Section 11.6 Non-Exclusivity of Rights................... 20
Section 11.7 Survival of Rights.......................... 21
Section 11.8 Insurance................................... 21
Section 11.9 Amendments.................................. 21
Section 11.10 Saving Clause............................... 21
Section 11.11 Certain Definitions......................... 21
ARTICLE XII Notices..................................................... 22
Section 12.1 Notice to Stockholders...................... 22
Section 12.2 Notice to Directors......................... 22
Section 12.3 Address Unknown............................. 22
Section 12.4 Affidavit of Mailing........................ 22
Section 12.5 Time Notices Deemed Given................... 23
Section 12.6 Failure to Receive Notice................... 23
Section 12.7 Notice to Person with Whom Communication
Is Unlawful................................. 23
Section 12.8 Notice to Person with Undeliverable Address. 23
ARTICLE XIII Amendments.................................................. 24
Section 13.1 Amendments.................................. 24
Section 13.2 Application of Bylaws....................... 24
</TABLE>
iv
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE XIV Loans to Officers........................................... 24
ARTICLE XV Annual Report............................................... 24
</TABLE>
v
<PAGE> 6
BYLAWS
OF
INET TECHNOLOGIES, INC.,
A DELAWARE CORPORATION
- --------------------------------------------------------------------------------
ARTICLE I
OFFICES
Section 1.1 Registered Office. The registered office of the corporation
shall be the registered office named in the certificate of incorporation of the
corporation, or such other office as may be designated from time to time by the
Board of Directors in the manner provided by law.
Section 1.2 Other Offices. The corporation may have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require. The books of the corporation may be kept (subject to any provision
contained in the Delaware General Corporation Law) outside the State of Delaware
at such place or places as may be designated from time to time by the Board of
Directors or in these Bylaws.
ARTICLE II
CORPORATE SEAL
The corporate seal shall consist of a die bearing the name of the
corporation. Said seal may be used by causing it, or a facsimile thereof, to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
Section 3.1 Place of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the principal executive offices of the
corporation.
<PAGE> 7
Section 3.2 Annual Meeting.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of Directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be: (A)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors; (B) otherwise properly brought before
the meeting by or at the direction of the Board of Directors; or (C) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not less than one hundred
twenty (120) calendar days in advance of the date of the Notice of Annual
Meeting released to stockholders in connection with the previous year's annual
meeting of stockholders; provided, however, that in the event that no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than thirty (30) days from the date contemplated at the time of
the previous year's Notice of Annual Meeting, notice by the stockholder to be
timely must be so received a reasonable time before the Notice of Annual Meeting
is released to stockholders. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting: (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting; (ii) the name and address, as they appear on the corporation's books,
of the stockholder proposing such business; (iii) the class and number of shares
of the corporation which are beneficially owned by the stockholder; (iv) any
material interest of the stockholder in such business; and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934
Act"), in such stockholder's capacity as a proponent of a stockholder proposal.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if the chairman should so determine, the chairman shall
so declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of Directors at the meeting who complies with the
2
<PAGE> 8
notice procedures set forth in this paragraph (c). Such nominations, other than
those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the corporation in
accordance with the provisions of paragraph (b) of this Section 3.2. Such
stockholder's notice shall set forth (i) as to each person, if any, whom the
stockholder proposes to nominate for election or re-election as a Director: (A)
the name, age, business address and residence address of such person; (B) the
principal occupation or employment of such person; (C) the class and number of
shares of the corporation which are beneficially owned by such person; (D) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nominations are to be made by the stockholder; and (E) any
other information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required in
each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a Director if elected); and (ii) as to
such stockholder giving notice, the information required to be provided pursuant
to paragraph (b) of this Section 3.2. At the request of the Board of Directors,
any person nominated by a stockholder for election as a Director shall furnish
to the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if the chairman should so determine, the chairman shall so
declare at the meeting, and the defective nomination shall be disregarded.
Section 3.3 Special Meetings.
(a) Special meetings of the stockholders of the corporation
may be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the President or (iii) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board of Directors for
adoption).
(b) If a special meeting is called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the President,
or the Secretary of the corporation. No business may be transacted at such
special meeting otherwise than specified in such notice. The Board of Directors
shall determine the time and place of such special meeting, which shall be held
not less than thirty-five (35) nor more than one hundred twenty (120) days after
the date of the receipt of the request. Upon determination of the time and place
of the meeting, the officer receiving the request shall cause notice to be given
to the stockholders entitled to vote, in accordance with the provisions of
3
<PAGE> 9
Section 3.4 of these Bylaws. If the notice is not given within sixty (60) days
after the receipt of the request, the person or persons requesting the meeting
may set the time and place of the meeting and give the notice. Nothing contained
in this paragraph (b) shall be construed as limiting, fixing or affecting the
time when a meeting of stockholders called by action of the Board of Directors
may be held.
Section 3.4 Notice of Meetings. Except as otherwise provided by law or
the certificate of incorporation of the corporation, as the same may be amended
or restated from time to time (hereinafter, the "Certificate of Incorporation"),
written notice of each meeting of stockholders shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting, such notice to specify the place,
date, time and purpose or purposes of the meeting. Notice of any meeting of
stockholders may be waived in writing, signed by the person entitled to notice
thereof, either before or after such meeting, and will be waived by any
stockholder by his attendance thereat in person or by proxy, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Any stockholder so waiving notice of such
meeting shall be bound by the proceedings of any such meeting in all respects as
if due notice thereof had been given.
Section 3.5 Quorum. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the votes cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that Directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of Directors. Where a
separate vote by a class or classes is required, a majority of the outstanding
shares of such class or classes, present in person or represented by proxy,
shall constitute a quorum entitled to take action with respect to that vote on
that matter and the affirmative vote of the majority (plurality, in the case of
the election of Directors) of shares of such class or classes present in person
or represented by proxy at the meeting shall be the act of such class.
Section 3.6 Adjournment and Notice of Adjourned Meetings. Any meeting
of stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given
4
<PAGE> 10
of the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 3.7 Voting Rights. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 3.9 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a written proxy executed by
such person or his duly authorized agent, which proxy shall be filed with the
Secretary at or before the meeting at which it is to be used. An agent so
appointed need not be a stockholder. No proxy shall be voted after three (3)
years from its date of creation unless the proxy provides for a longer period.
Elections of Directors need not be by written ballot, unless otherwise provided
in the Certificate of Incorporation.
Section 3.8 Joint Owners of Stock. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of clause (c)
shall be a majority or even-split in interest.
Section 3.9 List of Stockholders. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
5
<PAGE> 11
Section 3.10 No Action Without Meeting. Effective upon the closing of
the corporation's initial public offering of its capital stock pursuant to an
effective registration statement filed under the Securities Act of 1933, as
amended (the "Initial Public Offering"), the stockholders of the corporation may
not take action by written consent without a meeting and must take any actions
at a duly called annual or special meeting.
Section 3.11 Organization.
(a) At every meeting of stockholders, unless another officer
of the corporation has been appointed by the Board of Directors, the Chairman of
the Board of Directors, or, if a Chairman has not been appointed, is absent, or
designates the next senior officer present to so act, the President, or, if the
President is absent, the most senior Vice President present, or, in the absence
of any such officer, a chairman of the meeting chosen by a majority in interest
of the stockholders entitled to vote, present in person or by proxy, shall act
as chairman. The Secretary, or, in his absence, an Assistant Secretary directed
to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of the
meeting, including, without limitation, establishing an agenda or order of
business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such
meeting to stockholders of record of the corporation and their duly authorized
and constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
Section 4.1 Number and Term of Office; Classification.
(a) The number of directors which shall constitute the whole
Board of Directors shall be determined from time to time by the Board of
Directors (provided that no decrease in the number of directors which would have
the effect of shortening the term of an
6
<PAGE> 12
incumbent director may be made by the Board of Directors), provided that the
number of directors shall be not less than one (1) nor more than ten (10). At
each annual meeting of stockholders, Directors of the corporation shall be
elected to hold office until the expiration of the term for which they are
elected, and until their successors have been duly elected and qualified or
until such Director's earlier death, resignation or due removal; except that if
any such election shall not be so held, such election shall take place at a
stockholders' meeting called and held in accordance with the Delaware General
Corporation Law. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If, for any reason, the Directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
(b) At the first annual meeting of stockholders following the
closing of the Initial Public Offering (the "First Public Company Annual
Meeting"), the Directors of the corporation shall be divided into three classes
as nearly equal in size as is practicable, hereby designated Class I, Class II
and Class III. The initial Class I, Class II and Class III directors shall be
those directors designated and elected at the First Public Company Annual
Meeting. The term of office of the initial Class I directors shall expire at the
next succeeding annual meeting of stockholders, the term of office of the
initial Class II directors shall expire at the second succeeding annual meeting
of stockholders, and the term of office of the initial Class III directors shall
expire at the third succeeding annual meeting of stockholders. At each annual
meeting of stockholders following the First Public Company Annual Meeting,
directors to replace those of the Class whose terms expire at such annual
meeting shall be elected to hold office until the third succeeding annual
meeting and until their respective successors shall have been duly elected and
qualified. If the number of directors is hereafter changed, any newly created
directorships or decrease in directorships shall be so apportioned among the
classes as to make all classes as nearly equal in number as is practicable.
Section 4.2 Powers. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
Section 4.3 Vacancies. Vacancies occurring on the Board of Directors
for any reason may be filled by vote of a majority of the remaining members of
the Board of Directors, although less than a quorum, at any meeting of the Board
of Directors, or by a sole remaining Director. Each Director so elected shall
hold office for the unexpired portion of the term of the Director whose place
shall be vacant and until his or her successor shall have been duly elected and
qualified or until such Director's earlier death, resignation or due removal. A
vacancy in the Board of Directors shall be deemed to exist under this Section
4.3 in the case of the death, removal or resignation of any Director, or if the
stockholders fail at any meeting of stockholders at which Directors are to be
elected (including any meeting referred to in Section 4.6 below) to elect the
number of Directors then constituting the whole Board of Directors.
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<PAGE> 13
Section 4.4 Resignation. Any Director may resign at any time by
delivering his or her written resignation to the Secretary, such resignation to
specify whether it will be effective at a particular time, upon receipt by the
Secretary or at the pleasure of the Board of Directors. If no such specification
is made, it shall be deemed effective at the pleasure of the Board of Directors.
When one or more Directors shall resign from the Board of Directors, effective
at a future date, a majority of the Directors then in office, including those
who have so resigned, shall have power to fill such vacancy or vacancies, the
vote thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
Section 4.5 Removal. At a special meeting of stockholders called for
such purpose and in the manner provided herein, subject to any limitations
imposed by law or the Certificate of Incorporation, the Board of Directors, or
any individual Director, may be removed from office, with or without cause, and
a new Director or Directors elected by a vote of stockholders holding a majority
of the outstanding shares entitled to vote at an election of Directors.
Section 4.6 Meetings.
(a) Annual Meetings. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an annual
meeting of the Board of Directors shall be necessary and such meeting shall be
held for the purpose of electing officers and transacting such other business as
may lawfully come before it.
(b) Regular Meetings. Except as hereinafter otherwise
provided, regular meetings of the Board of Directors shall be held in the
principal executive offices of the corporation. Unless otherwise restricted by
the Certificate of Incorporation, regular meetings of the Board of Directors may
also be held at any place within or without the State of Delaware which has been
designated by resolution of the Board of Directors or the written consent of all
directors.
(c) Special Meetings. Unless otherwise restricted by the
Certificate of Incorporation, and subject to the notice requirements combined
herein, special meetings of the Board of Directors may be held at any time and
place within or without the State of Delaware whenever called by the Chairman of
the Board, the President or any two of the Directors.
(d) Telephone Meetings. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) Notice of Meetings. Written notice of the time and place
of all special meetings of the Board of Directors shall be given at least one
(1) day before the date of the meeting. Such notice need not state the purpose
or purposes of such meeting, except as may
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otherwise be required by law or provided for in the Certificate of Incorporation
or these Bylaws. Notice of any meeting may be waived in writing at any time
before or after the meeting and will be deemed waived by any Director by
attendance thereat, except when the Director attends the meeting solely for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) Waiver of Notice. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after meeting, each of the Directors not present shall sign a written waiver
of notice, or a consent to holding such meeting, or an approval of the minutes
thereof. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Section 4.7 Quorum and Voting.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Article XI hereof, for which a quorum shall be one-third of the exact number of
Directors fixed from time to time in accordance with Section 4.1 hereof, but not
less than one (1), a quorum of the Board of Directors shall consist of a
majority of the exact number of directors fixed from time to time in accordance
with Section 4.1 of these Bylaws, but not less than one (1); provided, however,
at any meeting whether a quorum be present or otherwise, a majority of the
Directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of Directors, without notice other than by
announcement at the meeting.
(b) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by a vote of
the majority of the Directors present, unless a different vote is required by
law, the Certificate of Incorporation or these Bylaws.
Section 4.8 Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 4.9 Fees and Compensation. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude
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any Director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
Section 4.10 Committees.
(a) Executive Committee. The Board of Directors may by
resolution passed by a majority of the whole Board of Directors appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and
specifically granted by the Board of Directors, shall have, and may exercise
when the Board of Directors is not in session, all powers of the Board of
Directors in the management of the business and affairs of the corporation
except such committee shall not have the power or authority to amend the
Certificate of Incorporation, to adopt an agreement of merger or consolidation,
to recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, to recommend to the
stockholders of the corporation a dissolution of the corporation or a revocation
of a dissolution, or to amend these Bylaws.
(b) Other Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, from time to
time appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall such committee have the powers denied to the
Executive Committee in these Bylaws.
(c) Term. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
paragraphs (a) and (b) of this Section 4.10 may at any time increase or decrease
the number of members of a committee or terminate the existence of a committee.
The membership of a committee member shall terminate on the date of his or her
death or voluntary resignation from the committee or from the Board of
Directors. The Board of Directors may at any time for any reason remove any
individual committee member and the Board of Directors may fill any committee
vacancy created by death, resignation, removal or increase in the number of
members of the committee. The Board of Directors may designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
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(d) Meetings. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 4.10 shall be held at such times and places
as are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any Director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any Director by attendance thereat, except when the Director
attends such special meeting solely for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
Section 4.11 Organization. The Chairman of the Board shall preside at
every meeting of the Board of Directors, if present. In the case of any meeting,
if there is no Chairman of the Board or if the Chairman is not present, the Vice
Chairman (if there be one) shall preside, or if there be no Vice Chairman or if
the Vice Chairman is not present, a chairman chosen by a majority of the
directors present shall act as chairman of such meeting. The Secretary of the
corporation or, in the absence of the Secretary, any person appointed by the
Chairman shall act as secretary of the meeting.
ARTICLE V
OFFICERS
Section 5.1 Officers Designated. The officers of the corporation shall
include, if and when designated by the Board of Directors, a Chairman of the
Board of Directors, a President, one or more Vice Presidents (any one or more of
whom may be designated Executive Vice President or Senior Vice President), a
Secretary and a Treasurer (including, but not limited to, a Vice Chairman of the
board, one or more Assistant Secretaries and one or more Assistant Treasurers).
The Board of Directors may assign such additional titles to one or more of the
officers as it shall deem appropriate. Any one person may hold any number of
offices of the corporation at any one time unless specifically prohibited
therefrom by law. The salaries and other compensation of the officers of the
corporation shall be fixed by or in the manner designated by the Board of
Directors.
Section 5.2 Tenure and Duties of Officers.
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(a) General. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors. Except for the Chairman of the Board and the Vice
Chairman of the Board, no officer need be a director.
(b) Duties of Chairman of the Board of Directors. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
Board of Directors and, unless the Chairman has designated the next senior
officer to so preside, at all meetings of the stockholders. Subject to the
provisions of paragraph (d) below, unless the Board of Directors designates
otherwise, the Chairman of the Board shall be the chief executive officer of the
corporation. The Chairman of the Board of Directors shall perform other duties
commonly incident to such office and shall also perform such other duties and
have such other powers as the Board of Directors shall designate from time to
time.
(c) Duties of President. Unless the Board of Directors
otherwise determines and subject to the provisions of paragraph (d) below, the
President shall be the chief operating officer of the corporation. Unless the
Board of Directors otherwise determines, he shall, in the absence of the
Chairman of the Board or Vice Chairman of the Board or if there be no Chairman
of the Board or Vice Chairman of the Board, preside at all meetings of the
stockholders and (should he be a director) of the Board of Directors. The
President shall have such other powers and duties as designated in accordance
with these Bylaws and as from time to time may be assigned to him by the Board
of Directors.
(d) Duties of the Chief Executive and Chief Operating
Officers. Subject to the control of the Board of Directors, the chief executive
officer shall have general executive charge, management and control, of the
properties, business and operations of the corporation with all such powers as
may be reasonably incident to such responsibilities; and subject to the control
of the chief executive officer, the chief operating officer shall have general
operating charge, management and control, of the properties, business and
operations of the corporation with all such powers as may be reasonably incident
to such responsibilities. The chief executive officer and, if and to the extent
designated by the chief executive officer, the chief operating officer, may
agree upon and execute all leases, contracts, evidences of indebtedness and
other obligations in the name of the corporation and may sign all certificates
for shares of capital stock of the corporation, and each shall have such other
powers and duties as are designated in accordance with these Bylaws and as from
time to time may be assigned to each by the Board of Directors.
(e) Powers and Duties of the Vice Chairman of the Board. The
Board of Directors may but is not required to assign areas of responsibility to
a Vice Chairman of the Board, and, in such event, and subject to the overall
direction of the Chairman of the Board and the Board of Directors, the Vice
Chairman of the Board shall be responsible for supervising the
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management of the affairs of the corporation and its subsidiaries within the
area or areas assigned and shall monitor and review on behalf of the Board of
Directors all functions within such corresponding area or areas of the
corporation and each such subsidiary of the corporation. In the absence of the
President, or in the event of the President's inability or refusal to act, the
Vice Chairman of the Board shall perform the duties of the President, and when
so acting shall have all the powers of and be subject to all the restrictions
upon the President. Further, the Vice Chairman of the Board shall have such
other powers and duties as designated in accordance with these Bylaws and as
from time to time may be assigned to the Vice Chairman of the Board by the Board
of Directors or the Chairman of the Board.
(f) Duties of Vice Presidents. Each Vice President shall at
all times possess power to sign all certificates, contracts and other
instruments of the corporation, except as otherwise limited pursuant to Article
VI hereof or by the Chairman of the Board, the President or the Vice Chairman of
the Board of the corporation. The Vice Presidents shall perform other duties
commonly incident to their office and shall also perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time.
(g) Duties of Secretary. The Secretary shall keep the minutes
of all meetings of the Board of Directors, committees of the Board of Directors
and the stockholders, in books provided for that purpose; shall attend to the
giving and serving of all notices; may in the name of the corporation affix the
seal of the corporation to all contracts and attest the affixation of the seal
of the corporation thereto; may sign with the other appointed officers all
certificates for shares of capital stock of the corporation; and shall have
charge of the certificate books, transfer books and stock ledgers, and such
other books and papers as the Board of Directors may direct, all of which shall
at all reasonable times be open to inspection of any director upon application
at the office of the corporation during business hours. The Secretary shall
perform all other duties given in these Bylaws and other duties commonly
incident to such office and shall also perform such other duties and have such
other powers as the Board of Directors shall designate from time to time. The
President may direct any Assistant Secretary to assume and perform the duties of
the Secretary in the absence or disability of the Secretary, and each Assistant
Secretary shall perform other duties commonly incident to such office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President, shall designate from time to time.
(h) Assistant Secretaries. Each Assistant Secretary shall have
the usual powers and duties pertaining to such offices, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to an Assistant Secretary by the Board of Directors, the Chairman of
the Board, the President, the Vice Chairman of the Board, or the Secretary. The
Assistant Secretaries shall exercise the powers of the Secretary during that
officer's absence or inability or refusal to act.
(i) Duties of Treasurer. The Treasurer shall keep or cause to
be kept the books of account of the corporation in a thorough and proper manner
and shall render statements
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of the financial affairs of the corporation in such form and as often as
required by the Board of Directors, the Chairman of the Board, the Vice
President of the Board or the President. The Treasurer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Treasurer shall perform other duties commonly incident to
such office and shall also perform such other duties and have such other powers
as the Board of Directors, the Chairman of the Board, the Vice Chairman of the
Board or the President shall designate from time to time.
(j) Assistant Treasurers. Each Assistant Treasurer shall have
the usual powers and duties pertaining to such office, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to each Assistant Treasurer by the Board of Directors, the Chairman of
the Board, the President, the Vice Chairman of the Board, or the Treasurer. The
Assistant Treasurers shall exercise the powers of the Treasurer during that
officer's absence or inability or refusal to act.
Section 5.3 Delegation of Authority. For any reason that the Board of
Directors may deem sufficient, the Board of Directors may, except where
otherwise provided by statute, delegate the powers or duties of any officer to
any other person, and may authorize any officer to delegate specified duties of
such office to any other person. Any such delegation or authorization by the
Board shall be effected from time to time by resolution of the Board of
Directors.
Section 5.4 Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
Section 5.5 Removal. Any officer may be removed from office at any
time, either with or without cause, by the vote or written consent of a majority
of the Directors in office at the time, or by any committee or superior officers
upon whom such power of removal may have been conferred by the Board of
Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
Section 6.1 Execution of Corporate Instruments. The Board of Directors
may, in its discretion, determine the method and designate the signatory
officer or officers, or other person
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or persons, to execute on behalf of the corporation any corporate instrument or
document, or to sign on behalf of the corporation the corporate name without
limitation, or to enter into contracts on behalf of the corporation, except
where otherwise provided by law or these Bylaws, and such execution or signature
shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Chief Financial Officer or Treasurer or any Assistant Secretary or
Assistant Treasurer. All other instruments and documents requiring the corporate
signature, but not requiring the corporate seal, may be executed as aforesaid or
in such other manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
Section 6.2 Voting of Securities Owned by the Corporation. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman or Vice Chairman of the Board of Directors, the President, or
any Vice President.
ARTICLE VII
SHARES OF STOCK
Section 7.1 Form and Execution of Certificates. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman or Vice Chairman of the Board of Directors,
the President or any Vice President and by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, certifying the number of
shares and the class or series owned by him in the corporation. Where such
certificate is countersigned by a transfer
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agent other than the corporation or its employee, or by a registrar other than
the corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
Section 7.2 Lost Certificates. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
Section 7.3 Transfers.
(a) Transfers of record of shares of stock of the corporation
shall be made only on its books by the holders thereof, in person or by attorney
duly authorized and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares. Upon surrender to the corporation or a
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. The Board of Directors shall have the power and
authority to make all such other rules and regulations as they may deem
expedient concerning the issue, transfer and registration or the replacement of
certificates for shares of capital stock of the corporation.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the Delaware General Corporation Law.
Section 7.4 Fixing Record Dates.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders
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entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given, or
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty (60) days prior to such action. If no record date is fixed by the Board of
Directors, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
Section 7.5 Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
Section 8.1 Execution of Other Securities. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 7.1), may be signed by the Chairman or Vice Chairman of the
Board of Directors, the President or any Vice President, or such other person as
may be authorized by the Board of Directors, and the corporate seal impressed
thereon or a facsimile of such seal imprinted thereon and attested by the
signature of the Secretary or an Assistant Secretary, or the Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature of a
trustee under an indenture pursuant to which such bond, debenture or other
corporate security shall be issued, the signatures of the persons signing and
attesting the corporate seal on such bond, debenture or other corporate security
may be the imprinted facsimile of the signatures of such persons. Interest
coupons appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or
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other corporate security, or whose facsimile signature shall appear thereon or
on any such interest coupon, shall have ceased to be such officer before any
bond, debenture or other corporate security so signed or attested shall have
been delivered, such bond, debenture or other corporate security nevertheless
may be adopted by the corporation and issued and delivered as though the person
who signed the same or whose facsimile signature shall have been used thereon
had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
Section 9.1 Declaration of Dividends. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to
law at any regular or special meeting. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation.
Section 9.2 Dividend Reserve. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS
Section 11.1 Directors and Executive Officers. The corporation shall
indemnify its Directors and executive officers to the fullest extent not
prohibited by the Delaware General Corporation Law; provided, however, that the
corporation may limit the extent of such indemnification by individual contracts
with its Directors and executive officers; and, provided, further, that the
corporation shall not be required to indemnify any Director or executive officer
in connection with any proceeding (or part thereof) initiated by such person or
any proceeding
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by such person against the corporation or its Directors, officers,
employees or other agents unless (i) such indemnification is expressly required
to be made by law, (ii) the proceeding was authorized by the Board of Directors
of the corporation, or (iii) such indemnification is provided by the
corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law.
Section 11.2 Other Officers, Employees and Other Agents. The
corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law.
Section 11.3 Good Faith.
(a) For purposes of any determination under this Article XI, a
Director or executive officer shall be deemed to have acted in good faith and in
a manner such officer reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe that such officer's
conduct was unlawful, if such officer's action is based on information,
opinions, reports and statements, including financial statements and other
financial data, in each case prepared or presented by:
(i) one or more officers or employees of the
corporation whom the Director or executive officer believed to be
reliable and competent in the matters presented;
(ii) counsel, independent accountants or other
persons as to matters which the Director or executive officer believed
to be within such person's professional competence; and
(iii) with respect to a Director, a committee of the
Board upon which such Director does not serve, as to matters within
such committee's designated authority, which committee the Director
believes to merit confidence; so long as, in each case, the Director or
executive officer acts without knowledge that would cause such reliance
to be unwarranted.
(b) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal
proceeding, that such person had reasonable cause to believe that his conduct
was unlawful.
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(c) The provisions of this Section 11.3 shall not be deemed to
be exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the Delaware
General Corporation Law.
Section 11.4 Expenses. The corporation shall advance, prior to the
final disposition of any proceeding, promptly following request therefor, all
expenses incurred by any Director or executive officer in connection with such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay said amounts if it should be determined ultimately that such person is not
entitled to be indemnified under this Article XI or otherwise.
Notwithstanding the foregoing, unless otherwise determined
pursuant to Section 11.5 of this Article XI, no advance shall be made by the
corporation if a determination is reasonably and promptly made (i) by the Board
of Directors by a majority vote of a quorum consisting of Directors who were not
parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, that the facts known to the decision-making party
at the time such determination is made demonstrate clearly and convincingly that
such person acted in bad faith or in a manner that such person did not believe
to be in or not opposed to the best interests of the corporation.
Section 11.5 Enforcement. Without the necessity of entering into an
express contract, all rights to indemnification and advances to Directors and
executive officers under this Article XI shall be deemed to be contractual
rights and be effective to the same extent and as if provided for in a contract
between the corporation and the Director or executive officer. Any right to
indemnification or advances granted by this Article XI to a Director or
executive officer shall be enforceable by or on behalf of the person holding
such right in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. The
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. Neither the failure of the corporation (including its
Board of Directors, independent legal counsel or its stockholders) to have made
a determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because such person has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant has not met the applicable standard of
conduct.
Section 11.6 Non-Exclusivity of Rights. The rights conferred on any
person by this Article XI shall not be exclusive of any other right which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested Directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically
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authorized to enter into individual contracts with any or all of
its Directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law.
Section 11.7 Survival of Rights. The rights conferred on any person by
this Article XI shall continue as to a person who has ceased to be a Director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 11.8 Insurance. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Article XI.
Section 11.9 Amendments. Any repeal or modification of this Article XI
shall only be prospective and shall not affect the rights under this Article XI
in effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
Section 11.10 Saving Clause. If this Article XI or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the corporation shall nevertheless indemnify each Director and executive officer
to the full extent not prohibited by any applicable portion of this Article XI
that shall not have been invalidated, or by any other applicable law.
Section 11.11 Certain Definitions. For the purposes of this Article XI,
the following definitions shall apply:
(1) The term "proceeding" shall be broadly construed
and shall include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the
giving of testimony in, any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative.
(2) The term "expenses" shall be broadly construed
and shall include, without limitation, court costs, attorneys' fees,
witness fees, fines, amounts paid in settlement or judgment and any
other costs and expenses of any nature or kind incurred in connection
with any proceeding.
(3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors,
officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such
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constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of
this Article XI with respect to the resulting or surviving corporation
as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "officer,"
"employee," or "agent" of the corporation shall include without
limitation, situations where such person is serving at the request of
the corporation as a director, officer, employee, trustee or agent of
another corporation, partnership, joint venture, trust or other
enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan;
and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee
benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this Article XI.
ARTICLE XII
NOTICES
Section 12.1 Notice to Stockholders. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to such stockholder's last known post office address as
shown by the stock record of the corporation or its transfer agent.
Section 12.2 Notice to Directors. Any notice required to be given to
any Director may be given by the method stated in Section 12.1, or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such Director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such Director. It shall not be necessary that the same
method of giving notice be employed in respect of all Directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
Section 12.3 Address Unknown. If no address of a stockholder or
Director be known, notice may be sent to the principal executive officer of the
corporation.
Section 12.4 Affidavit of Mailing. An affidavit of mailing, executed by
a duly authorized and competent employee of the corporation or its transfer
agent appointed with
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respect to the class of stock affected, specifying the name and address or the
names and addresses of the stockholder or stockholders, or Director or
Directors, to whom any such notice or notices was or were given, and the time
and method of giving the same, shall be conclusive evidence of the statements
therein contained.
Section 12.5 Time Notices Deemed Given. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing,
and all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at the time of transmission.
Section 12.6 Failure to Receive Notice. The period or limitation of
time within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any Director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
such person in the manner above provided, shall not be affected or extended in
any manner by the failure of such stockholder or such Director to receive such
notice.
Section 12.7 Notice to Person with Whom Communication Is Unlawful.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
Section 12.8 Notice to Person with Undeliverable Address. Whenever
notice is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings to such
person during the period between such two consecutive annual meetings, or (ii)
all, and at least two, payments (if sent by first class mail) of dividends or
interest on securities during a twelve-month period, have been mailed addressed
to such person at such person's address as shown on the records of the
corporation and have been returned undeliverable, the giving of such notice to
such person shall not be required. Any action or meeting which shall be taken or
held without notice to such person shall have the same force and effect as if
such notice had been duly given. If any such person shall deliver to the
corporation a written notice setting forth such person's then current address,
the requirement that notice be given to such person shall be reinstated. In the
event that the action taken by the corporation is such as to require the filing
of a certificate under any provision of the Delaware General Corporation Law,
the certificate need not state that notice was not given to persons to whom
notice was not required to be given pursuant to this paragraph.
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ARTICLE XIII
AMENDMENTS
Section 13.1 Amendments. Except as otherwise set forth in Section 11.9
of these Bylaws, these Bylaws may be amended or repealed and new Bylaws adopted
by the stockholders entitled to vote.
Section 13.2 Application of Bylaws. In the event that any provisions of
these Bylaws is or may be in conflict with any law of the United States, of the
state of incorporation of the corporation or of any other governmental body or
power having jurisdiction over this corporation, or over the subject matter to
which such provision of these Bylaws applies, or may apply, such provision of
these Bylaws shall be inoperative to the extent only that the operation thereof
unavoidably conflicts with such law, and shall in all other respects be in full
force and effect.
ARTICLE XIV
LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiaries, including any officer or employee who is a Director of the
corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the corporation. The loan, guarantee or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this Bylaw shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the corporation at common law
or under statute.
ARTICLE XV
ANNUAL REPORT
Subject to the provisions of Section 46(b) below, the Board of
Directors shall cause an annual report to be sent to each stockholder of the
corporation not later than one hundred twenty (120) days after the close of the
corporation's fiscal year. Such report shall include a balance sheet as of the
end of such fiscal year and an income statement and statement of changes in
financial position for such fiscal year, accompanied by any report thereon of
independent accounts or, if there is no such report, the certificate of an
authorized officer of the corporation
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that such statements were prepared without audit from the books and records of
the corporation. Such report shall be sent to stockholders at least fifteen (15)
days prior to the next annual meeting of stockholders after the end of the
fiscal year to which it relates. If and so long as there are fewer than 100
holders of record of the corporation's shares, the requirement of sending of an
annual report to the stockholders of the corporation is hereby expressly waived.
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<PAGE> 1
EXHIBIT 5.1
BROBECK, PHLEGER & HARRISON LLP
301 Congress Avenue, Suite 1200
Austin, Texas 78701
July 24, 1998
Inet Technologies, Inc.
1255 W. 15th Street, Suite 600
Plano, Texas 75075
Re: Inet Technologies, Inc. Registration Statement on Form S-1
for up to 6,612,500 Shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to Inet Technologies, Inc., a
Delaware corporation (the "Company"), in connection with the proposed issuance
and sale by the Company of up to 4,704,370 shares of the Company's Common
Stock (the "Company Shares") and the sale by certain stockholders of the Company
of up to 1,908,130 shares of the Company's Common Stock (the "Stockholder
Shares" and, collectively with the Company Shares, the "Shares") pursuant to the
Company's Registration Statement on Form S-1 (the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Act").
This opinion is being furnished in accordance with the
requirements of Item 16(a) of Form S-1 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the
corporate proceedings taken by the Company in connection with the issuance and
sale of the Shares. Based on such review, we are of the opinion that the
Stockholder Shares have been duly authorized and legally issued and are fully
paid and nonassessable, and that the Company Shares have been duly authorized
and if, as and when issued in accordance with the Registration Statement and the
related prospectus (as amended and supplemented through the date of issuance)
will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the prospectus which is part of the Registration
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the Act,
the rules and regulations of the Securities and Exchange Commission promulgated
thereunder, or Item 509 of Regulation S-K.
<PAGE> 2
Inet Technologies, Inc.
July 24, 1998
Page 2
This opinion letter is rendered as of the date first written
above and we disclaim any obligation to advise you of facts, circumstances,
events or developments which hereafter may be brought to our attention and which
may alter, affect or modify the opinion expressed herein. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company or the Shares.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
EXHIBIT 10.1
PITMAN ATRIUM TOWER
OFFICE LEASE
THIS LEASE (herein so called) is made as of May 1, 1996, by and
between Pitman Partners, Ltd. and Rosewood Property Company (collectively,
"Landlord"), and INET, INC. ("Tenant").
W I T N E S S E T H :
<TABLE>
<CAPTION>
<S> <C>
1. BASIC PROVISIONS:
(a) Tenant: INET, INC.
1255 W. 15th Street
Suite 600
Plano, Texas 75075
Attn: Mark Weinzier
With a copy to: Ed Walts
Strasburger & Price, L.L.P.
4300 NationsBank Plaza
901 Main Street
Dallas, Texas 75202
(b) Building: Pitman Atrium Tower
1255 W. 15th Street
Plano, Texas
(c) Premises: Portion of second floor (as shown on EXHIBIT A-1) and all of third
and sixth floors of the Building
Approximate Rentable Area of the Premises:
11,227 square feet on the second floor;
17,571 square feet on the third floor;
17,571 square feet on the sixth floor;
Total Rentable Area of Premises is
approximately 46,369 square feet
Approximate Rentable Area of the Building:
179,411 square feet
(d) Basic Rental: 10,759.21 per month,
$129,110.50 per year for portion of Premises on second floor;
$33,677.75 per month, $404,133.00
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
per year for remainder of Premises; annual rental rate per square
foot of Rentable Area: $11.50
(e) Security Deposit: $44,436.96
(f) Lease Term: Three (3) years for the portion of the Premises located on the third
and sixth floors of the Building; three (3) years and three (3)
months for the portion of the Premises located on the second floor of
the Building
(g) Commencement
Date(s): October 1, 1996 as to third and sixth floors of the Building; earlier
to occur of (i) date upon which Tenant commences to occupy the second
floor of the Premises, and (ii) date which is sixty (60) days after
the Turnover Date (as defined in Paragraph 4 hereof) as to the
portion of the Premises on the second floor of the Building.
(h) Operating Expense
Stop: The Actual Operating Expenses (as hereinafter defined) for or
allocated to the Project incurred by Landlord during calendar year
1996 (calculated upon the accrual method of accounting in accordance
with generally accepted accounting principles and adjusted
pursuant to Paragraph 6 hereof) divided by the Rentable Area of the
Building
(i) Permitted Use: General Office Use
(j) Parking: Parking for one (1) automobile per 300 square feet of Rentable Area
at no cost to Tenant; non-reserved spaces
</TABLE>
2. LEASE GRANT. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord the Premises described above, which will consist of
approximately 46,369 square feet of Rentable Area (herein so called) located on
a portion of the second floor of the building described above (the "Building"),
as shown on EXHIBIT A-1 attached hereto, being approximately 11,227 square feet
of Rentable Area, the third floor of the Building as shown on EXHIBIT A-2 being
approximately 17,571 square feet of Rentable Area, and the sixth floor of the
Building as shown on EXHIBIT A-3 attached hereto, being approximately 17,571
square feet of Rentable Area. The Premises are located in the Building, which
is located on the real property described in EXHIBIT B attached hereto (the
"Land"). The Land, the Building, the parking facilities, parking garage and
other structures and improvements, landscaping, fixtures, appurtenances and
other common areas now or hereafter placed, constructed or erected thereon
comprise the project (the "Project") known as Pitman Atrium Tower in Plano,
Collin County, Texas. Tenant is hereby
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<PAGE> 3
granted a nonexclusive right to use the Common Areas during the term of this
Lease for their intended purposes, in common with others, subject to the terms
and conditions of this Lease, including, without limitation, the reasonable
rules and regulations promulgated by Landlord. "Common Areas" will mean all
areas, spaces, facilities, and equipment (whether or not located within the
Building) made available by Landlord for the common and joint use of Landlord,
Tenant and others, including, but not limited to, tunnels, walkways, sidewalks
and driveways necessary for access to the Building, Building lobbies,
landscaped areas, enclosed mall areas, loading areas, public corridors, public
restrooms, Building stairs and elevators, drinking fountains and such other
areas and facilities, if any, as are designated by Landlord from time to time
as Common Areas. "Service Areas" will refer to areas, spaces, facilities and
equipment serving the Building (whether or not located within the Building) but
to which Tenant and other occupants of the Building will not have access,
including, but not limited to, mechanical, telephone, electrical and similar
rooms, and air and water refrigeration equipment. This Lease is granted subject
to the terms hereof, the rights and interests of third parties under existing
liens, ground leases, easements and encumbrances affecting such property, all
zoning regulations, rules, ordinances, building restrictions and other laws and
regulations now in effect or hereafter adopted by any governmental authority
having jurisdiction over the Project or any part thereof.
3. LEASE TERM. This Lease shall be for a term commencing on the
respective Commencement Date as defined in Paragraph 1(g) hereinabove with
respect to the portion of the Premises located on the second floor of the
Building and the remainder of the Premises, through September 30, 1999 (the
"Expiration Date"). The date the Lease Term commences with respect to the
applicable portion of the Premises as set forth hereinabove shall be referred
to in this Lease as a "Commencement Date".
4. CONSTRUCTION. In the event any construction of tenant
improvements is necessary for the Premises, such construction will be
accomplished and the cost of such construction will be paid by Tenant. Tenant
acknowledges that Landlord has not undertaken to perform any modification,
alteration or improvement to the Premises. Tenant accepts the Premises in an
"AS IS" condition, with all faults. Except as expressly provided below,
Landlord expressly disclaims any warranty or representation of any kind with
respect to the Premises. Tenant agrees to be responsible for all costs and
expense associated with refurbishment of the Premises if Tenant chooses to so
refurbish, including, but not limited to, the cost of all contractors,
subcontractors, architects, engineers, permits, taxes, and any associated fees.
Tenant hereby indemnifies, holds harmless, and agrees to defend Landlord and
its agents, employees, affiliates, officers, directors, and partners from and
against any loss, cost, liens, expenses, or liability of any kind arising in
whole or in part from such refurbishment. Any alterations, changes or
improvements to the Premises shall be made by Tenant in strict accordance with
and pursuant to the requirements of Section 8 hereof. Tenant is solely
responsible for the compliance of the Premises with all governmental
regulations, ordinances, building codes, and laws applicable to the Premises
including, but not limited to, the Americans With Disabilities Act of 1990, and
all regulations promulgated thereunder ("ADA"). Provided, however, Landlord
agrees that upon written notification by the City of Plano (or other
governmental entity having the legal right to require building code and ADA
compliance) to Tenant or Landlord that the third and sixth floor portion of the
Premises is not in compliance with applicable building codes or the ADA (as in
effect as of the Turnover Date), Landlord will be obligated to cause such
portion of the Premises to be altered, at Landlord's sole cost and expense, to
comply with applicable provisions of the building
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<PAGE> 4
code and ADA. Notwithstanding the foregoing, or anything to the contrary
contained in this Lease, Landlord agrees to pay the actual costs of any work
required to cause the "shell" portion of the Premises located on the second
floor of the Building to meet the requirements of the local building code.
Promptly after the execution hereof, but in no event more than five (5)
business days after the execution hereof, and prior to Tenant's commencement of
its refurbishment work to such portion of the Premises, Tenant shall provide a
list of work, if any, required by the City of Plano building inspectors to
bring the shell into compliance with the local building code, together with
written estimates of the cost of such work, and a proposed contract with a
general contractor to complete such work. Landlord shall have five (5) days to
review the list of work, estimates, and proposed contract, and to approve same
or disapprove of same in writing. If Landlord approves the list, estimates, and
proposed contract, or fails to respond within five (5) days of its receipt of
the list of work, estimates, and proposed contract (the last day of such 5-day
period herein referred to as the "Turnover Date"), Tenant may proceed to cause
the work to be completed in accordance with the proposed contract. If Landlord
does not approve of the list of work, estimates and proposed contract, Landlord
agrees to deal directly with the building inspectors and hire its own
contractor to bring the shell into compliance with the local building code
within a reasonable period of time not to exceed forty-five (45) days from the
date of Landlord's receipt of the list of work, estimates and proposed
contract. If Landlord is causing such work to be performed, and Landlord causes
Tenant to be unable to secure a certificate of occupancy by July 1, 1996, the
Commencement Date as to the portion of the Premises on the second floor shall
automatically be extended until a certificate of occupancy is issued. Landlord
shall cooperate with Tenant in securing a certificate of occupancy.
5. TENANT'S BASIC RENTAL OBLIGATION.
(a) Basic Rental. Beginning on the respective Commencement Dates
(with respect to the portion of the Premises on the second floor of the
Building and with respect to the remainder of the Premises), Tenant shall pay
to Landlord the Basic Rental for such space as set forth in Paragraph 1(d)
above, without demand, deduction or setoff, for each month of the entire Lease
Term applicable to such space. If the day on which Basic Rental is first due is
other than the first day of a calendar month, rent for such partial month shall
be prorated on a daily basis. All Basic Rental shall be paid by Tenant to
Landlord in advance on or before the first day of each calendar month during
the Lease Term. All rental and other payments which are due hereunder shall be
made payable to Landlord. Tenant agrees to pay said rental and other payments
to Landlord at c/o Hunt Properties, Inc., 8235 Douglas Avenue, Suite 1300,
Dallas, Texas, 75225, or at such other place as may from time to time be
designated in writing by Landlord, in lawful money of the United States of
America without any prior demand therefor and without any deduction or setoff
whatsoever.
(b) Security Deposit. Tenant shall deposit with Landlord the
amount shown above as a Security Deposit contemporaneously with the execution
hereof. Tenant's Security Deposit shall be held in accordance with the terms of
Paragraph 19(k).
6. TENANT'S ADDITIONAL RENTAL OBLIGATIONS.
(a) Additional Rental. From the date of execution hereof by
Landlord and Tenant through December 31, 1996, Tenant shall continue to pay
Additional Rental in the same amount
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<PAGE> 5
as required by that certain Sublease dated December 15, 1993, between Tenant
and Tandem Telecommunications Systems, Inc.; provided, however: (i) Tenant
shall pay Additional Rental directly to Landlord for the portion of the
Premises on the second floor of the Building from July 1, 1996 (subject to
delay as provided hereinabove in the event Landlord is causing the work on the
portion of the second floor to be completed) through December 31, 1996, with an
Operating Expense Stop based upon Actual Operating Expenses incurred by
Landlord for calendar year 1995; and (ii) Tenant shall pay Additional Rental
directly to Landlord for the portion of the Premises on the third and sixth
floors of the Building from October 1, 1996 through December 31, 1996, with an
Operating Expense Stop based upon Actual Operating Expenses incurred by
Landlord for calendar year 1995. From and after January 1, 1997, Tenant shall
pay to Landlord each calendar year the Additional Rental (herein so called)
equal to Tenant's proportionate share of (i) the Actual Operating Expenses
(defined below) for the Project for such calendar year in excess of (ii) the
Operating Expense Stop defined Paragraph 1(h) above multiplied by the number of
square feet of Rentable Area in the Building. Additional Rental shall be
prorated on a daily basis for each partial calendar year in the Lease Term.
Tenant's proportionate share shall be based on the ratio which the Rentable
Area in the Premises (adjusted for office expansions by Tenant) bears to the
Rentable Area within the Building, which is 26%. Landlord and Tenant agree that
the Rentable Area of the Premises and Rentable Area of the Building as
reflected herein shall be deemed to be the actual measured area thereof for all
purposes hereof, and that Landlord has made no representation or warranty to
Tenant as to the actual dimensions of the Premises or the Building.
(b) Adjustment of Actual Operating Expenses. Notwithstanding any
language herein to the contrary, if the Building is not fully occupied during
any calendar year of the Lease Term, Actual Operating Expenses shall be
determined as if the Building had been fully occupied during such year. For the
purposes of this Lease, "fully occupied" shall mean occupancy of one hundred
percent (100%) of the Rentable Area in the Building.
(c) Actual Operating Expenses Enumerated. Actual Operating
Expenses shall include all expenses, costs and disbursements of every kind and
nature incurred or paid by Landlord in connection with the ownership and/or the
operation, maintenance, repair and security of the Project, including, without
limitation, expenses for the following:
(i) garbage and waste disposal;
(ii) janitorial service and window cleaning for the
Building and the Common Areas and Service Areas (including materials,
supplies, Building Standard light bulbs and ballasts, equipment and
tools therefor, and rental and depreciation costs related to any of
the foregoing) or contracts with third parties to provide same (the
term "Building Standard" as used herein shall mean the type, brand
and/or quality of materials Landlord designates from time to time to
be the minimum quality to be used in the Building or the exclusive
type, grade or quality of material to be used in the Building);
(iii) security;
(iv) insurance premiums (including, without limitation,
property, liability and any other types of insurance carried by
Landlord with respect to the Building and the
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<PAGE> 6
Common Areas and Service Areas, the costs of which may include an
allocation of a portion of the premium of a blanket insurance policy
maintained by Landlord);
(v) real estate taxes, assessments, business taxes,
excises, and any other governmental levies and charges of every kind
and nature whatsoever, general and special, extraordinary and
ordinary, foreseen and unforeseen, which may during the Term be levied
or assessed against, or arising in connection with the ownership, use,
occupancy, operation or possession of, the Building and the Common
Areas and Service Areas, or any part thereof, or substituted, in whole
or in part, for a real estate tax assessment, excise or governmental
charge or levy previously in existence, by any authority having the
direct or indirect power to tax, including interest on installment
payments and all costs and fees (including attorneys' fees) incurred
by Landlord in contesting or negotiating with taxing authorities as to
same, but excluding any inheritance, estate, succession, transfer,
gift, franchise, corporation, income or profits tax imposed upon
Landlord;
(vi) water and sewer charges and any related water and
sewer expenses;
(vii) operation, maintenance, and repair (to include
replacement of components) of the Building, including but not limited
to all floor, wall and window coverings and personal property in the
Common Areas, Building systems (such as heat, ventilation and air
conditioning systems), elevators, escalators, and all other mechanical
or electrical systems serving the Building and the Common Areas and
Service Areas and service agreements for all such systems and
equipment; whether an expenditure is a current expense or a capital
expenditure shall be determined in accordance with generally accepted
accounting principles, consistently applied, and any capital
expenditures shall be amortized over the useful life expectancy of
such capital expenditure using the straight-line method with only such
amortized amount for any one lease year being included in Actual
Operating Expenses, e.g., $100,000 capital expenditure divided by ten
year useful life equals $10,000 per year included in Actual Operating
Expenses; notwithstanding anything otherwise set forth herein, under
no circumstances shall any costs of repair to the foundation or load
bearing structures of the Building or replacement of the roof of the
Building be included in Actual Operating Expenses.
(viii) any easement maintained for the benefit of the
Project;
(ix) license, permit and inspection fees;
(x) compliance with any fire safety or other governmental
rules, regulations, laws, statutes, ordinances or requirements imposed
by any governmental authority or insurance company with respect to the
Building during the Lease Term;
(xi) wages, salaries, employee benefits and taxes (or an
allocation of the foregoing) for personnel working full or part time
in connection with the operation, maintenance and management of the
Building and the Common Areas and Service Areas;
(xii) accounting and legal services (but excluding legal
services in connection with (x) negotiations and disputes with
specific tenants unless the matter involved affects
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all tenants of the Building, (y) any transfers of ownership of the
Project, and (z) any co-ownership matters relating to any financing
for the Project);
(xiii) administrative and management fees for the Building
(which shall not exceed 3% of the gross revenues of the Building) and
Landlord's overhead expenses directly attributable to the Building,
including without limitation the cost of an office in the Building
maintained for management of the Project;
(xiv) indoor and outdoor landscaping;
(xv) Amortization of Required Capital Improvements and
Cost Savings Improvements. "Required Capital Improvements" will mean
capital improvements or replacements made in or to the Building in
order to conform to any Applicable Law. "Cost Savings Improvements"
will mean any capital improvements or replacements which are intended
to reduce, stabilize, or limit increases in Actual Operating Expenses.
The cost of Cost Savings Improvements will be amortized by spreading
such costs uniformly over a term equal to the lesser of (a) the period
of years over which the amount by which Actual Operating Expenses are
reduced would be equal to the cost of such installation or (b) ten
(10) years. The cost of Required Capital Improvements amortizable
maintenance and repair items (e.g., painting of Common Areas,
replacement of carpet in elevator lobbies), will be amortized by
spreading such costs uniformly over a term equal to the lesser of (A)
the period employed by Landlord for federal income tax purposes or (B)
ten (10) years;
(xvi) expenses and fees (including reasonable attorneys'
fees) incurred contesting the validity or applicability of any
governmental enactments which may affect Actual Operating Expenses;
and
(xvii) the costs incurred by Landlord for (A) any and all
forms of fuel or energy utilized in connection with the operation,
maintenance, and use of the Building, Common Areas and Service Areas,
(B) sales, use, excise and other taxes assessed by governmental
authorities on energy sources, and (C) other costs of providing energy
to the Building, Common Areas and Service Areas.
(d) Exclusions from Actual Operating Expenses. Actual Operating
Expenses shall exclude the following:
(i) leasing commissions, attorneys' fees, costs and
disbursements and other expenses incurred in connection with leasing,
renovating or improving space for tenants or prospective tenants of
the Building;
(ii) costs (including permit, license and inspection fees)
incurred in renovating or otherwise improving or decorating, painting
or redecorating space for tenants or vacant space;
(iii) Landlord's costs of any services sold to tenants for
which Landlord is entitled to be reimbursed by such tenants as an
additional charge or rental over and above
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the Basic Rental and Actual Operating Expenses payable under the lease
with such tenant or other occupant;
(iv) any depreciation and amortization on the Building
except to the extent amortization is expressly permitted herein;
(v) costs incurred due to violation by Landlord of any of
the terms and conditions of this Lease or any other lease or any laws,
rules or regulations relating to the Building;
(vi) interest on debt or amortization payments on any
mortgages or deeds of trust or any other debt for borrowed money;
(vii) all items and services for which Tenant reimburses
Landlord outside of Actual Operating Expenses or pays third persons or
which Landlord provides selectively to one or more tenants or
occupants of the Building (other than Tenant) without reimbursement;
(viii) advertising and promotional expenditures;
(ix) repairs or other work occasioned by fire, windstorm
or other work paid for through insurance or condemnation proceeds;
(x) repairs resulting from any defect in the original
design or construction of the Building;
(xi) costs incurred by Landlord for trustee's fees,
corporate expenses and accounting fees to the extent relating to
Landlord's general corporate overhead and general administrative
expenses;
(xii) capital expenditures required to be capitalized in
accordance with GAAP except as specifically provided above;
(xiii) damage and repairs necessitated by the negligence or
willful misconduct of Landlord or its employees, contractors or
agents;
(xiv) costs of selling or financing the Project or the
Building;
(xv) leasing commissions, attorneys' fees, advertising
costs and other expenses incurred in connection with negotiations for
leases with tenants or prospective tenants of the Building, or similar
costs incurred in connection with disputes with tenants or prospective
tenants, or similar costs and expenses incurred in connection with
negotiations or disputes with consultants, management agents,
purchasers or mortgagees of the Building; and
(xvi) in no event shall Landlord receive from all tenants
of the Building more than one hundred percent (100%) of the amount of
any Actual Operating Expense for any calendar year.
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(e) Credits. Landlord will credit against Actual Operating
Expenses any refunds received as a result of tax contests, after deduction for
Landlord's costs in connection with same.
(f) Discretionary Items. The foregoing provisions of this
Paragraph 6 will not be deemed to require Landlord to furnish or cause to be
furnished any service or facility not otherwise required to be furnished by
Landlord pursuant to the provisions of this Lease, although Landlord, in
Landlord's absolute discretion, may choose to do so from time to time.
(g) Estimated Actual Operating Expenses. Landlord shall have the
right to estimate Additional Rental to accrue hereunder and Tenant shall pay to
Landlord one-twelfth (1/12) of the amount of such estimate monthly with each of
Tenant's Basic Rental payments. If Landlord estimates Additional Rental in
advance, then by each April 1 or as soon thereafter as practical, Landlord
shall furnish to Tenant a statement of Landlord's Actual Operating Expenses for
the previous calendar year. If for any calendar year Tenant's Additional Rental
collected for the prior year, as a result of payment of Tenant's estimated
Additional Rental or otherwise, is in excess of Tenant's Additional Rental
actually due during such prior year, then, so long as Tenant is not in default
hereunder, Landlord shall refund to Tenant any overpayment (or, at Landlord's
option, apply such amount against rentals due or to become due hereunder).
Likewise, Tenant shall pay to Landlord, within fifteen (15) days after Landlord
has given written notice thereof to Tenant in the manner specified herein, any
underpayment with respect to the prior year.
7. LANDLORD'S OBLIGATIONS.
(a) Water, Heat, Air Conditioning, Janitorial and Elevator Service
and Maintenance Obligations. Subject to the limitations hereinafter set forth,
Landlord agrees to furnish Tenant while occupying the Premises and while Tenant
is not in default under this Lease: (i) water (hot and cold) at those points of
supply provided for general use of tenants of the Building; (ii) Building
Standard heat and air conditioning in season, as determined by Landlord,
weekdays (other than holidays) between 7:00 a.m. and 7:00 p.m., and Saturdays
between 8:00 a.m. and 1:00 p.m., at such temperatures and in such amounts as
are reasonably considered by Landlord to be standard (Landlord shall only
furnish heat and air conditioning weekdays after 7:00 p.m., on Saturdays after
1:00 p.m., and on Sundays and holidays at the written request of Tenant (which
must be received by Landlord at least twenty-four (24) hours in advance, but no
later than 12:00 noon of the preceding Friday, if the request is for Saturday,
Sunday or a holiday), and at Landlord's actual cost therefor payable within
fifteen (15) days after receipt of an invoice; (iii) Building Standard
janitorial service in accordance with EXHIBIT "C" attached hereto on weekdays
other than holidays for Building installations and Building Standard window
washing; (iv) operatorless passenger elevators for ingress and egress to the
floor on which the Premises are located; and (v) replacement of Building
Standard light bulbs and fluorescent tubes, but Landlord's standard charge for
such bulbs and tubes shall be paid by Tenant. Landlord additionally agrees to
maintain in the Building the exterior walls, roof, windows, structural steel,
load-bearing nondemising walls, floors below the level of Tenant's floor
covering and the HVAC, electrical and plumbing systems serving the Premises,
but located outside the Premises, subject to the terms and conditions of this
Lease which may limit Landlord's maintenance, repair and rebuilding obligations
under various circumstances. Landlord agrees to cooperate with Tenant with
respect to Building security matters. Landlord agrees to maintain the Common
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<PAGE> 10
Areas and the portion of the Building which it is obligated to maintain
pursuant to this Lease in the same quality condition as other comparable office
buildings in the Plano area.
(b) Electrical Service. Tenant's use of electrical services
furnished by Landlord shall be subject to the following:
(i) Landlord shall not be required to furnish electrical
current for computers, electronic data processing equipment, or
special lighting beyond that which is provided in the Building as of
the date hereof.
(ii) The amount of electricity consumed by Tenant shall be
determined, at the election of Landlord, either (A) based upon a
survey performed by a reputable consultant to be selected by Landlord
and paid by Tenant, or (B) through a separate meter to be installed,
maintained and read by Landlord at the sole cost of Tenant.
(iii) If Tenant's requirements for or consumption of
electrical services exceeds the usage amount specified in Paragraph
7(b)(i) hereof, then Tenant shall remove such equipment and/or
lighting to achieve compliance within ten (10) days after receiving
notice from Landlord. Notwithstanding the foregoing sentence, such
equipment and/or lighting may remain in the Premises, subject to
Landlord's prior written approval and subject to the following terms:
(A) Tenant shall pay for all costs of
installation and maintenance of submeters, wiring, air
conditioning and other items required by Landlord, in
Landlord's discretion, to accommodate Tenant's excess design
loads and capacities.
(B) Tenant shall pay to Landlord, upon demand,
the cost of the excess demand and consumption of electrical
service at rates determined by Landlord which shall be in
accordance with any Applicable Laws.
(c) Interruption of Services. Failure to any extent to make
available, or any slow-down, stoppage or interruption of any services described
in this Paragraph 7 resulting from any cause whatsoever (other than Landlord's
gross negligence) shall not render Landlord liable in any respect for damages,
nor be construed as an eviction of Tenant, nor relieve Tenant from fulfillment
of any covenant or agreement hereof. Should any service being furnished by
Landlord be interrupted for any cause whatsoever, Tenant shall notify Landlord
and Landlord shall use reasonable diligence to restore such service promptly.
For any failure by Landlord (except due to Tenant's or Tenant's agents,
contractors, employees, licensees or invitees' negligence or willful
misconduct) for any reason to provide any of the services under this Paragraph
7 if such failure materially and adversely affects the habitability of the
Premises ("Substantial Services Failure") and continues beyond a period of
forty-eight (48) consecutive hours and Landlord does not commence and continue
diligently to pursue to restore such service, after in each instance written
notice thereof is given by Tenant to Landlord (and a copy of said notice is
sent simultaneously to any mortgagee holding a lien covering the Building),
then Tenant shall have the right to cure such Substantial Services Failure, and
Landlord shall reimburse Tenant for all reasonable sums expended in so curing
said default within forty-five (45) days after Landlord's receipt of third-
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party invoices therefor. If Landlord fails to reimburse Tenant within such
forty-five (45) day period, Tenant may effect such reimbursement through the
withholding of Basic Rental and Additional Rental. In the event Tenant
undertakes to correct or cure the Substantial Services Failure, Tenant shall
indemnify, defend and hold Landlord harmless from and against any loss, cost,
claim, expense or liability arising out of the actions of Tenant or its agents
or employees. The foregoing self-help and offset rights of Tenant for a
Substantial Services Failure shall be personal solely to INET, Inc. and its
successor and affiliate, but not to any other permitted assignee or permitted
subtenant. The foregoing rental abatement, self-help and offset rights of
Tenant for a Substantial Services Failure shall constitute Tenant's sole and
exclusive remedies involving or with respect to such service failure. Tenant
agrees that there shall be no rental abatement, nor shall Tenant have the right
to avail itself of self-help or offset rights, on account of any Substantial
Services Failure caused in whole or in part by the negligence or willful
misconduct of Tenant or Tenant's agents, contractors, employees, licensees or
invitees.
8. TENANT'S COVENANTS. Tenant covenants and agrees as follows:
(a) Alterations. Tenant shall make no alterations, changes or
improvements to the Premises without first submitting to Landlord plans and
specifications and obtaining the prior written consent of Landlord, which
consent shall not be unreasonably withheld, delayed, or conditioned. All work
done by Tenant shall be performed in a good and workmanlike manner by a
contractor reasonably approved by Landlord, in compliance with Applicable Laws
and at such times and in such manner as not to cause material interference with
construction in progress or with other tenants in the Building.
(b) Mechanic's and Materialmen's Liens. Tenant shall have no
authority or power, express or implied, to create or cause any mechanic's or
materialmen's lien, charge or encumbrance of any kind against the Premises or
the Project or any portion thereof. Tenant shall promptly cause any such liens
which have arisen by reason of any work or materials claimed to have been
provided to or undertaken by or through Tenant to be released by payment,
bonding or otherwise within thirty (30) days after request by Landlord, and
Tenant shall indemnify Landlord against losses arising out of any such claim.
Tenant's indemnification of Landlord contained in this Paragraph 8(b) shall
survive the expiration or earlier termination of this Lease.
(c) Permitted Use of Premises. Tenant shall not permit the
Premises to be used for any purpose other than for the use specified in
Paragraph 1 of this Lease. Tenant will, at Tenant's sole cost, promptly comply
with all Applicable Laws applicable to the Premises. The judgment of any court
of competent jurisdiction or the admission of Tenant in any action against
Tenant, whether Landlord is a party thereto or not, that Tenant has violated
any Applicable Law will be conclusive of that fact between Landlord and Tenant.
(d) Repairs. Tenant will not in any manner deface or injure the
Building, and will pay the cost of repairing and replacing any damage or injury
done to the Building or any part thereof by Tenant or Tenant's agents,
contractors or employees. Tenant shall throughout the Lease Term keep the
Premises free from deterioration, waste and nuisance of any kind, excluding (i)
ordinary and customary wear and tear, and (ii) damage resulting from a fire or
other casualty. Tenant agrees to keep the Premises in good condition and repair
and Tenant shall make all necessary repairs and replacements to the Premises
except for those repairs to be undertaken by Landlord
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as otherwise provided herein. If Tenant fails to make such repairs or
replacements within fifteen (15) days after notice from Landlord, Landlord may
at its option make such repairs or replacements, and Tenant shall upon demand
pay Landlord for the reasonable cost thereof.
(e) Security. Tenant shall take all reasonable steps necessary to
adequately secure the Premises from unlawful intrusion, theft, fire and other
hazards, and shall keep and maintain all security devices in or on the Premises
in good working order, including, but not limited to, locks, smoke detectors
and burglar alarms, and shall cooperate with Landlord and other tenants in the
Building with respect to Building security matters.
9. ASSIGNMENT AND SUBLETTING.
(a) Assignment and Subletting. Except as provided below, Tenant
shall not sublet the Premises in whole or in part or market the Premises for
sublease and shall not sell, assign or in any manner transfer this Lease or any
interest herein, directly or indirectly (by transfer of control of Tenant, for
example), or voluntarily or by operation of law or otherwise, or permit any
transfer of Tenant's interest created hereby, or allow any lien upon Tenant's
interest by operation of law or otherwise, or permit the use or occupancy of
the Premises or any part thereof, by anyone other than Tenant, nor shall Tenant
sublease space in the Building from another tenant thereof, without Landlord's
prior written consent. If this Lease or any interest in this Lease is sold,
assigned or transferred, or Tenant subleases any part of the Premises, without
Landlord's consent, Landlord may, cumulative of any other right or remedy
available to Landlord, elect to terminate this Lease (as it affects the portion
of the Premises sought to be sublet or assigned) as of the effective date of
the proposed transfer. Landlord's acceptance of any name for listing on the
Building directory will not be deemed nor will it substitute for, Landlord's
consent, as required by this Lease, to any sublease, assignment or other
occupancy of the Premises. Notwithstanding the foregoing, Tenant may assign
this Lease without Landlord's consent if (i) Tenant sells the controlling
interest in Tenant or sells substantially all of the assets of Tenant to an
entity which assumes in writing all of Tenant's obligations under this Lease in
a form reasonably acceptable to Landlord and which successor entity has a net
worth of at least Fifteen Million and No/100 Dollars ($15,000,000) as
determined in accordance with generally accepted accounting principles, or (ii)
Tenant elects to make a public securities offering which offering does not
result in a change of control of Tenant.
(b) Consent to Assignment. Consent by Landlord to one or more
assignments or sublettings shall not operate as a waiver of Landlord's rights
as to any subsequent assignments and sublettings. Notwithstanding any
assignment or subletting, Tenant and any guarantor of Tenant's obligations
under this Lease shall at all times remain fully responsible and liable for the
payment of the rent and other sums herein specified and for compliance with all
of Tenant's other obligations under this Lease, and Landlord may proceed
against Tenant (or any guarantor) for the enforcement of such obligations
without first proceeding against any other party. No direct collection by
Landlord from any such assignee or sublessee shall be construed to constitute a
novation or a release of Tenant or any guarantor of Tenant from the further
performance of its obligations hereunder. If the proposed sublessee or assignee
is subject to compliance with additional requirements under The American with
Disabilities Act beyond those requirements which are applicable to the Tenant,
Landlord may condition Landlord's consent upon receipt of (i) plans and
specifications acceptable to Landlord for complying with the additional
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requirements, and (ii) security acceptable to Landlord that such construction
will be completed timely and lien-free. In addition, any rights which Tenant
may have relating to the renewal or extension of the Lease or the expansion of
the Premises, if any, are personal to Tenant and shall not be available to any
proposed or actual sublessee, assignee or transferee.
(c) Excess Rents. If any rents or other sums received by Tenant
under any sublease are in excess of the rent and other sums payable by Tenant
under this Lease (prorated for a sublease of less than one hundred percent
(100%) of the Premises), or if any additional consideration is paid to Tenant
by any assignee under any assignment, then such excess rents under any sublease
or such additional consideration under any assignment shall be paid by Tenant
to Landlord as additional rent hereunder within ten (10) days after Tenant
receives the same; provided, however, Tenant may deduct therefrom a pro rata
share (based upon the total third-party expenses incurred divided by the number
of months remaining in the Lease Term commencing on the date of the first
rental payment or other payment payable by such sublessee or assignee) of all
reasonable third-party expenses of Tenant (i.e., Tenant's out-of-pocket costs
paid to persons other than Tenant or any affiliate of Tenant) incurred by
Tenant in connection with the sublease or assignment.
(d) Landlord's Right to Transfer. Landlord shall have the right to
transfer, assign and convey, in whole or in part, the Building and any and all
of its rights under this Lease, and in such event, Landlord shall thereby be
released from any further obligations hereunder, and Tenant agrees to look
solely to such successor-in-interest of Landlord for performance of such
obligations.
10. INDEMNITY AND INSURANCE.
(a) Indemnity. Tenant hereby agrees to indemnify, protect, defend
and hold harmless Landlord and its partners, affiliated companies, officers,
directors, shareholders, and employees and agents (collectively, "Indemnitees")
for, from and against all liabilities, claims, fines, penalties, costs, damages
or injuries to persons, damages to property, losses, liens, causes of action,
suits, judgments and expenses (including court costs, attorneys' fees and costs
of investigation), of any nature, kind or description, excluding building code
violations in existence as of the date hereof of any person or entity, directly
or indirectly arising out of, caused by, or resulting from (in whole or part)
(1) Tenant's construction of or use, occupancy or enjoyment of the Premises,
(2) any activity, work or other things done, permitted or suffered by Tenant
and its agents and employees in or about the Premises, (3) any breach or
default in the performance of any obligation on Tenant's part to be performed
under the terms of this Lease including, but not limited to, Tenant's security
obligations set forth in Paragraph 8(e) of this Lease, (4) any act, omission,
negligence or willful misconduct of Tenant or any of its agents, contractors,
employees, business invitees or licensees, or (5) damage to Tenant's property,
or the property of Tenant's agents, employees, contractors, business invitees
or licensees, located in or about the Premises (collectively, "Liabilities"),
unless such Liabilities are caused in whole or in part by the negligence of
Landlord, its agents, contractors, employees, invitees or licensees, in which
event this indemnity shall not apply to the allocable share of such Liabilities
resulting from such negligence. Tenant shall promptly advise Landlord in
writing of any action, administrative or legal proceeding or investigation as
to which this indemnification may apply, and Tenant, at Tenant's expense, shall
assume on behalf of Landlord (and the other Indemnitees) and conduct
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with due diligence and in good faith the defense thereof with counsel
satisfactory to Landlord; provided, however, that any Indemnitee shall have the
right, at its option, to be represented therein by advisory counsel of its own
selection and at its own expense. In the event of failure by Tenant to fully
perform in accordance with this Paragraph 10(a), Landlord, at its option, and
without relieving Tenant of its obligations hereunder, may so perform, but all
costs and expenses so incurred by Landlord in that event shall be reimbursed by
Tenant to Landlord, together with interest on the same from the date any such
expense was paid by Landlord until reimbursed by Tenant, at the rate of
interest provided to be paid on judgments, by the law of the jurisdiction to
which the interpretation of this Lease is subject. This indemnification shall
not be limited to damages, compensation or benefits payable under issuance
policies, workers' compensation acts, disability benefit acts or other
employees' benefit acts and shall survive the expiration or earlier termination
of this Lease. To the extent Tenant's insurance provides the foregoing
indemnity, Landlord agrees to look to such insurance for such protection.
(b) Insurance.
(i) Tenant at all times during the Lease Term shall, at
its own expense, keep in full force and effect (A) commercial general
liability insurance providing coverage against bodily injury and
disease, including death resulting therefrom, personal injury and
property damage to a combined single limit of $3,000,000 to one or
more than one person as the result of any one accident or occurrence,
which shall include provision for contractual liability coverage
insuring Tenant for the performance of its indemnity obligations set
forth in Paragraphs 10(a) and 18 of this Lease, (B) worker's
compensation insurance to the statutory limit and employer's liability
insurance to the limit of $500,000 per occurrence, and (C) all risk
personal property insurance covering full replacement value of all of
Tenant's personal property. Landlord shall be named an additional
insured on each of said the commercial general liability insurance
policies. All of the foregoing policies shall be issued by an
insurance company or companies reasonably acceptable to Landlord.
Each of said policies shall also include a waiver of subrogation
endorsement in favor of Landlord, and an endorsement providing that
Landlord shall receive thirty (30) days prior notice of any
cancellation of, non-renewal of, reduction of coverage or material
change in coverage on said policies. Tenant hereby waives its right of
recovery of any amounts paid by Tenant or on Tenant's behalf to
satisfy applicable worker's compensation laws. Certificates of the
foregoing policies, together with satisfactory evidence of the payment
of the premiums therefor, shall be deposited with Landlord on the date
Tenant first occupies the Premises and upon renewals of such policies
not less than fifteen (15) days prior to the expiration of the term of
such coverage.
(ii) It is expressly understood and agreed that the
coverages required represent Landlord's minimum requirements and such
are not to be construed to void or limit Tenant's indemnity
obligations contained in this Lease. Neither shall (A) the insolvency,
bankruptcy or failure of any insurance company carrying Tenant, (B)
the failure of any insurance company to pay claims occurring nor (C)
any exclusion from or insufficiency of coverage be held to affect,
negate or waive any of Tenant's indemnity obligations under Paragraphs
10(a) and 18 or any other provisions of this Lease. With respect to
insurance coverages, except worker's compensation and personal
property insurance, maintained hereunder by Tenant and insurance
coverage separately obtained by
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Landlord, all insurance coverages afforded by policies of insurance
maintained by Tenant shall be primary insurance as such coverages
apply to Landlord, and such insurance coverages separately maintained
by Landlord shall be excess, and Tenant shall have its commercial
general liability insurance policies endorsed to reflect that policies
maintained by Tenant naming Landlord as an additional insured are
primary, and policies separately maintained by Landlord are excess.
The amount of liability insurance under insurance policies maintained
by Tenant shall not be reduced by the existence of insurance coverage
under policies separately maintained by Landlord. Tenant shall be
solely responsible for any premiums, assessments, penalties,
deductible assumptions, retentions, audits, retrospective adjustments
or any other kind of payment due under its policies.
(iii) Tenant's occupancy of the Premises without delivering
the certificates of insurance shall not constitute a waiver of
Tenant's obligations to provide the required coverages. If Tenant
provides to Landlord a certificate that does not evidence the
coverages required herein, or that is faulty in any respect, such
shall not constitute a waiver of Tenant's obligations to provide the
proper insurance.
(iv) Landlord shall maintain the following insurance
coverages: "All-Risk" property and casualty coverage for the Project
and Building for eighty percent (80%) of the full replacement cost of
the Building above the foundation, and all personal property of
Landlord in the Project; boiler and machinery coverage; and commercial
general liability insurance with limits of at least $3,000,000. All
deductibles or self-insured retentions shall be in commercially
reasonable amounts.
(c) Mutual Waivers of Recovery. It is the intent of Landlord and
Tenant not to hold each other responsible for that portion of any loss or
damage paid or reimbursed by an insurer of Landlord or Tenant or which would
have been reimbursed if Landlord or Tenant had carried the insurance such party
is obligated to carry under this Lease under any all risk, fire, extended
coverage or other property insurance policy maintained by Tenant with respect
to its Premises or by Landlord with respect to the Building or any commercial
general liability, boiler and machinery or other insurance policy maintained by
Landlord or Tenant. Therefore, with respect to the amount of any damage, loss,
claim or liability paid or reimbursed by an insurer under any all risk, fire,
extended coverage or property insurance policy maintained by Tenant with
respect to the Premises, or Landlord with respect to the Building, or any other
insurance policies maintained by Landlord or Tenant, Landlord, Tenant and all
parties claiming under them each mutually release and discharge each other from
such damages, losses, claims or liabilities, no matter how caused, including
negligence, and each waives any right of recovery from the other including, but
not limited to, claims for contribution or indemnity, including any deductible
or self insurance retention, which might otherwise exist on account thereof.
Any fire, extended coverage or property insurance policy maintained by Tenant
with respect to the Premises, or Landlord with respect to the Building, shall
contain, in the case of Tenant's policies, a waiver of subrogation endorsement
in favor of Landlord, and in the case of Landlord's policies, a waiver of
subrogation endorsement in favor of Tenant, or, in the event that such insurers
cannot or will not attach such waiver of subrogation endorsements, Tenant and
Landlord shall obtain the approval and consent of their respective insurers, in
writing, to the terms of this Lease; this waiver of subrogation shall also
apply to any other insurance policies maintained by Landlord or Tenant
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under this Lease. Neither Tenant nor its insurers shall be entitled to receive
any contribution from any insurance policies separately maintained by Landlord,
and Tenant agrees to indemnify, protect, defend and hold harmless Landlord and
any of Landlord's insurers from any claim, suit or cause of action asserted or
brought by Tenant's insurers for, on behalf of, or in the name of Tenant,
including but not limited to, claims for contribution, indemnity or
subrogation. Neither Landlord nor its insurers shall be entitled to receive
any contribution from any insurance policies separately maintained by Tenant,
and Landlord agrees to indemnify, protect, defend and hold harmless Tenant and
any of Tenant's insurers for, on behalf of, or in the name of Landlord,
including but not limited to, claims for contribution, indemnity or
subrogation. The mutual releases, discharges and waivers contained in this
provision shall apply EVEN IF THE LOSS OR DAMAGE TO WHICH THIS PROVISION
APPLIES IS CAUSED SOLELY OR IN PART BY THE NEGLIGENCE OF LANDLORD OR TENANT.
(d) Business Interruption. Landlord shall not be responsible for,
and Tenant releases and discharges Landlord from, and Tenant further waives any
right of recovery from Landlord for, any loss from business interruption or
loss of use of the Premises suffered by Tenant in connection with Tenant's use
or occupancy of the Premises, EVEN IF SUCH LOSS IS CAUSED SOLELY OR IN PART BY
THE NEGLIGENCE OF LANDLORD.
(e) Adjustments of Claims. Landlord and Tenant shall each
cooperate with the other party and its insurers in the adjustment of any
insurance claim pertaining to this Lease.
(f) Increases in Landlord's Insurance Costs. Tenant agrees to pay
to Landlord any increase in premiums for Landlord's insurance policies
resulting from Tenant's use or occupancy of the Premises.
(g) Failure to Maintain Insurance. Any failure of Tenant to
obtain and maintain the commercial general liability insurance policies and
coverages required hereunder or failure by Tenant to meet any of the insurance
requirements of this Lease shall constitute a material breach hereof, and such
failure shall entitle Landlord to pursue, exercise or obtain any of the
remedies provided for in Paragraph 13, and Tenant shall be solely responsible
for any loss suffered by Landlord as a result of such failure. In the event of
failure by Tenant to maintain the insurance policies and coverages required by
this Lease or to meet any of the insurance requirements of this Lease,
Landlord, at its option, and without relieving Tenant of its obligations
hereunder, may obtain such insurance policies and coverages or perform any
other insurance obligation of Tenant, but all costs and expenses incurred by
Landlord in obtaining such insurance or performing Tenant's insurance
obligations shall be reimbursed by Tenant to Landlord, together with interest
on same from the date any such cost or expense was paid by Landlord until
reimbursed by Tenant, at the rate of interest provided to be paid on judgments,
by the law of the jurisdiction to which the interpretation of this Lease is
subject.
11. FIRE OR CASUALTY. In the event that (a) the Premises or the
Building should be so damaged by fire, or other casualty that rebuilding or
repairs cannot be completed within 180 days after the date of commencement of
reconstruction, as reasonably determined by Landlord, or (b) the Premises shall
be so damaged during the last year of the Lease Term to the extent that more
than thirty percent (30%) of the area thereof is rendered untenantable,
Landlord may at its option terminate this Lease within ninety (90) days after
such damage by giving written notice to
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Tenant, in which event rent shall be abated effective with the date of such
damage. If, following any such casualty, Landlord does not terminate this
Lease, or in the event of casualty damage of a lesser extent to the Building,
Landlord shall, following receipt of insurance proceeds if such proceeds are
made available to Landlord by the holder of any mortgage encumbering the
Project or the Building, rebuild or repair the Premises or the Building to
substantially the same condition in which they were immediately prior to the
happening of the fire or other casualty, except that Landlord shall not be
required to (i) spend more than the amount of insurance proceeds actually
received, or (ii) rebuild, repair or replace any part of the furniture,
equipment, fixtures and other personal property which may have been placed by
Tenant or other tenants within the Building or the Premises. Landlord shall
allow Tenant a fair diminution of rental during the time the Premises are unfit
for occupancy. If the Premises are not repaired and restored within 180 days
after the date of commencement of reconstruction, Tenant may at its option
terminate this Lease by written notice to Landlord within forty-five (45) days
after the expiration of such 180-day period.
12. CONDEMNATION. In the event that the Premises or the Building
or any part thereof shall be taken for public use or condemned under eminent
domain or conveyed under the threat of such a taking or condemnation, or access
to the Premises precluded by any such event, either Landlord or Tenant may
cancel and terminate this Lease as it affects the portion of the Premises
taken, or the portion to which access is precluded, by giving written notice to
the other within ten (10) days after the date on which title to the property
taken vests in the condemnor. Notwithstanding the foregoing, Tenant may not
terminate this Lease pursuant to the preceding sentence as a result of the
condemnation of the Building or any part thereof unless such condemnation
materially affect Tenant's use of or access to the Premises. If this Lease is
not terminated as to all of the Premises following any of said actual takings
or conveyances of any part of the Premises, then Landlord shall, to the extent
of an equitable proportion of the award for the portion of the Premises taken
(excluding any award for land) and to the extent such award is made available
to Landlord from the holder of any mortgage encumbering the Project or the
Building, make such repairs to the Premises as are necessary to constitute a
complete architectural and tenantable unit. In the event of a partial taking or
conveyance of the Premises, Landlord shall allow Tenant a fair diminution of
rental. Tenant shall not be entitled to claim, or have paid to Tenant, any
compensation or damages whatsoever for or on account of any taking or
conveyance of any right, interest or estate of Tenant under this Lease, and
Tenant hereby relinquishes and assigns to Landlord any rights to any such
compensation or damages except for moving expenses, loss of Tenant's personalty
or damage to Tenant's business. Tenant does not hereby waive or release claims
for moving expenses, inconvenience or business interruption related to a
condemnation of the Premises, but any such claim shall be asserted, if at all,
in a proceeding independent of Landlord's primary condemnation suit.
13. DEFAULT AND REMEDIES.
(a) Event of Default. The following events shall be deemed to be
events of default (herein so called) by Tenant under this lease: (i) Tenant
shall fail to pay on the due date Basic Rental, Additional Rental or any other
rental or sums payable by Tenant hereunder and such failure shall continue for
three (3) days after written notice to Tenant (or, in the case of Tenant's
failure to comply with or observe any such monetary provision of this Lease
more than twice during the Lease Term, upon the third and all subsequent such
failures, without notice from
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Landlord); (ii) Tenant shall fail to comply with or observe any other
provisions of this Lease and such failure shall continue for thirty (30) days
after written notice to Tenant or such longer period of time, not to exceed 90
days, if such default is not susceptible to cure within such thirty (30) day
period if Tenant is diligently attempting to cure such default (or, in the case
of Tenant's failure to comply with or observe any other single non-monetary
provision of this Lease more than two (2) times during the Lease Term, upon the
occurrence of the third and all subsequent such failures, without notice from
Landlord); (iii) Tenant or any guarantor of Tenant's obligations hereunder
shall make a general assignment for the benefit of creditors; (iv) any petition
shall be filed by or against Tenant or any guarantor of Tenant's obligations
hereunder under the United States Bankruptcy Code, as amended, or under any
similar law or statute of the United States or any state thereof, and such
petition shall not be dismissed within forty-five (45) days of filing, or
Tenant or any guarantor of Tenant's obligations hereunder shall be adjudged
bankrupt or insolvent in proceedings filed thereunder; (v) a receiver or
trustee shall be appointed for all or substantially all of the assets of Tenant
or any guarantor of tenant's obligations, hereunder, and such appointment shall
not be vacated or otherwise terminated, and the action in which such
appointment was ordered dismissed, within forty-five (45) days of filing; or
(vi) the occurrence of an event described in clauses (iv) or (v) of this
Paragraph 13(a) (without regard to any cure periods contained herein) and the
failure thereafter of Tenant (A) to timely and fully make any payment of rent
or any other sum of money due hereunder or (B) to perform or observe any other
covenant, condition or agreement to be performed or observed by it hereunder.
(b) Remedies. Upon the occurrence of any event of default
specified in this Lease, and the expiration of any applicable cure period,
Landlord shall have the option to pursue any one or more of the following
remedies without any notice or demand whatsoever and without releasing Tenant
from any obligation under this Lease;
(i) Landlord may enter the Premises without terminating
this Lease and perform any covenant or agreement or cure any condition
creating or giving rise to an event of default under this Lease and
Tenant shall pay to Landlord on demand, as additional rent, the amount
expended by Landlord in performing such covenants or agreements or
satisfying or observing such condition. Landlord or its agents or
employees shall have the right to enter the Premises, and such entry
and such performance shall not terminate this Lease or constitute an
eviction of Tenant.
(ii) Landlord may terminate this Lease by written notice
to Tenant (and not otherwise) or Landlord may terminate Tenant's right
of possession without terminating this Lease. In either of such
events, Tenant shall surrender possession of and vacate the Premises
immediately and deliver possession thereof to Landlord, and Tenant
hereby grants to Landlord full and free license to enter the Premises,
in whole or in part, with or without process of law and to expel or
remove Tenant and any other person, firm or corporation who may be
occupying the Premises or any part thereof and remove any and all
property therefrom, using such lawful force as may be necessary.
(iii) In the event Landlord elects to re-enter or take
possession of the Premises after Tenant's default, with or without
terminating this Lease, Landlord may change or pick locks or alter
security devices and lock out, expel or remove Tenant and any other
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person who may be occupying all or any part of the Premises without
being liable for any claim for damages.
(iv) If Landlord elects to re-enter or take possession of
the Premises without terminating this Lease, then Tenant shall be
liable for and shall pay to Landlord all Basic Rental, and any other
amounts of money due to Landlord hereunder as of the date of such
election. Tenant shall also pay to Landlord all Basic Rental required
to be paid by Tenant during the remainder of the Lease Term as such
amounts become due, diminished by any net sums received by Landlord,
if any, through reletting the Premises during said period (after
deducting all expenses incurred by Landlord in connection with any
reletting of the Premises). Landlord is not obligated to relet the
Premises, and if no reletting occurs, Tenant shall be responsible for
the full amounts due. If Landlord elects to relet, Landlord shall have
the sole and unfettered right to relet all or any part of the Premises
for such rent and upon such terms as shall be satisfactory to Landlord
(including but not limited to the right to relet the Premises for a
term shorter or longer, than that remaining under this Lease, the
right to relet the Premises as a part of a larger area and the right
to change the character or use made of the Premises). Tenant shall not
in any event be entitled to any sums collected in connection with a
reletting of the Premises that exceed the amount of Basic Rental and
other sums of money due hereunder. Landlord shall not be required to
wait until the expiration of the Lease Term in order to collect any
such deficiencies, and shall have the right to file suit from time to
time, on one or more occasions, to collect the deficiencies then due.
Any such suit shall not prejudice in any way the right of Landlord to
bring similar actions for any subsequent deficiency or deficiencies.
(v) Notwithstanding any prior election by Landlord to not
terminate this Lease, Landlord may at any time, including subsequent
to any re-entry or taking of possession of the Premises as allowed
hereinabove, elect to terminate this Lease. Tenant shall be liable for
and shall immediately pay to Landlord the amount of all Basic Rental
and other sums of money due under this Lease as may have accrued as of
the date of termination. Tenant shall also immediately pay to
Landlord, as agreed and liquidated damages, an amount of money equal
to the Basic Rental and other amounts due for the remaining portion of
the Lease Term (had such term not been terminated by Landlord prior to
the expiration of the Lease Term), less the fair rental value of the
Premises for the residue of the Lease Term, both discounted to their
present value based upon the interest rate of eight percent (8%) per
annum. In determining fair rental value, Landlord shall be entitled to
take into account the time and expenses necessary to obtain a
replacement tenant or tenants, including anticipated expenses
hereinafter described relating to recovery, preparation and reletting
of the Premises. If Landlord elects to relet the Premises, or any
portion thereof, before presentation of proof of such liquidated
damages, the amount of rent reserved upon such reletting shall be
deemed prima facie evidence of the fair rental value of the portion of
the Premises so relet.
(vi) In addition to any sum provided to be paid above,
Tenant shall also be liable for and shall immediately pay to Landlord
all reasonable broker's fees incurred by Landlord in connection with
any reletting of the whole or any part of the Premises, the costs of
removing and storing Tenant's or any other occupant's property, the
cost of repairing, altering, remodeling, renovating or otherwise
putting the Premises into a
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condition acceptable to a new tenant or tenants, the cost of removal
and replacement of signage and all reasonable expenses by Landlord in
enforcing Landlord's remedies, including reasonable attorney's fees.
(vii) Landlord may apply Tenant's Security Deposit to the
extent necessary to make good any rent arrearage, to pay the cost of
remedying Tenant's default or to reimburse Landlord for expenditures
made or damages suffered as a consequence of Tenant's default.
Following any such application of the Security Deposit, tenant shall
pay to Landlord on demand the amount so applied in order to restore
the Security Deposit to its original amount.
(viii) Nothing contained in this Paragraph 13(b) shall be
construed as imposing any enforceable duty upon Landlord to relet the
Premises or otherwise mitigate or minimize Landlord's damages by
virtue of Tenant's default. Landlord shall not be liable in any
manner, nor shall Tenant's obligations hereunder be diminished by the
failure of Landlord to relet the Premises, or in the event of
reletting to collect rent.
(c) Effect of Suit or Partial Collection. Institution of a
forcible detainer action to re-enter the Premises shall not be construed to be
an election by Landlord to terminate this Lease. Landlord may collect and
receive any rent due from Tenant and the payment thereof shall not constitute a
waiver of or affect any notice or demand given, suit instituted or judgment
obtained by Landlord, or be held to waive or alter the rights or remedies which
Landlord may have at law or in equity or by virtue of this Lease at the time of
such payment.
(d) Remedies Cumulative. All rights and remedies of Landlord
herein or existing at law or in equity are cumulative and the exercise of one
or more rights or remedies shall not be taken to exclude or waive the right to
the exercise of any other.
(e) Notice to Mortgagees. If Landlord defaults under this Lease
and, if as a consequence of such default, Tenant will have the right to
terminate this Lease, Tenant will not exercise such right to terminate unless
and until (i) Tenant gives notice of such default (specifying the exact nature
of such default and how such default may be remedied) to any lessor under a
ground lease or any mortgagee of the Building, and (ii) such lessor and/or
mortgagee fails to cure, or to cause to be cured, such default within thirty
(30) days after such lessor's mortgagee's receipt of notice.
14. SURRENDER OF PREMISES.
(a) Surrender. Upon the Expiration Date or earlier termination of
this Lease, Tenant shall peaceably surrender to Landlord the Premises,
including the alterations, improvements and changes (except as provided in
Paragraph 14(b)) other than Tenant's fixtures remaining the property of Tenant,
broom-clean and in the condition the same were in on the Commencement Date,
subject only to (i) ordinary and customary wear and tear, and (ii) damage
resulting from a fire or other casualty.
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(b) Removal of Alterations and Tenant Property.
(i) Notwithstanding anything in this Lease to the
contrary, all permanent or built-in fixtures or improvements and all
mechanical, electrical and plumbing equipment in the Premises shall be
the property of Landlord upon the termination of this Lease. Except
as otherwise provided, all furnishings, equipment, furniture, trade
fixtures and other removable equipment installed in the Premises by
Tenant and paid for by Tenant shall remain the property of Tenant and
shall be removed by Tenant upon the termination of this Lease. Tenant
shall repair any damage caused by such removal.
(ii) If any furnishings, equipment, furniture, trade
fixtures or other removable equipment are not removed within fifteen
(15) days after the expiration of this Lease, then Tenant hereby
grants to Landlord the option, exercisable at any time thereafter
without the requirement of any notice to Tenant, (A) to treat such
property, or any portion thereof, as being abandoned by Tenant to
Landlord, whereupon Landlord shall be deemed to have full rights of
ownership thereof; (B) to elect to remove and store such property, or
any portion thereof, on Tenant's behalf (but without assuming any
liability to any person) and at Tenant's sole cost and expense, with
reimbursement therefor to be made to Landlord upon demand; and/or (C)
to sell, give away, donate or dispose of as trash or refuse any or all
of such property without any responsibility to deliver to Tenant any
proceeds therefrom. If (a) Landlord elects not to exercise its
contractual and/or statutory lien rights covering Tenant's property as
may be granted herein, (b) Tenant ceases to occupy the Premises, or
its right to occupy the Premises is terminated by Landlord, prior to
Landlord's termination or the expiration of this Lease, and (c) any of
Tenant's furnishings, equipment, furniture, trade fixtures or other
removable equipment are not removed within fifteen (15) days
thereafter, then Tenant hereby grants to Landlord the option,
exercisable at any time thereafter without the requirement of notice
to Tenant, (x) to treat such property, or any portion thereof, as
being abandoned by Tenant to Landlord, whereupon Landlord shall be
deemed to have full rights of ownership thereof; (y) to elect to
remove and store such property, or any portion thereof, on Tenant's
behalf (but without assuming any liability to any person) and at
Tenant's sole cost and expense, with reimbursement therefor to be made
to Landlord upon demand; and/or (z) to sell, give away, donate or
dispose of as trash or refuse any or all of such property without
responsibility to deliver to Tenant any proceeds therefrom. Landlord
shall have no liability of any kind whatsoever to Tenant in respect of
the exercise or failure to exercise the options set forth in this
Paragraph 14(b). Specifically, Tenant shall not have the right to
assert against Landlord a claim either for the value, or the use, of
any such property, either as an offset against any amount of money
owing to Landlord or otherwise. The provisions of this Paragraph 14(b)
shall supersede the provisions of Section 93.002(d) and (e) of the
Texas Property Code, as such may be amended from time to time, and any
other law which purports to restrict the options granted to Landlord
herein.
15. HOLDING OVER. If Tenant remains in possession of the Premises
after the expiration of the tenancy created hereunder and without the execution
of a new lease, Tenant shall be deemed to be occupying the Premises as a tenant
at will and subject to all of the provisions of this Lease except those
relating to term and except that the Basic Rental and Additional Rental shall
be 150% of the amount payable during the last month of the Lease Term
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(without waiver of Landlord's right to recover damages as permitted by this
Lease or by law). Said tenancy may be terminated by Landlord or Tenant by
giving written notice to the other at any time.
16. MORTGAGES. This Lease shall be subordinate to all deeds of
trust and ground leases now or hereafter encumbering the Building, and all
refinancings, replacements, renewals, modifications, extensions or
consolidations thereof. Tenant agrees to attorn to any mortgagee, ground
lessor, trustee under a deed of trust or purchaser at a foreclosure sale or
trustee's sale as Landlord under this Lease. Tenant covenants and agrees that
Tenant shall within five (5) days after Landlord's request execute in
recordable form and deliver to Landlord whatever instruments may be required to
acknowledge and further evidence the subordination of this Lease and/or the
attornment by Tenant to such mortgagee, ground lessor, trustee or purchaser. If
within five (5) business days after submission of any such instrument, Tenant
fails to execute the same, Landlord is hereby authorized to execute the same as
attorney-in-fact for Tenant. Any holder of a deed of trust covering all or any
part of the Building may at any time elect to have this Lease have priority
over its deed of trust by executing unilaterally an instrument of subordination
or placing a clause of such subordination in any pleadings or in its deed of
trust and recording the same.
17. CERTAIN RIGHTS RESERVED BY LANDLORD. Landlord shall have the
following rights:
(a) Common and Service Area Alterations. To decorate and to make
repairs, alterations, additions, changes or improvements, whether structural or
otherwise, in, about or on the exterior of the Building, or any part thereof,
and to change, alter, relocate, remove or replace Service Areas and/or Common
Areas; to place, inspect, repair and replace in the Premises (below floors,
above ceilings or next to columns) utility lines, pipes, cables and the like to
serve other areas of the Building outside the Premises; and to otherwise alter
or modify the Project, and for such purposes to enter upon the Premises and,
during the continuance of any such work, to take such measures for safety or
for the expediting of such work as may be required, in Landlord's judgment, all
without affecting any of Tenant's obligations hereunder, provided Landlord's
entries in the Premises shall be subject to the terms of Paragraph 19(1).
(b) Parking. To permit Tenant and its employees to use, without
charge, the parking facilities associated with the Building only in accordance
with the reasonable rules and regulations promulgated from time to time by
Landlord and/or the operator of the parking facilities; and to prohibit Tenant
and its employees to use any on-site surface parking spaces within the Project
designated for visitors. The number of parking spaces available for Tenant's
use shall not exceed one (1) space for every 300 square feet of Rentable Area
in the Premises. Parking spaces will be unassigned, provided that Landlord may
at any time assign parking spaces. Tenant shall, if requested by Landlord,
furnish to Landlord a complete list of the license plate numbers of all
vehicles operated by Tenant and Tenant's employees and agents. Landlord shall
not be liable for any damage of any nature whatsoever to, or any theft of,
vehicles, or contents therein, in or about such parking facility.
(c) Rules and Regulations. To establish and amend in a reasonable
and non-discriminatory manner from time to time rules and regulation governing
all tenants' use and occupancy of the Building, provided that in the event of a
conflict between those rules and this
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Lease, this Lease shall control. The rules and regulations now enforced by
Landlord are available upon request.
(d) Food Preparation. To prohibit the preparation of food within
the Premises for commercial purposes or the placing of vending or dispensing
machines of any kind in or about the Premises if such vending or dispensing
machines are available to the general public.
(e) Signs. To prohibit all signs, posters, advertisements, or
notices from being painted or affixed on any of the windows, or doors, or any
other part of the Building, except of such color, size, and style, and in such
places as shall be first approved in writing by Landlord.
(f) Security Measures. To take all such reasonable measures as
Landlord may deem advisable for the security of the Building and its occupants.
Landlord, however, shall have no liability to Tenant or its employees, agents,
invitees or licensees for loss of property or personal injury except to the
extent caused by Landlord's gross negligence or willful misconduct. Tenant
shall cooperate fully in Landlord's efforts to maintain security in the
Building and shall follow all regulations promulgated by Landlord with respect
thereto.
18. HAZARDOUS MATERIAL; INDEMNITY.
(a) Indemnity. Tenant shall not cause or permit any Hazardous
Material (as defined) to be brought upon, kept or used in or about the Premises
or the Project by Tenant or its agents, employees, contractors or invitees
without the prior written consent of Landlord (which Landlord shall not
unreasonably withhold as long as Tenant demonstrates to Landlord's reasonable
satisfaction that such Hazardous Material is necessary or useful to Tenant's
business and will be used, kept and stored in a manner that complies with all
laws regulating any such Hazardous Material so brought upon or used or kept in
or about the Premises or the Project). If Tenant breaches the obligations
stated in the preceding sentence, or if the presence of Hazardous Material on
the Premises or the Project caused or permitted by Tenant results in
contamination of the Premises or the Project, or if contamination of the
Premises or the Project by Hazardous Material otherwise occurs for which Tenant
is legally liable to Landlord for damage resulting therefrom, then Tenant shall
indemnify, defend and hold Landlord harmless from any and all claims,
judgments, damages, penalties, fines, costs, liabilities or losses, including,
without limitation, diminution in value of the Premises, damages, penalties,
fines, costs, liabilities or losses (including, without limitation, restriction
on use of rentable or usable space or of any amenity of the Premises or the
Project, damages arising from any adverse impact on marketing of space, and
sums paid in settlement of claims, attorneys' fees, consultant fees and expert
fees) which arise during or after the Lease term as a result of such
contamination. This indemnification of Landlord by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any clean up, remedial, removal or restoration work required by
any federal, state or local governmental agency or political subdivision
because of Hazardous Material present in the soil or ground water on or under
the Premises or the Project due to the acts of Tenant or its employees,
contractors, or agents. Without limiting the foregoing, if the presence of any
Hazardous Material on the Premises or Project caused or permitted by Tenant or
its employees, contractors, or agents results in any contamination of the
Premises or the Project, Tenant shall promptly take all actions at its sole
expense as are necessary to return the Premises and the Project to the
condition existing prior to the introduction of any such
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Hazardous Material to the Premises or the Project; provided that Landlord's
approval of such actions shall first be obtained, which approval shall not be
unreasonably withheld so long as such actions would not potentially have any
material adverse long-term or short-term effect on the Premises or the Project.
The indemnifications contained in this Paragraph 18 shall survive the
expiration or earlier termination of this Lease.
(b) Definition. As used herein, the term "Hazardous Material"
means any hazardous or toxic substance, material or waste which is or becomes
regulated by any local governmental authority, the State of Texas or the United
States Government, including, but not limited to, any material or substance
that is (i) petroleum, (ii) asbestos, (iii) designated as a "hazardous
substance" pursuant to Section 311 of the Water Pollution Control Act (33
U.S.C. Section 1321), (iv) defined as a "hazardous waste" pursuant to Section
1004 of the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
(v) defined as a "hazardous substance" pursuant to Section 10 of the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601, or (vi) defined as a "regulated substance" pursuant to
Subchapter IX, Solid Waste Disposal Act, 42 U.S.C. Section 6991.
(c) Landlord's Representation. Landlord represents and warrants,
to its current actual knowledge, that neither the Building nor the Premises
contain any Hazardous Materials in levels beyond the levels allowed by
applicable law.
19. MISCELLANEOUS.
(a) Time is of the Essence. The time of the performance of all of
the covenants, conditions and agreements of this Lease is of the essence.
(b) Force Majeure. If either Landlord or Tenant is prevented or
hindered from timely satisfying any provisions set forth herein because of a
shortage of or inability to obtain materials or equipment, strikes or other
labor difficulties, governmental restrictions, casualties or any other cause
beyond such party's reasonable control, such party shall be permitted an
extension of time of performance by the number of days during which such
performance was prevented or hindered; provided, however, that this paragraph
shall not apply to the payment of rent or other monies by Landlord or Tenant,
nor shall the provisions of this paragraph postpone the date that rent is
payable pursuant to this Lease.
(c) No Personal Liability of Landlord. If Landlord shall fail to
perform any covenant, term or condition of this Lease and, as a consequence, if
Tenant shall recover a money judgment against Landlord, such judgment shall be
satisfied only out of the proceeds received at a judicial sale upon execution
and levy against the right, title and interest of Landlord in the Building and
in the rents or other income from the Building receivable by Landlord, and
neither Landlord nor Landlord's owners, partners, shareholders or venturers
shall have any personal, corporate or other liability hereunder.
(d) Quiet Enjoyment. Landlord hereby covenants and agrees that if
Tenant shall perform all of the covenants and agreements herein stipulated to
be performed on Tenant's part, Tenant shall at all times during the continuance
hereof have peaceable and quiet enjoyment and possession of the Premises
without hindrance from Landlord or any person or persons lawfully
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claiming the Premises by or through Landlord, subject, however, to the terms of
this Lease and to all mortgages, ground leases, deeds of trust, leases and
agreements to which this Lease is subordinate.
(e) Entire Agreement and Amendments. This Lease is the only
agreement between the parties hereto and their representatives and agents.
There are no representations or warranties between the parties other than the
representations and warranties contained in this document. No agreement shall
be effective to change, modify or terminate this Lease in whole or in part
unless such agreement is in writing and duly signed by the party against whom
enforcement of such change, modification or termination is sought.
(f) Interpretation. The necessary grammatical changes required to
make the provisions of this Lease apply in the plural sense where there is more
than one Tenant and to either corporations, associations, partnerships or
individuals, male or female, shall in all instances be assumed as though in
each case fully expressed. The laws of the State of Texas shall govern the
validity, performance and enforcement of this Lease. All obligations hereunder
are performable in Collin County, Texas. If this Lease is executed by more than
one person or entity as "Tenant", each such person or entity executing this
Lease as Tenant shall be jointly and severally bound and liable hereunder.
(g) Severability. No provision of this Lease shall be construed or
interpreted in any manner which would render such provision invalid. If any
provision of this Lease is held to be invalid, such invalid provision shall be
deemed to be severable from and shall not affect the validity of the remainder
of this Lease.
(h) Terms Binding. Subject to the limitations on subletting and
assignment set forth in this Lease, all covenants, promises, conditions,
representations and agreements herein contained shall be binding upon and apply
and inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
(i) Estoppel Certificates. Within fifteen (15) days after request
by Landlord, Tenant agrees to execute and deliver to Landlord estoppel or
offset letters as reasonably required by Landlord or by Landlord's lenders. The
letters shall certify the date of this Lease and any amendments, that Landlord
is not in default of any of the terms and provisions of this Lease or
specifying the provisions as to which Landlord is in default if Landlord shall
be in default, the date to which rent has been paid, and any other matters
which Landlord or its lenders may reasonably require. Tenant further agrees to
furnish to Landlord from time to time when requested by Landlord a letter of
acceptance in conformity with any requirements made by any existing or proposed
lenders.
(j) Late Payment Charge and Interest Payable. Landlord may impose
a late payment charge equal to four percent (4%) of any amount due if not paid
within three (3) days from the date required to be paid hereunder. In addition,
any payment due under this Lease not paid within ten (10) days after the date
herein specified to be paid shall bear interest from the date such payment is
due to the date of actual payment at the lesser of eighteen percent (18%) per
annum or the highest lawful rate of interest permitted by law.
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<PAGE> 26
(k) Security Deposit. Landlord shall hold Tenant's Security
Deposit without interest, and the same shall not be considered prepaid rent or
a measure of Landlord's damages in case of default by Tenant. The remaining
balance of the Security Deposit (after application of any part thereof in
accordance with Paragraph 13(b) or for necessary repairs to the Premises) shall
be refundable to Tenant within thirty (30) days after termination of this
Lease.
(l) Access to Premises. Tenant agrees that Landlord and its agents
may enter the Premises for the purpose of inspecting and making such repairs
(structural or otherwise), additions, improvements, changes or alterations to
the Premises or the Building as may be permitted or required under this Lease
or as Landlord may elect, and to exhibit the same to prospective purchasers,
mortgagees or tenants. In the event of any such repairs, additions,
improvements, changes or alterations, Tenant shall cooperate with Landlord to
facilitate Landlord's efforts. Landlord's entries in the Premises shall be
preceded by reasonable notice (except in the case of an emergency) and shall
not unreasonably interfere with Tenant's use and occupancy of the Premises for
the Permitted Use. Tenant may designate reasonable portions of the Premises as
secured areas which Landlord and its agents may not enter, except in an
emergency, or in exercising its remedies upon default, or after the Lease Term,
without a representative of Tenant accompanying Landlord and its agents during
such entry.
(m) Notices. Notices hereunder must be hand-delivered or sent by
nationally recognized overnight courier or by certified mail, return receipt
requested, postage prepaid, addressed, if to Landlord, at c/o Hunt Properties,
Inc., 8235 Douglas Avenue, Suite 1300, Dallas, Texas, 75225, Attention:
Property Manager, with a copy to Andy Carper, Duncan & Carper, 703 McKinney
Avenue, Suite 303, Dallas, Texas, 75202, and if to Tenant, at the address
specified for Tenant in Paragraph 1(a) above prior to the Commencement Date and
to the Premises thereafter, or to such other address as may be specified by
written notice actually received by Landlord. Notice shall be deemed given upon
tender of delivery (in the case of a hand-delivered notice) or upon posting of
same with the overnight courier service or in an official depository of the
United States Postal Service (in the case of a certified or registered letter),
provided that no notice of either party's change of address shall be effective
until fifteen (15) days after the addressees actual receipt thereof.
(n) Acceptance of Premises and Building by Tenant. EXCEPT AS TO
LANDLORD'S RESPONSIBILITY AS TO THE SHELL OF THE PORTION OF THE PREMISES ON THE
SECOND FLOOR OF THE BUILDING AS PROVIDED IN PARAGRAPH 4 HEREOF, LANDLORD HEREBY
DISCLAIMS ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY THAT THE PREMISES
ARE SUITABLE FOR TENANT'S INTENDED PURPOSE OR USE. THE TAKING OF POSSESSION BY
TENANT SHALL BE CONCLUSIVE EVIDENCE THAT TENANT:
(I) ACCEPTS THE PREMISES AS SUITABLE FOR THE PURPOSES FOR
WHICH THEY WERE LEASED;
(II) ACCEPTS THE BUILDING AND EVERY PART AND APPURTENANCE
THEREOF AS BEING IN GOOD AND SATISFACTORY CONDITION; AND
26
<PAGE> 27
(III) WAIVES ANY DEFECTS IN THE PREMISES AND ITS
APPURTENANCES EXISTING NOW OR IN THE FUTURE.
TENANT ACKNOWLEDGES THE DISCLAIMER BY LANDLORD SET FORTH HEREIN AND
WAIVES ALL CLAIMS BASED ON ANY IMPLIED WARRANTY OF SUITABILITY.
FURTHERMORE, TENANT CONFIRMS THAT ITS OBLIGATIONS TO PAY BASIC RENTAL,
ADDITIONAL RENTAL AND OTHER AMOUNTS OF MONEY DUE TO LANDLORD
HEREUNDER ARE NOT DEPENDENT OF THE CONDITION OF THE PREMISES OR THE
BUILDING, OR THE PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS HEREUNDER.
TENANT SHALL CONTINUE TO PAY BASIC RENTAL, ADDITIONAL RENTAL AND OTHER
AMOUNTS OF MONEY DUE TO LANDLORD HEREUNDER, WITHOUT ABATEMENT, SETOFF
OR DEDUCTION, NOTWITHSTANDING ANY BREACH OR ALLEGED BREACH BY LANDLORD
OF ITS OBLIGATIONS HEREUNDER.
Notwithstanding the foregoing, Landlord acknowledges its
obligation to (i) deliver the portion of the Premises located on the
second floor to Tenant in compliance with applicable building codes,
and (ii) cause the third and sixth floors to be brought into such
compliance as provided in Paragraph 4 hereof upon notification from
the applicable governmental authorities.
(o) Building Name. Landlord shall have the exclusive right at all
times during the Lease Term to change, modify, add to or otherwise alter the
name of the Building, and Landlord shall not be liable for claims or damages of
any kind which may be attributed thereto or result therefrom.
(p) Waiver of Landlord's Lien. Landlord hereby disclaims any
statutory or other lien rights in Tenant's personal property (but not
fixtures).
(q) Authority To Sign Lease. If Tenant is a corporation or a
partnership (general or limited), each person(s) signing this Lease as an
officer or partner of Tenant represents to Landlord that such person(s) is
authorized to execute this Lease without the necessity of obtaining any other
signature of any other officer or partner, that the execution of this Lease has
been authorized by the board of directors of the corporation or by the partners
of the partnership, as the case may be, and that this Lease is fully binding on
Tenant. Landlord reserves the right to request evidence of the approval of this
Lease and authorization of Tenant's signatories to bind Tenant, which evidence
shall be satisfactory in form and content to Landlord and its counsel.
(r) Attorneys' Fees. In the event either party is in default
beyond any applicable grace or notice period in the performance of any of the
terms of this Lease and the other party employs an attorney in connection
therewith, the non-prevailing party agrees to pay the prevailing party's
reasonable attorneys' fees.
(s) Execution of Lease. The submission of this Lease for
examination does not constitute a reservation of or option for the Premises or
any other space within the Building and shall vest no right in either party.
This Lease shall become effective only after the full execution and delivery
hereof by all of the parties hereto. This Lease may be executed in a number of
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<PAGE> 28
identical counterparts, each of which shall be deemed an original for all
purposes and all of which constitute, collectively, one agreement; but, in
making proof of this Lease, it shall not be necessary to produce or account for
more than one such counterpart.
(t) No Attornment. All checks tendered to Landlord as and for the
Basic Rental and/or Additional Rental required hereunder shall be deemed
payments for the account of Tenant. Acceptance by Landlord of Basic Rental
and/or Additional Rental from anyone other than Tenant shall not be deemed to
operate as an attornment to Landlord by the payor of such Basic Rental and/or
Additional Rental or as a consent by Landlord to an assignment of this Lease or
subletting by Tenant of the premises to such payor, or as a modification of any
of the provisions of this Lease.
(u) Applicable Laws. As used herein, the term "Applicable Laws"
shall mean all laws, statutes, ordinances, regulations, guidelines or
requirements now in force or hereafter enacted and the requirements of any
governmental authority having jurisdiction over the Building, board of fire
underwriters, utility company serving the Building or other similar body now or
hereafter constituted, relating to or affecting the condition, use or occupancy
of the Premises, including without limitation, Title III of The Americans With
Disabilities Act of 1990, all regulations issued thereunder, and the
Accessibility Guidelines for Buildings and Facilities issued pursuant thereto,
and the Texas Architectural Barriers Act, as the same are in effect on the date
of this Lease and as hereafter amended.
(v) Arms-Length Transaction. This Lease has been entered into by
the undersigned after arms-length negotiation, with each party acknowledging
that it and its counsel, if it so chooses, have had an opportunity to review
this Lease, and therefore, the parties agree that this Lease shall not be
construed against Landlord on the ground that Landlord's representatives
prepared this Lease.
(w) Waiver. No covenant, term or condition or the breach thereof
will be deemed waived, except by written consent of the party against whom the
waiver is claimed and any waiver of the breach of any covenant, term or
condition will not be deemed to be a waiver of any preceding or succeeding
breach of the same or any other covenant, term or condition. Acceptance by
Landlord of any performance by Tenant after the time the same was due will not
constitute a waiver by Landlord of the breach or default of any covenant, term
or condition unless otherwise expressly agreed to by Landlord in writing.
(x) Computation of Rentable Area. Landlord and Tenant agree that
the square footage of Rentable Area of the Premises and the Building set forth
in this Lease shall be binding upon Landlord and Tenant.
(y) Exhibits and Riders. The following exhibits and riders are
attached hereto, incorporated herein and made a part of this Lease for all
purposes:
Exhibit A-1: Floor Plan of Premises -- second floor
Exhibit A-2: Floor Plan of Premises -- third floor
Exhibit A-3: Floor Plan of Premises -- sixth floor
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<PAGE> 29
Exhibit B: Property Description
Exhibit C: Janitorial Services
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Lease as of the day and year first above written.
LANDLORD:
PITMAN PARTNERS, LTD.
By: Pitman Property Corp.,
General Partner
By: /s/ J. W. BEAVERS, JR.
----------------------
Name: J. W. Beavers, Jr.
Title: President
ROSEWOOD PROPERTY COMPANY
By: /s/ PAUL E. ROWSEY, III
------------------------------
Paul E. Rowsey, III,
President, Commercial
Group
TENANT:
INET, INC.
a Texas Corporation
By: /s/ MARK A. WEINZIERL
-------------------------------
Name: Mark A. Weinzierl
Title: Executive Vice President
29
<PAGE> 1
EXHIBIT 10.2
NATIONSBANK OF TEXAS, N.A.
LOAN AGREEMENT
This Loan Agreement (this "AGREEMENT") dated as of June 26, 1997, is
executed by and between NATIONSBANK OF TEXAS, N.A., a national banking
association ("BANK"), and INET, INC., a Texas corporation ("BORROWER").
In consideration of the Loans and Letters of Credit described below
and the mutual covenants and agreements contained herein, and intending to be
legally bound hereby, Bank and Borrower agree as follows:
1. DEFINITIONS. In addition to any other terms defined herein,
the following terms shall have the respective meanings set forth below:
"BUSINESS DAY" has the meaning set forth in the Note defined below.
"CAPITAL LEASE OBLIGATIONS" means, as to any Person, the obligations
of such Person to pay rent or other amounts under a lease of (or other
agreement conveying the right to use) real and/or personal property, which
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP. For purposes of this Agreement,
the amount of such Capital Lease Obligations shall be the capitalized amount
thereof, as determined in accordance with GAAP.
"COMPANIES" means Borrower and its Subsidiaries, and "COMPANY" means
any one of the Companies.
"CASH INTEREST EXPENSE" means, for the Companies for any period, total
interest expense in respect of all liabilities and indebtedness of the
Companies actually paid or that is payable during such period, including,
without limitation, all commissions, discounts, and other fees and charges with
respect to letters of credit, but excluding interest expense not payable in
cash, all determined in accordance with GAAP.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of EXHIBIT A, executed by an authorized officer of Borrower, stating that a
review of the activities of the Companies during the subject period has been
made under such Person's supervision and that the Companies have performed each
and every obligation and covenant contained herein and are not in default under
any of the same or, if any such default shall have occurred, then specifying
the nature and status thereof, and setting forth a computation in reasonable
detail as of the end of the period covered by such statements, of compliance
with SECTIONS 5.H., I., AND J.
"CONSOLIDATED ADJUSTED NET INCOME" means, for any period, consolidated
net earnings (after income taxes) of the Companies, but excluding (a)
extraordinary gains, (b) gains due to sales or write-up of assets, (c) earnings
of any Person newly acquired, if earned prior to acquisition, or (d) gains due
to acquisitions of any securities of any Company.
"EBITDA" means, for the Companies for any period, the sum of (a)
Consolidated Adjusted Net Income, plus (b) Cash Interest Expense, plus (c)
federal, state, local, and foreign income taxes deducted
Loan Agreement
<PAGE> 2
from Consolidated Adjusted Net Income in accordance with GAAP, plus (d)
depreciation and amortization expense.
"FIXED CHARGES" means. for the Companies for any period, the sum of
(a) Cash Interest Expense, (b) operating lease expenses. and (c) rent expenses.
"GAAP" means those generally accepted accounting principles and
practices, applied on a consistent basis, which are recognized as such by the
American Institute of Certified Public Accountants acting through its
Accounting Principles Board and the Financial Accounting Standards Board and/or
their respective successors and which are applicable in the circumstances as of
the date in question.
"HAZARDOUS MATERIALS" means all materials defined as hazardous wastes
or substances under any local, state, or federal environmental laws, rules, or
regulations, and petroleum. petroleum products, oil, and asbestos.
"INTANGIBLE ASSETS" means, for any person, those assets of such Person
which are (a) deferred assets, other than prepaid insurance and prepaid taxes,
(b) patents, copyrights, trademarks, tradenames, franchises, goodwill,
experimental expenses, and other similar assets that would be classified as
intangible assets on a balance sheet of such Person, and (c) unamortized debt
discount and expense.
"LC AGREEMENT" means a letter of credit application and agreement (in
form and substance satisfactory to Bank) submitted by Borrower to Bank for the
issuance of a Letter of Credit for its own account.
"LOANS" means collectively any and all loans heretofore or hereafter
made by Bank to Borrower, and "LOAN" means any one of the Loans.
"LOAN DOCUMENTS" means this Loan Agreement and any and all promissory
notes executed by Borrower in favor of Bank, all LC Agreements, and all other
documents, instruments, guarantees, certificates, and agreements executed
and/or delivered by Borrower, any guarantor, or third party in connection with
any Loan.
"MATERIAL ADVERSE EFFECT" means any material adverse changes in, or
effect upon, (a) the validity, performance, or enforceability of any Loan
Documents, (b) the financial condition or business operations of any Company,
or (c) the ability of any Company to fulfill its obligations under the Loan
Documents.
"MAXIMUM RATE" means the highest non-usurious rate of interest (if
any) permitted from day to day by applicable law. Bank hereby notifies and
discloses to Borrower that, for purposes of Tex. Rev. Civ. Stat. Ann. art.
5069-1.04, as it may from time-to-time be amended, the "APPLICABLE RATE
CEILING" shall be the "INDICATED RATE" ceiling from time-to- time in effect as
limited by article 5069-1.04(b); PROVIDED, HOWEVER, that to the extent
permitted by applicable law, Bank reserves the right to change the "APPLICABLE
RATE CEILING" from time-to-time by further notice and disclosure to Borrower.
"NOTICE OF BORROWING" means a notice in the form of EXHIBIT B attached
hereto.
"NOTICE OF LC" means a notice in the form of EXHIBIT C attached
hereto.
"OBLIGATION" means all present and future liabilities and all renewals
and extensions thereof, or any part thereof, now or hereafter owed to Bank by
Borrower, whether arising pursuant to any of the Loan
Loan Agreement -2-
<PAGE> 3
Documents, or otherwise, and all renewals and extensions thereof, together with
all interest accruing thereon and costs, expenses. and attorneys' fees incurred
in the enforcement or collection thereof.
"OPERATING LEASE OBLIGATIONS" means, with respect to any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real and/or personal property.
other than Capital Lease Obligations.
"PERMITTED LIENS" means (a) liens in favor of Lender to secure the
Obligation, (b) pledges or deposits made to secure payment of worker's
compensation (or to participate in any fund in connection with worker's
compensation). unemployment insurance, pensions, or social security programs,
(c) liens imposed by mandatory provisions of law such as materialmen's,
mechanic's, warehousemen's, and other like liens arising in the ordinary course
of the Companies' respective business, securing indebtedness whose payment is
not yet due, (d) liens for taxes imposed upon a Person or upon such Person's
income, profits, or property, if the same are not yet due and payable or if the
same are being contested in good faith by appropriate proceedings and for which
adequate reserves are maintained in accordance with GAAP, (e) good faith
deposits in connection with leases, real estate bids, or contracts (other than
contracts involving the borrowing of money), pledges or deposits to secure (or
in lieu of) surety, stay, appeal, or customs bonds and deposits to secure the
payment of taxes, assessments, customs, duties, or other similar charges, and
(f) liens evidenced by the financing statements listed on SCHEDULE 1 attached
hereto.
"PERMITTED STOCK PURCHASES" means Borrower's purchase or redemption of
shares of its capital stock from employees not to exceed $500,000.00 in the
aggregate during the term hereof.
"PERSON" shall include an individual, corporation, joint venture,
general or limited partnership, trust, unincorporated organization, or
government, or any agency or political subdivision thereof.
"POTENTIAL DEFAULT" means the occurrence of any event which with
passage of time or giving of notice or both will become an Event of Default.
"SUBSIDIARY" means any corporation of which more than fifty percent
(50%) (in number of votes) of the issued and outstanding securities having
ordinary voting power for the election of at least a majority of the directors
is owned or controlled, directly or indirectly, by Borrower, any Subsidiary of
Borrower, or any combination thereof.
"TANGIBLE NET WORTH" means, for the Companies as of any date, the
amount by which total assets exceed total liabilities, in each case determined
in accordance with GAAP, less Intangible Assets.
"TERMINATION DATE" means the earlier of (a) June 15, 1998, or (b) the
date that Bank's commitment to make Loans or issue Letters of Credit hereunder
is terminated pursuant to SECTION 7 hereof.
"TOTAL FUNDED INDEBTEDNESS" of any Person means, as of any date,
without duplication, (a) all liabilities of such Person for borrowed money
(whether by loan, the issuance and sale of debt securities, or the sale of
property to another Person subject to an understanding or agreement, contingent
or otherwise, to repurchase such property from such Person), (b) all
obligations of such Person evidenced by bonds, debentures, notes, or similar
instruments, and (c) all Capital Lease Obligations of such Person.
Loan Agreement -3-
<PAGE> 4
2. LOANS.
A. LOAN. From the date hereof until the Termination Date, Bank
hereby agrees to make Loans to Borrower in the aggregate principal amount not
to exceed $10,000,000.00 at any time outstanding. The obligation to repay the
Loans is evidenced by a promissory note dated of even date herewith (the
promissory note together with any and all renewals, extensions, or
rearrangements thereof being hereafter collectively referred to as the "NOTE")
having a maturity date, repayment terms, and interest rate as set forth in the
Note.
B. REVOLVING CREDIT FEATURE. The Loan provides for a revolving
line of credit (the "LINE") under which Borrower may from time-to-time, borrow,
repay, and re-borrow funds. Borrower may request a Loan by submitting to Bank a
Notice of Borrowing, which is irrevocable and binding on Borrower. Each Notice
of Borrowing must be received by Bank no later than 10:00 a.m. (Dallas, Texas
time) on the second (2nd) Business Day before the date on which funds are
requested (the "ADVANCE DATE") for any Loan that will be a Eurodollar Borrowing
(as defined in the Note) or no later than 10:00 a.m. (Dallas, Texas time) on
the Advance Date for any Loan that will be a Base Rate Borrowing (as defined in
the Note). Each Loan that will be a Eurodollar Borrowing shall be in an amount
of $500,000.00 or a greater integral multiple of $100,000.00. Subject to the
terms and conditions in this Agreement and the Note, by not later than 2:00
p.m., Dallas, Texas time, on the date specified, Bank shall make available to
Borrower, at Borrower's offices in Dallas, Texas, the amount of a requested
Loan in immediately available funds.
C. USAGE FEE. Borrower shall pay hereafter on September 30, 1997
and on the last day of each December, March, June, and September for the period
from and including the date the Line was established to and including the
maturity date of the Line, a usage fee at a rate per annum of one-fourth of one
percent (1/4%) of the average daily portion of the Line during such period.
Borrower may at any time upon written notice to Bank permanently reduce the
unused amount of the Line at which time the obligation of Borrower to pay a
usage fee shall thereupon correspondingly be reduced.
D. LETTER OF CREDIT SUBFEATURE.
i. As a subfeature under the Line, Bank may from
time-to-time up to and including the date that is thirty (30)
days prior to the Termination Date, issue letters of credit
for the account of Borrower (each, a "LETTER OF CREDIT" and
collectively, "LETTERS OF CREDIT"); provided, however, that
the form and substance of each Letter of Credit shall be
subject to approval by Bank in its sole discretion; and
provided further that the aggregate undrawn amount of all
outstanding Letters of Credit shall not at any time exceed
$5,000,000.00. Each Letter of Credit shall be issued for a
term not to exceed 365 days, as designated by Borrower;
provided, however, that no Letter of Credit shall have an
expiration date subsequent to 180 days following the
Termination Date. The undrawn amount of all Letters of Credit
plus any and all amounts paid by Bank in connection with
drawings under any Letter of Credit for which Bank has not
been reimbursed shall be reserved under the Line and shall not
be available for advances thereunder. Each draft paid by Bank
under a Letter of Credit shall be deemed an advance under the
Line and shall be repaid in accordance with the terms of the
Line; provided. however, that if the Line is not available for
any reason whatsoever, at the time any draft is paid by Bank,
or if advances are not available under the Line in such amount
due to any limitation of borrowing set forth herein, then the
full amount of such drafts shall be immediately due and
payable, together with interest thereon, from the date such
amount is paid by Bank to the date such amount is fully repaid
by Borrower, at that rate of interest applicable to
Loan Agreement -4-
<PAGE> 5
advances under the Line. In such event, Borrower agrees that
Bank, at Bank's sole discretion, may debit Borrower's deposit
account with Bank for the amount of such draft.
ii. Borrower shall deliver to Bank a properly
completed Notice of LC and a LC Agreement with respect thereto
no later than 10:00 a.m. (Dallas, Texas time) at least two (2)
Business Days before such Letter of Credit is to be issued.
iii. Borrower shall pay to Bank a fee for each
Letter of Credit, payable in installments in advance, so long
as such Letter of Credit remains outstanding. Such
installments shall be paid commencing on the date of issuance
of the applicable Letter of Credit, for the period from and
including such date to but excluding the next quarterly
payment date (as hereinafter specified), and thereafter on
each March 31, June 30, September 30, and December 31, for the
period from and including such quarterly payment date to but
excluding the next quarterly payment date or (if earlier) the
expiry date of such Letter of Credit. Each such installment
shall be paid in an amount equal to the product of (A) the
face amount of such Letter of Credit, multiplied by (B) in the
case of (I) standby letters of credit, one and one-fourth of
one percent (1-1/4%) per annum, and (II) commercial letters of
credit, one percent (1%) per annum, and prorated for the
period for which such installment is due.
E. COLLATERAL. To secure the payment and performance of Borrower
of the Obligation, the Companies shall grant to Bank a perfected, first
priority, lien on and security interest in all of the Companies' assets (the
"COLLATERAL").
F. GUARANTIES. Payment of the Loans shall be unconditionally
guaranteed by each Subsidiary of Borrower, whether now existing or hereafter
formed or acquired.
G. CONDITIONS PRECEDENT.
i. INITIAL LOAN AND LETTER OF CREDIT. The
obligation of Bank to make the initial Loan or issue the
initial Letter of Credit hereunder is subject to the
conditions precedent that, on or before the date of such Loan
or issuance of a Letter of Credit: (A) Borrower shall have
paid to Bank (I) all fees to be received by Bank pursuant to
this Agreement or any other Loan Document, and (II) an amount
equal to the estimated costs and out-of-pocket expenses of
Bank's counsel incurred in connection with the preparation,
execution, and delivery of the Loan Documents and the
consummation of the transactions contemplated thereby; and (B)
Bank shall have received duly executed copies of each of the
documents listed on EXHIBIT D in form and substance
satisfactory to Bank.
ii. ALL LOANS AND LETTERS OF CREDIT. The
obligation of Bank to make any Loan or issue any Letter of
Credit under this Agreement (including the initial Loan or
issuance of a Letter of Credit) shall be subject to the
conditions precedent that, as of the date of such Loan or
issuance of a Letter of Credit and after giving effect
thereto: (A) there exists no Potential Default or Event of
Default; (B) no change that would cause a Material Adverse
Effect has occurred since the date of the financial statements
referenced in SECTION 3.H; (C) Bank shall have received from
Borrower a Notice of Borrowing or Request of LC (and an LC
Agreement) and all of the statements contained in such Notice
of Borrowing or Notice of LC shall be true and correct; and
(D) the representations and
Loan Agreement -5-
<PAGE> 6
warranties contained in each of the Loan Documents shall be
true in all respects as though made on the date of such Loan
or issuance of a Letter of Credit.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
A. GOOD STANDING. Each Company is a corporation, duly organized,
validly existing, and in good standing under the laws of the State of Texas,
and has the power and authority to own its property and to carry on its
business in each jurisdiction in which such Company does business.
B. AUTHORITY AND COMPLIANCE. Each Company has full power and
authority to execute and deliver the Loan Documents to which it is a party and
to incur and perform the obligations provided for therein, all of which have
been duly authorized by all proper and necessary action of the appropriate
governing body of such Company. No consent or approval of any public authority
or other third party is required as a condition to the validity of any Loan
Document, and each Company is in compliance with all laws and regulatory
requirements to which it is subject.
C. BINDING AGREEMENT. This Agreement and the other Loan Documents
executed by each Company constitute valid and legally binding obligations of
each Company, enforceable in accordance with their terms.
D. LITIGATION. There is no proceeding involving any Company
pending or, to the knowledge of Borrower, threatened before any court or
governmental authority, agency, or arbitration authority, except as disclosed
to Bank in writing and acknowledged by Bank prior to the date of this
Agreement.
E. NO CONFLICTING AGREEMENTS. There is no charter, bylaw, stock
provision, partnership agreement, or other document pertaining to the
organization, power, or authority of any Company and no provision of any
existing agreement, mortgage, indenture, or contract binding on any Company or
affecting its property, which would conflict with or in any way prevent the
execution, delivery, or carrying out of the terms of this Agreement and the
other Loan Documents.
F. OWNERSHIP OF ASSETS. Each Company has good title to its
assets, and its assets are free and clear of liens, except for Permitted Liens.
G. TAXES. All taxes and assessments due and payable by each
Company have been paid or are being contested in good faith by appropriate
proceedings and each Company has filed all tax returns which it is required to
file.
H. FINANCIAL STATEMENTS. The financial statements of the
Companies heretofore delivered to Bank have been prepared in accordance with
GAAP applied on a consistent basis throughout the period involved and fairly
present the Companies' financial condition as of the date or dates thereof, and
there has been no material adverse change in the Companies' financial condition
or operations since December 31, 1996. All factual information furnished by
each Company to Bank in connection with this Agreement and the other Loan
Documents is and will be accurate and complete in all material respects on the
date as of which such information is delivered to Bank and is not and will not
be incomplete by the omission of any material fact necessary to make such
information not misleading.
I. PLACE OF BUSINESS. Each Company's chief executive office is
located at 1255 W. 15th Street, Suite 600, Plano, Texas 75075-7270.
Loan Agreement -6-
<PAGE> 7
J. ENVIRONMENTAL MATTERS. The conduct of each Company's business
operations does not and will not violate any federal laws. rules. or ordinances
for environmental protection, regulations of the Environmental Protection
Agency, and any applicable local or state law, rule, regulation, or rule of
common law and any judicial interpretation thereof relating primarily to the
environment or Hazardous Materials and no Company will use or permit any other
party to use any Hazardous Materials at any of such Company's places of
business or at any other property owned by such Company except such materials
as are incidental to such Company's normal course of business, maintenance, and
repairs and which are handled in compliance with all applicable environmental
laws. Borrower agrees to, and shall cause each other Company to, permit Bank,
its agents, contractors, and employees to enter and inspect any of each
Company's places of business or any other property of each Company at any
reasonable times upon three (3) days prior notice for the purposes of
conducting an environmental investigation and audit (including taking physical
samples) to ensure that each Company is complying with this covenant and
Borrower shall, and shall cause each other Company to, reimburse Bank on demand
for the reasonable costs of any such environmental investigation and audit.
K. SUBSIDIARIES. Except for the Subsidiaries listed on EXHIBIT E
attached hereto, Borrower has no Subsidiaries.
L. USE OF PROCEEDS; MARGIN STOCK. The proceeds of each Loan will
be used by Borrower solely for operating capital and general corporate
purposes. None of such proceeds will be used for the purpose of purchasing or
carrying any "margin stock" as defined in Regulations G, T, U, or X of the
Board of Governors of the Federal Reserve System or for any other purpose which
might constitute this transaction a "purpose credit" within the meaning of such
Regulations. If requested by Bank, then Borrower will furnish to Bank a
statement in conformity with the requirements of the Federal Reserve Form U-1
referred to in said Regulation U to the foregoing effect. No part of the
proceeds of any Loan will be used for any purpose which violates, or is
inconsistent with, the provisions of Regulation X.
M. CONTINUATION OF REPRESENTATION AND WARRANTIES. All
representations and warranties made under this Agreement shall be deemed to be
made at and as of the date hereof and at and as of the date of any future
advance under any Loan or any issuance of a Letter of Credit.
4. AFFIRMATIVE COVENANTS. Until full payment and performance of
the Obligation and expiration of all outstanding Letters of Credit, Borrower
will, and will cause each other Company to, unless Bank consents otherwise in
writing (and without limiting any requirement of any other Loan Document):
A. FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain a system
of accounting satisfactory to Bank and in accordance with GAAP applied on a
consistent basis throughout the period involved, permit Bank's officers or
authorized representatives to visit and inspect each Company's books of account
and other records at such reasonable times and as often as Bank may desire, and
pay the reasonable fees and disbursements of any accountants or other agents of
Bank selected by Bank for the foregoing purposes. Unless written notice of
another location is given to Bank, each Company's books and records will be
located at each Company's chief executive office set forth above. All financial
statements called for below shall be prepared in form and content acceptable to
Bank and by Ernst & Young or other independent certified public accountants
reasonably acceptable to Bank. In addition, Borrower will:
i. Furnish to Bank annual audited financial
statements of the Companies for each fiscal year of the
Companies, within one hundred twenty (120) days after the
close of each such fiscal year.
Loan Agreement -7-
<PAGE> 8
ii. Furnish to Bank quarterly financial
statements (including a balance sheet and profit and loss
statement) of the Companies for each fiscal quarter of each
fiscal year of the Companies, within thirty (30) days after
the close of each such period.
iii. Furnish to Bank a Compliance Certificate
concurrently with and dated as of the date of delivery of each
of the financial statements as required in PARAGRAPHS I and II
above.
iv. Furnish to Bank a receivables aging report
concurrently with and dated as of the date of delivery of each
of the financial statements required in PARAGRAPHS I and II
above.
v. Furnish to Bank promptly such additional
information, reports and statements respecting the business
operations and financial condition of any Company from
time-to-time, as Bank may reasonably request.
B. INSURANCE. Maintain insurance with responsible insurance
companies on such of its properties, in such amounts and against such risks as
is customarily maintained by similar businesses operating in the same vicinity,
specifically to include fire and extended coverage insurance covering all
assets, business interruption insurance, workers compensation insurance, and
liability insurance, all to be with such companies and in such amounts as are
reasonably satisfactory to Bank and with respect to insurance on the
Collateral, to contain a mortgagee clause naming Bank as a loss payee or an
additional insured (as applicable) as its interest may appear, and providing
for at least thirty (30) days prior notice to Bank of any cancellation thereof.
Satisfactory evidence of such insurance will be supplied to Bank prior to
funding under the initial Loan and thirty (30) days prior to each policy
renewal.
C. EXISTENCE AND COMPLIANCE. Maintain its existence, good
standing, and qualification to do business where required and comply with all
laws, regulations, and governmental requirements including, without limitation,
environmental laws applicable to it or to any of its property, business
operations, and transactions.
D. ADVERSE CONDITIONS OR EVENTS. Promptly advise Bank in writing
of (i) any condition, event, or act which comes to its attention that would or
might materially adversely affect any Company's financial condition or
operations, the Collateral, or Bank's rights under the Loan Documents, (ii) any
litigation filed by or against any Company, (iii) any event that has occurred
that would constitute an event of default under any Loan Documents, (iv) any
uninsured or partially uninsured loss through fire, theft, liability, or
property damage in excess of an aggregate of $500,000.00, and (v) the
cancellation of any contracts of any Company in excess of $1,000,000.00
individually or in the aggregate.
E. TAXES AND OTHER OBLIGATIONS. Pay all of its taxes,
assessments, and other obligations, including, but not limited to, taxes,
costs, or other expenses arising out of this transaction, as the same become
due and payable, except to the extent the same are being contested in good
faith by appropriate proceedings in a diligent manner.
F. MAINTENANCE. Maintain all of its tangible property in good
condition and repair and make all necessary replacements thereof, and preserve
and maintain all licenses, trademarks, privileges, permits, franchises,
certificates, and the like necessary for the operation of its business.
G. NOTIFICATION OF ENVIRONMENTAL CLAIMS; ACCESS. Notify Bank in
writing of (i) any and all enforcement, cleanup, remedial, removal, or other
governmental or regulatory actions instituted,
Loan Agreement -8-
<PAGE> 9
completed, or threatened pursuant to any applicable federal, state, or local
laws, ordinances, or regulations relating to any Hazardous Materials affecting
any Company's business operations, and (ii) all claims made or threatened by
any third party against any Company relating to damages, contribution, cost
recovery, compensation, loss, or injury resulting from any Hazardous Materials.
Borrower shall immediately notify Bank of any remedial action taken by any
Company with respect to Borrower's business operations. Borrower shall, and
shall cause each other Company to, provide Bank, its agents, contractors,
employees, and representatives with access to and copies of any and all data
and documents relating to or dealing with any Hazardous Materials used,
generated, manufactured, stored, or disposed of by any Company's business
operations within five (5) days of the request therefore.
5. NEGATIVE COVENANTS. Until full payment and performance of the
Obligation and expiration of all outstanding Letters of Credit, Borrower will
not, and will not permit any other Company to, without the prior written
consent of Bank (and without limiting any requirement of any other Documents):
A. TRANSFER OF ASSETS OR CONTROL. Sell, lease, assign, or
otherwise dispose of or transfer any assets in excess of $200,000.00
individually or in the aggregate during the term hereof, except in the normal
course of its business, or enter into any merger or consolidation, or transfer
control or ownership of any Company or form or acquire any Subsidiary.
B. LIENS. Grant, suffer, or permit any contractual or
noncontractual lien on or security interest in its assets, except for Permitted
Liens, or fail to promptly pay when due all lawful claims, whether for labor,
materials, or otherwise, except for claims being contested in good faith by
appropriate proceedings diligently conducted and for which adequate reserves
are maintained in accordance with GAAP.
C. EXTENSIONS OF CREDIT. Make any loans or advances in excess of
$100,000.00 in the aggregate for all of the Companies at any time outstanding
to any individual, partnership, corporation, or other entity.
D. BORROWINGS. Create, incur, assume, guaranty, or become liable
in any manner for any liabilities or indebtedness (for borrowed money, deferred
payment for the purchase of assets, lease payments, as surety or guarantor for
the debt for another, or otherwise) other than to Bank, except for (i) normal
trade debts incurred in the ordinary course of Borrower's business, and (ii)
other indebtedness not to exceed $200,000.00 in the aggregate for all of the
Companies at any time outstanding.
E. DIVIDENDS AND DISTRIBUTIONS. Make any distribution (other than
dividends payable in capital stock) on any shares of any class of its capital
stock or apply any of its property or assets to the purchase, redemption, or
other retirement of any shares of any class of capital stock of any Company
(except for Permitted Stock Purchases) or in any way amend its capital
structure.
F. CHARACTER OF BUSINESS. Change the general character of
business as conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.
G. EXECUTIVE PERSONNEL. Substantially change its present
executive management or ownership without prior written approval of Bank.
H. FIXED CHARGES COVERAGE. Permit, as of the last day of each
fiscal quarter of the Companies, the ratio of (a) the sum of Consolidated
Adjusted Net Income plus federal, state, local, and
Loan Agreement -9-
<PAGE> 10
foreign income taxes deducted from Consolidated Adjusted Net Income in
accordance with GAAP plus Fixed Charges, to (b) Fixed Charges, in each case for
the Companies and for the four (4) fiscal quarters ending on the date of
determination, to be less than 3.0 to 1.0.
I. TOTAL FUNDED INDEBTEDNESS TO EBITDA. Permit, as of the last
day of each fiscal quarter of the Companies, the ratio of the Companies' (a)
Total Funded Indebtedness as of such date, to (b) EBITDA for the four (4)
fiscal quarters ending on the date of determination, to be greater than 1.5 to
1.0.
J. TANGIBLE NET WORTH. Permit, as of any date, the Companies'
Tangible Net Worth to be less than $14,000,000.00.
K. CERTAIN TRANSACTIONS. Enter into any transaction with,
transfer any assets to, or pay any management fees to any Affiliate; provided,
however, that each Obligor may enter into transactions with Affiliates upon
terms not less favorable to such Obligor than would be obtainable at the time
in comparable, arms-length transactions with Persons other than Affiliates.
6. DEFAULT. An "EVENT OF DEFAULT" shall exist if any one or more
of the following events (herein collectively called "EVENTS OF DEFAULT") shall
occur and be continuing:
(a) Borrower shall fail to pay when due any principal of, or
interest on, the Obligation or any part thereof; or
(b) Borrower shall fail to pay when due any of the Obligation
(other than principal or interest) and such failure shall continue for five (5)
days after such payment became due;
(c) Any representation or warranty made under this Agreement, or
any of the other Loan Documents, shall prove to be untrue or inaccurate in any
material respect as of the date on which such representation or warranty is
made or deemed to have been made; or
(d) Default shall occur in the performance of any of the covenants
or agreements of any Company contained herein or in any of the other Loan
Documents and such default shall continue unremedied for thirty (30) days after
such default occurred; or
(e) Default shall occur in the payment of any material liabilities
for borrowed money (other than the Obligation) of any Company or default shall
occur in respect of any note or credit agreement relating to any such
liabilities and such default shall continue for more than the period of grace,
if any, specified therein; or
(f) Any of the Loan Documents shall cease to be legal, valid, and
binding agreements enforceable against the Person executing the same in
accordance with its terms, shall be terminated, become or be declared
ineffective or inoperative or cease to provide the respective liens, security
interests, rights, titles, interests, remedies, powers, or privileges intended
to be provided thereby; or any Company shall deny that such Person has any
further liability or obligation under any of the Loan Documents; or
(g) Any Company shall (i) apply for or consent to the appointment
of a receiver, trustee, custodian, intervenor, or liquidator of itself or of
all or a substantial part of such Person's assets, (ii) file a voluntary
petition in bankruptcy, admit in writing that such Person is unable to pay such
Person's debts as they become due, or generally not pay such Person's debts as
they become due, (iii) make a general assignment for the benefit of creditors,
(iv) file a petition or answer seeking reorganization of an
Loan Agreement -10-
<PAGE> 11
arrangement with creditors or to take advantage of any bankruptcy or insolvency
laws, (v) file an answer admitting the material allegations of, or consent to,
or default in answering a petition filed against such Person in any bankruptcy,
reorganization, or insolvency proceeding, or (vi) take corporate action for the
purpose of effecting any of the foregoing; or
(h) An involuntary proceeding shall be commenced against any
Company seeking bankruptcy or reorganization of such Person or the appointment
of a receiver, custodian, trustee, liquidator, or other similar official of
such Person, or all or substantially all of such Person's assets, and such
proceeding shall not have been dismissed within sixty (60) days of the filing
thereof; or an order, order for relief, judgment, or decree shall be entered by
any court of competent jurisdiction or other competent authority approving a
petition or complaint seeking reorganization of any Company or appointing a
receiver, custodian, trustee, liquidator, or other similar official of such
Person, or of all or substantially all of such Person's assets; or
(i) Any final judgment(s) for the payment of money in excess of
the sum of $100,000.00 in the aggregate shall be rendered against any Company
and such judgment(s) shall not be satisfied or discharged or bonded in a manner
satisfactory to Bank at least ten (10) days prior to the date on which any of
such Person's assets could be lawfully sold to satisfy such judgment.
7. REMEDIES UPON DEFAULT. If any Event of Default shall occur,
then Bank may, without notice, exercise any one or more of the following rights
and remedies, and any other remedies provided in any of the Loan Documents, as
Bank in its sole discretion may deem necessary or appropriate: (i) terminate
Bank's commitment to make Loans or issue Letters of Credit hereunder, (ii)
declare the Obligation or any part thereof to be forthwith due and payable,
whereupon the same shall forthwith become due and payable without presentment,
demand, protest, notice of default. notice of acceleration or of intention to
accelerate, or other notice of any kind, all of which Borrower hereby expressly
waives, anything contained herein or in the Note to the contrary
notwithstanding, (iii) reduce any claim to judgment, (iv) without notice of
default or demand, pursue and enforce any of Bank's rights and remedies under
the Loan Documents, or otherwise provided under or pursuant to any applicable
law or agreement, or (v) require Borrower to deliver to Bank, to secure
Borrower's obligations under any outstanding Letters of Credit, cash in an
aggregate amount equal to the then- outstanding face amount of all undrawn and
uncanceled Letters of Credit plus the total unpaid reimbursement obligations of
Borrower under any drawings under any Letter of Credit; provided, however, if
any Event of Default specified in SECTIONS 6(f) or (g) shall occur, then the
Obligation shall thereupon become due and payable concurrently therewith, and
Bank's obligation to lend shall immediately terminate hereunder, without any
further action by Bank and without presentment, demand, protest, notice of
default, notice of acceleration or of intention to accelerate, or other notice
of any kind (other than as expressly set forth herein), all of which Borrower
hereby expressly waives.
8. NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to the other party at the following
address:
Borrower: INET,Inc.
1244 W. 15th Street, Suite 600
Plano, Texas 75075
Attention: Mr. William Mina
Telecopy No.: (972) 578-6113
Loan Agreement -11-
<PAGE> 12
Bank: NationsBank of Texas, N.A.
901 Main Street, 7th Floor
P.O. Box 831000
Dallas. Texas 75283-1000
Attention: Dallas Commercial Banking
Telecopy No.: (214) 508-3139
or to such other address as any party may designate by written notice to the
other party. Each such notice, request, and demand shall be deemed given or
made as follows:
A. If sent by hand delivery, upon delivery;
B. If transmitted by facsimile transmission, on the day
that such communication is transmitted subject to
telephone confirmation of receipt; and
C. If sent by mail, upon the earlier of the date of
receipt or five (5) days after deposit in the U.S.
Mail, by prepaid certified or registered mail.
9. COSTS, EXPENSES. AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all out-of-pocket costs and
expenses, including reasonable attorneys' fees, incurred by Bank in connection
with (a) negotiation and preparation of this Agreement and each of the Loan
Documents, and (b) Bank's continued administration thereof.
10. MISCELLANEOUS. Borrower and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted
to Bank under any Loan Document, or allowed it by law or equity shall be
cumulative of each other and may be exercised in addition to any and all other
rights of Bank, and no delay in exercising any right shall operate as a waiver
thereof, nor shall any single or partial exercise by Bank of any right preclude
any other or future exercise thereof or the exercise of any other right.
Borrower expressly waives any presentment, demand, protest, or other notice of
any kind, including but not limited to notice of intent to accelerate and
notice of acceleration. No notice to or demand on Borrower in any case shall,
of itself, entitle Borrower to any other or future notice or demand in similar
or other circumstances.
B. APPLICABLE LAW. This Loan Agreement and the rights and
obligations of the parties hereunder shall be governed by and interpreted in
accordance with the laws of Texas and applicable United States federal law.
C. AMENDMENT. No modification, consent, amendment, or waiver of
any provision of this Loan Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and signed by
an officer of Bank, and then shall be effective only in the specified instance
and for the purpose for which given. This Loan Agreement is binding upon
Borrower, its successors and assigns, and inures to the benefit of Bank, its
successors and assigns; however, no assignment or other transfer of Borrower's
rights or obligations hereunder shall be made or be effective without Bank's
prior written consent, nor shall it relieve Borrower of any obligations
hereunder. There is no third party beneficiary of this Loan Agreement.
Loan Agreement -12-
<PAGE> 13
D. DOCUMENTS. All documents, certificates and other items
required under this Loan Agreement to be executed and/or delivered to Bank
shall be in form and content satisfactory to Bank and its counsel.
E. PARTIAL INVALIDITY. The unenforceability or invalidity of any
provision of this Loan Agreement shall not affect the enforceability or
validity of any other provision herein and the invalidity or unenforceability
of any provision of any Loan Document to any person or circumstance shall not
affect the enforceability or validity of such provision as it may apply to
other persons or circumstances.
F. INDEMNIFICATION. Borrower shall, and shall cause each of the
other Companies to, indemnify, defend, and hold Bank and its successors and
assigns harmless from and against any and all claims, demands, suits, losses,
damages, assessments, fines, penalties, costs or other expenses (including
reasonable attorneys' fees and court costs) arising from or in any way related
to any of the transactions contemplated hereby, including but not limited to
actual or threatened damage to the environment, agency costs of investigation,
personal injury or death, or property damage, due to a release or alleged
release of Hazardous Materials, arising from the Companies' business
operations, any other property owned by the Companies or in the surface or
ground water arising from the Companies' business operations, or gaseous
emissions arising from the Companies' business operations or any other
condition existing or arising from the Companies' business operations resulting
from the use or existence of Hazardous Materials, whether such claim proves to
be true or false. Borrower further agrees that its indemnity obligations shall
include, but are not limited to, liability for damages resulting from the
personal injury or death of an employee of any Company, regardless of whether
such Company has paid the employee under the workmen's compensation laws of any
state or other similar federal or state legislation for the protection of
employees. The term "property damage" as used in this paragraph includes, but
is not limited to, damage to any real or personal property of any Company,
Bank, and of any third parties. The Companies' obligations under this paragraph
shall survive the repayment of the Loan and any foreclosure of any collateral
securing the Loan for a period of time equal to two (2) years following the
later to occur of such repayment or foreclosure.
G. SURVIVABILITY. All covenants, agreements, representations, and
warranties made herein or in the other Loan Documents shall survive the making
of the Loan and shall continue in full force and effect so long as the Loan is
outstanding or the obligation of Bank to make any advances under the Line shall
not have expired.
H. MAXIMUM INTEREST RATE. Regardless of any provision contained
in any of the Loan Documents, Bank shall never be entitled to receive, collect,
or apply as interest on the Note any amount in excess of interest calculated at
the Maximum Rate, and, in the event that Bank ever receives, collects, or
applies as interest any such excess, then the amount which would be excessive
interest shall be deemed to be a partial prepayment of the principal and
treated hereunder as such; and, if the principal amount of the Obligation is
paid in full, then any remaining excess shall forthwith be paid to Borrower.
In determining whether or not the interest paid or payable under any specific
contingency exceeds interest calculated at the Maximum Rate, Borrower and Bank
shall, to the maximum extent permitted under applicable law, (a) characterize
any non-principal payment as an expense, fee, or premium rather than as
interest, (b) exclude voluntary prepayments and the effects thereof, and (c)
amortize, prorate, allocate, and spread, in equal parts, the total amount of
interest throughout the entire contemplated term of the Note; provided that if
the Note is paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period
of existence thereof exceeds interest calculated at the Maximum Rate, then Bank
shall refund to Borrower the amount of such excess or credit the amount of such
excess against the principal amount of the Note and, in such event, Bank shall
not be subject to any penalties provided by
Loan Agreement -13-
<PAGE> 14
any laws for contracting for, charging, taking, reserving, or receiving
interest in excess of interest calculated at the Maximum Rate.
I. ARTICLE 15.10(b). Borrower and Bank hereby agree that, except
for SECTION 15.10(b) thereof, the provisions of Article 5069-15.01 et seq. of
the Revised Civil Statutes of Texas, 1925, as amended (regulating certain
revolving credit loans and revolving tri-party accounts) shall not apply to the
Loan Documents.
11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM
BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW). THE RULES OF PRACTICE AND PROCEDURE FOR
THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S. D/B/A ENDISPUTE, INC.
("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY
OF BORROWER'S DOMICILE AT TIME OF THIS AGREEMENT'S EXECUTION AND ADMINISTERED
BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR. IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL
ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A
WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF BANK HERETO (A)
TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO
FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. BANK
MAY EXERCISE SUCH SELF HELP RIGHTS. FORECLOSE UPON SUCH PROPERTY, OR OBTAIN
SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF
ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT. NEITHER THIS
EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION
FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER
OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
Loan Agreement -14-
<PAGE> 15
12. NOTICE OF FINAL AGREEMENT
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
BANK: BORROWER:
NATIONSBANK OF TEXAS, N.A., a national INET, INC., a Texas corporation
banking association
By: /s/ RUSSELL P. HARTSFIELD By: /s/ WILLIAM H. MINA
---------------------------------- -------------------------------
Russell P. Hartsfield Name: William H. Mina
Senior Vice President -----------------------------
Title: Chief Financial Officer
----------------------------
Loan Agreement -15-
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EXHIBIT 10.3
INET TECHNOLOGIES, INC.
1998 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1998 Stock Option/Stock Issuance Plan is intended to
promote the interests of Inet Technologies, Inc., a Delaware corporation, by
providing eligible persons with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity
programs:
(i) the Discretionary Option Grant
Program under which eligible persons may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock,
(ii) the Stock Issuance Program under
which eligible persons may, at the discretion of the Plan Administrator, be
issued shares of Common Stock directly, either through the immediate purchase
of such shares or as a bonus for services rendered the Corporation (or any
Parent or Subsidiary), and
(iii) the Automatic Option Grant Program
under which eligible non-employee Board members shall automatically receive
options at periodic intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Five shall apply
to all equity programs under the Plan and shall govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12 Registration Date, the
Discretionary Option Grant and Stock Issuance Programs shall be administered by
the Board. Beginning with the Section 12 Registration Date, the following
provisions shall govern the administration of the Plan:
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(i) The Board shall have the authority
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders but may delegate such authority in whole or in
part to the Primary Committee.
(ii) Administration of the Discretionary
Option Grant and Stock Issuance Programs with respect to all other persons
eligible to participate in those programs may, at the Board's discretion, be
vested in the Primary Committee or a Secondary Committee, or the Board may
retain the power to administer those programs with respect to all such persons.
(iii) Administration of the Automatic
Option Grant Program shall be self-executing in accordance with the terms of
that program.
B. Each Plan Administrator shall, within the scope of
its administrative jurisdiction under the Plan, have full power and authority
subject to the provisions of the Plan:
(i) to establish such rules as it may
deem appropriate for proper administration of the Plan, to make all factual
determinations, to construe and interpret the provisions of the Plan and the
awards thereunder and to resolve any and all ambiguities thereunder;
(ii) to determine, with respect to awards
made under the Discretionary Option Grant and Stock Issuance Programs, which
eligible persons are to receive such awards, the time or times when such awards
are to be made, the number of shares to be covered by each such award, the
vesting schedule (if any) applicable to the award, the status of a granted
option as either an Incentive Option or a Non-Statutory Option and the maximum
term for which the option is to remain outstanding;
(iii) to amend, modify or cancel any
outstanding award with the consent of the holder or accelerate the vesting of
such award; and
(iv) to take such other discretionary
actions as permitted pursuant to the terms of the applicable program.
Decisions of each Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties.
C. Members of the Primary Committee or any Secondary
Committee shall serve for such period of time as the Board may determine and
may be removed by the Board at any time. The Board may also at any time
terminate the functions of any Secondary Committee and reassume all powers and
authority previously delegated to such committee.
D. Service on the Primary Committee or the Secondary
Committee shall constitute service as a Board member, and members of each such
committee shall accordingly
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be entitled to full indemnification and reimbursement as Board members for
their service on such committee. No member of the Primary Committee or the
Secondary Committee shall be liable for any act or omission made in good faith
with respect to the Plan or any options or stock issuances under the Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or
the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent
advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Only non-employee Board members shall be eligible to
participate in the Automatic Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock initially reserved for issuance over the term of the Plan shall not exceed
Six Million Seven Hundred Fifty Thousand (6,750,000) shares. Such authorized
share reserve consists of (i) the number of shares which remain available for
issuance, as of the Plan Effective Date, under the Predecessor Plan as last
approved by the Corporation's stockholders, including the shares subject to the
outstanding options to be incorporated into the Plan and the additional shares
which would otherwise be available for future grant, plus (ii) an increase Two
Million Eight Hundred Fifty Thousand (2,850,000) shares authorized by the Board
but subject to stockholder approval prior to the Section 12 Registration Date.
B. The number of shares of Common Stock available for
issuance under the Plan shall automatically increase on the first trading day
of each calendar year during the term of the Plan, beginning with the 2000
calendar year, by an amount equal to one percent (1%) of the shares of Common
Stock outstanding on the last trading day of the immediately preceding calendar
year, but in no event shall such annual increase exceed Five Hundred Thousand
(500,000) shares.
C. No one person participating in the Plan may receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than One Million (1,000,000)
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shares of Common Stock in the aggregate per calendar year, beginning with the
1998 calendar year.
D. Shares of Common Stock subject to outstanding options
(including options incorporated into this Plan from the Predecessor Plan) shall
be available for subsequent issuance under the Plan to the extent those options
expire, terminate or are cancelled for any reason prior to exercise in full.
Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the original exercise or issue price paid per share, pursuant
to the Corporation's repurchase rights under the Plan shall be added back to
the number of shares of Common Stock reserved for issuance under the Plan and
shall accordingly be available for reissuance through one or more subsequent
options or direct stock issuances under the Plan. However, should the exercise
price of an option under the Plan be paid with shares of Common Stock or should
shares of Common Stock otherwise issuable under the Plan be withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection
with the exercise of an option or the vesting of a stock issuance under the
Plan, then the number of shares of Common Stock available for issuance under
the Plan shall be reduced by the gross number of shares for which the option is
exercised or which vest under the stock issuance, and not by the net number of
shares of Common Stock issued to the holder of such option or stock issuance.
Shares of Common Stock underlying one or more stock appreciation rights
exercised under the Plan shall NOT be available for subsequent issuance.
E. If any change is made to the Common Stock by reason
of any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the maximum number of securities by which the
share reserve is to increase each calendar year pursuant to the automatic share
increase provisions of the Plan, (iii) the number and/or class of securities
for which any one person may be granted options, separately exercisable stock
appreciation rights and direct stock issuances under this Plan per calendar
year, (iv) the number and/or class of securities for which grants are
subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (v) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan and (vi) the number and/or class of securities and price
per share in effect under each outstanding option incorporated into this Plan
from the Predecessor Plan. Such adjustments to the outstanding options are to
be effected in a manner which shall preclude the enlargement or dilution of
rights and benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
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ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the
Plan applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed
by the Plan Administrator at the time of the option grant.
2. The exercise price shall become immediately
due upon exercise of the option and shall, subject to the provisions of Section
II of Article Five and the documents evidencing the option, be payable in cash
or check made payable to the Corporation. Should the Common Stock be
registered under Section 12 of the 1934 Act at the time the option is
exercised, then the exercise price may also be paid as follows:
(i) shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(ii) to the extent the option is
exercised for vested shares, through a special sale and remittance
procedure pursuant to which the Optionee shall concurrently provide
irrevocable instructions to (a) a Corporation-approved brokerage firm
to effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in
excess of ten (10) years measured from the option grant date.
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C. CESSATION OF SERVICE.
1. The following provisions shall govern the
exercise of any options outstanding at the time of the Optionee's cessation of
Service or death:
(i) Any option outstanding at the time
of the Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the
expiration of the option term.
(ii) Any option exercisable in whole or
in part by the Optionee at the time of death may be subsequently
exercised by his or her Beneficiary.
(iii) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon
the expiration of the applicable exercise period or (if earlier) upon
the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding
to the extent the option is not otherwise at that time exercisable for
vested shares.
(iv) Should the Optionee's Service be
terminated for Misconduct or should the Optionee engage in Misconduct
while his or her options are outstanding, then all such options shall
terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have complete
discretion, exercisable either at the time an option is granted or at any time
while the option remains outstanding:
(i) to extend the period of time for
which the option is to remain exercisable following the Optionee's
cessation of Service to such period of time as the Plan Administrator
shall deem appropriate, but in no event beyond the expiration of the
option term, and/or
(ii) to permit the option to be
exercised, during the applicable post-Service exercise period, for
one or more additional installments in which the Optionee would have
vested had the Optionee continued in Service.
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D. STOCKHOLDER RIGHTS. The holder of an option shall
have no stockholder rights with respect to the shares subject to the option
until such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have
the discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the
lifetime of the Optionee, Incentive Options shall be exercisable only by the
Optionee and shall not be assignable or transferable other than by will or by
the laws of descent and distribution following the Optionee's death.
Non-Statutory Options shall be subject to the same restrictions, except that a
Non-Statutory Option may, to the extent permitted by the Plan Administrator, be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established
exclusively for Optionee and/or one or more such family members. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem
appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section
II.
A. ELIGIBILITY. Incentive Options may only be granted
to Employees.
B. EXERCISE PRICE. The exercise price per share shall
not be less than one hundred percent (100%) of the Fair Market Value per share
of Common Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value
of the shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan (or
any other option plan of the Corporation or any Parent or Subsidiary) may for
the first time become exercisable as Incentive Options during any one calendar
year shall not exceed the sum of One Hundred Thousand Dollars
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($100,000). To the extent the Employee holds two (2) or more such options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as Incentive Options
shall be applied on the basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an
Incentive Option is granted is a 10% Stockholder, then the exercise price per
share shall not be less than one hundred ten percent (110%) of the Fair Market
Value per share of Common Stock on the option grant date, and the option term
shall not exceed five (5) years measured from the option grant date.
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. Each option outstanding at the time of a Change in
Control but not otherwise fully-vested shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Change
in Control, become exercisable for all of the shares of Common Stock at the
time subject to that option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. However, an outstanding option shall
not so accelerate if and to the extent: (i) such option is, in connection with
the Change in Control, assumed or otherwise continued in full force and effect
by the successor corporation (or parent thereof) pursuant to the terms of the
Change in Control, (ii) such option is replaced with a cash incentive program
of the successor corporation which preserves the spread existing at the time of
the Change in Control on the shares of Common Stock for which the option is not
otherwise at that time exercisable and provides for subsequent payout in
accordance with the same vesting schedule applicable to those option shares or
(iii) the acceleration of such option is subject to other limitations imposed
by the Plan Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also
terminate automatically, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Change in
Control, except to the extent: (i) those repurchase rights are assigned to the
successor corporation (or parent thereof) or otherwise continue in full force
and effect pursuant to the terms of the Change in Control or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Change
in Control, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof) or otherwise expressly continued in full force and effect
pursuant to the terms of the Change in Control.
D. Each option which is assumed in connection with a
Change in Control shall be appropriately adjusted, immediately after such
Change in Control, to apply to the number and class of securities which would
have been issuable to the Optionee in
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consummation of such Change in Control had the option been exercised
immediately prior to such Change in Control. Appropriate adjustments to
reflect such Change in Control shall also be made to (i) the exercise price
payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same, (ii) the
maximum number and/or class of securities available for issuance over the
remaining term of the Plan and (iii) the maximum number and/or class of
securities for which any one person may be granted options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year.
E. The Plan Administrator may at any time provide that
one or more options will automatically accelerate in connection with a Change
in Control, whether or not those options are assumed or otherwise continued in
full force and effect pursuant to the terms of the Change in Control. Any such
option shall accordingly become exercisable, immediately prior to the effective
date of such Change in Control, for all of the shares of Common Stock at the
time subject to that option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. In addition, the Plan Administrator
may at any time provide that one or more of the Corporation's repurchase rights
shall not be assignable in connection with such Change in Control and shall
terminate upon the consummation of such Change in Control.
F. The Plan Administrator may at any time provide that
one or more options will automatically accelerate upon an Involuntary
Termination of the Optionee's Service within a designated period (not to exceed
eighteen (18) months) following the effective date of any Change in Control in
which those options do not otherwise accelerate. Any options so accelerated
shall remain exercisable for fully-vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one (1) year period
measured from the effective date of the Involuntary Termination. In addition,
the Plan Administrator may at any time provide that one or more of the
Corporation's repurchase rights shall immediately terminate upon such
Involuntary Termination.
G. The Plan Administrator may at any time provide that
one or more options will automatically accelerate in connection with a Hostile
Take-Over. Any such option shall become exercisable, immediately prior to the
effective date of such Hostile Take-Over, for all of the shares of Common Stock
at the time subject to that option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. In addition, the Plan
Administrator may at any time provide that one or more of the Corporation's
repurchase rights shall terminate automatically upon the consummation of such
Hostile Take-Over. Alternatively, the Plan Administrator may condition such
automatic acceleration and termination upon an Involuntary Termination of the
Optionee's Service within a designated period (not to exceed eighteen (18)
months) following the effective date of such Hostile Take-Over. Each option so
accelerated shall remain exercisable for fully-vested shares until the
expiration or sooner termination of the option term.
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H. The portion of any Incentive Option accelerated in
connection with a Change in Control or Hostile Take Over shall remain
exercisable as an Incentive Option only to the extent the applicable One
Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent
such dollar limitation is exceeded, the accelerated portion of such option
shall be exercisable as a Non-Statutory Option under the Federal tax laws.
IV. STOCK APPRECIATION RIGHTS
The Plan Administrator may, subject to such conditions as it
may determine, grant to selected Optionees stock appreciation rights which will
allow the holders of those rights to elect between the exercise of the
underlying option for shares of Common Stock and the surrender of that option
in exchange for a distribution from the Corporation in an amount equal to the
excess of (a) the Option Surrender Value of the number of shares for which the
option is surrendered over (b) the aggregate exercise price payable for such
shares. The distribution may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.
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ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening options.
Shares of Common Stock may also be issued under the Stock Issuance Program
pursuant to share right awards which entitle the recipients to receive those
shares upon the attainment of designated performance goals or Service
requirements. Each such award shall be evidenced by one or more documents
which comply with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share of Common Stock
subject to direct issuance shall be fixed by the Plan Administrator.
2. Subject to the provisions of Section II of
Article Five, Shares of Common Stock may be issued under the Stock Issuance
Program for any of the following items of consideration which the Plan
Administrator may deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the
Corporation (or any Parent or Subsidiary).
B. VESTING/ISSUANCE PROVISIONS.
1. The Plan Administrator may issue shares of
Common Stock which are fully and immediately vested upon issuance or which are
to vest in one or more installments over the Participant's period of Service or
upon attainment of specified performance objectives. Alternatively, the Plan
Administrator may issue share right awards which shall entitle the recipient to
receive a specified number of vested shares of Common Stock upon the attainment
of one or more performance goals or Service requirements established by the
Plan Administrator.
2. Any new, substituted or additional securities
or other property (including money paid other than as a regular cash dividend)
which the Participant may have the right to receive with respect to his or her
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable
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to the Participant's unvested shares of Common Stock and (ii) such escrow
arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder
rights with respect to the issued shares of Common Stock, whether or not the
Participant's interest in those shares is vested. Accordingly, the Participant
shall have the right to vote such shares and to receive any regular cash
dividends paid on such shares.
4. Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock, or should
the performance objectives not be attained with respect to one or more such
unvested shares of Common Stock, then those shares shall be immediately
surrendered to the Corporation for cancellation, and the Participant shall have
no further stockholder rights with respect to those shares. To the extent the
surrendered shares were previously issued to the Participant for consideration
paid in cash or cash equivalent (including the Participant's purchase-money
indebtedness), the Corporation shall repay to the Participant the cash
consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to the surrendered shares.
5. The Plan Administrator may waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
cessation of the Participant's Service or the non-attainment of the performance
objectives applicable to those shares. Such waiver shall result in the
immediate vesting of the Participant's interest in the shares of Common Stock
as to which the waiver applies. Such waiver may be effected at any time,
whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
6. Outstanding share right awards shall
automatically terminate, and no shares of Common Stock shall actually be issued
in satisfaction of those awards, if the performance goals or Service
requirements established for such awards are not attained. The Plan
Administrator, however, shall have the authority to issue shares of Common
Stock in satisfaction of one or more outstanding share right awards as to which
the designated performance goals or Service requirements are not attained.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. All of the Corporation's outstanding repurchase
rights shall terminate automatically, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
of any Change in Control, except to the extent (i) those repurchase rights are
assigned to the successor corporation (or parent thereof) or otherwise continue
in full force and effect pursuant to the terms of the Change in Control or (ii)
such accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.
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B. The Plan Administrator may at any time provide for
the automatic termination of one or more of those outstanding repurchase rights
and the immediate vesting of the shares of Common Stock subject to those
terminated rights upon (i) a Change in Control or Hostile Take-Over or (ii) an
Involuntary Termination of the Participant's Service within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control or Hostile Take-Over in which those repurchase rights are assigned
to the successor corporation (or parent thereof) or otherwise continue in full
force and effect.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
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ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Options shall be made on the dates
specified below:
1. Each individual serving as a non-employee
Board member on the Underwriting Date shall automatically be granted at that
time a Non-Statutory Option to purchase Twenty Thousand (20,000) shares of
Common Stock, provided that individual has not previously been in the employ of
the Corporation or any Parent or Subsidiary.
2. Each individual who is first elected or
appointed as a non-employee Board member at any time after the Underwriting Date
shall automatically be granted, on the date of such initial election or
appointment, a Non-Statutory Option to purchase twenty thousand (20,000) shares
of Common Stock, provided that individual has not previously been in the employ
of the Corporation or any Parent or Subsidiary.
3. On the date of each Annual Stockholders
Meeting held after the Underwriting Date, each individual who is to continue to
serve as a non-employee Board member, whether or not that individual is standing
for re-election to the Board, shall automatically be granted a Non-Statutory
Option to purchase Ten Thousand (10,000) shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal
to one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall be payable in one or
more of the alternative forms authorized under the Discretionary Option Grant
Program. Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten
(10) years measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any
shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's cessation
of Board service prior to vesting in those shares. Each initial Twenty Thousand
(20,000)-share option shall vest, and the Corporation's repurchase right
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shall lapse, in a series of three (3) successive equal annual installments upon
the Optionee's completion of each year of Board service over the three (3)-year
period measured from the grant date. Each annual Ten Thousand (10,000)-share
option shall vest, and the Corporation's repurchase right shall lapse, upon the
Optionee's completion of one (1) year of Board service measured from the grant
date.
E. CESSATION OF BOARD SERVICE. The following provisions
shall govern the exercise of any options outstanding at the time of the
Optionee's cessation of Board service:
(i) Any option outstanding at the time
of the Optionee's cessation of Board service for any reason shall
remain exercisable for a twelve (12)-month period following the date
of such cessation of Board service, but in no event shall such option
be exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or
in part by the Optionee at the time of death may be subsequently
exercised by his or her Beneficiary.
(iii) Following the Optionee's cessation
of Board service, the option may not be exercised in the aggregate for
more than the number of shares in which the Optionee was vested on the
date of such cessation of Board service. Upon the expiration of the
applicable exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding
for any vested shares for which the option has not been exercised.
However, the option shall, immediately upon the Optionee's cessation
of Board service, terminate and cease to be outstanding for any and
all shares in which the Optionee is not otherwise at that time vested.
(iv) However, should the Optionee cease
to serve as a Board member by reason of death or Permanent Disability,
then all shares at the time subject to the option shall immediately
vest so that such option may, during the twelve (12)-month exercise
period following such cessation of Board service, be exercised for all
or any portion of those shares as fully-vested shares of Common Stock.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control or Hostile
Take-Over, the shares of Common Stock at the time subject to each outstanding
option but not otherwise vested shall automatically vest in full so that each
such option may, immediately prior to the effective date of such Change in
Control the Hostile Take-Over, be exercised for all or any portion of those
shares as fully-vested shares of Common Stock. Each such option accelerated in
connection with a Change in Control shall terminate upon the Change in Control,
except to the extent
15.
<PAGE> 16
assumed by the successor corporation (or parent thereof) or otherwise continued
in full force and effect pursuant to the terms of the Change in Control. Each
such option accelerated in connection with a Hostile Take-Over shall remain
exercisable until the expiration or sooner termination of the option term.
B. All outstanding repurchase rights shall also
terminate automatically, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Change in
Control or Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each of his or her outstanding options. The Optionee shall in
return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Option Surrender Value of the shares of Common
Stock at the time subject to each surrendered option (whether or not the
Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation.
D. Each option which is assumed in connection with a
Change in Control shall be appropriately adjusted to apply to the number and
class of securities which would have been issuable to the Optionee in
consummation of such Change in Control had the option been exercised
immediately prior to such Change in Control. Appropriate adjustments shall
also be made to the exercise price payable per share under each outstanding
option, provided the aggregate exercise price payable for such securities shall
remain the same.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for options made
under the Discretionary Option Grant Program.
16.
<PAGE> 17
ARTICLE FIVE
MISCELLANEOUS
I. NO IMPAIRMENT OF AUTHORITY
Outstanding awards shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
II. FINANCING
The Plan Administrator may permit any Optionee or Participant
to pay the option exercise price under the Discretionary Option Grant Program
or the purchase price of shares issued under the Stock Issuance Program by
delivering a full-recourse, interest bearing promissory note payable in one or
more installments. The terms of any such promissory note (including the
interest rate and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion. In no event may the maximum credit
available to the Optionee or Participant exceed the sum of (i) the aggregate
option exercise price or purchase price payable for the purchased shares plus
(ii) any Federal, state and local income and employment tax liability incurred
by the Optionee or the Participant in connection with the option exercise or
share purchase.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of options or the issuance or vesting of such
shares under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion,
provide any or all holders of Non-Statutory Options or unvested shares of
Common Stock under the Plan with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
Stock Withholding: The election to have the
Corporation withhold, from the shares of Common Stock otherwise issuable upon
the exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%)) designated
by the holder.
17.
<PAGE> 18
Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised or the shares
vest, one or more shares of Common Stock previously acquired by such holder
(other than in connection with the option exercise or share vesting triggering
the Taxes) with an aggregate Fair Market Value equal to the percentage of the
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
IV. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately upon the
Plan Effective Date. Options may be granted under the Discretionary Option
Grant or Automatic Option Grant Program at any time on or after the Plan
Effective Date. However, no options granted under the Plan may be exercised,
and no shares shall be issued under the Plan, until the Plan is approved by the
Corporation's stockholders. If such stockholder approval is not obtained
within twelve (12) months after the Plan Effective Date, then all options
previously granted under this Plan shall terminate and cease to be outstanding,
and no further options shall be granted and no shares shall be issued under the
Plan.
B. The Plan shall serve as the successor to the
Predecessor Plan, and no further options or direct stock issuances shall be
made under the Predecessor Plan after the Section 12 Registration Date. All
options outstanding under the Predecessor Plan on the Section 12 Registration
Date shall be incorporated into the Plan at that time and shall be treated as
outstanding options under the Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the terms of the documents
evidencing such option, and no provision of the Plan shall be deemed to affect
or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.
C. One or more provisions of the Plan, including
(without limitation) the option/vesting acceleration provisions of Article Two
relating to Changes in Control, may, in the Plan Administrator's discretion, be
extended to one or more options incorporated from the Predecessor Plan which do
not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest of (i)
July 23, 2008, (ii) the date on which all shares available for issuance under
the Plan shall have been issued as fully-vested shares or (iii) the termination
of all outstanding options in connection with a Change in Control. Upon such
plan termination, all outstanding options and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.
V. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations
with respect to stock options or
18.
<PAGE> 19
unvested stock issuances at the time outstanding under the Plan unless the
Optionee or the Participant consents to such amendment or modification. In
addition, certain amendments may require stockholder approval pursuant to
applicable laws or regulations.
B. Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant Program and shares of Common Stock
may be issued under the Stock Issuance Program that are in each instance in
excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued under those programs shall be held
in escrow until there is obtained stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock available for
issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made,
then (i) any unexercised options granted on the basis of such excess shares
shall terminate and cease to be outstanding and (ii) the Corporation shall
promptly refund to the Optionees and the Participants the exercise or purchase
price paid for any excess shares issued under the Plan and held in escrow,
together with interest (at the applicable Short Term Federal Rate) for the
period the shares were held in escrow, and such shares shall thereupon be
automatically cancelled and cease to be outstanding.
VI. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VII. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any
stock option under the Plan and the issuance of any shares of Common Stock (i)
upon the exercise of any granted option or (ii) under the Stock Issuance
Program shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the stock options granted under it and the shares of Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be
issued or delivered under the Plan unless and until there shall have been
compliance with all applicable requirements of Federal and state securities
laws, including the filing and effectiveness of the Form S-8 registration
statement for the shares of Common Stock issuable under the Plan, and all
applicable listing requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which Common Stock is then listed for trading.
VIII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining
19.
<PAGE> 20
such person) or of the Optionee or the Participant, which rights are hereby
expressly reserved by each, to terminate such person's Service at any time for
any reason, with or without cause.
20.
<PAGE> 21
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.
B. BENEFICIARY shall mean, in the event the Plan Administrator
implements a beneficiary designation procedure, the person designated by an
Optionee or Participant, pursuant to such procedure, to succeed to such
person's rights under any outstanding awards held by him or her at the time of
death. In the absence of such designation or procedure, the Beneficiary shall
be the personal representative of the estate of the Optionee or Participant or
the person or persons to whom the award is transferred by will or the laws of
descent and distribution.
C. BOARD shall mean the Corporation's Board of Directors.
D. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through any of the following transactions:
(i) a merger, consolidation or reorganization
approved by the Corporation's stockholders, unless securities
representing more than fifty percent (50%) of the total combined
voting power of the voting securities of the successor corporation are
immediately thereafter beneficially owned, directly or indirectly and
in substantially the same proportion, by the persons who beneficially
owned the Corporation's outstanding voting securities immediately
prior to such transaction,
(ii) any stockholder-approved transfer or other
disposition of all or substantially all of the Corporation's assets,
or
(iii) the acquisition, directly or indirectly by
any person or related group of persons (other than the Corporation or
a person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders
which the Board recommends such stockholders to accept.
E. CODE shall mean the Internal Revenue Code of 1986, as amended.
F. COMMON STOCK shall mean the Corporation's common stock.
A-1.
<PAGE> 22
G. CORPORATION shall mean Inet Technologies, Inc., a Delaware
corporation, and its successors.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
I. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
J. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on
the Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as such price is reported on the Nasdaq National Market or
any successor system. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on
any Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(iii) For purposes of any options made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal
to the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.
(iv) For purposes of any options made prior to the
Underwriting Date, the Fair Market Value shall be determined by the
Plan Administrator, after taking into account such factors as it deems
appropriate.
A-2.
<PAGE> 23
L. HOSTILE TAKE-OVER shall mean:
(i) the acquisition, directly or indirectly, by
any person or related group of persons (other than the Corporation or
a person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders
which the Board does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over
a period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
M. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
N. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation
following (A) a change in his or her position with the Corporation or
Parent or Subsidiary employing the individual which materially reduces
his or her duties and responsibilities or the level of management to
which he or she reports, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and target bonus
under any performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place
of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without
the individual's consent.
O. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of
the Corporation (or any Parent or Subsidiary), or any intentional wrongdoing by
such person, whether by omission or commission, which
A-3.
<PAGE> 24
adversely affects the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. This shall not limit the grounds for the
dismissal or discharge of any person in the Service of the Corporation (or any
Parent or Subsidiary).
P. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
Q. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
R. OPTION SURRENDER VALUE shall mean the Fair Market Value per
share of Common Stock on the date the option is surrendered to the Corporation
or, in the event of a Hostile Take-Over, effected through a tender offer, the
highest reported price per share of Common Stock paid by the tender offeror in
effecting such Hostile Take-Over, if greater. However, if the surrendered
option is an Incentive Option, the Option Surrender Value shall not exceed the
Fair Market Value per share.
S. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant or Automatic Option Grant Program.
T. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
U. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
V. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of
twelve (12) months or more. However, solely for purposes of the Automatic
Option Grant Program, Permanent Disability or Permanently Disabled shall mean
the inability of the non-employee Board member to perform his or her usual
duties as a Board member by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous duration
of twelve (12) months or more.
W. PLAN shall mean the Corporation's 1998 Stock Option/Stock
Issuance Plan, as set forth in this document.
X. PLAN ADMINISTRATOR shall mean the particular entity, whether
the Primary Committee, the Board or the Secondary Committee, which is
authorized to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to one or more classes of eligible persons, to the extent
such entity is carrying out its administrative functions under
A-4.
<PAGE> 25
those programs with respect to the persons under its jurisdiction. However,
the Primary Committee shall have the plenary authority to make all factual
determinations and to construe and interpret any and all ambiguities under the
Plan to the extent such authority is not otherwise expressly delegated to any
other Plan Administrator.
Y. PLAN EFFECTIVE DATE shall mean June 23, 1998, the date on
which the Plan was adopted by the Board.
Z. PREDECESSOR PLAN shall mean the Corporation's pre-existing
1995 Employee Stock Option Plan in effect immediately prior to the Plan
Effective Date hereunder.
AA. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
AB. SECONDARY COMMITTEE shall mean a committee of one (1) or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
AC. SECTION 12 REGISTRATION DATE shall mean the date on which the
Common Stock is first registered under Section 12(g) of the 1934 Act.
AD. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
AE. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in
the documents evidencing the option grant or stock issuance.
AF. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
AG. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.
AH. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
A-5.
<PAGE> 26
AI. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those
options or the vesting of those shares.
AJ. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
AK. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
AL. UNDERWRITING DATE shall mean the date on which the
Underwriting Agreement is executed and priced in connection with an initial
public offering of the Common Stock.
A-6.
<PAGE> 1
EXHIBIT 10.4
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT is made and entered into this ___ day
of ____________________, 1998 between Inet Technologies, Inc., a Delaware
corporation (the "Corporation"), and _____________________ ("Indemnitee").
RECITALS:
A. Indemnitee, an executive officer of the Corporation
and a member of the Board of Directors, performs a valuable service in such
capacity for the Corporation; and
B. The stockholders of the Corporation have adopted
By-laws (the "By-laws") providing for the indemnification of the officers,
directors, agents and employees of the Corporation to the maximum extent
authorized by Section 145 of the Delaware General Corporation Law, as amended
("DGCL"); and
C. The By-laws and the DGCL, by their non-exclusive
nature, permit contracts between the Corporation and the members of its Board
of Directors and officers with respect to indemnification of such directors and
officers; and
D. In accordance with the authorization as provided by
the DGCL, the Corporation has purchased and presently maintains a policy or
policies of Directors and Officers Liability Insurance ("D & O Insurance"),
covering certain liabilities which may be incurred by its directors and
officers in the performance of their duties as directors or officers of the
Corporation; and
E. As a result of developments affecting the terms,
scope and availability of D & O Insurance there exists general uncertainty as
to the extent of protection afforded members of the Board of Directors and
executive officers of the Corporation by such D & O Insurance and by statutory
and by-law indemnification provisions; and
F. In order to induce Indemnitee to continue to serve as
an executive officer and a member of the Board of Directors of the Corporation,
the Corporation has determined and agreed to enter into this contract with
Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued
service as an executive officer and a member of the Board of Directors after
the date hereof, the parties hereto agree as follows:
1. INDEMNIFICATION OF INDEMNITEE. The Corporation
hereby agrees to hold harmless and indemnify Indemnitee and any partnership,
corporation, trust or other entity of which Director is or was a partner,
shareholder, trustee, director, officer, employee or agent (Indemnitee and each
such partnership, corporation, trust or other entity being hereinafter referred
to collectively as an "Indemnitee") to the fullest extent authorized or
permitted by the provisions of the DGCL, as may be amended from time to time.
<PAGE> 2
2. ADDITIONAL INDEMNITY. Subject only to the exclusions
set forth in Section 3 hereof, the Corporation hereby further agrees to hold
harmless and indemnify Indemnitee's:
a. against any and all expenses (including
attorney's fees), witness fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by Indemnitee in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including an action by or in the
right of the Corporation) to which Indemnitee is, was or at any time becomes a
party, or is threatened to be made a party, by reason of the fact that
Indemnitee is, was or at any time becomes a director, officer, employee or
agent of the Corporation or any subsidiary of the Corporation, or is or was
serving or at any time serves at the request of the Corporation or any
subsidiary of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, if Director acted in good faith and in a manner Director
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Director's conduct was unlawful; and
b. otherwise to the fullest extent as may be
provided to Indemnitee by the Corporation under the non-exclusivity provisions
of Article XI of the By-laws of Corporation and the DGCL.
3. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity
pursuant to Section 2 hereof shall be paid by the Corporation:
a. except to the extent the aggregate of losses
to be indemnified thereunder exceeds the sum of such losses for which the
Indemnitee is indemnified pursuant to Section I hereof or pursuant to any D & O
Insurance purchased and maintained by the Corporation;
b. in respect to remuneration paid to Indemnitee
if it shall be determined by a final judgment or other final adjudication that
such remuneration was in violation of law;
c. on account of any suit in which judgment is
rendered against Indemnitee for an accounting of profits made from the purchase
or sale by Indemnitee of securities of the Corporation pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law,
d. on account of Indemnitee's conduct which is
finally adjudged to have been knowingly fraudulent or deliberately dishonest,
or to constitute willful misconduct;
e. on account of Indemnitee's conduct which is
the subject of an action, suit or proceeding described in Section 7(c)(ii)
hereof;
2
<PAGE> 3
f. on account of any action, claim or proceeding
(other than a proceeding referred to in Section 8(b) hereof) initiated by the
Indemnitee unless such action, claim or proceeding was authorized in the
specific case by action of the Board of Directors;
g. if a final decision by a Court having
jurisdiction in the matter shall determine that such indemnification is not
lawful (and, in this respect, both the Corporation and Indemnitee have been
advised that the Securities and Exchange Commission believes that
indemnification for liabilities arising under the federal securities laws is
against public policy and is, therefore, unenforceable and that claims for
indemnification should be submitted to appropriate courts for adjudication).
4. CONTRIBUTION. If the indemnification provided in
Sections 1 and 2 hereof is unavailable by reason of a Court decision described
in Section 3(g) hereof based on grounds other than any of those set forth in
paragraphs (b) through (f) of Section 3 hereof, then in respect of any
threatened, pending or completed action, suit or proceeding in which the
Corporation is jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), the Corporation shall contribute to the amount of
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred and paid or payable by Indemnitee
in such proportion as is appropriate to reflect (i) the relative benefits
received by the Corporation on the one hand and Indemnitee on the other hand
from the transaction from which such action, suit or proceeding arose, and (ii)
the relative fault of the Corporation on the one hand and of Indemnitee on the
other in connection with the events which resulted in such expenses, judgments,
fines or settlement amounts, as well as any other relevant equitable
considerations. The relative fault of the Corporation on the one hand and of
Indemnitee on the other shall be determined by reference to, among other
things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such expenses,
judgments, fines or settlement amounts. The Corporation agrees that it would
not be just and equitable if contribution pursuant to this Section 4 were
determined by pro rata allocation or any other method of allocation which does
not take account of the foregoing equitable considerations.
5. CONTINUATION OF OBLIGATIONS. All agreements and
obligations of the Corporation contained herein shall continue during the
period Indemnitee is a director, officer, employee or agent of the Corporation
or any subsidiary of the Corporation (or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, except that no indemnification shall be made in respect of any claim,
issue or matter as to which Indemnitee shall have been adjudged to be liable to
the Company unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery of the
State of Delaware or such other court shall deem proper and shall continue
thereafter so long as Indemnitee shall be subject to any possible claim or
threatened, pending or completed action, suit
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or proceeding, whether civil, criminal or investigative, by reason of the fact
that Indemnitee was an officer of the Corporation or serving in any other
capacity referred to herein.
6. NOTIFICATION AND DEFENSE OF CLAIM. Not later than
thirty (30) days after receipt by Indemnitee of notice of the commencement of
any action, suit or proceeding, Indemnitee will, if a claim in respect thereof
is to be made against the Corporation under this Agreement, notify the
Corporation of the commencement thereof; but the omission so to notify the
Corporation will not relieve it from any liability which it may have to
Indemnitee otherwise than under this Agreement. With respect to any such
action, suit or proceeding as to which Indemnitee notifies the Corporation of
the commencement thereof:
a. the Corporation will be entitled to
participate therein at its own expense;
b. except as otherwise provided below, to the
extent that it may wish, the Corporation jointly with any other indemnifying
party similarly notified will be entitled to assume the defense thereof, with
counsel reasonably satisfactory to Indemnitee. After notice from the
Corporation to Indemnitee of its election so as to assume the defense thereof,
the Corporation will not be liable to Indemnitee under this Agreement for any
legal or other expenses subsequently incurred by Indemnitee in connection with
the defense thereof other than reasonable costs of investigation or as
otherwise provided below. Indemnitee shall have the right to employ its
counsel in such action, suit or proceeding but the fees and expenses of such
counsel incurred after notice from the Corporation of its assumption of the
defense thereof shall be at the expense of Indemnitee unless (i) the employment
of counsel by Indemnitee has been authorized by the Corporation, (ii)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Corporation and Indemnitee in the conduct of the defense
of such action or (iii) the Corporation shall not in fact have employed counsel
to assume the defense of such action, in each of which cases the fees and
expenses of Indemnitee's separate counsel shall be at the expense of the
Corporation. The Corporation shall not be entitled to assume the defense of
any action, suit or proceeding brought by or on behalf of the Corporation or as
to which Indemnitee shall have made the conclusion provided for in (ii) above;
and
c. the Corporation shall not be liable to
indemnify Indemnitee under this Agreement for any amounts paid in settlement of
any action or claim effected without its written consent. The Corporation
shall be permitted to settle any action except that it shall not settle any
action or claim in any manner which would impose any penalty or limitation on
Indemnitee without Indemnitee's written consent. Neither the Corporation nor
Indemnitee will unreasonably withhold its consent to any proposed settlement.
7. ADVANCEMENT AND REPAYMENT OF EXPENSES.
a. In the event that Indemnitee employs his own
counsel pursuant to Section 6(b)(i) through (iii) above, the Corporation shall
advance to Indemnitee, prior to any final disposition of any threatened or
pending action, suit or proceeding, whether civil, criminal, administrative or
investigative, any and all reasonable expenses (including legal fees and
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expenses) incurred in investigating or defending any such action, suit or
proceeding within ten (10) days after receiving copies of invoices presented to
Indemnitee for such expenses.
b. Indemnitee agrees that Indemnitee will
reimburse the Corporation for all reasonable expenses paid by the Corporation
in defending any civil or criminal action, suit or proceeding against
Indemnitee in the event and only to the extent it shall be ultimately
determined by a final judicial decision (from which there is no right of
appeal) that Indemnitee is not entitled, under the provisions of the DGCL, the
By-laws, this Agreement or otherwise, to be indemnified by the Corporation for
such expenses.
c. Notwithstanding the foregoing, the
Corporation shall not be required to advance such expenses to Indemnitee if
Indemnitee (i) commences any action, suit or proceeding as a plaintiff unless
such advance is specifically approved by a majority of the Board of Directors
or (ii) is a party to an action, suit or proceeding brought by the Corporation
and approved by a majority of the Board which alleges willful misappropriation
of corporate assets by Indemnitee, disclosure of confidential information in
violation of Indemnitee's fiduciary or contractual obligations to the
Corporation, or any other willful and deliberate breach in bad faith of
Indemnitee's duty to the Corporation or its shareholders.
8. PROCEDURE. Any indemnification and advances provided
for in Section 1 and Section 2 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Corporation's
Certificate of Incorporation by Bylaws providing for indemnification, is not
paid in full by the Corporation within forty-five (45) days after a written
request for payment thereof has first been received by the Corporation,
Indemnitee may, but need not, at any time thereafter bring an action against
the Corporation to recover the unpaid amount of the claim and, subject to
Section 12 of this Agreement, Indemnitee shall also be entitled to be paid for
the expenses (including attorneys' fees) of bringing such action. It shall be
a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in connection with any action, suit or proceeding in
advance of its final disposition) that Indemnitee has not met the standards of
conduct which make it permissible under applicable law for the Corporation to
indemnify Indemnitee for the amount claimed, but the burden of proving such
defense shall be on the Corporation and Indemnitee shall be entitled to receive
interim payments of expenses pursuant to Subsection 2(7)(a) unless and until
such defense may be finally adjudicated by court order or judgment from which
no further right of appeal exists. It is the parties' intention that if the
Corporation contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Corporation (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its stockholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Corporation (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its stockholders) that Indemnitee has not met such applicable standard of
conduct, shall create a presumption that Indemnitee has or has not met the
applicable standard of conduct.
9. ENFORCEMENT.
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a. The Corporation expressly confirms and agrees
that it has entered into this Agreement and assumed the obligations imposed on
the Corporation hereby in order to induce Indemnitee to continue as an executive
officer and member of the Board of Directors of the Corporation, and
acknowledges that Indemnitee is relying upon this Agreement in continuing in
such capacity.
b. In the event Indemnitee is required to bring
any action to enforce rights or to collect moneys due under this Agreement and
is successful in such action, the Corporation shall reimburse Indemnitee for
all Indemnitee's reasonable fees and expenses in bringing and pursuing such
action.
10. SUBROGATION. In the event of payment under this
agreement, the Corporation shall be subrogated to the extent of such payment to
all of the rights of recovery of Indemnitee, who shall execute all documents
required and shall do all acts that may be necessary to secure such rights and
to enable the Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on
Indemnitee by this Agreement shall not be exclusive of any other right which
Indemnitee may have or hereafter acquire under any statute, provision of the
Corporation's Certificate of Inthe Corporation or By-laws, agreement, vote of
stockholders or directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office.
12. PARTIAL INDEMNIFICATION. If Indemnitee is entitled
under any provision of this Agreement to indemnification by the
Company for some or a portion of the expenses, judgments, fines or
penalties actually or reasonably incurred by Indemnitee in the
investigation, defense, appeal or settlement of any civil or criminal
action, suit or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the
portion of such expenses, judgments, fines or penalties to which
Indemnitee is entitled.
13. SURVIVAL OF RIGHTS. The rights conferred on
Indemnitee by this Agreement shall continue after Indemnitee has ceased to be a
director, officer, employee or other agent of the Corporation and shall inure
to the benefit of Indemnitee's heirs, executors and administrators.
14. SEPARABILITY. Each of the provisions of this
Agreement is a separate and distinct agreement and independent of the others,
so that if any or all of the provisions hereof shall be held to be invalid or
unenforceable for any reason, such invalidity or unenforceability shall not
affect the validity or enforceability of the other provisions hereof or the
obligation of the Corporation to indemnify the Indemnitee to the full extent
provided by the By-laws or the DGCL.
15. GOVERNING LAW; CONSENT TO JURISDICTION. This
Agreement shall be interpreted and enforced in accordance with the laws of the
State of Delaware. The Corporation
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and Indemnitee each hereby irrevocably consent to the jurisdiction of the
courts of the State of Delaware for all purposes in connection with any action
or proceeding which arises out of or relates to this Agreement and agree that
any action instituted under this Agreement shall be brought only in the state
courts of the State of Delaware.
16. BINDING EFFECT. This Agreement shall be binding upon
Indemnitee and upon the Corporation, its successors and assigns, and shall
inure to the benefit of Indemnitee, his heirs, personal representatives and
assigns and to the benefit of the Corporation, its successors and assigns.
17. AMENDMENT AND TERMINATION. No amendment,
modification, termination or cancellation of this Agreement shall be
effective unless in writing signed by both parties hereto.
18. COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall constitute an original.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
INET TECHNOLOGIES, INC.,
a Delaware corporation
By:
---------------------------------
Name:
Title:
---------------------------------
----------------------
Indemnitee
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EXHIBIT 10.5
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made and entered into as
of the ___ day of July, 1998, by and among Inet Technologies, Inc., a Delaware
corporation (the "Company"), and each of Samuel S. Simonian, Elie S. Akilian
and Mark A. Weinzierl (each, a "Stockholder" and collectively, the
"Stockholders").
RECITALS:
WHEREAS, the Stockholders have facilitated the reincorporation
of INET, Inc., a Texas corporation, in Delaware, by merging Inet, Inc. with and
into the Company, and
WHEREAS, as consideration for such efforts of the
Stockholders, the Company has agreed to grant certain registration rights with
respect to the shares of capital stock of the Company as provided herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, and certain other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Company and
the Stockholders hereby agree as follows:
Section 1. Registration Rights.
1.1 Definitions. For purposes of this Section 1:
(a) The term "1933 Act" means the Securities Act
of 1933, as amended.
(b) The term "1934 Act" means the Securities
Exchange Act of 1934, as amended.
(c) The term "Form S-3" means such form under the
1933 Act as in effect on the date hereof or any registration form under the
1933 Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
(d) The term "Holder" means any person owning
Registrable Shares or any assignee thereof in accordance with Section 1.11
hereof.
(e) The terms "register", "registered" and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the 1933 Act, and
the declaration or ordering of effectiveness of such registration statement or
document.
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(f) The term "Registrable Shares" means (i)
shares of Common Stock of the Company held by the Stockholders and their
affiliates listed on Schedule I hereto and (ii) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of the shares referenced in
(i) above, excluding in all cases, however, any Registrable Shares sold by the
Stockholder in a transaction in which such Stockholder's rights under this
Section 1 are not assigned.
(g) The term "SEC" means the Securities and
Exchange Commission.
1.2 Company Registration. If (but without any obligation
to do so) the Company proposes to register (including for this purpose a
registration effected by the Company for its own account or for stockholders
other than the Stockholders) any of its stock or other securities under the
1933 Act (other than a registration relating solely to the sale of securities
to participants in a Company stock plan or a registration on Form S-4 or any
other form which does not include substantially the same information as would
be required to be included in a registration statement covering the sale of the
Registrable Shares), the Company shall, at such time, promptly give each of the
Holders written notice of such registration. Upon the written request of any
one or more of the Holders given within twenty (20) days after mailing of such
notice by the Company, then, subject to Section 1.6 hereof, the Company shall
cause to be registered under the 1933 Act all of the Registrable Shares that
any such Holder has requested to be registered.
1.3 Request for Registration.
(a) At any time after the date which is at least
six (6) months after the effective date of the first registration statement for
a public offering of securities of the Company (other than a registration
statement relating either to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan or a transaction
effected under SEC Rule 145), each Stockholder on two occasions may deliver to
the Company a written request that the Company file a registration statement
under the 1933 Act covering the registration of Registrable Securities with an
anticipated aggregate offering price, net of underwriting discounts and
commissions, of not less than $20,000,000, in which case the Company shall:
(i) within ten (10) days of the receipt
thereof, give written notice of such request to all Holders; and
(ii) effect as soon as practicable, and
in any event within 60 days of the receipt of such request, the registration
under the 1933 Act of all Registrable Securities which the Holders request to
be registered, subject to the limitations of subsection 1.3(b), within twenty
(20) days of such notice by the Company.
(b) If the Stockholder(s) initiating the
registration request hereunder (the "Initiating Stockholders") intend to
distribute the Registrable Securities covered by their request
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by means of an underwriting, they shall so advise the Company as a part of
their request made pursuant to subsection 1.3(a) and the Company shall include
such information in the written notice referred to in subsection 1.3(a). The
underwriter will be selected by the Company and shall be reasonably acceptable
to a majority in interest of the Initiating Stockholders. In such event, the
right of any Holder to include such Holder's Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by the Initiating Stockholders
[holding a majority of the Registrable Shares requested to be included in such
registration] and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting.
Notwithstanding any other provision of this Section 1.3, if the underwriters
advise the Initiating Stockholders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Initiating
Stockholders shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Stockholders, in
proportion (as nearly as practicable) to the amount of Registrable Securities
of the Company owned by each Holder; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other securities are first entirely excluded from the
underwriting.
(c) Notwithstanding the foregoing, if the Company
shall furnish to the Initiating Stockholders requesting a registration
statement pursuant to this Section 1.3, a certificate signed by the Chief
Executive Officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such registration statement to be filed and
therefore is essential to defer the filing of such registration statement, the
Company shall have the right to defer taking action with respect to such filing
for a period of not more than 120 days after receipt of the request of the
Initiating Stockholders; provided, however, that the Company may not utilize
this right more than once in any twelve-month period.
(d) In addition, the Company shall not be
obligated to effect, or to take any action to effect, a registration requested
pursuant to this Section 1.3:
(i) After the Company has effected a
total of six registrations pursuant to this Section 1.3 (no more than two of
which registrations may be initiated by any one Stockholder) and such
registrations have been declared or ordered effective; or
(ii) (A) During the period starting with
the date 60 days prior to the Company's good faith estimate of the date of
filing of, and ending on a date 180 days after the effective date of, a
registration subject to Section 1.2 hereof and (B) during the period starting
with the Company's prior receipt of another request given pursuant to Section
1.3(a), and ending on the date 180 days after the effective date of such
registration; provided that the Company is actively employing in good faith all
reasonable efforts to cause any such registration statement to become effective.
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1.4 Expenses of Company Registration. The Company shall
bear and pay all expenses incurred in connection with any registration, filing
or qualification of Registrable Shares with respect to a registration pursuant
to Section 1.2, including (without limitation) all registration, filing and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of counsel for the Company in its
capacity as counsel to the selling Stockholders hereunder, but excluding
underwriting discounts and commissions relating to Registrable Shares.
1.5 Expenses of Demand Registration. All expenses other
than underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.3, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements (not to exceed $20,000) of a single counsel
for the selling Holders, if the Holders desire to employ counsel, shall be
borne by the Company; provided, however, that the Company shall not be required
to pay for any expenses of any registration proceeding begun pursuant to
Section 1.3 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one demand registration pursuant to Section 1.3.
1.6 Underwriting Requirements. In connection with any
offering involving an underwriting of shares of the Company's capital stock,
the Company shall not be required under Section 1.2 to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected
by it (or by other persons entitled to select the underwriters), and then only
in such quantity as the underwriters determine in their sole discretion will
not jeopardize the success of the offering by the Company. If the total amount
of securities, including Registrable Shares, requested by stockholders to be
included in an offering effected under Section 1.2 exceeds the amount of
securities that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Shares, which the underwriters determine in their sole discretion
will not jeopardize the success of the offering (the securities so included to
be apportioned pro rata among the Holders according to the total amount of
securities entitled to be included therein owned by each Holder or in such
other proportions as shall mutually be agreed to by such Holders, provided that
in no event shall any shares being sold by a Holder be excluded from such
offering until all shares which other stockholders (other than Holders) propose
to include in such offering are first excluded).
1.7 Furnish Information. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 1 with respect to the Registrable Shares that the Holders shall furnish
to the Company such information regarding the Holders, the Registrable Shares
held by the Holders, and the intended method of disposition of such securities
as shall be required to effect the registration of the Registrable Shares.
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1.8 Delay of Registration. No Holder shall have any
right to obtain or seek an injunction restraining or otherwise delaying any
such registration as the result of any controversy that might arise with
respect to the interpretation or implementation of this Section 1.
1.9 Indemnification. In the event any Registrable Shares
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company
will indemnify and hold harmless each Holder from and against any losses,
claims, damages, or liabilities (or actions in respect thereof) (joint or
several) (including reasonable legal or other out-of-pocket expenses incurred
by such Holder as a consequence of any such loss, claim, damage or liability
(or actions in respect thereof)) to which they may become subject under the
1933 Act, the 1934 Act or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations
(collectively, a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto; (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading; or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, or any rule or
regulation promulgated under the 1933 Act, or the 1934 Act; provided, however,
that the indemnity agreement contained in this subsection 1.9(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action in respect thereof if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall
the Company be liable in any such case for any such loss, claim, damage,
liability or action in respect thereof to the extent that it arises out of or
is based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by such Holder.
(b) To the extent permitted by law, each of the
Holders, severally and not jointly, will indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company within
the meaning of the 1933 Act, any other holder selling securities in such
registration statement, against any losses, claims, damages, or liabilities (or
actions in respect thereof) (joint or several) to which any of the foregoing
persons may become subject (including reasonable legal or other out-of-pocket
expenses incurred by any such person as a consequence of any such loss, claim
damage or liability (or action in respect thereof)), under the 1933 Act, or the
1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and such Holder will pay any legal or other expenses reasonably
incurred by any person intended to be indemnified pursuant to this subsection
1.9(b), in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.9(b) shall not apply to amounts paid in
settlement of any
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such loss, claim, damage, liability or action if such settlement is effected
without the consent of such Holder, which consent shall not be unreasonably
withheld.
(c) Promptly after receipt by an indemnified
party under this Section 1.9 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
1.9, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the right to retain one
separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement
of any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 1.9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.9.
(d) If the indemnification provided for in this
Section 1.9 is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage or expense as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information, and opportunity to correct or prevent
such statement or omission.
(e) The obligations of the Company and Holders
under this Section 1.9 shall survive the completion of any offering of
Registrable Shares in a registration statement under this Section 1, and
otherwise.
1.10 Reports Under the 1934 Act. With a view to making
available to the Stockholders the benefits of Rule 144 promulgated under the
1933 Act and any other rule or regulation of the SEC that may at any time
permit the Stockholder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
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(a) make and keep public information available,
as those terms are understood and defined in SEC Rule 144;
(b) file with the SEC in a timely manner all
reports and other documents required of the Company under the 1933 Act and the
1934 Act; and
(c) furnish to a Stockholder, so long as such
Stockholder owns any Registrable Shares, forthwith upon request (i) a written
statement by the Company that it has complied with the reporting requirements
of SEC Rule 144, the 1933 Act and the 1934 Act, or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3, (ii) a copy of
the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested in availing such Stockholder of any rule or
regulation of the SEC which permits the selling of any such securities without
registration or pursuant to such form.
1.11 Assignment of Registration Rights. The rights to
include Registrable Shares in a registered offering pursuant to Section 1.2 or
1.3 may be assigned by a Holder of Registrable Shares to another person who
receives at least 10,000 Registrable Shares from the transferring Holder.
1.12 Termination of Registration Rights. No Holder shall
be entitled to exercise the registration rights provided for in Sections 1.2 or
1.3 after the earlier to occur of (i) October 1, 2003, or (ii) the date on
which such Holder may sell all of the Registrable Securities held by such
Holder in any 90-day period pursuant to the terms of SEC Rule 144 as such rule
is then in effect.
Section 2. Covenant of the Stockholders. Each of the
Stockholders covenant and agree that such Stockholder shall comply in all
respects with the requirements of the 1933 Act and the 1934 Act, including the
rules and regulations promulgated thereunder, in the sale of Registrable
Shares.
Section 3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Registrable Shares). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by
and construed under the laws of the State of Texas, without giving effect to
conflicts of law principles.
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3.3 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. All notices and other communications
hereunder shall be in writing and shall be given personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties,
addressed as follows:
To the Company: Inet Technologies, Inc.
1255 West 15th Street, Suite 600
Plano, Texas 75075-7270
Attention: Chief Financial Officer
Fax: 972/578-6113
With a copy to:
Brobeck, Phleger & Harrison LLP
301 Congress Avenue, Suite 1200
Austin, Texas 78701
Attention: Ronald G. Skloss, Esq.
Fax: 512/477-5813
To the Stockholders: c/o such Stockholder at the Company or such
Stockholder's most recent home address shown
on the Company's records,
or such other address as such party shall have specified pursuant to this
Section. Notice given by personal delivery, courier service or mail shall be
effective upon actual receipt. Notice given by telecopier shall be confirmed
by appropriate answer back and shall be effective upon actual receipt if
received during the recipient's normal business hours, or at the beginning of
the recipient's next business day after receipt of not received during the
recipient's normal business hours. All notices by telecopier should be
confirmed promptly after transmission in writing by certified mail or personal
delivery.
8
<PAGE> 9
3.6 Amendments and Waivers. Any term of this Agreement
may be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the
Stockholders holding a majority of the Registrable Shares held by the
Stockholders.
3.7 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
3.8 Entire Agreement. This Agreement constitutes the
full and entire understanding and agreement between the parties with regard to
the subject matter hereof.
[Signature page follows.]
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first above written.
INET TECHNOLOGIES, INC.
By:
----------------------------------------------
William Mina, Senior Vice President and
Chief Financial Officer
STOCKHOLDERS:
-------------------------------------------------
SAMUEL S. SIMONIAN
-------------------------------------------------
ELIE S. AKILIAN
-------------------------------------------------
MARK A. WEINZIERL
<PAGE> 11
Schedule I
Affiliates of Stockholders
Affiliates of Elie S. Akilian:
Natalie Akilian
Michael Akilian
Affiliates of Samuel S. Simonian:
Sevahn Simonian
Gahreen Simonian
Nelly Simonian
11
<PAGE> 1
EXHIBIT 10.6
RENEWAL, EXTENSION, AND FIRST AMENDMENT TO LOAN AGREEMENT
THIS RENEWAL, EXTENSION, AND FIRST AMENDMENT TO LOAN AGREEMENT (this
"AMENDMENT") is entered into to be effective as of June 15, 1998, between INET,
INC., a Texas corporation ("BORROWER"), and NATIONSBANK, N.A., a national
banking association, successor in interest by merger to NationsBank of Texas,
N.A. ("LENDER").
R E C I T A L S
1. Borrower and Lender are parties to that certain Loan Agreement (as
renewed, extended, and amended, the "LOAN AGREEMENT") dated as of June 26, 1997
providing for a revolving credit and letter of credit facility in the amount of
$10,000,000.00.
2. The parties hereto desire to amend the Loan Agreement subject to
the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower and Lender agree as
follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this Amendment
(a) terms defined in the Loan Agreement have the same meanings when used in this
Amendment, and (b) references to "Sections" are to the Loan Agreement's
sections.
2. AMENDMENTS TO THE LOAN AGREEMENT.
(a) SECTION 1 of the Loan Agreement is hereby amended to delete the
definitions of "MAXIMUM RATE" and "TERMINATION DATE" in their entirety and to
replace such definitions with the following:
"MAXIMUM RATE" means the highest non-usurious rate of interest (if
any) permitted from day to day by applicable law. Lender hereby
notifies and discloses to Borrower that, for purposes of Tex. Rev. Civ.
Stat. Ann. art. 5069-1D.001 (codified in the Texas Finance Code Section
303.001), as it may from time to time be amended, the "applicable
ceiling" shall be the "weekly ceiling" from time to time in effect as
limited by article 5069-1D.009 (codified in the Texas Finance Code
Section 303.305); provided, however, that to the extent permitted by
applicable law, Lender reserves the right to change the "applicable
ceiling" from time to time by further notice and disclosure to
Borrower.
"TERMINATION DATE" means the earlier of (a) June 15, 2000, or (b)
the date Lender's commitment to fund advances hereunder is terminated
pursuant to SECTION 7.
(b) SECTION 2 of the Loan Agreement is hereby delete SUBSECTION C, in
its entirety and replace such SUBSECTION with the following:
C. USAGE FEE. Borrower shall pay hereafter on September 30, 1997
and on the last day of each December, March, June, and September for
the period from and including the date the Line was established to and
including the maturity date of the Line, a usage fee at a rate per
annum of one-eighth of one percent (1/8%) of the average daily unused
portion of the Line during
RENEWAL, EXTENSION, AND
FIRST AMENDMENT TO LOAN AGREEMENT
<PAGE> 2
such period. Borrower may at any time upon written notice to Bank
permanently reduce the amount of the Line at which time the obligation
of Borrower to pay a usage fee shall thereupon correspondingly be
reduced.
(c) SECTION 2.D. of the Loan Agreement is hereby amended to delete
SUBSECTION iii. in its entirety and replace such subsection with the following:
iii. Borrower shall pay to Bank a fee for each Letter of Credit,
payable in installments in advance, so long as such Letter of Credit
remains outstanding. Such installments shall be paid commencing on the
date of issuance of the applicable Letter of Credit, for the period
from and including such date to but excluding the next quarterly
payment date (as hereinafter specified), and thereafter on each March
31, June 30, September 30, and December 31, for the period from and
including such quarterly payment date to but excluding the next
quarterly payment date or (if earlier) the expiry date of such Letter
of Credit. Each such installment shall be paid in an amount equal to
the product of (A) the face amount of such Letter of Credit, multiplied
by (B) one percent (1%) per annum and prorated for the period for
which such installment is due.
(d) SECTION 4.A. of the Loan Agreement is hereby amended to delete
SUBSECTIONS iv. and v. in their entirety and replace such SUBSECTIONS with the
following:
iv. Furnish to Bank promptly such additional information, reports
and statements respecting the business operations and financial
condition of any Company from time-to-time, as Bank may reasonably
request.
(e) SECTION 5 of the Loan Agreement is hereby amended to delete
SUBSECTIONS J. and K. in their entirety and replace such SUBSECTIONS with the
following:
J. CERTAIN TRANSACTIONS. Enter into any transaction with,
transfer any assets to, or pay any management fees to any Affiliate;
provided, however, that each Obligor may enter into transactions with
Affiliates upon terms not less favorable to such Obligor than would be
obtainable at the time in comparable, arms-length transactions with
Persons other than Affiliates.
3. RENEWAL NOTE. Borrower shall execute a Renewal Promissory Note
dated effective as of June 15, 1998, and payable to the order of Lender in the
original principal amount of $10,000,000.00 (the "RENEWAL NOTE"), which Renewal
Note is in renewal, extension, modification, and amendment, and not
extinguishment, of the Note.
4. AMENDMENTS TO OTHER LOAN DOCUMENTS.
(a) All references in the Loan Documents to the Loan Agreement shall
henceforth include references to the Loan Agreement, as modified and amended
hereby, and as may, from time to time, be further amended, modified, extended,
renewed, and/or increased. All references in the Loan Documents to the Note
shall henceforth include references to the Renewal Note as such Renewal Note
may, from time to time, be further amended, modified, extended, renewed, and/or
increased.
(b) Any and all of the terms and provisions of the Loan Documents are
hereby amended and modified wherever necessary, even though not specifically
addressed herein, so as to conform to the amendments and modifications set
forth herein.
RENEWAL, EXTENSION, AND
FIRST AMENDMENT TO LOAN AGREEMENT
- 2 -
<PAGE> 3
5. RATIFICATIONS. Borrower (a) ratifies and confirms all provisions
of the Loan Documents as amended by this Amendment and the Renewal Note, (b)
ratifies and confirms that all guaranties, assurances, and liens granted,
conveyed, or assigned to Lender under the Loan Documents are not released,
reduced, or otherwise adversely affected by this Amendment and the Renewal Note
and continue to guarantee, assure, and secure full payment and performance of
the present and future Loans, and (c) agrees to perform such acts and duly
authorize, execute, acknowledge, deliver, file, and record such additional
documents, and certificates as Lender may request in order to create, perfect,
preserve, and protect those guaranties, assurances, and liens.
6. REPRESENTATIONS. Borrower represents and warrants to Lender that
as of the date of this Amendment: (a) this Amendment, the Renewal Note, and the
other Loan Documents to be delivered under this Amendment have been duly
authorized, executed, and delivered by Borrower and each Guarantor; (b) no
action of, or filing with, any governmental authority is required to authorize,
or is otherwise required in connection with, the execution, delivery, and
performance by Borrower or the Guarantors of this Amendment and the Renewal
Note; (c) the Loan Documents, as amended by this Amendment and the Renewal
Note, are valid and binding upon Borrower and each Guarantor and are enforceable
against Borrower and each Guarantor in accordance with their respective terms;
(d) the execution, delivery, and performance by Borrower and each Guarantor of
this Amendment and the Renewal Note do not require the consent of any other
person and do not and will not constitute a violation of any laws, agreements,
or understandings to which Borrower or any Guarantor is a party or by which
Borrower or any Guarantor is bound; (e) all representations and warranties in
the Loan Documents are true and correct in all material respects except to the
extent that (i) any of them speak to a different specific date, or (ii) the
facts on which any of them were based have been changed by transactions
contemplated or permitted by the Loan Agreement; and (f) after giving effect to
this Amendment and the Renewal Note, no Potential Default or Event of Default
exists.
7. CONTINUED EFFECT. Except to the extent amended hereby, all terms,
provisions and conditions of the Loan Agreement and the other Loan Documents,
and all documents executed in connection therewith, shall continue in full force
and effect and shall remain enforceable and binding in accordance with their
respective terms.
8. CONDITIONS PRECEDENT. This Amendment and the Renewal Note shall
not be effective unless and until: (a) Lender receives counterparts of this
Amendment and the Renewal Note executed by each party listed below; (b) the
representations and warranties in this Amendment are true and correct in all
material respects on and as of the date of this Amendment; and (c) Lender
receives an officer's certificate executed by an authorized officer of Borrower,
certifying to (i) the resolutions adopted by its board of directors authorizing
the transactions contemplated by this Amendment, (ii) incumbency of officers of
Borrower, and (iii) changes in Borrower's articles of incorporation and bylaws,
if any, since June 26, 1997.
9. MISCELLANEOUS. Unless stated otherwise (a) the singular number
includes the plural and vice versa and words of any gender include each other
gender, in each case, as appropriate, (b) headings and captions may not be
construed in interpreting provisions, (c) this Amendment must be construed--and
its performance enforced -- under Texas law, (d) if any part of this Amendment
is for any reason found to be unenforceable, all other portions of it
nevertheless remain enforceable, and (e) this Amendment may be executed in any
number of counterparts with the same effect as if all signatories had signed the
same document, and all of those counterparts must be construed together to
constitute the same document.
RENEWAL, EXTENSION, AND
FIRST AMENDMENT TO LOAN AGREEMENT
- 3 -
<PAGE> 4
10. ENTIRETIES. THE LOAN AGREEMENT AS AMENDED BY THIS AMENDMENT
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES ABOUT THE SUBJECT MATTER OF
THE LOAN AGREEMENT AS AMENDED BY THIS AMENDMENT AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
11. PARTIES. This Amendment binds and inures to Borrower and Lender,
and their respective successors and permitted assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGES TO FOLLOW]
RENEWAL, EXTENSION, AND
FIRST AMENDMENT TO LOAN AGREEMENT
- 4 -
<PAGE> 5
EXECUTED as of the date first stated above.
BORROWER:
INET, INC., a Texas corporation
By: /s/ WILLIAM MINA
--------------------------------
Name: William Mina
-------------------------
Title: Senior Vice President
------------------------
LENDER:
NATIONSBANK, N.A., a national banking
association, successor in interest
by merger to NationsBank of Texas, N.A.
By: /s/ RUSSELL P. HARTSFIELD
----------------------------------
Russell P. Hartsfield
Senior Vice President
RENEWAL, EXTENSION, AND
FIRST AMENDMENT TO LOAN AGREEMENT
- 5 -
<PAGE> 6
To induce Lender to enter into this Amendment and the Renewal Note,
each of the undersigned jointly and severally (a) consent and agree to this
Amendment's and the Renewal Note's execution and delivery, (b) ratify and
confirm that all guaranties, assurances, and liens granted, conveyed, or
assigned to Lender under the Loan Documents are not released, diminished,
impaired, reduced, or otherwise adversely affected by this Amendment or the
Renewal Note and continue to guarantee, assure, and secure the full payment and
performance of all present and future Loans, (c) agree to perform such acts and
duly authorize, execute, acknowledge, deliver, file, and record such additional
guaranties, assignments, security agreements, deeds of trust, mortgages, and
other agreements, documents, instruments, and certificates as Lender may
reasonably deem necessary or appropriate in order to create, perfect, preserve,
and protect those guaranties, assurances, and liens, and (d) waive notice of
acceptance of this consent and agreement, which consent and agreement binds the
undersigned and their successors and permitted assigns and inures to Lender and
their respective successors and permitted assigns.
INET FOREIGN SALES CORPORATION, a
corporation organized under the law of
Barbados
By: /s/ MARK A. WEINZIERL
-----------------------------------
Name: Mark A. Weinzierl
------------------------------
Title: Director
-----------------------------
INET GLOBAL, LTD., a corporation
organized under the law of Barbados
By: /s/ MARK A. WEINZIERL
-----------------------------------
Name: Mark A. Weinzierl
------------------------------
Title: Director
-----------------------------
RENEWAL, EXTENSION, AND
FIRST AMENDMENT TO LOAN AGREEMENT
- 6 -
<PAGE> 7
RENEWAL PROMISSORY NOTE
$ 10,000,000.00 Dallas, Texas As of June 15, 1998
FOR VALUE RECEIVED, the undersigned, INET, INC., a Texas corporation
("MAKER") hereby unconditionally promises to pay to the order of NATIONSBANK,
N.A., a national banking, association, successor in interest by merger to
NationsBank of Texas, N.A ("PAYEE"), at 901 Main Street, P.O. Box 831000,
Dallas, Texas 75283-1000 or at such other address given to Maker by Payee, the
principal sum of TEN MILLION AND 00/100 DOLLARS ($10,000,000.00), or so much
thereof as shall be advanced prior to maturity, in lawful money of the United
States of America, together with interest (calculated on the basis of a 360-day
year) on the unpaid principal balance from day to day outstanding, computed
from the date of advance until maturity at the rates per annum provided below.
1. CERTAIN DEFINITIONS. Capitalized terms not defined herein shall
have the meanings assigned to such terms in the Loan Agreement (defined below).
In addition, as used herein, the following terms shall have the respective
meanings assigned to such term:
"ADJUSTED EURODOLLAR RATE" means, for any Eurodollar Borrowing for any
Interest Period therefor, the rate per annum, (rounded upwards, if necessary,
to the nearest 1/100 of 1%) equal to the quotient obtained by dividing (a) the
Eurodollar Rate for such Eurodollar Borrowing for such Interest Period by (b)
one (1) minus the Reserve Requirement for such Eurodollar Borrowing for such
Interest Period.
"APPLICABLE LENDING OFFICE" means, for Payee and for each Eurodollar
Borrowing, the "LENDING OFFICE" of Payee (or of an affiliate of Payee)
designated for such Eurodollar Borrowing as Payee may from time to time specify
to Maker by written notice in accordance with the terms hereof as the office by
which its Eurodollar Borrowings are to be made and maintained.
"APPLICABLE MARGIN" means the interest margin over the Base Rate or
the Adjusted Eurodollar Rate, as the case may be, based upon the ratio of (a)
Total Funded Indebtedness to (b) EBITDA as of and for the most recent four (4)
quarter period ending on or before the date of determination, set forth
opposite such ratio below:
<TABLE>
<CAPTION>
=======================================================================================
RATIO OF APPLICABLE APPLICABLE
TOTAL FUNDED INDEBTEDNESS TO MARGIN MARGIN
EBITDA BASE RATE EURODOLLAR
BORROWINGS BORROWINGS
---------------------------------------------------------------------------------------
<S> <C> <C>
Less than 1.0 to 1.0 -0.50% 1.25%
---------------------------------------------------------------------------------------
Less than 1.5 to 1.0 but greater
than or equal to 1.0 to 1.0 -0.25% 1.50%
=======================================================================================
</TABLE>
RENEWAL PROMISSORY NOTE
<PAGE> 8
The ratio of Total Funded Indebtedness to EBITDA shall be determined from the
then-most current of the financial statements and Compliance Certificates
delivered to Payee pursuant to SECTION 4.a.iii. of the Loan Agreement. The
adjustment, if any, to the Applicable Margin shall be effective commencing on
the fifth (5th) Business Day after delivery of such financial statements and
Compliance Certificates. If Maker fails at any time to furnish to Bank the
financial statements and Compliance Certificates as required to be delivered
pursuant to SECTION 4.a.iii. of the Loan Agreement, then the maximum Applicable
Margin shall apply until such time as such financial statements and Compliance
Certificates are so delivered.
"BASE RATE" means, for any day, the rate per annum equal to the Prime
Rate for such day. Any change in the Base Rate due to a change in the Prime
Rate shall be effective on the effective date of such change in the Prime Rate.
"BASE RATE BORROWING" means any principal amount under this Note with
respect to which the interest rate is calculated by reference to the Base Rate
plus the Applicable Margin.
"BORROWING" means either a Base Rate Borrowing or a Eurodollar
Borrowing.
"BUSINESS DAY" means (a) for all purposes, any day other than a
Saturday, Sunday, or day on which national banks are authorized to be closed
under the laws of the State of Texas, and (b) for purposes of any Eurodollar
Borrowing, a day that satisfies the requirements of CLAUSE (a) and is a day
when commercial banks are open for domestic or international business in
London.
"CONTINUE," "CONTINUATION," and "CONTINUED" refer to the continuation
pursuant to SECTION 3(b) of a Eurodollar Borrowing from one Interest Period to
the next Interest Period.
"CONVERSION DATE" has the meaning set forth in SECTION 3(b)(iv).
"CONVERT," "CONVERSION," and "CONVERTED" refer to a conversion
pursuant to SECTION 3(b) of one Type of Borrowing into another Type of
Borrowing.
"EURODOLLAR BORROWING" means any principal amount under this Note with
respect to which the interest rate is calculated by reference to the Adjusted
Eurodollar Rate plus the Applicable Margin.
"EURODOLLAR RATE" means, for any Eurodollar Borrowing for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Dow Jones Markets Page 3750 (or any successor
page) as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two (2) Business Days prior to the first
(1st) day of such Interest Period for a term comparable to such Interest
Period. If for any reason such rate is not available, then the term "EURODOLLAR
RATE" means, for any Eurodollar Borrowing for any Interest Period therefor, the
rate per annum (rounded upwards, if necessary,
RENEWAL PROMISSORY NOTE 2
<PAGE> 9
to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London
interbank offered rate for deposits in Dollars at approximately 11:00 a.m.
(London time) two (2) Business Days prior to the first (1st) day of such
Interest Period for a term comparable to such Interest Period; provided,
however, if more than one rate is specified on Reuters Screen LIBO Page, then
the applicable rate shall be the arithmetic mean of all such rates (rounded
upwards, if necessary, to the nearest 1/100 of 1%).
"INTEREST PERIOD" means, with respect to a Eurodollar Borrowing, a
period commencing:
(a) on the advance date thereof; or
(b) on the Conversion Date pertaining to such Eurodollar
Borrowing, if such Eurodollar Borrowing is made pursuant to a Conversion as
described in SECTION 3(b)(iv); or
(c) on the last day of the preceding Interest Period in the case
of a rollover to a successive Interest Period;
and ending 1, 3, or 6 months thereafter, as Maker shall elect in accordance
with SECTION 3(b); provided that:
(i) any Interest Period that would otherwise end on a day which is
not a Business Day shall be extended to the next succeeding Business Day,
unless such Business Day falls in another calendar month in which case such
Interest Period shall end on the next preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month or at the end of such Interest Period) shall, subject to
CLAUSE (i) above, end on the last Business Day of a calendar month; and
(iii) if the Interest Period for any Eurodollar Borrowing would
otherwise end after the final maturity date of this Note, then such Interest
Period shall end on the final maturity date of this Note.
"LOAN AGREEMENT" means that certain Loan Agreement dated of even date
herewith, executed by Maker and Payee, as modified, amended, renewed, extended,
or restated from time to time.
"MAXIMUM RATE" means the highest non-usurious rate of interest (if
any) permitted from day to day by applicable law. Payee hereby notifies and
discloses to Maker that, for purposes of Tex. Rev. Civ. Stat. Ann. art.
5069-1D.001 (codified in the Texas Finance Code Section 303.001), as it may from
time to time be amended, the "applicable ceiling" shall be the "weekly ceiling"
from time to time in effect as limited by article 5069-1D.009 (codified in the
Texas Finance Code Section 303.305); provided, however, that to the extent
permitted by applicable law, Payee
RENEWAL PROMISSORY NOTE 3
<PAGE> 10
reserves the right to change the "applicable ceiling" from time to time by
further notice and disclosure to Maker.
"PRIME RATE" means the per annum rate of interest established from time
to time by Payee as its prime rate, which rate may not be the lowest rate of
interest charged by Payee to its customers.
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System as in effect from time to time.
"RESERVE REQUIREMENT" means, at any time, the maximum rate at which
reserves (including, without limitation, any marginal, special, supplemental, or
emergency reserves) are required to be maintained under regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or any
successor) by member banks of the Federal Reserve System against "Eurocurrency
liabilities" (as such term is used in Regulation D). Without limiting the effect
of the foregoing, the Reserve Requirement shall reflect any other reserves
required to be maintained by such member banks with respect to (a) any category
of liabilities which includes deposits by reference to which the Adjusted
Eurodollar Rate is to be determined, or (b) any category of extensions of credit
or other assets which include Eurodollar Borrowings. The Adjusted Eurodollar
Rate shall be adjusted automatically on and as of the effective date of any
change in the Reserve Requirement.
"TYPE" means any type of Borrowing (i.e., a Base Rate Borrowing or
Eurodollar Borrowing).
2. PAYMENT OF PRINCIPAL. The unpaid principal balance of this Note
shall be due and payable in one (1) installment, on June 15, 2000, in the amount
of the unpaid principal balance of this Note as of such date.
3. INTEREST.
(a) RATE OF INTEREST. Subject to SECTION 3(d) below, the unpaid
principal of each Base Rate Borrowing shall bear interest from the date of
advance until paid at a rate per annum which shall from day to day be equal to
the lesser of (a) the sum of (i) the Base Rate in effect from day to day, and
(ii) the Applicable Margin, or (b) the Maximum Rate. Subject to SECTION 3(d)
below, the unpaid principal of each Eurodollar Borrowing shall bear interest
from the date of advance until paid at a rate per annum which shall be equal to
the lesser of (a) the sum of (i) the Adjusted Eurodollar Rate for the applicable
Interest Period, and (ii) the Applicable Margin, or (b) the Maximum Rate.
(b) SELECTION OF INTEREST OPTION.
(i) Subject to the provisions of this Note, Maker shall have the
option to designate that all or any portion of the unpaid principal
balance of this Note shall bear
RENEWAL PROMISSORY NOTE 4
<PAGE> 11
interest at (A) the Base Rate plus the Applicable Margin, or (B) the
Adjusted Eurodollar Rate plus the Applicable Margin:
(ii) Upon making a Notice of Borrowing under the Loan Agreement,
Maker shall advise Payee as to whether an advance under the Loan
Agreement shall be (A) a Eurodollar Borrowing, in which case Maker
shall specify the applicable Interest Period therefor, or (B) a Base
Rate Borrowing. Maker shall give Payee a Notice of Borrowing on or
before 10:00 a.m. (Dallas, Texas time) on the day of each Base Rate
Borrowing and on or before 10:00 a.m. (Dallas, Texas time) at least two
(2) Business Days prior to each Eurodollar Borrowing.
(iii) Prior to 10:00 a.m. (Dallas, Texas time) at least two (2)
Business Days prior to the termination of each Interest Period with
respect to a Eurodollar Borrowing, Maker shall give Payee a Notice of
Borrowing specifying the interest option which shall be applicable to
such Borrowing upon the expiration of such Interest Period. Such Notice
of Borrowing shall either be in writing, by telecopy (immediately
followed by written notice), or by telephone (immediately followed by
written notice). If Maker shall specify that such Borrowing shall be a
Eurodollar Borrowing, then such Notice of Borrowing shall also specify
the length of the succeeding Interest Period selected by Maker with
respect to such Borrowing. If the required Notice of Borrowing shall
not have been timely received by Payee prior to the expiration of the
then-relevant Interest Period, then Maker shall be deemed to have
elected to have such Borrowing be a Base Rate Borrowing.
(iv) With respect to any Base Rate Borrowing, Maker shall have
the right, on any Business Day, as the case may be ("CONVERSION DATE"),
to convert such Base Rate Borrowing to a Eurodollar Borrowing, by
giving Payee a Notice of Borrowing of such selection at least two (2)
Business Days prior to such Conversion Date.
(v) Notwithstanding anything to the contrary contained herein,
(A) no more than three (3) Interest Periods shall be in effect at any
one time with respect to Eurodollar Borrowings, (B) Maker shall have no
right to request a Eurodollar Borrowing if the Interest Rate applicable
thereto would exceed the Maximum Rate in effect on the first day of the
Interest Period applicable to such Borrowing, and (C) each Eurodollar
Borrowing shall be in an amount of $500,000.00 or a greater integral
multiple of $100,000.00.
(vi) Each Notice of Borrowing shall be irrevocable and binding on
Maker and, in respect of any Eurodollar Borrowing specified in such
Notice of Borrowing, Maker shall indemnify Payee against any loss, cost
or expense incurred or suffered by Payee as a result of (A) any failure
to fulfill, on or before the date specified for such Borrowing, any
condition to such Borrowing set forth in the Loan Agreement, or (B)
Maker's requesting that an Borrowing not be made on the date specified
for such Borrowing in the Notice of Borrowing. A certificate of Payee
establishing the amount
RENEWAL PROMISSORY NOTE 5
<PAGE> 12
due from Maker according to the preceding sentence, together with a
description in reasonable detail of the manner in which such amount has
been calculated, shall be conclusive in the absence of manifest error.
(c) INTEREST PAYMENT DATES. Interest on the unpaid principal amount of
a Base Rate Borrowing, computed as aforesaid, shall be due and payable quarterly
as it accrues, commencing on June 30, 1998, and thereafter on last day of each
December, March, June, and September thereafter, and at maturity; provided,
however, that interest with respect to any Base Rate Borrowing shall also be due
and payable on the Conversion Date of any such Borrowing to a Eurodollar
Borrowing. Interest on the unpaid principal amount of a Eurodollar Borrowing,
computed as aforesaid, shall be due and payable on the last day of the related
Interest Period; provided, however, if any Interest Period is greater than three
(3) months, then accrued interest shall also be due and payable on the date
ending each three (3) month period after the commencement of such Interest
Period.
(d) INTEREST ON PAST-DUE AMOUNTS. All past-due principal of, and, to
the extent permitted by applicable law, interest on, this Note shall bear
interest until paid at the lesser of (i) the Maximum Rate or (ii) the Base
Rate plus four percent (4%).
4. INCREASED COST AND REDUCED RETURN.
(a) If, after the date hereof, the adoption of any applicable law,
rule, or regulation, or any change in any applicable law, rule, or regulation,
or any change in the interpretation or administration thereof by any
governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by Payee (or its
Applicable Lending Office) with any request or directive (whether or not having
the force of law) of any such governmental authority, central bank, or
comparable agency:
(i) shall subject Payee (or its Applicable Lending Office) to
any tax, duty, or other charge with respect to any Eurodollar
Borrowing, this Note, or its obligation to make Eurodollar Borrowings,
or change the basis of taxation of any amounts payable to Payee (or its
Applicable Lending Office) under the Loan Agreement or this Note in
respect of any Eurodollar Borrowings (other than taxes imposed on
Payee's income and franchise taxes imposed on Payee by the jurisdiction
under the laws of which Payee (or its Applicable Lending Office) is
organized or any political subdivision thereof);
(ii) shall impose, modify, or deem applicable any reserve,
special deposit, assessment, or similar requirement (other than the
Reserve Requirement utilized in the determination of the Adjusted
Eurodollar Rate) relating to any extensions of credit or other assets
of, or any deposits with or other liabilities or commitments of, Payee
(or its Applicable Lending Office), including the commitment of Payee
under the Loan Agreement and this Note; or
RENEWAL PROMISSORY NOTE
6
<PAGE> 13
(iii) shall impose on Payee (or its Applicable
Lending Office) or the London interbank market any other
condition affecting the Loan Agreement or this Note or any of
such extensions of credit or liabilities or commitments;
and the result of any of the foregoing is to increase the cost to Payee (or its
Applicable Lending Office) of making, Converting into, Continuing, or
maintaining any Eurodollar Borrowings or to reduce any sum received or
receivable by Payee (or its Applicable Lending Office) under the Loan Agreement
or this Note with respect to any Eurodollar Loans, then Maker shall pay to
Payee, within fifteen (15) days following demand, such amount or amounts as
will compensate Payee for such increased cost or reduction. If Payee requests
compensation by Maker under this SECTION 4, Maker may, by notice to Payee,
suspend the obligation of Payee to make or Continue Eurodollar Borrowings or to
Convert all Eurodollar Borrowings to Base Rate Borrowings until the event or
condition giving rise to such request ceases to be in effect (in which case the
provisions of SECTION 7 shall be applicable); provided that such suspension
shall not affect the right of Payee to receive the compensation so requested.
(b) If, after the date hereof, Payee shall have determined that
the adoption of any applicable law, rule, or regulation regarding capital
adequacy or any change therein or in the interpretation or administration
thereof by any governmental authority, central bank, or comparable agency
charged with the interpretation or administration thereof, or any request or
directive regarding capital adequacy (whether or not having the force of law)
of any such governmental authority, central bank, or comparable agency, has or
would have the effect of reducing the rate of return on the capital of Payee or
any corporation controlling Payee as a consequence of Payee's obligations
hereunder to a level below that which Payee or such corporation could have
achieved but for such adoption, change, request, or directive (taking into
consideration its policies with respect to capital adequacy), then from time to
time upon demand Maker shall pay to Payee such additional amount or amounts as
will compensate Payee for such reduction.
(c) Payee shall promptly notify Maker of any event of which it has
knowledge, occurring after the date hereof, which will entitle Payee to
compensation pursuant to this SECTION 4 and will designate a different
Applicable Lending Office if such designation will avoid the need for, or
reduce the amount of, such compensation and will not, in the judgment of Payee,
be otherwise disadvantageous to it. Payee shall furnish to Maker a statement
setting forth in reasonable detail an accounting of the additional amount or
amounts to be paid to it hereunder and the calculations used to determine in
good faith such amount or amounts, which statement shall be conclusive in the
absence of manifest error. In determining such amount, Payee may use any
reasonable averaging and attribution methods.
(d) Without prejudice to the survival of any other agreement of
Maker hereunder, the agreements and obligations of Maker contained in this
SECTION 4 shall survive the termination of the commitments under the Loan
Agreement and the payment in full of this Note for a period of time equal to
two (2) years following the later to occur of such termination or payment.
RENEWAL PROMISSORY NOTE 7
<PAGE> 14
5. LIMITATION ON TYPES OF BORROWINGS. If, on or prior to the
first day of any Interest Period for any Eurodollar Borrowing, Payee determines
(which determination shall be conclusive) that for the Loans made to Borrower
hereunder and for other similar loans made by Lender to similar borrowers:
(a) by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the Eurodollar Rate
for such Interest Period, or
(b) the Adjusted Eurodollar Rate will not adequately and fairly
reflect the cost to Payee of funding Eurodollar Borrowings for such Interest
Period;
then Payee shall give Maker prompt notice thereof specifying the relevant
amounts or periods, and so long as such condition remains in effect, Payee
shall be under no obligation to make additional Eurodollar Borrowings, Continue
any Eurodollar Borrowings, or to Convert Base Rate Borrowings into Eurodollar
Borrowings and Maker shall, on the last day(s) of the then-current Interest
Period(s) for all outstanding Eurodollar Borrowings, either prepay such
Eurodollar Borrowings or Convert such Eurodollar Borrowings into Base Rate
Borrowings in accordance with the terms of this Note.
6. ILLEGALITY. Notwithstanding any other provision of the Loan
Agreement or this Note, in the event that it becomes unlawful for Payee or its
Applicable Lending Office to make, maintain, or fund Eurodollar Borrowings
hereunder, then Payee shall promptly notify Maker and Payee's obligation to
make or Continue Eurodollar Borrowings and to Convert Base Rate Borrowings into
Eurodollar Borrowings shall be suspended until such time as Payee may again
make, maintain, and fund Eurodollar Borrowings (in which case the provisions of
SECTION 7 shall be applicable).
7. TREATMENT OF AFFECTED BORROWINGS. If the obligation of Payee
to make Eurodollar Borrowings, Continue Eurodollar Borrowings, or Convert Base
Rate Borrowings to Eurodollar Borrowings shall be suspended pursuant to
SECTIONS 4, 5, or 6 hereof, then all Eurodollar Borrowings shall be
automatically Converted into Base Rate Borrowings on the last day(s) of the
then-current Interest Period(s) for Eurodollar Borrowings (or, in the case of a
Conversion required by SECTION 6 hereof, on such earlier date as Payee may
specify to Maker) and, unless and until Payee gives notice as provided below
that the circumstances specified in SECTION 4, 5, or 6 hereof that gave rise to
such Conversion no longer exist:
(a) to the extent that Eurodollar Borrowings have been so
Converted, all payments and prepayments of principal that would otherwise be
applied to Eurodollar Borrowings shall be applied instead to Base Rate
Borrowings; and
(b) all Borrowings that would otherwise be made or Continued by
Payee as Eurodollar Borrowings shall be made or Continued instead as Base Rate
Borrowings, and all Borrowings that would otherwise be Converted into
Eurodollar Borrowings shall be Converted instead into (or shall remain as) Base
Rate Borrowings.
RENEWAL PROMISSORY NOTE 8
<PAGE> 15
Payee shall give prompt notice to Maker that the circumstances specified in
SECTION 4, 5, or 6 hereof that gave rise to the Conversion of Eurodollar
Borrowings pursuant to this SECTION 7 no longer exist.
8. COMPENSATION. Upon the request of Payee, Maker shall pay to
Payee such amount or amounts as shall be sufficient (in the reasonable opinion
of Payee) to compensate it for any loss, cost, or expense (including loss of
anticipated profits) incurred by it as a result of;
(a) any payment, prepayment, or Conversion of a Eurodollar
Borrowing for any reason (including, without limitation, the acceleration of the
Borrowings pursuant to SECTION 7 of the Loan Agreement) on a date other than
the last day of the Interest Period for such Borrowing; or
(b) any failure by Maker for any reason (including, without
limitation, the failure of any condition precedent specified in SECTION 2.G. of
the Loan Agreement to be satisfied) to borrow, Convert, Continue, or prepay a
Eurodollar Borrowing on the date for such borrowing, Conversion, Continuation,
or prepayment specified in the relevant Notice of Borrowing, prepayment,
Continuation, or Conversion under the Loan Agreement and this Note.
Without prejudice to the survival of any other agreement of Maker hereunder,
the agreements and obligations of Maker contained in this SECTION 8 shall
survive the termination of the commitments under the Loan Agreement and the
payment in full of this Note for a period of time equal to two (2) years
following the later to occur of such termination or payment.
9. TAXES.
(a) Any and all payments by Maker to or for the account of Payee
hereunder or under any other Loan Document shall be made free and clear of and
without deduction for any and all present or future taxes, duties, levies,
imposts, deductions, charges, or withholdings, and all liabilities with respect
thereto, excluding taxes imposed on Payee's income and franchise taxes imposed
on Payee by the jurisdiction under the laws of which Payee (or its Applicable
Lending Office) is organized or any political subdivision thereof (all such
non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings,
and liabilities being hereinafter referred to as "TAXES"). If Maker shall be
required by law to deduct any Taxes from or in respect of any sum payable under
this Agreement or any other Loan Document to Payee, (i) the sum payable shall
be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this SECTION
9) Payee receives an amount equal to the sum it would have received had no such
deductions been made, (ii) Maker shall make such deductions, (iii) Maker shall
pay the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable law, and (iv) Maker shall furnish to
Payee, at its address referred to in SECTION 8 of the Loan Agreement, the
original or a certified copy of a receipt evidencing payment thereof.
RENEWAL PROMISSORY NOTE 9
<PAGE> 16
(b) In addition, Maker agrees to pay any and all present or future
stamp or documentary taxes and any other excise or property taxes or charges or
similar levies which arise from any payment made under this Note or any other
Loan Document or from the execution or delivery of, or otherwise with respect
to, this Note or any other Loan Document (hereinafter referred to as "OTHER
TAXES").
(c) Maker agrees to indemnify Payee for the full amount of Taxes
and Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed or asserted by any jurisdiction on amounts payable under this SECTION
9) paid by Payee and any liability (including penalties, interest, and
expenses) arising therefrom or with respect thereto.
(d) If Maker is required to pay additional amounts to or for the
account of Payee pursuant to this SECTION 9, then Payee will agree to use
reasonable efforts to change the jurisdiction of its Applicable Lending Office
so as to eliminate or reduce any such additional payment which may thereafter
accrue if such change, in the judgment of Payee, is not otherwise
disadvantageous to Payee.
(e) Within thirty (30) days after the date of any payment of
Taxes, Maker shall furnish to Payee the original or a certified copy of a
receipt evidencing such payment.
(f) Without prejudice to the survival of any other agreement of Maker
hereunder, the agreements and obligations of Maker contained in this SECTION 9
shall survive the termination of the commitments and the payment in full of
this Note for a period of time equal to two (2) years following the later to
occur of such termination or payment.
10. PAYMENT DATES; MANNER OF PAYMENT; APPLICATION OF PAYMENTS.
Should the principal of, or any installment of the principal of or interest on,
this Note become due and payable on any day other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day, and
interest shall be payable with respect to such extension. All payments of
principal of, and interest on, this Note shall be made by Maker to Payee at its
principal banking office in Dallas, Texas in federal or other immediately
available funds. Payments made to Payee by Maker hereunder shall be applied
first to accrued interest and then to principal. Payments received by Payee
after 2:00 p.m. on any Business Day shall be deemed to have been received on
the following Business Day.
11. PREPAYMENT. Subject to the provisions set forth in SECTION 8
above, Maker may prepay this Note, in whole or in part, at any time and from
time to time without premium or penalty. Any prepayment made hereunder shall be
made together with interest accrued (through the date of such prepayment) on
the principal amount prepaid.
12. RIGHTS UNDER LOAN AGREEMENT. This Note has been executed and
delivered pursuant to, and is subject to certain terms and conditions set forth
in, the Loan Agreement between Maker and Payee, executed as of the date hereof,
and is the "Note" referred to therein. The holder of this Note shall be
entitled to the benefits provided in the Loan Agreement.
RENEWAL PROMISSORY NOTE 10
<PAGE> 17
Reference is made to the Loan Agreement for a statement of (a) the obligation
of Payee to advance funds hereunder, (b) the events upon which the maturity of
this Note may be accelerated, and (c) Maker's right to cure certain events of
default, if any, as more fully set forth therein.
13. WAIVERS. Except as expressly provided in the Loan Agreement, Maker
and each surety, endorser, guarantor, and other party ever liable for payment
of any sums of money payable on this Note, jointly and severally waive
presentment, protest, notice of protest and non-payment, or other notice of
default, notice of acceleration and intention to accelerate, and agree that
their liability under this Note shall not be affected by any renewal or
extension in the time of payment hereof, or in any indulgences, or by any
release or change in any security for the payment of this Note, and hereby
consent to any and all renewals, extensions, indulgences, releases, or changes,
regardless of the number of such renewals, extensions, indulgences, releases,
or changes.
14. NO WAIVER. No waiver by Maker or Payee of any of its respective
rights or remedies hereunder or under any other document evidencing or securing
this Note or otherwise shall be considered a waiver of any other subsequent
right or remedy of Maker or Payee, as appropriate; no delay or omission in the
exercise or enforcement by Maker or Payee of any rights or remedies shall ever
be construed as a waiver of any right or remedy of Maker or Payee; and no
exercise or enforcement of any such rights or remedies shall ever be held to
exhaust any right or remedy of Maker or Payee.
15. LIMITATION OF INTEREST. Regardless of any provision contained in
this Note, the Loan Agreement, or any other Loan Document, Payee shall never be
deemed to have contracted for or be entitled to receive, collect, or apply as
interest on this Note (whether termed interest herein or deemed to be interest
by judicial determination or operation of law), any amount in excess of the
Maximum Rate, and, in the event that Payee ever receives, collects or applies
as interest any such excess, such amount which would be excessive interest
shall be applied to the reduction of the unpaid principal balance of this Note,
and, if the principal balance of this Note is paid in full, any remaining
excess shall forthwith be paid to Maker. In determining whether or not the
interest paid or payable under any specific contingency exceeds the highest
Maximum Rate, Maker, and Payee shall, to the maximum extent permitted under
applicable law, (a) characterize any non-principal payment (other than payments
which are expressly designated as interest payments hereunder) as an expense or
fee rather than as interest, (b) exclude voluntary prepayments and the effect
thereof, and (c) spread the total amount of interest throughout the entire
contemplated term of this Note so that the interest rate is uniform throughout
such term; provided, that if this Note is paid and performed in full prior to
the end of the full contemplated term hereof, and if the interest received for
the actual period of existence thereof exceeds the Maximum Rate, if any, then
Payee or any holder hereof shall refund to Maker the amount of such excess, or
credit the amount of such excess against the aggregate unpaid principal balance
of all advances made by the Payee or any holder hereof under this Note at the
time in question.
RENEWAL PROMISSORY NOTE
11
<PAGE> 18
16. GOVERNING LAW. This Note is being executed and delivered, and is
intended to be performed in the State of Texas. Except to the extent that the
laws of the United States may apply to the terms hereof, the substantive laws
of the State of Texas shall govern the validity, construction, enforcement and
interpretation of this Note.
17. RENEWAL. This Note is in renewal, extension, and replacement, but
not extinguishment, of that certain Promissory Note dated June 26, 1997,
executed by Maker and payable to the order of Payee in the original principal
amount of $10,000,000.00.
18. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF J.A.M.S./ENDISPUTE, INC. OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE
"SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL
RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. ANY PARTY TO THIS AGREEMENT MAY BRING AN ACTION,
INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY
CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.
(A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
PAYEE'S DOMICILE AT THE TIME OF THE ARBITRATION AND ADMINISTERED BY J.A.M.S.
WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE,
BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL
60 DAYS.
(B) RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO
(I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION
OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A WAIVER BY
PAYEE OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SECTION 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF PAYEE (A) TO
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SET-OFF, OR (B) TO
FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
RENEWAL PROMISSORY NOTE 12
<PAGE> 19
INJUNCTIVE RELIEF OR THE APPOINTMENT OF A RECEIVER. PAYEE MAY EXERCISE SUCH
SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT. AT PAYEE'S OPTION, FORECLOSURE
UNDER A DEED OF TRUST OR MORTGAGE MAY BE ACCOMPLISHED BY ANY OF THE FOLLOWING:
THE EXERCISE OF A POWER OF SALE UNDER THE DEED OF TRUST OR MORTGAGE, OR BY
JUDICIAL SALE UNDER THE DEED OF TRUST OR MORTGAGE, OR BY JUDICIAL FORECLOSURE.
NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE
OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY
SUCH ACTION TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
19. FINAL AGREEMENT. THE PROVISIONS OF THIS NOTE AND THE LOAN DOCUMENTS
MAY BE AMENDED OR REVISED ONLY BY AN INSTRUMENT IN WRITING SIGNED BY THE MAKER
AND PAYEE. THIS NOTE AND ALL THE OTHER LOAN DOCUMENTS EMBODY THE FINAL, ENTIRE
AGREEMENT OF MAKER AND PAYEE AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED
OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS
OR DISCUSSIONS OF MAKER AND PAYEE. THERE ARE NO ORAL AGREEMENTS BETWEEN MAKER
AND PAYEE.
[Remainder of Page Intentionally Left Blank; Signature Page to Follow]
RENEWAL PROMISSORY NOTE 13
<PAGE> 20
EXECUTED AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN.
MAKER:
INET, INC., a Texas corporation
By: /s/ WILLIAM MINA
-----------------------------------
Name: William Mina
----------------------------
Title: Senior Vice President
----------------------------
RENEWAL PROMISSORY NOTE 14
<PAGE> 1
EXHIBIT 10.7
FOURTH AMENDMENT TO OFFICE LEASE
STATE OF TEXAS )
)
COUNTY OF COLLIN )
THIS FOURTH AMENDMENT TO OFFICE LEASE (this "Fourth Amendment") is made
and entered into effective as of July 15, 1998, by and between PITMAN PARTNERS,
LTD. and ROSEWOOD PROPERTY COMPANY (collectively, "Landlord") and INET, INC.
("Tenant").
RECITALS:
A. Landlord and Tenant have previously entered into that certain Office
Lease (the "Lease") dated as of May 1, 1996, pursuant to the terms of which
Landlord leased to Tenant certain office space in the project known as Pitman
Atrium Tower, Plano, Collin County, Texas, all as is more particularly described
therein.
B. Landlord and Tenant have also previously amended various terms and
provisions of the Lease pursuant to that certain Amendment to Office Lease (the
"First Amendment"), dated effective as of January 13, 1997.
C. Landlord and Tenant have also previously amended various terms and
provisions of the Lease pursuant to that certain Second Amendment to Office
Lease (the "Second Amendment") dated effective as of April 1, 1997.
D. Landlord and Tenant have also previously amended various terms and
provisions of the Lease pursuant to that certain Third Amendment to Office Lease
(the "Third Amendment") dated effective as of June 1, 1998.
E. Landlord and Tenant have agreed to again amend the Lease in
accordance with the following terms and provisions.
NOW, THEREFORE, for and in consideration of the sum of Ten Dollars
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged by the parties hereto, Landlord and Tenant
hereby agree as follows:
1. DEFINITIONS. All terms not defined herein shall have the same
meaning as set forth in the Lease.
2. RENTABLE AREA OF THE PREMISES. Paragraphs 1 (c) and 2 of the Lease
are hereby amended to provide for the expansion of the Premises, to be effective
as of August 1, 1998, to include approximately 20,704 square feet of Rentable
Area on the tenth floor of the Building (the "Expansion Space") as reflected on
EXHIBIT "A" attached hereto and made a part hereof. That portion of the Premises
not constituting the Expansion Space is hereinafter referred to as the "Existing
Space". The Expansion Space plus the Existing Space constitute approximately
73,486 square feet of Rentable Area.
-1-
<PAGE> 2
3. BASIC RENTAL. Paragraph 1 (d) of the Lease is hereby amended to
provide that through and until July 31, 1998, Basic Rental shall be $52,737.50
per month, and commencing on August 1, 1998, Basic Rental shall be $110,229.00
per month (or $1,322,748.00 per year) through and until the Expiration Date (as
amended hereby).
4. TERM. The "Expiration Date", as defined in Paragraph 3 of the Lease
is hereby amended to be July 31, 2000. Paragraph 4 of the Third Amendment,
providing in part for the termination of Tenant's use and occupancy of the First
Floor Expansion Space, is hereby deleted.
5. ADDITIONAL RENTAL. Effective as of August 1, 1998, Paragraph 6(a) of
the Lease is hereby amended by the deletion thereupon of the next to the last
sentence of said paragraph and, in place thereof, the following sentence is
added:
Tenant's proportionate share shall be based on the ratio which the
Rentable Area in the Premises (adjusted for office expansion by Tenant)
bears to the Rentable Area within the Building, which is 41.0%.
Effective as of August 1, 1998, the Operating Expense Stop for the
Expansion Space and the Existing Space shall be based upon the Actual Operating
Expenses incurred by Landlord for calendar year 1998. Additionally, commencing
August 1, 1998, Tenant shall be responsible for the payment of all charges and
fees for use of electricity, which shall be determined from a separate meter or
meters, shall constitute Additional Rental and shall be paid to Landlord within
ten (10) days following the date Landlord provides Tenant an invoice therefor.
6. NO LEASEHOLD IMPROVEMENTS. Tenant accepts the Expansion Space in the
current, "as is" condition and acknowledges that Landlord expressly disclaims
any warranty or representation of any kind with respect to the Expansion Space.
Tenant further acknowledges that Landlord has not undertaken to perform any
modification, alteration or improvement either to the Expansion Space or the
Existing Space.
7. RESERVED PARKING. Commencing August 1, 1998, Landlord will provide
to Tenant seven (7) reserved parking spaces for use by Tenant's employees. The
location of the parking spaces will be designated by Landlord. Tenant's use of
the parking spaces will be subject to all applicable rules and regulations as
are now or may hereafter be established by Landlord.
8. FULL FORCE AND EFFECT. Except as expressly modified hereby and by
the First Amendment, Second Amendment and the Third Amendment, the remaining
terms and conditions of the Lease shall remain valid and effective as presently
written. The terms and provisions of this Fourth Amendment shall control to the
extent of any inconsistencies between this Fourth Amendment, the Third
Amendment, the Second Amendment, the First Amendment and the Lease.
9. COUNTERPARTS This Amendment may be executed in multiple counterparts
and each counterpart shall be deemed to be an original instrument, but all
counterparts taken together shall constitute a single instrument.
[Signatures on following page]
-2-
<PAGE> 3
THIS FOURTH AMENDMENT TO OFFICE LEASE is executed effective the day and
year first above written.
LANDLORD:
PITMAN PARTNERS, LTD., a Texas
limited partnership
By: PITMAN PROPERTY CORP.,
its General Partner
By: /s/ J. W. BEAVERS, JR.
-------------------------------------
Name: J. W. Beavers, Jr.
--------------------------------
Title: President
-------------------------------
ROSEWOOD PROPERTY COMPANY
By: /s/ PAUL E. ROWSEY, III
------------------------------------------
Name: Paul E. Rowsey, III
-------------------------------------
Title: President, Commercial Group
------------------------------------
TENANT:
INET, INC., a Texas corporation
By: /s/ MARK A. WEINZIERL
------------------------------------------
Name: Mark A. Weinzierl
----------------------------------------
Title: Executive Vice President
---------------------------------------
-3-
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Registrant.
1. INET Global, Limited (United Kingdom)
2. INET Global Research, L.L.C. (Delaware)
3. INET Foreign Sales Corporation (Barbados)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
February 17, 1998, (except for Note 1, as to which the date is July 23, 1998),
in the Registration Statement (Form S-1) and related Prospectus of Inet
Technologies, Inc. dated July 24, 1998.
Dallas, Texas
July 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001065351
<NAME> INET TECHNOLOGIES, INC.
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
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<PAGE> 1
EXHIBIT 99.1
CONSENT OF ROBERT G. MECHALEY
I hereby consent to being named as becoming a director of Inet
Technologies, Inc. in its Registration Statement on Form S-1 to be filed with
the Securities and Exchange Commission.
/s/ ROBERT G. MECHALEY
-----------------------------------------------
Robert G. Mechaley
Dated: July 23, 1998
