<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
NETSOLVE, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 4813 75-2094811-2
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
12331 RIATA TRACE PARKWAY
AUSTIN, TEXAS 78727
(512) 340-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
CRAIG S. TYSDAL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
12331 RIATA TRACE PARKWAY
AUSTIN, TEXAS 78727
(512) 340-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
Copies of all communications, including all communications sent to the agent
for service, should be sent to:
WORSHAM, FORSYTHE & WOOLDRIDGE, L.L.P. FOLEY, HOAG & ELIOT LLP
ATTN: L. SCOTT AUSTIN, ESQ. ATTN: MARK L. JOHNSON, ESQ.
TIMOTHY A. MACK, ESQ. ONE POST OFFICE SQUARE
1601 BRYAN STREET, 30TH FLOOR BOSTON, MASSACHUSETTS 02109
DALLAS, TEXAS 75201
----------------
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, 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, please 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 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(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,
please check the following box. [_]
----------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE PRICE(2) FEE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share.......... (1) (1) $51,750,000 $15,267
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) The number of shares being registered and offering price per share will be
determined by the registrant prior to the offering of such shares.
(2) The price is estimated solely for purposes of calculating the registration
fee pursuant to Rule 457(o).
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN +
+OFFER TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE +
+SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 15, 1998
LOGO
SHARES
COMMON STOCK
NetSolve, Incorporated is offering shares of its common stock and the
selling stockholders are offering an additional shares. This is our initial
public offering and no public market currently exists for our shares. We have
applied for quotation of the offered shares on the Nasdaq National Market under
the symbol "NTSL." We anticipate that the initial public offering price will be
between $ and $ per share.
------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
----- -----
<S> <C> <C>
Public Offering Price............................................... $ $
Underwriting Discounts and Commissions..............................
Proceeds to NetSolve................................................
Proceeds to Selling Stockholders....................................
</TABLE>
-----------
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NetSolve and certain selling stockholders have granted the underwriters a
thirty-day option to purchase up to an additional shares of common stock to
cover over-allotments. BancBoston Robertson Stephens Inc. expects to deliver
the shares of common stock to purchasers on , 1998.
BANCBOSTON ROBERTSON STEPHENS HAMBRECHT & QUIST
The date of this Prospectus is , 1998.
<PAGE>
[The inside front cover contains the following:]
[1. The following text appears at the top of the page:]
NetSolve Scope
Network Management and Security Services
[2. A background photograph of two people viewing a computer screen appears in
the middle of the page.]
[3. A diagram composed of the following items is superimposed on the background
photograph:]
[A. Three circles are linked by arrows pointing from left to right. The
three circles contain the following words:]
Design
Configure
Implement
[B. Arrows lead from the circle captioned "Implement" to two additional
circles. The two circles contain the following words:]
Network Operations and Support
Security Services
[C. The following terms appear vertically, along the right margin of the
page:]
Monitor
Diagnose
Resolution
Report
Upgrade
Document
[4. The following text appears below the diagram:]
Benefits to Our Customers
. Increased network reliability and up-time
. Reduced overall network costs
. Simplified, timely migration to new technologies
[5. The NetSolve name and logo appear in the bottom right hand corner of the
page]
<PAGE>
[The front gatefold pages contain a diagram composed of the following:]
[1. The background of the diagram contains a black-and-white photograph of
three people viewing a computer terminal.
[2. The following text appears in the upper left hand corner of the diagram:]
DESIGNING, IMPLEMENTING AND MANAGING ADVANCED DATA NETWORKS
NetSolve offers a range of remote network management and security services
that allow companies to selectively outsource, or "out-task," activities
relating to the design, implementation and management of their WANs and
LANs. Our services are designed to increase network reliability and up-
time, reduce overall network costs, and simplify timely migration to new
technologies.
[3. An oval ring appears in the center of the diagram. The following text
appears on the ring, beginning at the top and moving clockwise:]
Supported Technologies
Internet
Asynchronous Transfer Mode (ATM)
Frame Relay
[A color copy of the background photograph (which depicts three people
viewing a computer screen) appears inside the ring. Superimposed on the
photograph are four circles and rectangles containing the following:]
NetSolve Management Center [with icons of a computer terminal, a
screwdriver and wrench, a lock, and a server]
Standards Based Tools, Database
Firewall [with an icon of a lock]
Intrusion Detection [with an icon of a lock]
[4. A computer screen containing lines of code appears in the left center of
the diagram. A bold line links the screen to the oval ring appearing in the
center of the diagram. The following text appears next to the screen:]
PROWATCH FOR WANS
Remote network management services for router-based Frame Relay and ATM
networks
[5. A second computer screen appears below the computer screen described in
item 4 above. The computer screen depicts a portion of a sample monthly
security incident summary. The following text appears next to the screen:]
PROWATCH SECURE
Remote security protection services for networks' Internet and intranet
perimeter points through our ProWatch Secure Managed Firewall Service and
ProWatch Secure Remote Intrusion Detection and Response Service
[6. A schematic diagram linking five circles and rectangles appears in the
bottom lefthand corner, beneath the computer screen described in item 5
above. The following words appear in these shapes:]
LAN
External Services [the following text appears below this circle:]
Internet, e-mail, FTP, etc.
Firewall [with an icon of a lock]
Intrusion Detection [with an icon of a lock; a bold line links this shape
and the second computer screen
described above]
Router [lines link this rectangle with oval ring; these lines are labeled
as follows:] Management connection
to NetSolve
[7. A third computer screen appears in the bottom right hand corner. The
screen depicts a map of the United States and a portion of a graphical user
interface. The following text appears next to the screen:]
PROWATCH EXCHANGE
Software tools that allow companies to access up-to-date network status
reports through standard Web browsers
[8. The NetSolve name and logo appear in a circle at the lower right hand
corner of the diagram.]
[9. A fourth computer screen appears at the right center of the diagram, above
the computer screen described in item 7 above. The screen contains a line
graph and the bar graph. The following text appears next to the screen:]
PROWATCH FOR LANS
Remote network management services for routers, switches and intelligent
hubs in corporate LANs
[10. A schematic diagram linking three circles and rectangles appears in the
upper right hand corner of the diagram, above the computer screen described
in item 7 above. The following words appear in these shapes:]
LAN
Firewall [with an icon of a lock]
Router [a bold line links this rectangle with the computer screen described
in item 5 above]
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, THE
"COMPANY," "NETSOLVE," "WE," "OUR" AND "US" REFER TO NETSOLVE, INCORPORATED,
TOGETHER WITH ITS CONSOLIDATED SUBSIDIARIES (UNLESS THE CONTEXT OTHERWISE
REQUIRES).
UNTIL , 1998, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 33
Management............................................................... 44
Certain Transactions..................................................... 52
Principal and Selling Stockholders....................................... 53
Description of Capital Stock............................................. 55
Shares Eligible for Future Sale.......................................... 57
Underwriting............................................................. 59
Legal Matters............................................................ 60
Experts.................................................................. 60
Additional Information................................................... 61
Index to Consolidated Financial Statements............................... F-1
</TABLE>
3
<PAGE>
SUMMARY
Because this is only a summary, it does not contain all the information that
may be important to you. You should read the entire Prospectus, especially
"Risk Factors" and the Consolidated Financial Statements and Notes, before
deciding to invest in shares of our common stock.
NETSOLVE
OUR BUSINESS: NetSolve offers a range of remote network management and
security services that allow companies to selectively
outsource, or "out-task," activities relating to the design,
implementation and management of their wide area networks
("WANs") and local area networks ("LANs"). Our services are
designed to increase network reliability and up-time, reduce
overall network costs, and simplify timely migration to new
technologies.
OUR CONCEPT: Businesses increasingly depend on the ability to access and
share electronic information reliably. As a result, networks
have become a more critical part of day-to-day operations and
businesses are seeking ways to implement responsive, reliable
and secure networks. Many companies are large enough to
employ WANs across multiple sites, but too small to afford
the information technology ("IT") personnel necessary to
manage and secure their networks. Facing rapid advances in
technology and a continuing shortage of IT professionals,
these companies are beginning to turn to third-party service
providers for network management and security solutions.
OUR SERVICES: Our network management services address all or selected parts
of the full life cycle of network management, which consists
of the following elements:
. design . monitoring . reporting
. configuration . fault diagnosis . upgrading
. implementation . fault resolution . documentation
We furnish our network management services remotely 24 hours
per day, seven days per week from our Network Management
Center in Austin, Texas, and we offer software tools that
allow companies to access up-to-date network status reports
through standard Web browsers. We also provide around-the-
clock remote security services for networks' Internet and
intranet perimeter points.
OUR CUSTOMERS: We target middle market companies, roughly defined as
companies that have between 200 and 1,500 employees and
annual revenues between $50 million and $2.5 billion. More
than 375 middle market companies currently use our services
to manage more than 4,800 network sites. We market our
services through relationships with resellers, including
telecommunications carriers, Internet service providers and
value-added resellers, as well as through our direct sales
force. Sales to AT&T, which resells our services to its
customers, accounted for 52% of our total revenues in our
fiscal year ended March 31, 1998.
OUR OFFICES: Our executive offices are located at 12331 Riata Trace
Parkway, Austin, Texas 78727. Our telephone number is (512)
340-3000.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by NetSolve..................... shares
Common Stock Offered by the Selling Stockholders..... shares
Common Stock to be Outstanding after the Offering.... shares(1)
Use of Proceeds...................................... General corporate
purposes, including
working capital and
acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol............... NTSL
</TABLE>
- ---------------
(1) Based on shares outstanding as of September 30, 1998, which exclude:
. 2,465,444 shares issuable upon exercise of outstanding options with a
weighted average exercise price of $2.26 per share;
. 167,500 shares issuable upon exercise of outstanding warrants with a
weighted average exercise price of $2.72 per share; and
. 827,527 shares reserved for future issuance under our stock-based
compensation plans.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------- ------------------
1996 1997 1998 1997 1998
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.................. $ 3,670 $ 6,316 $14,523 $ 6,683 $ 11,985
Total cost of revenues.......... 2,546 5,072 11,054 5,383 8,826
Operating loss.................. (2,093) (3,753) (3,154) (1,993) (167)
Discontinued operations, net.... 2,041 12,757 506 320 --
Net income (loss)............... 456 10,295 (2,226) (1,411) (96)
Pro forma basic and diluted loss
per share(1):
From continuing operations..... $ (0.29) $ (0.01)
Net loss....................... $ (0.24) $ (0.01)
Pro forma weighted average
shares used in per share
calculation(1)................. 9,390 9,669
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
-------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 117 $ 117
Working capital......................... 4,689 4,689
Total assets............................ 14,013 14,013
Capital lease obligations, net of
current portion........................ 1,224 1,224
Redeemable convertible preferred stock.. 42,884 --
Total stockholders' equity (deficit).... (34,373) 8,511
</TABLE>
- ---------------
(1) Reflects the conversion of all of the outstanding shares of our redeemable
convertible preferred stock into 6,394,727 shares of common stock as of
April 1, 1997. See Note 4 of Notes to Consolidated Financial Statements.
(2) Reflects the conversion of all of the outstanding shares of our redeemable
convertible preferred stock into 6,394,727 shares of common stock, which
will take effect immediately prior to the closing of this offering. See
Note 4 of Notes to Consolidated Financial Statements.
(3) On a pro forma basis, further adjusted to reflect our sale of shares of
common stock at an assumed initial public offering price of $ per share
(after deducting the estimated underwriting discounts and commissions and
estimated offering expenses) and the application of our estimated net
proceeds. See "Use of Proceeds."
5
<PAGE>
Except as otherwise indicated herein, all information in this Prospectus
assumes the underwriters' over-allotment option is not exercised. See
"Principal and Selling Stockholders" and "Underwriting." Except as otherwise
noted, all information in this Prospectus reflects:
. the conversion of all of the outstanding shares of our
redeemable convertible preferred stock into 6,394,727 shares of
common stock, which will take effect immediately prior to the
closing of this offering;
. the amendment of our certificate of incorporation, which is
expected to take effect in October 1998, to increase the number
of authorized shares of common stock to 25,000,000; and
. the amendment of our Long-Term Incentive Compensation Plan,
which is expected to take effect in October 1998, to increase
the number of shares reserved for issuance under such plan to
1,350,000.
----------------
We have federal trademark registrations for the NetSolve(R) logo and the name
NetSolve(R) and applications pending for the trade names ProWatch SM, ProWatch
for WANs SM, ProWatch for LANs SM, ProWatch Exchange SM and ProWatch Secure SM.
Trade names, trademarks and service marks of other companies appearing in this
Prospectus are the property of the respective holders.
6
<PAGE>
RISK FACTORS
Investing in shares of our common stock involves risks. You should be able
to bear a complete loss of your investment. You should carefully consider the
following factors and other information in this Prospectus before deciding to
invest in shares of our common stock. We are uncertain about the future of our
business and, in preparing this Prospectus, have made a number of assumptions
and projections. We generally use words like "expect," "believe" and "intend"
to indicate these assumptions and projections. Our assumptions and projections
could be wrong for many reasons, including the reasons discussed below.
LIMITED Although NetSolve began operating in 1987, we did not
OPERATING introduce our first remote network management service until
HISTORY; PAST the quarter ended March 31, 1994. From inception through
LOSSES November 1996, we generated substantially all of our
revenues from our data transport business, which we sold in
December 1996. Thus, our track record in the remote network
management services business is short, and it is difficult
to predict our future revenues and operating results. We
incurred substantial net losses from continuing operations
through the quarter ended June 30, 1998. We had operating
losses from continuing operations of $3.2 million in the
fiscal year ended March 31, 1998 and $0.2 million in the six
months ended September 30, 1998. As the result of
accumulated operating losses, our accumulated deficit at
September 30, 1998 totaled $37.4 million. Our ability to
operate profitably depends on increasing sales of our
services while maintaining sufficient gross profit margins.
We must, among other things:
. maintain satisfactory relationships with AT&T, which
is our largest customer, and network equipment
manufacturers such as Cisco;
. establish relationships with additional marketing
partners for the resale of our services;
. develop software to make our principal existing
service, ProWatch for WANs, more efficient and
economical;
. develop and sell other remote network management
services;
. maintain reliable, uninterrupted service from our
Network Management Center 24 hours per day, seven
days per week;
. respond effectively to competitive pressures; and
. maintain reasonable levels of development and selling
costs.
Our ability to operate profitably also depends upon a number
of circumstances outside our control, including the extent
to which:
. our competitors develop solutions that compete with
our services;
. the number of qualified IT professionals increases
without a significant increase in compensation;
. equipment manufacturers introduce new, more
technologically advanced equipment and related
software; and
. our marketing partners dedicate resources or give
priority to reselling our services.
As a result, we cannot assure you that we will operate
profitably on a quarterly or annual basis. For more
information, see "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition
and Results of Operations."
7
<PAGE>
DEPENDENCE ON Sales to AT&T, which resells our services to its customers,
AT&T accounted for 52% of our total revenues in the fiscal year
ended March 31, 1998. We expect that services sold to AT&T
will continue to generate a substantial percentage of our
revenues. Our strategy is to develop more end users outside
of our AT&T relationship by increasing the number of
telecommunications carriers, Internet service providers and
data networking value-added resellers that market our
services. We expect, however, that sales to AT&T will
comprise an even higher percentage of our revenues during
the latter half of fiscal 1999 and at least a significant
portion of fiscal 2000. As a result, we cannot be sure that
we will be successful in reducing our dependence on AT&T.
Our existing agreements with AT&T can be canceled by AT&T at
any time for reasons beyond our control. These agreements do
not prohibit AT&T from marketing other products and services
that compete with our services. We will need to maintain a
good working relationship with different business units of
AT&T in order to maintain the business we currently provide
to AT&T's customers and to encourage AT&T to sell our
services to additional customers. Problems in our
relationship with AT&T would seriously damage our business.
We cannot assure you that AT&T will continue to sell our
services to existing or additional AT&T customers. A
substantial reduction in our AT&T business would result in
diminished revenues for an extended period of time as we
attempt to replace that business. For more information, see
"Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview--Revenues" and
"Business--Relationship with AT&T."
FLUCTUATIONS IN Our revenues and results of operations are difficult to
QUARTERLY predict and may fluctuate significantly from quarter to
PERFORMANCE quarter. If either our revenues or results of operations
fall below the expectations of investors or public market
analysts, the price of the common stock could fall
dramatically.
Our revenues are difficult to forecast for a number of
reasons:
. the market for network management services is
relatively new, and we have no reliable means to
assess overall customer demand;
. we derive a majority of our revenues from AT&T and
other resellers, and our revenues therefore depend
significantly on the willingness and ability of AT&T
and those other resellers to sell our services to
their customers;
. we may not be able to attract additional resellers to
market our services as expected;
. potential end users may delay the installation of
equipment or the purchase of our services, and as a
result, we may have difficulty determining when a
potential customer will purchase our services;
. we expect to encourage end users to purchase
equipment from other sources, and we therefore
anticipate that our revenues from equipment sales
will decline from quarter to quarter as we seek to
manage our mix of revenues by limiting discounts on
equipment;
. we may not add new end users as rapidly as we expect;
. we may lose existing end users as the result of
competition, problems with our services or, in the
case of end users who are customers of our resellers,
problems with the reseller's services;
. we may not be able to develop new or improved
services as rapidly as they are needed;
8
<PAGE>
. some of our employees may terminate their employment
with NetSolve, resulting in an increase in our
recruiting and training costs and a decrease in the
level and quality of services that we can provide;
. our competition may offer better or cheaper services,
forcing us to lower prices or to spend more to market
our services; and
. either we or other service providers may suffer from
network service interruptions that cause us to make
payments under the contractual performance guarantees
that we offer our customers.
Most of our expenses, particularly employee compensation and
rent, are relatively fixed. As a result, variations in the
timing of revenues could cause significant variations in
results of operations from quarter to quarter and could
result in quarterly losses.
We believe our future operating results may vary by season:
. Our bookings may be slower during the months of July
and August due to the vacation schedules of our end
users and our sales and marketing employees. This may
lead to lower levels of revenues earned during the
following fiscal quarter, which ends December 31.
. Our revenues during our third and fourth fiscal
quarters may be more volatile and difficult to
predict due to the budgeting and purchasing cycles of
our end users. End users typically purchase our
services at the same time they purchase new equipment
such as routers. As a result, the timing of their
large capital expenditures could affect the timing of
their purchases of our services. Some end users may
not be able to purchase network equipment and our
services near the end of a calendar year due to
depleted budgets. Other end users may accelerate
purchases in order to use the unspent portion of
their budget.
As a result of these factors, we believe that quarter-to-
quarter comparisons of our results of operations are not
necessarily meaningful. You should not rely on our quarterly
results of operations to predict our future performance. For
more information, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Quarterly
Results of Operations."
NEWNESS OF Our long-term viability depends significantly upon the
MARKET FOR OUR acceptance and use of remote network management services by
SERVICES mid-sized companies. The market for remote network
management services is new and rapidly evolving. This makes
it more difficult to determine the size and growth of the
market and to predict how this market will develop. Changes
in technology, the availability of qualified IT
professionals and other factors that make internal network
management more cost effective than remote network
management would adversely affect the market for our
services. Our business may be seriously damaged if this
market fails to grow, grows more slowly than we expect or
develops in some way that is different from our
expectations.
UNCERTAINTIES We expect to rely increasingly on resellers such as
OF RESELLER telecommunications carriers, Internet service providers and
CHANNEL data networking value-added resellers to market our
services. Our failure to establish these alternative sales
channels would seriously damage our business. We have
limited experience in managing sales through resellers. We
have only recently begun to develop these sales channels,
and we have established relationships with only a few
resellers. Except for AT&T, these resellers have not
generated significant sales of our services to date and may
not succeed in marketing our services in the future.
9
<PAGE>
Our agreements with resellers, including AT&T, generally do
not require that the resellers sell any minimum level of our
services and do not restrict the resellers' development or
sale of competitive services. We have very little control
over these resellers, and we cannot be sure that they will
dedicate resources or give priority to selling our services.
In addition, resellers may seek to make us reduce the prices
for our services in order to lower the total price of their
equipment and software offerings.
If we succeed in increasing our sales through resellers, we
may have weaker relationships with the end users of our
services. This may inhibit our ability to gather customer
feedback that helps us improve our services, develop new
services and monitor customer satisfaction. We may also lose
brand identification and brand loyalty, since our services
may be identified by private label names or may be marketed
differently by our resellers. A failure by any of our
resellers to provide their customers with satisfactory
products, services or customer support could injure our
reputation and seriously damage our business. Our agreements
with these resellers may limit our ability to sell our
services directly to the resellers' customers in the future.
DEPENDENCE ON Sales of our ProWatch for WANs and similar WAN services
WAN SERVICES; accounted for 98% of our recurring network management
NEED TO DEVELOP services revenues in both the fiscal year ended March 31,
AND SELL 1998 and the six months ended September 30, 1998. We expect
ADDITIONAL that these WAN services will continue to generate
SERVICES substantially all of our revenues for the foreseeable
future. Our success therefore depends directly on continued
market acceptance of our WAN services, as well as our
ability to introduce enhanced versions of these services
that make these services more efficient and economical. Our
revenues from these WAN services will suffer if there is a
decrease in the market demand for the Frame Relay-based
networks and other switched networks that underlie WANs. In
addition, competitive pressures or other factors that
adversely affect sales of our WAN services or that cause
significant decreases in the prices of our WAN services
could seriously damage our business.
Our future financial performance will depend in part on our
ability to develop, introduce and sell new and enhanced
remote network management services other than WAN services,
including services that:
. address the increasingly sophisticated needs of
current and prospective end users; and
. respond on a timely and cost-effective basis to
technological advances and emerging industry
standards and protocols.
Although we have developed new services, such as remote
network management services for LANs and network security
services, we have not derived significant revenues from
these services to date. We cannot be sure that we will be
successful selling these services or developing additional
services on time or on budget. The development of new
services is a complex and uncertain process. The newness of
the market for remote network management services makes it
difficult to determine whether a market will develop for any
particular network management service. If we succeed in
increasing the percentage of our revenues that is derived
from resellers, we may have weaker relationships with the
end users of our services, making it even more difficult for
us to identify services acceptable to our target market of
mid-sized companies. We have experienced delays in
developing new services in the past and may experience
similar delays in the future. We cannot assure you that
future technological or industry developments will be
compatible with our business strategy
10
<PAGE>
or that we will be successful in responding to such changes
in a timely or cost-effective manner. Our failure to develop
and sell services other than WAN services could seriously
damage our business.
DEPENDENCE ON Our future success depends to a significant degree on the
SERVICES OF skills, experience and efforts of our executive officers,
CURRENT CHIEF particularly Craig S. Tysdal, the President and Chief
EXECUTIVE Executive Officer of NetSolve. Mr. Tysdal has led NetSolve
OFFICER during our transition from the data transport business to
the remote network management field. He was our principal
sales executive during the fiscal year ended March 31, 1998,
and he continues to be our key representative in our
relationship with AT&T. We do not have employment contracts
requiring Mr. Tysdal or any of our other personnel to
continue their employment for any period of time, and we do
not maintain key man life insurance on Mr. Tysdal or any of
our other personnel. The loss of the services of Mr. Tysdal
would seriously damage our business. For more information,
see "Management--Executive Officers and Directors."
LIMITED SUPPLY We derive all of our revenues from remote network management
OF QUALIFIED IT services and related sales of equipment. These services can
PROFESSIONALS be extremely complex, and in general only highly qualified,
highly trained IT professionals have the necessary skills to
develop and provide these services. In order to continue to
staff our current and future bookings, we need to attract,
motivate and retain a significant number of qualified IT
professionals. Qualified IT professionals are in short
supply, and we face significant competition for these
professionals, from not only our competitors but also our
marketing partners and companies throughout the industry.
Other employers may offer IT professionals significantly
greater compensation and benefits or more attractive career
paths or geographic locations than we are able to offer. Any
failure on our part to hire, train and retain a sufficient
number of qualified IT professionals would seriously damage
our business.
Because of the limited availability of IT professionals, we
seek to hire persons who have obtained college bachelor's
degrees and then train those persons to provide our
services. As a result, we invest a significant amount of
time and money in training these new employees before they
begin to help us. We do not enter into employment agreements
requiring these employees to continue in our employment for
any period of time.
COMPETITION We face competition from different sources. Currently, we
compete principally with potential end users' and resellers'
internal development organizations. These organizations may
have developed tools and methodologies to manage their
network processes and may be reluctant to adopt applications
offered by third parties such as NetSolve. In order for us
to compete effectively with internal solutions, we must
establish one or more of the following competitive
advantages:
.quality of service;
.price;
.functionality;
.product reputation; and
.quality of support.
If the market for network management services grows as we
expect, we believe this market will be highly competitive.
Competition is likely to increase significantly as new
companies enter the market and current competitors expand
their service and
11
<PAGE>
product lines. Many of these potential competitors are
likely to enjoy substantial competitive advantages,
including:
. larger technical staffs;
. more established sales channels;
. more software development experience;
. greater name recognition; and
. substantially greater financial, marketing, technical
and other resources.
To be competitive, we must respond promptly and effectively
to the challenges of technological change, evolving
standards and our competitors' innovations by continuing to
enhance our services, as well as our sales programs and
channels. Any pricing pressures, reduced margins or loss of
market share resulting from increased competition, or our
failure to compete effectively, could seriously damage our
business. For more information, see "Business--Competition."
SYSTEM FAILURE To succeed, we must be able to operate our network
management infrastructure 24 hours per day, seven days per
week without interruption. All of our remote network
management services are provided from our Network Management
Center, which is located at a single site. We do not have
any redundant systems or facilities at a separate geographic
location. In order to operate without interruption, we must
guard against:
. power outages, fires, tornados and other natural
disasters at our Network Management Center;
. telecommunications failures;
. equipment failures or "crashes;"
. security breaches; and
. other potential interruptions.
Any interruptions could:
. require us to make payments on the contractual
performance guarantees we offer our customers;
. cause end users to seek damages for losses incurred;
. require us to spend more money replacing existing
equipment or adding redundant facilities;
. damage our reputation for reliable service;
. cause existing end users and resellers to cancel our
contracts; or
. make it more difficult for us to attract new end
users and resellers.
Any of these results could seriously damage our business.
OBSOLESCENCE OF As part of our strategy, we have elected to support only
NETWORKING selected providers of networking equipment and carrier
EQUIPMENT AND services. For example, we support routers manufactured by
CARRIER 3Com, Bay/Nortel and Cisco, but not by other equipment
SERVICES WE providers. Our services cannot be used by companies with
SUPPORT networking equipment and carrier services that we do not
support. Our business would be seriously damaged if the
networking equipment and carrier services that we support
are not used by a significant portion of our target market
or if they become unavailable or significantly more
expensive. Technological advances that make obsolete any of
the networking equipment and carrier services that we
support, or that offer significant economic or functional
advantages over such equipment and services, also would
seriously
12
<PAGE>
damage our business. For more information, see "Business--
Strategy" and "-- Network Management Services."
LIMITED Our success depends to a significant degree upon our
PROTECTION OF software and other proprietary technology. The software
PROPRIETARY industry has experienced widespread unauthorized
TECHNOLOGY reproduction of software products. We have no patents. The
steps we have taken may not be adequate to deter competitors
from misappropriating our propriety information, and we may
not be able to detect unauthorized use and take appropriate
steps to enforce our intellectual property rights.
We could be the subject of claims alleging infringement of
third-party intellectual property rights. In addition, we
may be required to indemnify our distribution partners and
end users for similar claims made against them. Any such
claims could require us to spend significant time and money
in litigation, pay damages, develop non-infringing
intellectual property or acquire licenses to intellectual
property that is the subject of the infringement claims. As
a result, any such claim could seriously damage our
business. For more information, see "Business--Intellectual
Property Rights."
YEAR 2000 Many currently installed computer systems and software
ISSUES products only accept two digits to identify the year in any
date. Thus, the year 2000 will appear as "00," which the
system might consider to be the year 1900 rather than 2000.
This could result in system failures, delays or
miscalculations. Computer systems and software that have not
been developed or enhanced recently may need to be upgraded
or replaced to comply with Year 2000 requirements.
Our financial and accounting system for our accounts
payable, accounts receivable and general ledger accounts is
not Year 2000 compliant. We intend to upgrade this system
prior to March 31, 1999 in order to make the system Year
2000 compliant. We are still in the process of checking our
other systems. Our systems incorporate certain third-party
software and systems that may not be Year 2000 compliant. In
addition, our resellers', end users' and vendors' software
and systems may not be Year 2000 compliant. The failure of
systems maintained by our resellers, end users and vendors
to be Year 2000 compliant could cause us to incur
significant expenses to remedy any problems, reduce our
revenues from such resellers or end users or otherwise
seriously damage our business.
We have not incurred significant costs to date complying
with Year 2000 requirements, and we do not believe that we
will incur significant costs for such purposes in the
foreseeable future. We expect to spend approximately
$200,000 to upgrade our financial and accounting systems. If
we discover other Year 2000 errors or defects in our
internal systems, we could incur substantial costs in making
repairs. The resulting disruption of our operations could
seriously damage our business. For more information, see
"Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
POTENTIAL Because our products are designed to provide critical
LIABILITY network management services, we may receive significant
liability claims. Our agreements with customers typically
contain provisions intended to limit our exposure to
liability claims. These limitations may not, however,
preclude all potential claims. Liability claims could
require us to spend significant time and money in litigation
or to pay significant damages. As a result, any such claims,
whether or not successful could seriously damage our
reputation and our business.
13
<PAGE>
Our remote network management service for WANs generally
includes a guarantee that the end-to-end network will be
available for at least 99.5% of the time in any given month.
In the event this guaranteed level of availability is not
achieved for an end user, we may be required to refund all
of our WAN management fees from the end user for that month.
We may, in some instances, refund amounts to customers for
circumstances beyond our control. For more information, see
"Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview--Revenues" and
"Business--Network Management Services--Remote Network
Management Services."
NO PRIOR PUBLIC Before this offering, there has been no public market for
MARKET our common stock. NetSolve, the selling stockholders and the
underwriters of the offering will determine the initial
public offering price by negotiations, and this price may
not be the price at which the common stock will trade. See
"Underwriting" for a discussion of factors to be considered
in determining the initial public offering price. Although
the common stock will be quoted on the Nasdaq National
Market, an active trading market may not develop or be
sustained after this offering.
The market price of our common stock may fluctuate
substantially due to a variety of factors, including:
. quarterly fluctuations in our results of operations;
. changes in our relationship with AT&T;
. adverse circumstances affecting the introduction or
market acceptance of new products or services offered
by us;
. announcements of new products or services by
competitors;
. changes in our business strategies;
. changes in earnings estimates by public market
analysts;
. changes in accounting principles;
. sales of common stock by existing holders; and
. loss of key personnel.
In addition, the stock market is subject to other factors
outside our control that can cause extreme price and volume
fluctuations. Securities class action litigation has often
been brought against companies that experience volatility in
the market price of their securities. Litigation brought
against us could result in substantial costs and a diversion
of management's attention and resources, which could
seriously damage our business.
MANAGEMENT After this offering, NetSolve's executive officers and
CONTROL OF directors collectively will beneficially own approximately
NETSOLVE % of the outstanding common stock. For more information,
see "Principal and Selling Stockholders." Thus, they will
continue to control NetSolve and, if they act together,
could elect all of the directors, appoint management and
control all matters submitted to our stockholders for a
vote.
FUTURE SALES OF The market price of our common stock could drop as a result
SHARES of sales of a large number of shares in the market after
this offering or in response to the perception that such
sales could occur. All of the shares sold in this
offering will be freely tradable, while of the other
shares outstanding after this offering will be "restricted
securities" under applicable securities laws. Most of these
restricted securities will be subject to 180-day lock-up
agreements with the underwriters. After this 180-day period
expires, of such shares will be eligible for immediate
14
<PAGE>
sale and of such shares will become eligible for sale at
various times in the future upon expiration of applicable
holding periods under, and subject to the terms of, Rule
144. BancBoston Robertson Stephens can release shares from
one or more of the 180-day lock-up agreements without our
approval. In addition, holders of approximately shares
(including shares issuable upon exercise of warrants) have
the right to request that we register those shares for sale
in the public market.
BROAD We expect to use our net proceeds from this offering for
MANAGEMENT general corporate purposes, giving our management broad
DISCRETION IN discretion in the allocation of the net proceeds. Possible
USE OF PROCEEDS uses of these funds could include acquisitions of, or
investments in, complementary business and technologies. The
failure of our management to apply such funds effectively
could seriously damage our business.
ANTI-TAKEOVER Certain provisions of our certificate of incorporation and
PROVISIONS Delaware law could be used by NetSolve's incumbent
management to make it more difficult for a third party to
acquire control of NetSolve, even if the change in control
might be beneficial to our stockholders. This could
discourage potential takeover attempts and could adversely
affect the market price of our common stock.
DILUTION; Since our common stock has in the past been sold at prices
ABSENCE OF substantially less than the initial public offering price
DIVIDENDS that you will pay, you will suffer immediate dilution of $
per share in pro forma net tangible book value. The exercise
of outstanding options and warrants may result in further
dilution. We do not currently anticipate paying cash
dividends in the foreseeable future.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to NetSolve from the sale of the shares of common stock
offered by NetSolve are estimated to be $ million ($ million if the
underwriters' over-allotment is exercised in full), assuming an initial public
offering price of $ per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company. The Company estimates that its expenses in connection with
this offering will total approximately $750,000. The Company will not receive
any proceeds from the sale of shares of common stock by the selling
stockholders.
The principal purposes of this offering are to:
. increase the Company's capitalization and financial flexibility;
. increase the Company's visibility in the marketplace;
. provide a public market for the Company's common stock;
. facilitate the Company's future access to public equity markets; and
. provide liquidity for the Company's existing stockholders.
The Company believes that its enhanced financial position will provide the
Company with needed flexibility to respond to technological and market
developments as well as other future opportunities. The Company also believes
that its completion of this offering will improve its ability to attract and
retain customers and employees.
The Company intends to use its net proceeds from this offering for general
corporate purposes, including working capital and possible acquisitions of,
and investments in, complementary businesses and technologies. Accordingly,
the Company will have broad discretion in the application of its net proceeds.
See "Risk Factors--Broad Management Discretion in Use of Proceeds." The
Company is not currently involved in negotiations with respect to, and has no
agreement or understanding regarding, any such acquisition or investment.
Pending these uses, the Company intends to invest its net proceeds in short-
term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
NetSolve has never declared or paid any cash dividends on its capital stock.
NetSolve intends to retain all available funds and any future earnings for use
in the operation of its business. Therefore, NetSolve does not anticipate
paying any cash or other dividends in the foreseeable future. Payment of
future dividends, if any, will be at the discretion of the Company's Board of
Directors after taking into account various factors, including the Company's
financial condition, results of operations, current and anticipated cash needs
and plans for expansion.
16
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1998 the capitalization
of NetSolve: (1) on an actual basis; (2) on a pro forma basis giving effect to
the conversion of the Company's redeemable convertible preferred stock into
common stock; and (3) on a pro forma basis, as further adjusted to reflect the
receipt of the estimated net proceeds from the sale of the shares of
common stock offered by NetSolve at an assumed initial public offering price
of $ per share. See "Use of Proceeds."
This table should be read together with the Consolidated Financial
Statements and Notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- ------------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C> <C>
Capital lease obligations, net of current
portion................................. $ 1,224 $ 1,224 $
---------- ---------- ----------
Redeemable convertible preferred stock
(Series A and B), $0.10 par value;
7,500,000 shares authorized; 6,394,727
shares issued and outstanding, actual;
no shares issued or outstanding, pro
forma and pro forma as adjusted......... 42,884 --
---------- ---------- ----------
Stockholders' equity (deficit):
Common stock, $0.01 par value;
14,000,000 shares authorized, actual;
3,285,577 shares issued and
outstanding, actual; 25,000,000 shares
authorized, pro forma and pro forma as
adjusted; 9,680,304 shares issued and
outstanding, pro forma; issued
and outstanding, pro forma as
adjusted(1)........................... 33 97
Additional paid-in capital............. (14,297) 28,523
Accumulated deficit.................... (20,109) (20,109)
---------- ---------- ----------
Total stockholders' equity (deficit)..... (34,373) 8,511
---------- ---------- ----------
Total capitalization..................... $ 9,735 $ 9,735 $
========== ========== ==========
</TABLE>
- ---------------
(1) Excludes as of September 30, 1998:
. 2,465,444 shares issuable upon exercise of outstanding options with a
weighted average exercise price of $2.26 per share;
. 167,500 shares issuable upon exercise of outstanding warrants with a
weighted average exercise price of $2.72 per share; and
. 827,527 shares reserved for future issuance under NetSolve's stock-based
compensation plans.
See "Management--Long Term Incentive Compensation Plan," "--1988 Stock
Option Plan" and Note 5 of Notes to Consolidated Financial Statements.
17
<PAGE>
DILUTION
The pro forma net tangible book value of NetSolve as of September 30, 1998,
was $8,511,000, or $0.88 per share of common stock. Pro forma net tangible
book value per share represents the amount of total tangible assets less total
liabilities, divided by the total pro forma number of shares of common stock
outstanding, after giving effect to the conversion of all of the outstanding
shares of the Company's redeemable convertible preferred stock into common
stock. After giving effect to the sale of the shares of common stock
offered by the Company in this offering at an assumed initial public offering
price of $ per share, and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by NetSolve,
the pro forma net tangible book value of NetSolve, as adjusted, at September
30, 1998, would have been approximately $ or $ per share of common
stock. This amount represents an immediate increase in pro forma net tangible
book value of $ per share to existing stockholders and an immediate
dilution in pro forma net tangible book value of $ per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share........................ $
Pro forma net tangible book value per share at September 30,
1998......................................................... $0.88
Increase per share attributable to new investors..............
-----
Adjusted pro forma net tangible book value per share after this
offering......................................................
-----
Dilution per share to new investors............................ $
=====
</TABLE>
The following table summarizes, on a pro forma as adjusted basis as of
September 30, 1998, the number of shares of common stock purchased from
NetSolve, the total consideration paid and the average price per share paid
(based on an assumed initial public offering price of $ per share before
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 9,680,304 % $29,031,000 % $3.00
New investors...........
--------- --- ----------- ---
Total............... 100% $ 100%
========= === =========== ===
</TABLE>
The foregoing tables assume no exercise of outstanding options and warrants
and no issuance of shares reserved for future issuance under the Company's
stock-based compensation plans. Sales by selling stockholders will reduce the
number of shares of common stock held by existing stockholders to , or %
of the total number of shares of common stock outstanding after this offering
(or or %, if the underwriters' overallotment option is exercised in full)
and will increase the number of shares of common stock held by new investors
to , or % of the total number of shares of common stock outstanding after
this offering (or or %, if the underwriters' overallotment option is
exercised in full). See "Principal and Selling Stockholders."
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read together
with "Management's Discussion and Analysis of Financial Condition and Results
of Operation" and the Consolidated Financial Statements and Notes. The
following selected consolidated financial data of the Company for the years
ended March 31, 1996, 1997 and 1998 and as of March 31, 1997 and 1998 are
derived from the consolidated financial statements of NetSolve included
elsewhere in this Prospectus, which have been audited by Ernst & Young LLP,
independent auditors. The following selected consolidated financial data of
the Company for the years ended March 31, 1994 and 1995 and as of March 31,
1994, 1995 and 1996 are derived from audited consolidated financial statements
of NetSolve not included in this Prospectus. The following selected
consolidated financial data of the Company for the six months ended September
30, 1997 and 1998 and as of September 30, 1998 are derived from the unaudited
consolidated financial statements of NetSolve included elsewhere in this
Prospectus. The unaudited consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements and, in the
opinion of NetSolve's management, include all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the data set forth
therein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------------------- ------------------
1994 1995 1996 1997 1998 1997 1998
------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Network management
services.............. $ 487 $ 428 $ 782 $ 2,830 $ 7,324 $ 3,247 $ 5,641
Equipment and other.... 2,729 1,846 2,888 3,486 7,199 3,436 6,344
------- ------- ------- ------- ------- -------- --------
Total revenues......... 3,216 2,274 3,670 6,316 14,523 6,683 11,985
Cost of revenues:
Cost of network
management services... 844 390 548 2,434 5,706 2,801 3,876
Cost of equipment and
other................. 1,758 1,138 1,998 2,638 5,348 2,582 4,950
------- ------- ------- ------- ------- -------- --------
Total cost of
revenues.............. 2,602 1,528 2,546 5,072 11,054 5,383 8,826
------- ------- ------- ------- ------- -------- --------
Gross profit............ 614 746 1,124 1,244 3,469 1,300 3,159
Operating expenses:
Development............ 1,007 1,081 1,132 1,262 1,902 958 824
Sales and marketing.... 466 383 732 2,246 2,562 1,398 1,449
General and
administrative........ 1,431 1,331 1,353 1,489 2,159 937 1,053
------- ------- ------- ------- ------- -------- --------
Total operating
expenses.............. 2,904 2,795 3,217 4,997 6,623 3,293 3,326
------- ------- ------- ------- ------- -------- --------
Operating loss.......... (2,290) (2,049) (2,093) (3,753) (3,154) (1,993) (167)
Other income (expense),
net.................... (211) (178) (110) 34 125 75 71
------- ------- ------- ------- ------- -------- --------
Loss from continuing
operations before
income taxes........... (2,501) (2,227) (2,203) (3,719) (3,029) (1,918) (96)
Income tax benefit...... -- 599 618 1,257 297 187 --
------- ------- ------- ------- ------- -------- --------
Net loss from continuing
operations............. (2,501) (1,628) (1,585) (2,462) (2,732) (1,731) (96)
Discontinued operations:
Income (loss) from
discontinued
operations, net of
applicable income
taxes................. (148) (1,244) 2,041 2,142 165 169 --
Gain on sale of
discontinued
operations, net of
applicable income
taxes................. -- -- -- 10,615 341 151 --
------- ------- ------- ------- ------- -------- --------
Net income (loss)....... $(2,649) $ (384) $ 456 $10,295 $(2,226) $ (1,411) $ (96)
======= ======= ======= ======= ======= ======== ========
Pro forma basic and
diluted income (loss)
per share from(1):
Continuing operations.. $ (0.29) $ (0.01)
======= ========
Net income (loss)...... $ (0.24) $ (0.01)
======= ========
Pro forma weighted
average shares used in
per share
calculations(1)........ 9,390 9,669
</TABLE>
- ---------------
(1) Reflects the conversion of redeemable convertible preferred stock into
6,394,727 shares of common stock as of April 1, 1997. See Note 4 of Notes
to Consolidated Financial Statements.
19
<PAGE>
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------ SEPT. 30,
1994 1995 1996 1997 1998 1998
-------- -------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 517 $ 361 $ 874 $ 8,128 $ 1,333 $ 117
Working capital
(deficit).............. (514) (859) (623) 9,464 5,399 4,689
Total assets............ 3,368 2,464 3,534 16,068 13,227 14,013
Capital lease
obligations, net of
current portion........ 581 248 235 175 1,146 1,224
Redeemable convertible
preferred stock........ 31,488 34,018 36,555 39,085 41,615 42,884
Total stockholders'
deficit(1)............. (31,153) (34,046) (36,104) (28,313) (33,029) (34,373)
</TABLE>
- ---------------
(1) The Company has never declared or paid cash dividends on its capital stock.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus. The following discussion should be read together with the
Consolidated Financial Statements and Notes included elsewhere in this
Prospectus.
OVERVIEW
NetSolve provides remote network management services that allow enterprises
and carriers to selectively outsource, or "out-task," network specific
activities in order to increase network reliability and up-time, reduce
overall network costs, and migrate efficiently to new technologies and
services. The Company was incorporated in September 1985 in the State of
Delaware and began operating in the second half of 1987. Until December 1996,
substantially all of the Company's services revenues were derived from the
sale of data transport services. These services consisted of provisioning and
providing Private Line and Frame Relay data networks. To provide these
transport services, the Company leased network transmission facilities from
major carriers, and it also resold AT&T's Frame Relay services. This business
was discontinued in the quarter ended December 31, 1996. See "--Discontinued
Operations" below. The Company began developing its first remote network
management service offering for WANs in early 1993 and began offering that
service, together with AT&T's Frame Relay services, in the quarter ended March
31, 1994. The Company began selling remote network management services
separately from its Frame Relay transport services in the quarter ended March
31, 1995. The Company introduced its first security service in the quarter
ended September 30, 1996, and began offering remote network management
services for LANs in the quarter ended June 30, 1997.
Revenues
The Company's revenues consist of network management services revenues as
well as equipment and other revenues. Network management services revenues
contain both recurring and non-recurring components, with 68% of network
management services revenues coming from recurring services in the first six
months of fiscal 1999.
. Revenues from recurring services represent monthly fees charged to
resellers or end users for the Company's remote network management
services. Recurring network management services revenues are
typically based on the number of devices under management and are
recognized in the period in which the services are rendered.
. Non-recurring network management services consist of data network
design, project implementation services and equipment installation
services, as well as one-time project and development assignments
that assist resellers in defining and creating new remote network
management services. Non-recurring network management services
revenues are generally recognized upon completion of the assignment
or service which, in the case of project implementation services, is
recognized on a per-location basis.
NetSolve's network management services revenues are derived from contracts
with telecommunications carriers, value-added resellers of networking
equipment and services, and enterprises sold to by the Company's direct sales
force. Typical contracts for the Company's services include an initial
implementation fee plus a fixed monthly fee per managed device. The Company's
contracts with its end users are generally for terms of 24 to 36 months,
although customers may cancel services prior to the end of the service terms.
Cancellations due to reasons other than closings of managed locations are
generally subject to cancellation fees ranging from twenty to eighty percent
of the recurring charges payable for the remainder of the service term. The
Company's contracts with resellers are typically from 12 to 36 months and, in
some cases, require the Company to continue providing services throughout the
term of the reseller's contract with the end user.
21
<PAGE>
The Company's remote network management services for WANs typically include
a guarantee providing end-to-end network availability for at least 99.5% of
the time in any given month. In the event the guaranteed availability is not
achieved, the Company generally is obligated to refund its WAN management fees
for that month. This guarantee covers some components of the end user's WAN,
such as the transport services provided by the end user's carrier, that are
not directly under the control of the Company. As a result, the Company may,
in some instances, refund amounts to customers for circumstances beyond the
Company's control. The Company establishes a reserve against guarantees it
offers. Guarantee payments have not been significant in any month, other than
one event in which a major carrier's Frame Relay network was inoperable for an
extended number of hours. In order to enhance the Company's relationships with
its direct customers using that carrier's service, the Company refunded all of
the management fees for that month to those direct customers, even though the
outage was outside the coverage of NetSolve's guarantee. The cost of that
refund was $64,000. In the future, refunds made under the Company's guarantees
or otherwise could have a material adverse impact on the results of
operations. See "Risk Factors--System Failure" and "--Potential Liability."
NetSolve's equipment and other revenues are derived from the resale of
customer premise equipment ("CPE") and from the sale of CPE maintenance
contracts to its network management services customers. Revenues from the sale
of CPE are recognized upon shipment to the end user. However, if the
transaction is financed through the Company's lease financing subsidiary, the
revenues are recognized upon sale of the underlying lease contract. Revenues
from CPE maintenance contracts are recognized on a monthly basis as the
services are provided. The Company expects to encourage end users to purchase
equipment from other sources, and therefore anticipates that revenues from CPE
sales will decline from quarter to quarter as the Company seeks to manage its
mix of revenues by limiting discounts on CPE.
The Company currently has a network management services contract with two
business units within AT&T: AT&T Solutions and AT&T Business Network Services.
For fiscal 1996, 1997 and 1998, the Company derived 9%, 27% and 52% of its
total revenues, respectively, from AT&T. It is anticipated that AT&T will
continue to represent a high percentage of the Company's management services
revenues and that this concentration will increase during the latter half of
fiscal 1999 and at least a significant portion of fiscal 2000. No other
customer accounted for more than 10% of the Company's revenues in fiscal 1996,
1997 or 1998. See "Risk Factors--Dependence on AT&T" and "Business--
Relationship with AT&T."
Historically, substantially all of the Company's revenues have been
generated from sales to customers in the United States although the Company
manages devices in several locations around the world for these customers.
Costs and Expenses
In March 1998, the Company relocated all of its operations from its previous
facility, consisting of approximately 25,000 square feet leased at prices
negotiated originally in 1991 which were substantially below current market
rates in 1998, into a new leased facility of approximately 70,000 square feet.
Concurrent with this move, the Company upgraded its computing and network
management infrastructure environment. The impact of these changes increased
costs by approximately $300,000 per quarter. These costs are allocated across
the cost of network management services revenues, development, sales and
marketing, and general and administrative expenses.
As of March 31, 1998, the Company had net operating loss carryforwards of
approximately $18.2 million available to offset future net income for U.S.
federal income tax purposes. These net operating loss carryforwards will
expire beginning in 2004 if not utilized. The Company has alternative minimum
tax credit carryforwards of $177,000 which do not expire. Utilization of these
net operating loss and tax credit carryforwards may be subject to a
substantial annual limitation due to the "change in ownership" provisions of
the Internal Revenue Code of 1986. The annual limitation may result in the
expiration of the net operating losses before utilization.
22
<PAGE>
Discontinued Operations
In December 1996, the Company decided to discontinue its data transport
services business segment and it sold its Private Line portion of that segment
to Intermedia Communications Inc. of Florida ("Intermedia"). The sale to
Intermedia was closed on December 30, 1996 at a price of $12.3 million. As a
part of this transaction, all customer and supplier contracts related to the
Private Line portion of the business segment were assigned to Intermedia, and
the capital equipment related to this portion of the business segment was sold
to Intermedia. The agreement for this sale contains a non-compete provision
which prohibits the Company from competing in the data transport business for
five years. To ease the transition associated with this sale, the Company
agreed to provide management services to the transferred customer base through
October 1997. The Company recorded revenues of $500,000 and $715,000 in fiscal
years 1997 and 1998, respectively, with respect to these services. To complete
the discontinuance of this business segment, on October 1, 1997, the Company
assigned its rights and obligations to customer and supplier contracts for
Frame Relay transport services to NetPlus, Inc. The purchase price was
established at 25% of NetPlus' gross profit from these services (as defined in
the purchase agreement) for a period of three years beginning April 1, 1998.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data of the
Company expressed as a percentage of total revenues for the periods indicated,
except as noted below:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
---------------------- ---------------
1996 1997 1998 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Network management services........ 21.3% 44.8% 50.4% 48.6% 47.1%
Equipment and other................ 78.7 55.2 49.6 51.4 52.9
------ ------ ------ ------ ------
Total revenues................... 100.0 100.0 100.0 100.0 100.0
Total cost of revenues(1)........... 69.4 80.3 76.1 80.5 73.6
------ ------ ------ ------ ------
Gross profit........................ 30.6 19.7 23.9 19.5 26.4
Operating expenses:
Development........................ 30.8 20.0 13.1 14.4 6.9
Sales and marketing................ 19.9 35.5 17.6 20.9 12.1
General and administrative......... 36.9 23.6 14.9 14.0 8.8
------ ------ ------ ------ ------
Total operating expenses......... 87.6 79.1 45.6 49.3 27.8
------ ------ ------ ------ ------
Operating loss...................... (57.0) (59.4) (21.7) (29.8) (1.4)
Other income (expense), net......... (3.0) 0.5 0.8 1.1 0.6
------ ------ ------ ------ ------
Loss from continuing operations
before income taxes................ (60.0) (58.9) (20.9) (28.7) (0.8)
Income tax benefit.................. 16.8 19.9 2.1 2.8 --
------ ------ ------ ------ ------
Net loss from continuing
operations......................... (43.2) (39.0) (18.8) (25.9) (0.8)
Discontinued operations:
Income from discontinued
operations, net of applicable
income taxes...................... 55.6 33.9 1.1 2.5 --
Gain on sale of discontinued
operations, net of applicable
income taxes...................... -- 168.1 2.4 2.3 --
------ ------ ------ ------ ------
Net income (loss)................... 12.4% 163.0% (15.3)% (21.1)% (0.8)%
====== ====== ====== ====== ======
- ---------------
(1) Cost of network management services and cost of equipment and other,
expressed as percentages of network management services revenues and
equipment and other revenues, respectively, are as follows:
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
---------------------- ---------------
1996 1997 1998 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Cost of network management servic-
es............................... 70.0 86.0 77.9 86.3 68.7
Cost of equipment and other....... 69.2 75.7 74.3 75.1 78.0
</TABLE>
23
<PAGE>
SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1997
Revenues
Total Revenues. Total revenues increased 79%, from $6.7 million in the first
six months of fiscal 1998 to $12.0 million in the first six months of fiscal
1999.
Network Management Services. Revenues from network management services
increased 74%, from $3.2 million in the first six months of fiscal 1998 to
$5.6 million in the first six months of fiscal 1999, representing 49% and 47%
of total revenues, respectively. The dollar increase resulted primarily from a
growth in the number of managed devices under contract, increased
implementation revenues and, to a lesser extent, increased installation
revenues resulting from higher volumes of CPE sales. Increased implementation
fees in the first six months of fiscal 1999 were largely due to a change in
Company policy in the quarter ended March 31, 1998 which resulted in the
Company charging fees for, rather than absorbing the costs of, implementing
new networks. These increases were partially offset by a decrease in the
fiscal quarter ended December 31, 1997, in the revenues attributable to the
management of the customer base sold to Intermedia. See "--Overview--
Discontinued Operations."
Equipment and Other. Revenues from equipment sales and other increased 85%,
from $3.4 million in the first six months of fiscal 1998 to $6.3 million in
the first six months of fiscal 1999, primarily as a result of increased
purchases of CPE by AT&T and, to a lesser extent, an increase in the number of
equipment maintenance contracts in place. The Company expects to encourage end
users to purchase equipment from other sources, and therefore anticipates that
revenues from CPE sales will decline from quarter to quarter as the Company
seeks to manage its mix of revenues by limiting discounts on CPE.
Cost of Revenues
Cost of Network Management Services. Cost of network management services
includes salary and other costs of personnel, depreciation of equipment
utilized to manage customer networks, the network management infrastructure
utilized to provide remote network management services, and the costs of third
party providers of CPE installation services. Cost of network management
services is expensed as incurred. Cost of network management services
increased 38%, from $2.8 million in the first six months of fiscal 1998 to
$3.9 million in the first six months of fiscal 1999, representing 86% and 69%
of network management services revenues in the first six months of fiscal 1998
and in the first six months of fiscal 1999, respectively. The dollar increase
was due primarily to the addition of personnel to accommodate growth, upgrades
to the network management infrastructure including the addition of a separate
infrastructure support group, the upgrade of facilities as described under "--
Overview--Costs and Expenses" above and, to a lesser extent, increased
subcontractor costs related to installation of CPE. The percentage decrease
was due primarily to improvements in processes and tools which have resulted
in a higher number of managed devices per operations employee.
Cost of Equipment and Other. Cost of equipment and other includes the
purchase of CPE from manufacturers and distributors, maintenance contracts
purchased for resale to end users, and capital equipment maintained by the
Company for replacement of failed units. This cost is expensed as incurred.
Cost of equipment and other increased 92%, from $2.6 million in the first six
months of fiscal 1998 to $5.0 million in the first six months of fiscal 1999,
representing 75% and 78% of equipment and other revenues in the first six
months of fiscal 1998 and in the first six months of fiscal 1999,
respectively. The increase in dollars and as a percent of equipment and other
revenues was due to higher volume of CPE sales in the first six months of
fiscal 1999 to the Company's resellers at lower resale margins. This increase
in cost was partially offset by a higher percentage of these revenues coming
from maintenance services which typically have higher gross margins than CPE
sales.
Operating Expenses
Development. Development expenses consist primarily of salaries and related
costs of development personnel, including contract programming services.
Development employees are responsible for developing internal software
systems, selecting and integrating purchased software applications, developing
software tools for the Company's network management services, developing the
Company's Web-enabled software applications
24
<PAGE>
that give customers access to network management information, and defining and
developing operating processes for new services. Development expenses
decreased 14%, from $958,000 in the first six months of fiscal 1998 to
$824,000 in the first six months of fiscal 1999, representing 14% and 7% of
total revenues in the first six months of fiscal 1998 and the first six months
of fiscal 1999, respectively. The decrease in dollars and as a percentage of
total revenues was due to the development of the Company's LAN product which
was introduced in the first quarter of fiscal 1998 and reduced usage of third
party contract programming resources. This decrease was partially offset by
increased depreciation on development tools. The decrease was also affected by
the Company's decision to manage development spending to a lower level as a
percentage of total revenues in the first six months of fiscal 1999, after
having accelerated spending in the first six months of fiscal 1998 in order to
support future revenue growth, cost reduction and service quality.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions, travel and costs associated with creating awareness for
the Company's services. Sales and marketing expenses increased 4%, to $1.4
million, representing 21% and 12% of total revenues in the first six months of
fiscal 1998 and the first six months of fiscal 1999, respectively. In the
first six months of fiscal 1999, total sales and marketing salaries paid
increased as additional people were added to support resellers and to focus on
new product definition. This dollar increase was offset by cost savings
realized when the Company closed its remaining remote sales offices and
relocated all sales activities to the Company's headquarters in Austin. The
decrease of sales and marketing expenses as a percentage of total revenues
reflects the increase in total revenues and a move to reduce these
expenditures as a percentage of total revenues as the Company began to rely
more on an indirect distribution strategy. The Company anticipates sales and
marketing costs may increase slightly as a percentage of total revenues over
the next 12 months, as additional sales and marketing personnel are added.
General and Administrative. General and administrative expenses consist
primarily of expenses related to the Company's human resources, finance and
executive departments. Included in human resources spending is all Company-
sponsored training as well as most costs of recruiting and relocating new
employees. General and administrative expenses increased 12%, from $937,000 in
the first six months of fiscal 1998 to $1.1 million in the first six months of
fiscal 1999, representing 14% and 9% of total revenues in the first six months
of fiscal 1998 and the first six months of fiscal 1999, respectively. The
dollar increase was due primarily to the addition of human resources
professionals who were responsible for enhancing training and recruiting
programs in preparation for growth. The increase was also due to higher
facility costs, and additional spending for outside training programs. The
decrease as a percentage of revenues is primarily the result of higher total
revenues in fiscal 1998.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest expense from the
Company's leases for capital equipment, offset by interest income earned on
the Company's cash balances. Net other income decreased 5%, from $75,000 in
the first six months of fiscal 1998 to $71,000 in the first six months of
fiscal 1999, both representing 1% of total revenues in the first six months of
fiscal 1998 and the first six months of fiscal 1999, respectively. The dollar
decrease in the first six months of fiscal 1999 was due to higher interest
income in the first six months of fiscal 1998 earned from a higher level of
funds available for investment offset by a write-off of contract development
expenses in the first six months of fiscal 1998 and increased interest paid on
capital lease obligations in the first six months of fiscal 1999.
25
<PAGE>
YEAR ENDED MARCH 31, 1998 COMPARED TO YEAR ENDED MARCH 31, 1997
Revenues
Total Revenues. Total revenues increased 130%, from $6.3 million in fiscal
1997 to $14.5 million in fiscal 1998.
Network Management Services. Revenues from network management services
increased 159%, from $2.8 million in fiscal 1997 to $7.3 million in fiscal
1998, representing 45% of total revenues in fiscal 1997 and 50% of total
revenues in fiscal 1998. The dollar and percentage increase in network
management services revenues resulted primarily from a growth in the number of
managed devices under contract, increased implementation revenues and, to a
lesser extent, increased installation revenues resulting from higher volumes
of CPE sales. Increased implementation fees in fiscal 1998 were largely due to
a change in Company policy in the quarter ended March 31, 1998 which resulted
in the Company charging fees for, rather than absorbing the costs of,
implementing new networks. These increases were partially offset by a decrease
in the fiscal quarter ended December 31, 1997 in the revenues attributable to
the management of the customer base sold to Intermedia. See "--Overview--
Discontinued Operations."
Equipment and Other. Revenues from equipment and other increased 107%, from
$3.5 million in fiscal 1997 to $7.2 million in fiscal 1998, primarily as a
result of increased sales of CPE.
Cost of Revenues
Cost of Network Management Services. Cost of network management services
increased 134%, from $2.4 million in fiscal 1997 to $5.7 million in fiscal
1998, representing 86% and 78% of network management services revenues in
fiscal 1997 and fiscal 1998, respectively. The dollar increase was due
primarily to the addition of personnel to accommodate growth, upgrades to the
network management infrastructure including the addition of a separate
infrastructure support group, facilities expansion to accommodate new
operations personnel, increased recruiting and relocation costs associated
with strengthening the management and technical talent of the operations
groups and, to a lesser extent increased subcontractor costs related to
installation of CPE. The percentage decrease was due primarily to a higher
number of managed devices per operations employee.
Cost of Equipment and Other. Cost of equipment and other increased 103%,
from $2.6 million in fiscal 1997 to $5.3 million in fiscal 1998, representing
76% and 74% of equipment and other revenues in fiscal 1997 and fiscal 1998,
respectively. The dollar increase was due primarily to the higher volume of
CPE sales in fiscal 1998 and, to a lesser extent, increased equipment
maintenance revenues.
Operating Expenses
Development. Development expenses increased 51%, from $1.3 million in fiscal
1997 to $1.9 million in fiscal 1998, representing 20% and 13% of total
revenues in fiscal 1997 and fiscal 1998, respectively. The dollar increase is
due to higher development spending in fiscal 1998 enabled by the sale of the
Company's transport business in the third quarter of fiscal 1997. This sale
provided a source of working capital to invest in the Company's relatively new
network management services offerings. These additional development expenses
included the costs associated with hiring additional people, including
additional facilities space. The decrease as a percentage of total revenues is
primarily the result of higher total revenues in fiscal 1998.
Sales and Marketing. Sales and marketing expenses increased 14%, from $2.2
million to $2.6 million, representing 36% and 18% of total revenues in fiscal
1997 and fiscal 1998, respectively. This dollar increase was due to increased
facility costs related to the closing of most of the Company's remote sales
offices as the Company began consolidating sales efforts at its Austin
headquarters as well as increased public relations and market awareness
efforts. The decrease as a percentage of total revenues reflects the increase
in recurring network management services revenues and a move to reduce these
sales and marketing expenditures as a percentage of total revenues as the
Company began to rely more on an indirect distribution strategy.
26
<PAGE>
General and Administrative. General and administrative expenses increased
45%, from $1.5 million in fiscal 1997 to $2.2 million in fiscal 1998,
representing 24% and 15% of total revenues in fiscal 1997 and fiscal 1998,
respectively. The dollar increase was due primarily to the addition of human
resources professionals beginning in the first quarter of fiscal 1998 who were
responsible for enhancing training and recruiting programs in preparation for
growth. The dollar increase was also due to additional facilities space,
additional spending for outside training programs and increased recruiting
costs. The decrease as a percentage of total revenues was primarily the result
of higher total revenues in fiscal 1998.
Other Income (Expense), Net
Net other income increased 268%, from $34,000 in fiscal 1997 to $125,000 in
fiscal 1998, representing 1% of total revenues in both fiscal 1997 and fiscal
1998. The dollar increase in fiscal 1998 was due to higher interest income in
fiscal 1998 earned from a higher level of funds available for investment
offset by a write-off of contract development expenses and obsolete equipment
and increased interest on capital lease obligations in fiscal 1998.
YEAR ENDED MARCH 31, 1997 COMPARED TO YEAR ENDED MARCH 31, 1996
Revenues
Total Revenues. Total revenues increased 72%, from $3.7 million in fiscal
1996 to $6.3 million in fiscal 1997.
Network Management Services. Revenues from network management services
increased 262%, from $782,000 in fiscal 1996 to $2.8 million in fiscal 1997,
representing 21% of total revenues in fiscal 1996 and 45% of total revenues in
fiscal 1997. Substantially all of the dollar increase was due to growth in the
number of managed devices under contract and, to a lesser extent, a contract
to manage the customer base of the discontinued transport operations for
Intermedia.
Equipment and Other. Revenues from equipment and other increased 21%, from
$2.9 million in fiscal 1996 to $3.5 million in fiscal 1997, primarily as a
result of increased sales of CPE.
Cost of Revenues
Cost of Network Management Services. Cost of network management services
increased 344%, from $548,000 in fiscal 1996 to $2.4 million in fiscal 1997,
representing 70% and 86% of network management services revenues in fiscal
1996 and fiscal 1997, respectively. The dollar increase was due primarily to
the addition of personnel to accommodate growth, upgrades to the network
management infrastructure, facilities expansion to accommodate new operations
personnel, and increased recruiting and relocation costs associated with
adding personnel. The percentage increase was due to the reassignment of
technical personnel following the sale of the discontinued transport
operations in December 1996.
Cost of Equipment and Other. Cost of equipment and other increased 32%, from
$2.0 million in fiscal 1996 to $2.6 million in fiscal 1997, representing 69%
and 76% of equipment and other in fiscal 1996 and fiscal 1997, respectively.
The dollar increase was due to the higher volumes of CPE sales in fiscal 1997,
lower gross margins on CPE due to higher discounting in fiscal 1997, and lower
equipment maintenance gross margins resulting from certain contracts yielding
higher gross margins sold to Intermedia.
Operating Expenses
Development. Development expenses increased 11%, from $1.1 million in fiscal
1996 to $1.3 million in fiscal 1997, representing 31% and 20% of total
revenues in fiscal 1996 and fiscal 1997, respectively. The dollar increase
resulted primarily from hiring additional development personnel. The decrease
as a percentage of total revenues reflected the significantly higher revenues
in fiscal 1997.
27
<PAGE>
Sales and Marketing. Sales and marketing expenses increased 207%, from
$732,000 to $2.2 million, representing 20% and 36% of total revenues in fiscal
1996 and fiscal 1997, respectively. This dollar increase was due primarily to
the reassignment of sales personnel, who were previously focused on the
Company's discontinued transport business, to the selling of network
management services. To a lesser extent, the dollar increase resulted from
increased public relations expenditures in fiscal 1997. The increase as a
percentage of total revenues reflected higher levels of spending to support
more rapid growth of the network management services business following the
sale of the discontinued transport operations.
General and Administrative. General and administrative expenses increased
10%, from $1.4 million in fiscal 1996 to $1.5 million in fiscal 1997,
representing 37% and 24% of total revenues in fiscal 1996 and fiscal 1997,
respectively. The dollar increase was due primarily to increased personnel and
recruiting expenses partially offset by reduced facilities costs. The decrease
as a percentage of total revenues is primarily the result of higher total
revenues in fiscal 1997.
Other Income (Expense), Net
Other income (expense), net increased from a net expense of $110,000 in
fiscal 1996 to net income of $34,000 in fiscal 1997, representing (3%) and 1%
of total revenues in fiscal 1996 and fiscal 1997, respectively. The dollar
increase in fiscal 1997 was due primarily to higher interest income in fiscal
1997 as the result of a higher level of funds available for investment
following the sale of the discontinued transport operations. The dollar
increase was offset partially by lower average outstanding obligations under
capital leases in fiscal 1997.
QUARTERLY RESULTS OF OPERATIONS
Although the Company's total revenues have increased in each of the last
eight quarters, results of operations have varied from quarter to quarter.
Accordingly, the Company believes that period to period comparisons of results
of operations are not necessarily meaningful and should not be relied upon as
indications of future performance. The Company's operating results may
fluctuate as a result of many factors, including the ability of the Company to
renew or retain existing end-user and reseller relationships, the cost of
introducing new service offerings and the profitability of such offerings, and
the level and nature of competition. Further, the Company may be unable to
adjust spending rapidly enough to compensate for any significant fluctuations
in the number of new managed devices implemented in a given period. Any
significant shortfall in the number of new managed devices could therefore
seriously damage the Company's business. Finally, there can be no assurance
that the Company will be profitable in the future or, if the Company is
profitable, that its levels of profitability will not vary significantly
between quarters. See "Risk Factors--Fluctuations in Quarterly Performance."
28
<PAGE>
The following tables set forth quarterly statement of operations data in
dollars and, except as noted below, as a percentage of total revenues for each
of the ten quarters in the period ended September 30, 1998. This quarterly
information is unaudited and has been prepared on the same basis as the
Company's audited annual consolidated financial statements and, in the opinion
of the Company's management, includes all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
information for the periods presented, when read together with the Company's
Consolidated Financial Statements and Notes appearing elsewhere in this
Prospectus. Operating results for any quarter are not necessarily indicative
of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1997 1997 1997 1997 1998 1998 1998
-------- --------- -------- -------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Network management
services............... $ 334 $ 467 $ 821 $1,208 $1,524 $ 1,723 $1,811 $2,266 $2,560 $3,081
Equipment and other..... 766 632 917 1,171 1,584 1,852 1,795 1,968 3,002 3,342
------ ------ ------- ------ ------ ------- ------ ------ ------ ------
Total revenues.......... 1,100 1,099 1,738 2,379 3,108 3,575 3,606 4,234 5,562 6,423
Cost of revenues:
Cost of network
management services.... 384 512 603 935 1,325 1,476 1,407 1,498 1,808 2,068
Cost of equipment and
other.................. 532 438 739 929 1,232 1,350 1,349 1,417 2,321 2,629
------ ------ ------- ------ ------ ------- ------ ------ ------ ------
Total cost of revenues.. 916 950 1,342 1,864 2,557 2,826 2,756 2,915 4,129 4,697
------ ------ ------- ------ ------ ------- ------ ------ ------ ------
Gross profit............ 184 149 396 515 551 749 850 1,319 1,433 1,726
Operating expenses:
Development............. 297 306 343 316 494 464 465 479 446 378
Sales and marketing..... 554 570 612 510 627 771 561 603 739 710
General and
administrative......... 315 338 465 371 419 518 600 622 541 512
------ ------ ------- ------ ------ ------- ------ ------ ------ ------
Total operating
expenses............... 1,166 1,214 1,420 1,197 1,540 1,753 1,626 1,704 1,726 1,600
------ ------ ------- ------ ------ ------- ------ ------ ------ ------
Operating income
(loss)................. (982) (1,065) (1,024) (682) (989) (1,004) (776) (385) (293) 126
Other income (expense),
net.................... (20) (23) (23) 100 134 (59) (16) 66 48 23
------ ------ ------- ------ ------ ------- ------ ------ ------ ------
Income (loss) from
continuing operations
before income taxes.... (1,002) (1,088) (1,047) (582) (855) (1,063) (792) (319) (245) 149
Income tax benefit...... 350 397 379 131 83 104 78 32 -- --
------ ------ ------- ------ ------ ------- ------ ------ ------ ------
Net income (loss) from
continuing operations.. (652) (691) (668) (451) (772) (959) (714) (287) (245) 149
Discontinued operations:
Income from discontinued
operations, net of
applicable income
taxes.................. 758 771 540 73 72 97 5 (9) -- --
Gain on sale of
discontinued
operations, net of
applicable income
taxes.................. -- -- 10,648 (33) -- 151 (4) 194 -- --
------ ------ ------- ------ ------ ------- ------ ------ ------ ------
Net income (loss)....... $ 106 $ 80 $10,520 $ (411) $ (700) $ (711) $ (713) $ (102) $ (245) $ 149
====== ====== ======= ====== ====== ======= ====== ====== ====== ======
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1997 1997 1997 1997 1998 1998 1998
-------- --------- -------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL
REVENUES:
Revenues:
Network management
services.............. 30.4% 42.5% 47.2% 50.8 % 49.0 % 48.2 % 50.2 % 53.5 % 46.0 % 48.0%
Equipment and other.... 69.6 57.5 52.8 49.2 51.0 51.8 49.8 46.5 54.0 52.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Total cost of
revenues(1)............ 83.3 86.4 77.2 78.4 82.3 79.0 76.4 68.8 74.2 73.1
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 16.7 13.6 22.8 21.6 17.7 21.0 23.6 31.2 25.8 26.9
Operating expenses:
Development............ 27.0 27.8 19.7 13.3 15.9 13.0 12.9 11.3 8.0 5.9
Sales and marketing.... 50.4 51.9 35.2 21.4 20.1 21.6 15.6 14.3 13.3 11.0
General and
administrative........ 28.6 30.8 26.8 15.6 13.5 14.5 16.6 14.7 9.8 8.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses.............. 106.0 110.5 81.7 50.3 49.5 49.1 45.1 40.3 31.1 24.9
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income
(loss)................. (89.3) (96.9) (58.9) (28.7) (31.8) (28.1) (21.5) (9.1) (5.3) 2.0
Other income (expense),
net.................... (1.8) (2.1) (1.3) 4.2 4.3 (1.6) (0.5) 1.6 0.9 0.3
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
continuing operations,
before income taxes.... (91.1) (99.0) (60.2) (24.5) (27.5) (29.7) (22.0) (7.5) (4.4) 2.3
Income tax benefit...... 31.8 36.1 21.8 5.5 2.7 2.9 2.2 0.8 -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss) from
continuing operations.. (59.3) (62.9) (38.4) (19.0) (24.8) (26.8) (19.8) (6.7) (4.4) 2.3
Discontinued operations:
Income from
discontinued
operations, net of
applicable income
taxes................. 68.9 70.2 31.0 3.1 2.3 2.7 0.1 (0.2) -- --
Gain on sale of
discontinued
operations, net of
applicable income
taxes................. -- -- 612.7 (1.4) -- 4.2 (0.1) 4.5 -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... 9.6% 7.3% 605.3% (17.3)% (22.5)% (19.9)% (19.8)% (2.4)% (4.4)% 2.3%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
- ---------------
(1) Cost of network management services and cost of equipment and other, expressed as percentages of
network management services revenues and equipment and other revenues, respectively, are as follows:
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1997 1997 1997 1997 1998 1998 1998
-------- --------- -------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of network
management services.. 115.0 109.6 73.4 77.4 86.9 85.7 77.7 66.1 70.6 67.1
Cost of equipment and
other................ 69.5 69.3 80.6 79.3 77.8 72.9 75.2 72.0 77.3 78.7
</TABLE>
The trends discussed in the annual comparisons of operating results from
fiscal 1997 to fiscal 1998 and the first six months of fiscal 1998 to the
first six months of fiscal 1999 are generally applicable to the comparison of
quarters within the ten quarterly periods ended September 30, 1998. The
following supplemental explanations are provided with respect to significant
sequential changes in amounts.
The relatively slower sequential growth of network management services
revenues in the quarter ended December 31, 1997 was due to the expiration of
the contract with Intermedia whereby the Company managed
30
<PAGE>
the customer base of the discontinued transport business. The larger than
usual sequential growth in equipment and other revenues in the quarter ended
June 30, 1998 was due primarily to increased sales of network management
services to AT&T, which included higher volumes of CPE sales.
The increase in cost of network management services as a percent of network
management services revenues in the quarters ended March 31, 1997 and June 30,
1997 was due to planned increases in spending in order to prepare for growth
following the sale of the discontinued transport operations in December 1996,
and to evaluate alternate ways to increase the number of managed devices per
employee in future periods.
The increase in cost of equipment and other as a percent of equipment and
other revenues in the quarter ended December 31, 1996 resulted from a
significant increase in CPE sales, which have lower gross margins than
equipment maintenance services. This percentage increase also reflected the
sale of customer maintenance contracts, which typically yielded higher average
gross margins, in connection with the sale of the discontinued transport
operations. The increase in this cost as a percent of equipment and other
revenues in the quarter ended June 30, 1998 was due primarily to a higher mix
of CPE sales. The Company expects to encourage end users to purchase equipment
from other sources, and therefore anticipates that revenues from CPE sales
will decline from quarter to quarter as the Company seeks to manage its mix of
revenues by limiting discounts on CPE.
The increase in development expenses in the quarter ended June 30, 1997 was
due to planned increases in personnel and contract programming following the
sale of the discontinued transport operations.
The fluctuations in general and administrative expenses on a quarter-to-
quarter basis reflect periodic changes in amounts spent for training,
recruiting and relocation, and consulting services.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception the Company has funded its operations primarily through:
. private sales of capital stock totaling $28.3 million, including most
recently the sale of capital stock in fiscal 1993 for $9.8 million;
. the sale of its discontinued transport business for $12.3 million in
December 1996;
. leases on capital equipment;
. working capital lines of credit; and
. cash provided by operations in fiscal 1995 and 1996 of $1.1 million
and $1.0 million, respectively.
The Company used cash in fiscal 1997 and fiscal 1998 of $1.5 million and
$2.2 million, respectively, and $1.1 million in the first six months of fiscal
1999, to purchase capital assets primarily used in the delivery of its network
management services. The Company anticipates spending between $900,000 and
$1.4 million for capital expenditures during the last six months of fiscal
1999, although it currently has no material commitments for capital
expenditures. Proceeds from leases of capital equipment totaled $218,000 and
$1.7 million in fiscal 1997 and 1998, respectively, and $562,000 in the first
six months of fiscal 1999. The Company paid $514,000 and $257,000 toward its
lease obligations for capital equipment in fiscal 1997 and fiscal 1998,
respectively, and $328,000 in the first six months of fiscal 1999.
The Company's financial and accounting system for accounts payable, accounts
receivable and general ledger accounts is not Year 2000 compliant. The Company
intends to upgrade this system prior to March 31, 1999, in order to make the
system Year 2000 compliant. The Company is still in the process of checking
its other systems, although the Company believes they are currently Year 2000
compliant. However, these systems incorporate certain third-party software and
systems that may not be Year 2000 compliant. In addition, resellers', end
users' and vendors' software and systems may not be Year 2000 compliant. The
failure of systems maintained by the Company's resellers, end users and
vendors to be Year 2000 compliant could cause the Company to incur significant
expenses to remedy any problems, reduce the Company's revenues from such end
users, or otherwise have a material adverse effect on the Company's business,
financial condition and results of operations.
31
<PAGE>
The Company has not incurred significant costs to date complying with Year
2000 requirements, and does not believe that it will incur significant costs
for such purposes in the foreseeable future. The Company expects to spend
approximately $200,000 to upgrade its financial and accounting systems. Any
disruption of the Company's operations or additional unanticipated expenses
could have an adverse effect on the Company's business, financial condition
and results of operations. See "Risk Factors--Year 2000 Issues."
In December 1996, the Company terminated its $1.0 million bank line of
credit prior to the closing of the sale of the transport business. If
desirable, the Company believes it can obtain a similar working capital line
of credit on acceptable terms.
As of September 30, 1998, the Company had $117,000 in cash and cash
equivalents and $2.9 million in net accounts receivable. The Company believes
that the net proceeds from this offering, together with cash generated from
operations, will be sufficient to fund its anticipated working capital needs,
capital expenditures and any potential future acquisitions for at least twelve
months. In the event the Company's plans or assumptions change or prove to be
inaccurate, or if the Company consummates any unplanned acquisitions of
businesses or assets, the Company may be required to seek additional sources
of capital. Sources of additional capital may include public and private
equity and debt financings, sales of nonstrategic assets and other financing
arrangements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
Reporting Comprehensive Income. This statement requires the Company to report
components of comprehensive income in a financial statement that is displayed
with the same prominence as other financial statements. The Company adopted
SFAS 130 in the six months ended September 30, 1998. There was no impact to
the Company as a result of the adoption of SFAS 130, as there were no
significant differences between net income (loss) and comprehensive income
(loss) for any period presented.
In June 1997, the Financial Accounting Standard Board issued SFAS 131,
Disclosures about Segments of an Enterprise and Related Information. This
statement requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. SFAS 131 is
effective for fiscal years beginning after December 15, 1997, but is not
required for interim disclosure in the first year of adoption. The Company
expects that implementation of this standard will not have a material effect
on its financial disclosures.
32
<PAGE>
BUSINESS
NetSolve offers a range of remote network management and security services
that allow companies to selectively outsource, or "out-task," specific network
activities in order to increase network reliability and up-time, reduce
overall network costs, and simplify timely migration to new technologies. The
Company's management services are intended to address all or selected parts of
the full life cycle of network management, which consists of network design,
configuration, implementation, monitoring, fault diagnosis, fault resolution,
reporting, upgrading and documentation. NetSolve furnishes its network
management services remotely 24 hours per day, seven days per week from its
Network Management Center in Austin, Texas, and it offers software tools that
allow companies to access up-to-date network status reports through standard
Web browsers. The Company also offers around-the-clock remote security
protection services for networks' Internet and intranet perimeter points. The
Company's security offerings currently include a managed firewall service and
a remote intrusion detection and response service. The Company has offered
network management services since 1995 and currently has over 375 end users
representing more than 4,800 managed sites. The Company targets middle market
enterprises, roughly defined as companies that have between 200 and 1,500
employees and annual revenues between $50 million and $2.5 billion, and
provides services both directly to end users as well as through resellers such
as AT&T.
INDUSTRY BACKGROUND
Businesses increasingly depend on the ability to access and share electronic
information reliably. To enable effective internal communication, more and
more companies are relying on client/server-based databases and applications,
e-mail, remote access by mobile workers and various forms of online
information. The proliferation of the use of the Internet and the emergence of
e-commerce are driving the need for businesses to exchange electronic
information externally with customers, business partners and vendors. In
response to the growing need to share information internally and externally,
companies' operations increasingly depend on data networks, including both
wide area networks ("WANs") and local area networks ("LANs"). This has
resulted in a dramatic increase in network traffic as well as heightened
requirements for network performance. It has also driven growth in the amount
of sensitive corporate information shared over networks, causing network
security to become a high priority for many businesses. As a result of these
trends, a growing number of businesses view responsive, reliable and secure
networks as mission-critical to their operations.
As networks have become a more integral part of day-to-day operations, many
companies are seeking to control network costs and improve operating
efficiencies. Economic and performance issues are especially important for
organizations operating WANs to connect geographically dispersed sites.
Providers of WAN equipment and services have responded to customer demand by
introducing switched data technologies such as Frame Relay, Asynchromous
Transfer Mode ("ATM") and Internet Protocol ("IP"). While traditional
architectures provide dedicated circuits between computing facilities and
fixed bandwidth regardless of traffic flow, new switched data technologies
share and dynamically allocate bandwidth based on prevailing traffic patterns.
The shared bandwidth of switched data technologies typically results in WANs
that are more reliable and less expensive than those based on traditional
leased-line services. As a result, switched data services have grown rapidly
since WAN service providers initially introduced Frame Relay services as a
solution. ATM services, a switched data technology characterized by higher
capacities and higher speeds, are less widely offered today but are expected
to compete with Frame Relay and experience rapid growth in the next several
years. Likewise, services based on IP are becoming an important option to the
traditional dedicated circuit WAN infrastructure.
The growth of the switched data market has been enabled by the rapid
development of sophisticated networking hardware such as routers, inverse
multiplexers and switches. At the same time, software companies have
introduced network management and security software designed to work with and
optimize the new hardware. Implementation and management of new hardware and
software technologies typically require significant expertise in order to
maintain reliability, performance and security, especially since networks have
grown more complex and heterogeneous as new technologies have been integrated
with legacy networks.
33
<PAGE>
Further, the tools available to manage today's networks are themselves complex
and often require incremental investments in hardware, software, personnel and
training. The proliferation of services available from WAN service providers,
such as the major telecommunications carriers, further complicates network
management and security.
Many companies have encountered difficulties implementing and managing
networks internally because of the significant shortage of qualified
networking and information technology ("IT") professionals. An independent
industry analyst estimates that between 15% and 30% of permanent IT positions
were unfilled in mid-1998 and that the total volume of IT work will increase
45% by 2003. Maintaining internal IT staffs is costly since network management
skills must be constantly upgraded to respond to the rapid changes in
networking and security technologies. This situation is even more acute in the
area of network security, an area that is increasing in importance due to
threats of security attacks via the Internet as well as rapidly changing
security technology. The resource scarcity and high cost of internal IT staffs
represent significant challenges for businesses, especially mid-sized
companies that are large enough to require sophisticated networks, but too
small to gain efficiencies of scale achievable by a large enterprise that can
amortize the costs of an in-house IT network management group across a large
organization.
Many companies are beginning to turn to third-party service providers for
network management and security, particularly when those skills are not core
business competencies. While some companies out-source their entire computing
environment, a growing number of companies are managing their computing
environments more actively and affordably by out-tasking a particular set of
activities. Businesses seeking to out-task network management services
typically need to migrate quickly to newer technologies as they become
available, increase the reliability of their networks and reduce the overall
cost of managing their networks. Further, these businesses' networks must be
available to internal and external users 24 hours per day, seven days per
week. Even if network management activities are out-tasked, internal IT
managers need access to network information and performance reporting at all
times. In addition, network security must be assured, with access to the
networks limited to authorized users, and then only to those applications and
data for which the users have been authorized. All of this network management
must be done in an environment of constant and rapid change in networking and
security technology where the time to implement new technologies can affect
the time to market of new products and services.
NETSOLVE'S SOLUTION
NetSolve offers remote network management services that allow customers to
out-task network specific activities in order to increase network reliability
and up-time, reduce overall network costs and migrate to new technologies and
services on a timely basis. The Company also offers security protection for
network perimeter points such as an enterprise's Internet or intranet
connections. The Company's solutions are designed to address the needs of
middle market enterprises, roughly defined as companies that have between 200
and 1,500 employees and annual revenues between $50 million and $2.5 billion.
The Company currently has over 375 middle market end users that maintain more
than 4,800 managed sites. The Company believes its solution offers the
following key benefits:
Full Breadth of Network Management Services. The Company's network
management services cover the entire life cycle of an enterprise's network,
including network design, configuration, implementation, monitoring, fault
diagnosis, fault resolution, reporting, upgrading and documentation. End users
have the ability to outsource all of their network requirements to NetSolve,
or they can retain control over certain aspects of their network and out-task
only selected network management tasks.
Reduced Costs. Substantial costs are incurred in retaining and maintaining
an internal IT staff that is qualified to manage a complex, multi-site
network. NetSolve is able to amortize these personnel-related costs, as well
as costs of necessary network infrastructure, software and tools, over
hundreds of end users. As a result, NetSolve often is able to offer a better
network solution at a lower cost than if an end user attempted to manage its
network in-house. Furthermore, the Company evaluates, purchases, develops and
integrates application-specific software and tools that allow the Company to
deliver reliable solutions at low costs. The Company
34
<PAGE>
supports only the relatively small number of providers of networking hardware
and carrier services that collectively dominate the market for such equipment
and services. By focusing on the leading equipment manufacturers and carriers,
the Company is able to leverage economies of scale in managing multiple end-
user networks.
Network Reliability, Security and Up-Time. As enterprises continue to
increase their use of networks for internal and external communication and for
conducting e-commerce, the need for reliable and secure networks becomes more
critical. NetSolve provides its remote network management and security
services to end-user locations worldwide 24 hours per day, seven days per
week. The Company's remote network management services for WANs generally
include a guarantee to provide end-to-end network availability for at least
99.5% of the time in any given month.
Ease of Network Maintenance and Technology Upgrades. NetSolve's network
management professionals act as an extension of the customer's IT staff. By
relying on NetSolve's expertise, infrastructure and tools, end users are able
to meet the challenges posed by rapidly evolving technologies and move quickly
and affordably to more advanced network solutions as needed. NetSolve reports
to end users on an ongoing basis and recommends upgrades or changes when
appropriate.
Web-Enabled Network Monitoring and Reporting. End users can out-task to
NetSolve the complex, frustrating and expensive responsibilities of dealing
with day-to-day network management and security issues, yet still be able to
understand and see their networks in operation. End users can access the
Company's Web-enabled network management and monitoring tools and view on
their computer screens a network map that gives a current status of every site
on their networks. NetSolve also provides end users with reports of network
activity periodically or on demand.
STRATEGY
NetSolve's goal is to be a leading provider of remote network management
services. The key elements of the Company's strategy include the following:
Target Middle Market Enterprises. The Company believes a significant market
opportunity exists for its services among enterprises that are large enough to
employ WANs across multiple sites, but too small to amortize the costs of an
in-house IT network management staff across a large organization. These middle
market companies, which typically have between 200 and 1,500 employees and
annual revenues between $50 million and $2.5 billion, are facing a growing
need for network expertise and technology. At the same time, they are
encountering increased difficulties in attracting qualified and affordable
networking professionals. The Company believes its remote network management
and security services offer an attractive solution for many middle market
companies and intends to target these companies in marketing its existing
services and developing new services.
Support Leading Technologies. The Company has been able to provide cost-
effective solutions to its customers by supporting only the leading providers
of networking hardware and carrier services. The suppliers which the Company
supports include AT&T, MCI/WorldCom and Sprint in the data transport arena,
and 3Com, Bay/Nortel, Cabletron and Cisco in the market for customer premise
equipment ("CPE"). By designing its services to support this select group of
leading service and equipment vendors, the Company seeks to leverage its
expertise, technologies and processes, while still providing support for the
needs of most middle market companies. The Company intends to continue to
develop its processes and tools to support new hardware and services
introduced by leading vendors. This ongoing support may require NetSolve to
modify existing services and, in some cases, develop new services. For
example, the Company recently has begun managing ATM devices and is actively
attempting to define new value added services.
Expand Service Offerings. The Company seeks to expand its service offerings
by leveraging its existing expertise, technologies and processes. In August
1996, the Company introduced a security service that provides
35
<PAGE>
remote intrusion detection. This offering utilized the Company's Network
Management Center and tools infrastructure and was supplemented by additional
proprietary and third-party tools, as well as engineers with specific network
security expertise. In the future, the Company intends to develop proactive
network management services involving performance engineering and capacity
planning.
Add Distribution Partners. The Company believes it can market its services
to middle market companies most effectively by partnering with resellers that
bundle the Company's services with transport services or CPE. The Company
believes it can expand its current distribution relationships to include other
major carriers, competitive local exchange carriers ("CLECs") and Internet
service providers ("ISPs"), and that it can also establish sales referral
relationships with various manufacturers of networking hardware. The Company
believes that these relationships will provide the Company with a significant
competitive advantage.
NETWORK MANAGEMENT SERVICES
NetSolve's network management services include one-time services such as
design and implementation of new networks, as well as ongoing, or recurring,
management and security services. NetSolve's current service offerings are
grouped under three general categories: remote network management services,
Internet and intranet security services, and Web-enabled network management
tools.
Remote Network Management Services
Managed router services include the remote management of router-based WANs
and LANs, LAN switches and intelligent hubs, as well as the monitoring of
servers. These services are intended to address the full life cycle of network
management, which includes the activities depicted below:
NETWORK MANAGEMENT LIFE CYCLE ACTIVITIES
[Four circles are linked by arrows pointing from left to right. The four
circles contain the following words:]
Design
Configure
Implement
Network Operations and Support
[Six additional circles circumscribe the circle captioned "Network Operations
and Support." The six circles contain the following words, beginning at the
top and moving clockwise:]
Monitor
Diagnose
Resolve
Report
Upgrade
Document
NetSolve provides services to address each of these life cycle activities.
Customers may elect to purchase full life cycle management services or may, in
some cases, purchase individual services, such as network design or
monitoring. Pricing for recurring services is generally established as a
monthly fee on a per-managed-device basis. The following highlights services
performed by NetSolve for each life cycle activity:
36
<PAGE>
<TABLE>
<CAPTION>
LIFE CYCLE ACTIVITY SERVICES PERFORMED BY NETSOLVE
------------------- --------------------------------------------------------
<C> <S>
Design . Design network to meet specific end-user requirements
. Offer CPE and maintenance pricing information
Configure . Configure CPE to enhance initial and ongoing network
performance
. Determine addressing, packet filtering and routing
protocol
Implement . Provide project management
. Stage, configure and install equipment
. Verify operational readiness
Monitor . Monitor network 24 hours per day, 7 days per week from
the Company's Network Management Center
Diagnose . Proactively diagnose faults
. Notify end user of status
Resolve . Proactively resolve faults
. Notify end user of status
Report . Offer network performance, transport provider
performance and cost analysis reports
Upgrade . Upgrade or change components in the network as
requirements or configurations change
. Review software releases
. Install and configure new software and equipment as
appropriate
Document . Download and archive on NetSolve's management platform
information related to CPE configurations, carrier and
CPE service provider data and other network
connectivity information
. Create and update network maps
</TABLE>
The Company has two branded remote network management service packages:
ProWatch for WANs and ProWatch for LANs.
ProWatch for WANs. NetSolve introduced its first WAN remote
management service in January 1994 to enable remote management of
router-based Frame Relay and ATM networks. This service is marketed by
NetSolve and certain of its resellers as ProWatch for WANs. It is also
marketed by other resellers, sometimes in modified versions, under the
various brands of those resellers. The managed elements in this service
include the WAN-attached router, the customer service unit ("CSU")
connecting the router to the transport provider's Frame Relay or ATM
service, and the transport provider's network services. Features
offered in different options of ProWatch for WANs include: (1)
performance engineering and fault management; (2) monitoring; and (3)
performance reporting. The ProWatch for WANs service generally includes
a guarantee to provide end-to-end network availability for at least
99.5% of the time in any given month, with the customer generally
receiving a refund of the management fee in any month the guaranteed
availability rate is not achieved. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview."
Substantially all of the Company's recurring network management
services revenues are derived from ProWatch for WANs and related WAN
services. See "Risk Factors--Dependence on WAN Services; Need to
Develop and Sell Additional Services."
ProWatch for LANs. NetSolve introduced its LAN remote management
service in May 1997 to measure, monitor and manage the routers,
switches and intelligent hubs in corporate LANs. This service can also
monitor the availability of servers manageable by the Simple Network
Management
37
<PAGE>
Protocol ("SNMP"). NetSolve LAN management services are marketed by
NetSolve and certain of its resellers as ProWatch for LANs and are also
marketed by other resellers under the various brands of those
resellers. In developing the ProWatch for LANs service, the Company
leveraged the expertise, technologies and processes it developed in
providing ProWatch for WANs. The primary differences between ProWatch
for LANs and ProWatch for WANs are the exclusion of the transport
provider's network services and the inclusion of additional performance
reporting capabilities.
Internet and Intranet Security Services
The Company's network security services, marketed under the brand name
ProWatch Secure, provide protection 24 hours per day, seven days per week for
networks' Internet and intranet perimeter points. This security service
includes the following elements of remote network security management:
security assessment and recommendations; implementation; ongoing security
management; assurance; security reports and consultation; configuration
management; and virtual private network ("VPN") configuration management. The
pricing for these security services is generally established as a monthly fee
on a per-managed-device basis. Key services offered by the Company include:
Managed Firewall Service. This service provides active management of
the firewall by NetSolve security engineers reviewing firewall logs and
alarms daily to detect suspicious activity and consulting with the end
user regarding potential changes in the firewall configuration.
NetSolve manages the firewall configuration and VPN connections on an
ongoing basis. The end user receives security reports and a
consultation session with a security engineer on a monthly basis.
ProWatch Secure Managed Firewall Service is supported on Cisco's PIX
Firewall series. The Cisco PIX Firewall is configured by a NetSolve
security engineer to enforce the security policy that best meets the
end user's requirements to control access by specified applications and
source addresses. The ProWatch Secure Managed Firewall Service was
introduced in September 1998 as a more basic security service than the
Company's Remote Intrusion Detection and Response Service.
Remote Intrusion Detection and Response Service. For more demanding
security environments, such as those engaged in e-commerce, customers
can implement intrusion detection monitoring as a second layer of
network security. This service provides additional perimeter security
beyond that offered by the access protection of ProWatch Secure Managed
Firewall Service. ProWatch Secure Remote Intrusion Detection and
Response Service uses Cisco's NetRanger intrusion detection system to
detect suspicious activity on customer networks, repel attack attempts
and bar the potential intruder from accessing the end user's network.
The Company introduced its ProWatch Secure Remote Intrusion Detection
and Response Service in August 1996.
End users may purchase these services individually, together or as a
combined network management service offering. In addition, the Company is
seeking to offer these security services through marketing partnerships. For
example, in October 1998, the Company, Cisco and CIGNA announced jointly that
CIGNA would offer insurance coverage to companies who agree to use ProWatch
Secure Remote Intrusion Detection and Response Service and Cisco's data
security technology and equipment.
Web-Enabled Tools
The Company's Web-enabled network management tools provide end users with
access to up-to-date status information of their networks, giving end users
greater control and understanding of their networks while out-tasking day-to-
day management to NetSolve. End users access these tools through a standard
Web browser using the Company's ProWatch Exchange application. ProWatch
Exchange provides trouble ticket status and history, plus network installation
project status. An active network map displays the status of all managed sites
in an end user's network. ProWatch Exchange also provides on-line viewing
access to the monthly availability and performance reports included with the
various remote network management services.
38
<PAGE>
EQUIPMENT AND OTHER SERVICES
The Company resells CPE from leading network equipment manufacturers or
their resellers. This equipment typically includes routers, CSUs and LAN
switches and is obtained primarily from Cisco and, to a lesser extent, from
3Com, Bay/Nortel and Paradyne.
The Company also resells on-site maintenance services. These services
address issues associated with hardware failures and software bugs, as well as
software upgrades provided for under the equipment provider's maintenance
contract. These maintenance services are provided by 3Com, Bay/Nortel, Cisco
and Racal.
CUSTOMERS
The Company's solutions are designed to address the needs of middle market
enterprises, roughly defined as companies that have between 200 and 1,500
employees and annual revenues between $50 million and $2.5 billion. The
Company currently has over 375 middle market end users that maintain more than
4,800 managed sites. The Company's end users consist of its direct customers
as well as customers of its resellers. The following is a list of selected
NetSolve direct customers grouped by industry.
BUSINESS SERVICES ENTERTAINMENT MANUFACTURING
- ----------------- ------------- -------------
Claremont Technology Group Capstar Broadcasting Temple Inland Forest
The Kinetic Group TCA Cable Products Corp.
Texas Industries
CHEMICALS FINANCIAL SERVICES MEDICAL
- --------- ------------------ -------
Condea Vista Company Amresco American Medical Response
Helena Chemical Firstplus Financial YFCS, Inc.
DISTRIBUTION FOOD PRODUCTS
- ------------ -------------
BT Office Products Kendall-Jackson
Industrial Distribution Sun Gro Horticulture
Inc./Boring Smith
EDUCATION HIGH TECHNOLOGY
- --------- ---------------
Bucks County School District Splitrock Services
Corinthian Schools Verifone Corporation
When sold to end users by resellers, the Company's services are typically
sold under the reseller's trade or brand name. In some instances, however, the
reseller utilizes NetSolve's brand names. Certain of the Company's services
sold to resellers are provided directly to the reseller either to support the
reseller's network (as in the case of certain carriers) or are embedded as a
portion of a carrier transport service sold to end users. The Company's
resellers include AT&T, Enterprise Network Services, eSpire and Intermedia.
The Company has derived a significant portion of its revenue from one
reseller, AT&T. See "Business--Relationship with AT&T." No other NetSolve
customer accounted for more than 10% of the Company's revenues in any of the
last three fiscal years.
RELATIONSHIP WITH AT&T
The Company has developed marketing partnerships with two separate business
units of AT&T: AT&T Solutions and AT&T Business Network Services. Both of
these business units market NetSolve's network management services to AT&T
customers in conjunction with AT&T's overall network solution offering.
NetSolve's technicians work directly with AT&T's sales and marketing personnel
and the end users to design, implement and manage the end users' networks. For
fiscal 1996, 1997, and 1998, the Company derived 9%, 27% and 52% of its total
revenues, respectively, from AT&T. It is anticipated that this concentration
of revenue from AT&T will continue, and it is expected to increase during the
last half of fiscal 1999 and a significant portion of fiscal 2000.
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NetSolve provides its services for AT&T customers under a written contract
that has separate terms for each of the two business units. The arrangements
with AT&T Solutions currently terminate on the later of December 31, 1999 or
six months following notice of termination. Following the termination date,
NetSolve is required to continue to provide services to then-existing end
users. The volume of such business that may be moved by AT&T to other entities
may not exceed 8% per month times the dollar amount billed in the last full
month prior to termination.
The arrangements with AT&T Business Network Services are in support of two
carrier services: COFRAD (Central Office Frame Relay Assembler and
Disassembler) and Frame Relay Plus. The arrangements in support of COFRAD will
terminate December 31, 1998. The arrangements in support of Frame Relay Plus
are currently in place for a trial period which ends upon the installation of
1,000 managed devices. As of September 30, 1998, approximately 400 managed
devices had been installed under this arrangement. Either AT&T or the Company
may terminate these arrangements upon ninety days' notice. The Company
believes the arrangement in support of Frame Relay Plus will be renewed upon
completion of the trial period.
SALES AND MARKETING
NetSolve markets its services directly to end users as well as to resellers.
Services sold to carrier resellers support the carriers' network operations or
are incorporated in services the carriers sell directly to end users. In
fiscal 1998, 29% of network management service revenues were derived from
direct customers. The Company's strategy is to build its reseller channels and
the Company expects that these channels will represent an increasing
percentage of the Company's network management revenues for the foreseeable
future. The Company's resellers include AT&T, Enterprise Network Services,
eSpire and Intermedia. All sales of the Company's services to date have been
made in the U.S. However, the Company remotely manages locations around the
world for these customers.
At September 30, 1998, the Company employed ten people in sales and sales
support. Each sales person is assigned one or more reseller channels to
support. Certain sales individuals are also responsible for direct sales to
end users of the Company's services. Reseller support by the NetSolve sales
organization includes assistance with responses to requests for proposals,
network design and proposal generation, and participation in sales calls to
potential customers. The NetSolve sales organization also helps resellers
define services and familiarize the reseller's sales forces with the Company's
services and networking options. All of the Company's sales and marketing
employees are based at the Company's headquarters in Austin.
At September 30, 1998, the Company employed five people in marketing who are
responsible for marketing communications, public relations and new service
introductions. Primary marketing communications include direct mail
promotions, seminars and the Company's Web site. Public relations activities
include obtaining media coverage and public recognition. New service
introductions include service definition, pricing, competitive analysis,
service beta test and general availability launches, identification of
potential reseller partners and service creation program management. The
marketing group also works closely with its larger reseller partners to
define, develop and implement embedded carrier services.
SOFTWARE DEVELOPMENT
The role of the Company's software development group, which consisted of 11
people at September 30, 1998, is to develop or integrate the tools utilized by
the Company to manage networks and to develop software applications, such as
ProWatch Exchange, which become components of the Company's services. While
certain of the Company's applications and tools are proprietary, all are built
using industry-standard protocols, tools and development environments,
including HyperText Markup Language (HTML), Java, Java Script, Microsoft
Access, Oracle 8.x relational database software and development tools, Remote
Monitoring (RMON), SNMP and Visual Basic.
40
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OPERATIONS
The NetSolve operations organization, comprised of 78 individuals at
September 30, 1998, is responsible for delivery of the Company's services to
end users. By defining network management tasks into sets of tightly defined
services, the Company is able to deliver functionality to its end users at
cost-effective prices. The Company's services generally are provided using a
team approach where each customer is assigned to a team of customer engineers,
with one member of the team being assigned primary customer responsibility and
each member providing back-up when the primary engineer is not available.
These customer engineer teams are supported by other groups within the
Company's operations group. The first level of service delivery is the
Company's Network Management Center, which is staffed 24 hours per day, seven
days per week with network engineers and technicians who have a broad range of
technical expertise. From the Network Management Center, responses to polls to
managed devices are monitored continuously and trouble tickets are opened in
response to network outages. The goal of this group is to provide the end user
with notice and a diagnosis within fifteen minutes of a network failure. Upon
isolation of the problem, the appropriate service provider is dispatched to
the end user's premises as required to repair the outage. Network Management
Center employees can electronically enter trouble tickets into selected
transport provider's systems to enable faster resolution of carrier network
issues.
Other groups within operations include project implementation managers,
installation engineers, equipment staging and configuration personnel, and a
network and tools infrastructure group. By using specialized teams for defined
processes, the Company can utilize network engineers with a broad range of
skills and experience.
The Company's approach to loss of the critical systems and management
network infrastructure utilized to manage customer networks is one of
disaster-avoidance backed up by selected disaster recovery. The network
management infrastructure is primarily Frame Relay-based providing the high
availability inherent in that technology. To minimize the potential loss of
access to local telecommunications infrastructure, the Company employs a SONET
ring which is served from two separate local exchange carrier serving offices.
The Company's facility contains two separate rooms with redundant computing
and networking equipment, each of which is monitored 24 hours per day, seven
days per week. See "Risk Factors--System Failure."
The Company delivers its services utilizing a workforce with a wide range of
skills, from entry-level to highly trained networking professionals. The
Company uses a strict operational methodology combined with proprietary
software tools to leverage its workforce. The Company believes it can meet its
requirements for networking professionals by hiring experienced networking
professionals and by recruiting and training recent college graduates. See
"Risk Factors--Limited Supply of Qualified IT Professionals."
COMPETITION
The competition which the Company faces comes from a number of different
sources. Currently, the Company competes primarily with the internal IT
organizations of actual or potential end users of the Company's services. Many
of these end users have internal network support capabilities and could choose
to satisfy their needs through internal resources rather than through outside
service providers like the Company. The Company believes that the principal
factors involved in competing effectively with internal solutions include
quality of service, price, functionality and features, product reputation and
quality of support.
The remote network management service market is new, highly fragmented,
rapidly evolving and largely undefined. There are few substantial barriers to
entry, and the Company expects that it will face additional competition from
existing competitors and new market entrants in the future. Such competitors
may have significantly greater financial, technical and marketing resources
and greater name recognition than the Company. The Company believes the
principal competitive factors in this market include networking and security
engineering expertise, customer service, network and security capabilities,
reliability and quality of service, the ability to maintain and expand
distribution channels, price, the timing of introductions of new services, and
41
<PAGE>
conformity with industry standards. While the Company believes that it
competes favorably with respect to these factors, there can be no assurance
that the Company will have the resources or expertise to compete successfully
in the future.
The Company currently faces competition from other remote network management
companies (such as Comdisco), telecommunications providers (such as AT&T,
Sprint, and MCI/WorldCom), network equipment vendors (such as Bay/Nortel), and
computer systems vendors (such as Digital Equipment Corporation and Hewlett
Packard). With respect to its security services, the Company currently faces
competition from computer systems vendors, such as IBM. The Company also faces
potential competition from IT consulting firms, systems integrators, VARs, and
local and regional network services firms and other new entrants into its
markets. Many of these current and potential competitor companies have
significantly greater financial, technical and marketing resources and greater
name recognition and generate greater service revenue than does the Company.
There can be no assurance that the Company will be able to compete
successfully against current or potential competitors. The failure of the
Company to compete successfully would have a material adverse effect on the
Company's business, operating results and financial condition.
The Company also faces potential competition from resellers with which the
Company currently partners, or could partner, to market and sell the Company's
services. These resellers generally have substantially greater resources than
the Company and could directly compete, rather than partner, with the Company.
Such a decision by the Company's resellers would have a material adverse
effect on the Company's business, operating results and financial condition.
With respect to the sale of equipment and on-site equipment maintenance
services, the Company competes primarily with the equipment manufacturers and
their resellers.
See "Risk Factors--Competition."
INTELLECTUAL PROPERTY RIGHTS
The Company relies on a combination of patent, trademark, service mark and
trade secret laws and contractual restrictions to establish and protect
certain proprietary rights in technology underlying its services. The Company
has recently applied for a patent with the United States Patent Office. This
patent relates to software technology which allows the Company to poll, or
communicate with, large numbers of routers or other SNMP devices over multiple
WANs. Although the Company currently has no patented technology that would
preclude or inhibit competitors from entering the Company's market, the
Company intends to continue to evaluate the appropriateness of such protection
and to seek patent protection for its inventions when appropriate. There can
be no assurance that patents will issue from the currently pending or any
future applications, or that any patents that may be issued will be sufficient
in scope or strength to provide meaningful protection or any commercial
advantage to the Company. The Company has registered the name NetSolve and its
distinctive logo as separate service marks in the U.S. and various state
trademark offices. The Company also has service mark registrations pending for
ProWatch, ProWatch for WANs, ProWatch for LANs, ProWatch Exchange and ProWatch
Secure. There can be no assurance that such trademarks will be granted. The
Company has not made any foreign patent or trademark filings. The Company has
entered into proprietary rights and confidentiality agreements with its
employees, and generally enters into nondisclosure agreements with its
suppliers, distributors and appropriate customers in order to limit access to
and disclosure of its proprietary information.
There can be no assurance that these contractual arrangements or the other
steps taken by the Company to protect its intellectual property will prove
sufficient to prevent infringement or misappropriation of the Company's
technology or to deter independent third-party development of similar
technologies. Any such infringement or misappropriation, should it occur,
could have a material adverse effect on the Company's business, results of
operations and financial condition. Furthermore, litigation may be necessary
to enforce the Company's intellectual property rights, to protect the
Company's trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity. Such litigation
42
<PAGE>
could result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Risk Factors--Limited Protection of Proprietary
Technology."
In June 1996, in connection with the Company's registration of the service
mark NetSolve, GRC International, Inc. ("GRC") initiated a proceeding pursuant
to which GRC alleged that the Company's use of the name NetSolve infringed
certain common law intellectual property rights of GRC. This proceeding
resulted in the negotiation and execution of an agreement, dated September 9,
1997, between the Company and GRC pursuant to which, among other things, GRC
withdrew its opposition and consented to NetSolve's service mark registration.
GRC retains the right to use the name NetSolve to describe a particular
software product, and NetSolve retains the full right to its corporate name.
The Company also agreed with GRC to refrain from using NetSolve as a brand
name to describe products and services. The Company believes that the limited
joint use of the name NetSolve by GRC will not have a material adverse effect
on the Company. The Company's service mark for the name NetSolve was
registered and issued on March 10, 1998. With the exception of GRC, the
Company has not, to date, been notified that its services infringe the
proprietary rights of third parties; however, there can be no assurance that
third parties will not claim infringement or indemnification by the Company
with respect to current or future services or products. The Company expects
that participants in its markets will be increasingly subject to infringement
claims as the number of services and competitors in the Company's industry
segment grows. Any such claim, whether meritorious or not, could be time-
consuming, result in costly litigation, cause delays in product and service
installation and implementation, prevent the Company from using important
technologies or methods, subject the Company to substantial damages, or
require the Company to enter into royalty or licensing agreements. Such
royalty or licensing agreements might not be available on terms acceptable to
the Company or at all. As a result, any such claim could have a material
adverse effect upon the Company's business, results of operations and
financial condition.
EMPLOYEES
As of September 30, 1998, NetSolve had 116 full-time employees, including 15
in sales and marketing, 11 in development, 78 in operations and 12 in finance
and administration. NetSolve's success depends to a significant degree upon
the continued contribution of its executive management and network management
and engineering teams. See "Risk Factors--Dependence on Services of Current
Chief Executive Officer." The Company intends to hire additional software
development personnel to broaden its development capabilities. The future
success of the Company will depend in large part upon its continued ability to
attract and retain highly skilled and qualified personnel. Competition for
such personnel is intense. See "Risk Factors--Limited Supply of Qualified IT
Professionals."
None of the Company's employees is represented by a collective bargaining
agreement. The Company believes that its relations with its employees are
good.
FACILITIES
NetSolve's corporate headquarters are located in a leased facility in
Austin, Texas. In March 1998, the Company relocated all of its operations,
including all employees and the Network Management Center into its current
facility, which covers approximately 70,000 square feet. In connection with
this move, the Company upgraded its computing and network management
infrastructure environment, adding an uninterrupted power supply system backed
up by a power generator to guard against system failure and to provide
emergency power in the event of an outage. The Company's new facility allows
the Company to maintain dual computer rooms with redundant equipment in order
to provide safeguards in the event of a fire or similar emergency.
The lease for NetSolve's offices expires in November 2008 (including a five-
year option to renew). NetSolve believes that its current facilities are
adequate to meet its foreseeable requirements or that suitable additional or
substitute space will be available on commercially reasonable terms.
LITIGATION
The Company is not currently a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
NetSolve's executive officers and directors and their ages as of October 15,
1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
- ---- --- ------------------------
<S> <C> <C>
Craig S. Tysdal......... 52 Director; President and Chief Executive Officer
Kenneth C. Kieley....... 48 Vice President--Finance, Chief Financial Officer and Secretary
Christopher D. Buffum... 49 Vice President--Sales
Terrence S. Cheng....... 41 Vice President--Software Development
Robert C. Pojman........ 35 Vice-President--Operations
Michael R. Turner....... 45 Vice President--Marketing
J. Michael Gullard(1)... 53 Chairman of the Board
Joel P. Adams(1)........ 41 Director
C. Richard Kramlich(2).. 63 Director
John S. McCarthy(2)..... 50 Director
H. Leland Murphy(1)..... 53 Director
C. V. Prothro........... 56 Director
Howard D. Wolfe,
Jr.(2)................. 57 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Craig S. Tysdal became the President and Chief Executive Officer and a
director of NetSolve in September 1993. From May 1990 to March 1993, Mr.
Tysdal was employed as Senior Vice President--Worldwide Sales at Network
Equipment Technologies, Inc., a worldwide supplier of WANs. He was also
employed at Network Equipment Technologies, Inc. as its Vice President--
Product Marketing from July 1989 to April 1990 and as its Vice President--
Sales from October 1986 to June 1989.
Kenneth C. Kieley joined NetSolve in September 1989 as its Vice President--
Finance, Chief Financial Officer and Secretary. From July 1985 to September
1989, Mr. Kieley served as Vice President--Finance of VMX, Inc., a
manufacturer of voice messaging systems. Mr. Kieley worked for Ernst & Young
LLP from 1975 to 1985.
Michael R. Turner joined NetSolve in January 1995 as its Vice President--
Marketing. Before joining the Company, Mr. Turner worked as a self-employed
marketing consultant from May 1994 to December 1994. From January 1991 through
April 1994, Mr. Turner worked as Vice President--Marketing of SES, Inc., a
provider of system level design software and consulting services. From
November 1985 through January 1991, Mr. Turner worked as Director of Marketing
for Logic Automation Incorporated, a developer of software for electronic
systems design.
Christopher D. Buffum became NetSolve's Vice President--Sales in March 1998.
From December 1996 to February 1998, Mr. Buffum was employed as Senior Vice
President--OEM Sales at Boca Research, Inc., a manufacturer of peripherals for
personal computers. He was also employed at Boca Research, Inc. as its Vice
President, OEM Sales from January 1996 to December 1996, its Director OEM
Sales from November 1994 to December 1995, and its OEM Sales Manager from
August 1991 to November 1994.
Robert C. Pojman has been the Company's Vice President--Operations since
February 1997. From January 1995 to February 1997, Mr. Pojman was employed as
First Vice President--Data Centers, a software and services company which
facilitates the processing and clearing of payments. He also worked at Deluxe
Data Systems as Director, Technical Services from April 1993 to January 1995
as well as Director Operations Services from July 1992 to March 1993.
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<PAGE>
Terrence S. Cheng joined the Company in April 1998, as its Vice President--
Software Development. From April 1997 to March 1998, Mr. Cheng worked as
Director, Technology for Transactive Corporation, a government services firm.
From December 1995 to April 1997, he was employed as Chief Architect and
Director, Software Development for Aetna, Inc., a provider of health and
retirement benefit plans and financial services. From December 1993 to
December 1995, Mr. Cheng served as Senior Architect, Business Technology for
Advo, Inc., a targeted direct mail marketing services company.
J. Michael Gullard is NetSolve's Chairman of the Board and has been a
director of the Company since October 1992. He is founding general partner of
Cornerstone Ventures, a venture capital firm. Mr. Gullard is also the Chairman
of the Board of Micro Focus Group PLC, a developer of enterprise application
system software.
C. Richard Kramlich has been a director of the Company since April 1991. He
is the general partner of New Enterprise Associates, a venture capital firm.
Mr. Kramlich is also a director of Ascend Communications, Inc., a provider of
WAN solutions, Chalone Wine Group, Ltd., a producer and distributor of wine,
Com21, Inc., a provider of communications solutions for broadband access,
Lumisys Incorporated, a producer of picture archiving and communications
systems, Silicon Graphics, Inc., a developer of workstations with computer
graphics capabilities, and SyQuest Technology, Inc, a manufacturer of portable
hard disk cartridges.
Joel P. Adams has been a director of the Company since December 1989. Mr.
Adams is President of Adams Capital Management, Inc., a venture capital firm,
and a general partner of Fostin Capital Associates II and the P/A Fund, both
of which are venture capital firms.
Howard D. Wolfe, Jr. has been a director of the Company since October 1988.
He is the managing general partner of New Venture Partners, L.P. and New
Venture Partners II, L.P, both of which are venture capital firms.
C. V. Prothro has been a director of the Company since April 1991. He has
been Chairman of the Board of Dallas Semiconductor Corporation, a developer of
integrated circuits and semiconductor-based systems, since 1984, and has
served as Dallas Semiconductor's President and Chief Executive Officer since
1989. Mr. Prothro is a general partner of Southwest Enterprise Associates,
Limited Partnership, a venture capital firm. Mr. Prothro is also a director of
Vari-Lite International, Inc, an automated light manufacturer.
H. Leland Murphy was a director of the Company from November 1988 through
April 1991. He was reelected as a director in March 1995. Mr. Murphy has been
employed by Southwest Enterprises Associates, Limited Partnership, a venture
capital firm, since 1985. Since December 1997, he has also served as a general
partner of Trellis Partners, L.P., a venture capital firm.
John S. McCarthy has been a director of the Company since August 1991. He is
a managing general partner of Gateway Associates, L.P., a venture capital
firm. He is also a director of Transaction Network Services, Inc., an operator
of a nationwide communications operator.
Each director is elected for a period of one year and serves until his or
her successor is duly elected and qualified. NetSolve's executive officers are
appointed by, and serve at the discretion of, the Board of Directors.
There are no family relationships among any of the directors or executive
officers.
BOARD COMMITTEES
The Board of Directors has two standing committees, an Audit Committee and a
Compensation Committee. The Audit Committee reviews the Company's annual audit
and meets with the Company's independent auditors to review the internal
accounting procedures and financial management practices. The Compensation
Committee recommends to the Board of Directors compensation and benefits for
the executive officers, reviews general policy relating to compensation and
benefits of employees, and administers the Company's stock-based compensation
plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No Compensation Committee member is currently or has been a NetSolve officer
or employee. No executive officer of the Company serves as a member of the
Board of Directors or compensation committee (or any entity
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serving an equivalent function) of any other entity that has one or more
executive officers serving on NetSolve's Board or Compensation Committee.
DIRECTOR COMPENSATION
Directors currently do not receive cash compensation for their services as
directors or members of committees, but are reimbursed for their reasonable
expenses incurred in attending meetings of the Board of Directors. Directors
are eligible to participate in the Company's 1988 Stock Option Plan and Long-
Term Incentive Compensation Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
NetSolve's Certificate of Incorporation limits the liability of directors to
the fullest extent permitted by Delaware law. Delaware law provides that a
corporation's certificate of incorporation may contain a provision eliminating
or limiting the personal liability of directors to the corporation or its
stockholders for monetary damages for breach of their fiduciary duties as
directors, except for liability (i) for any breach of their 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) for improper payments of dividends or improper stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
NetSolve's Bylaws provide that the Company shall indemnify its directors,
officers, employees and agents to the fullest extent permitted by law. The
Company believes that indemnification under its Bylaws covers at least
negligence and gross negligence on the part of indemnified parties.
NetSolve intends to enter into agreements that indemnify its directors and
executive officers. These agreements, among other things, indemnify the
directors and executive officers for certain expenses (including attorneys'
fees) and, in some instances, judgments, fines and settlement amounts incurred
by such persons in any action or proceeding, including any action by or on
behalf of NetSolve, arising out of his or her service as a director or
executive officer of NetSolve, any subsidiary of NetSolve or any other company
or enterprise to which the person provides services at NetSolve's request.
NetSolve believes that these provisions and agreements are desirable to
attract and retain qualified directors and executive officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company in which indemnification
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification.
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EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation earned by: (1) each person who served as chief executive officer
of the Company during fiscal 1998; and (2) the other executive officers of the
Company whose bonus and salary for such fiscal year exceeded $100,000 for
services rendered to the Company in all capacities for fiscal 1998. The
persons named in the table are referred to as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
SALARY OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION ($) BONUS ($) COMPENSATION ($) COMPENSATION ($)
- --------------------------- -------- --------- ---------------- -----------------
<S> <C> <C> <C> <C>
Craig S. Tysdal,
President and Chief
Executive Officer....... $175,000 $6,719 $ -- $ --
Kenneth C. Kieley, Vice
President--Finance,
Chief Financial Officer
and Secretary........... 115,000 23,169 -- 1,247(1)
Michael R. Turner, Vice
President--Marketing.... 104,000 5,225 -- 767(1)
Robert C. Pojman, Vice
President--Operations... 150,000 5,399 65,927(2) --
</TABLE>
- ---------------
(1) Represents reimbursement for long-term disability insurance premiums.
(2) Represents reimbursement of moving expenses.
No options were granted to the Named Executive Officers during fiscal 1998.
Christopher D. Buffum was hired in March 1998 as the Company's Vice
President--Sales with an initial annual base salary of $150,000. Mr. Buffum
has been granted options to purchase an aggregate of 120,000 shares of the
Company's Common Stock under the Company's 1988 Stock Option Plan and Long-
Term Incentive Compensation Plan at an exercise price of $2.80 per share. The
sales function for the Company during most of fiscal 1998 was handled
primarily by Mr. Tysdal.
On July 21, 1998, the Board of Directors approved the grant of options,
under the Long-Term Incentive Compensation Plan, to purchase shares of
NetSolve's common stock at an exercise price of $7.50 per share to the
following officers:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Craig S. Tysdal.......................................... 200,000
Kenneth C. Kieley........................................ 50,000
Robert C. Pojman......................................... 50,000
Terrence S. Cheng........................................ 25,000
</TABLE>
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AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table provides certain summary information concerning the
shares of common stock represented by outstanding stock options held by each
of the Named Executive Officers as of March 31, 1998.
AGGREGATE OPTION EXERCISES IN THE FISCAL YEAR ENDED MARCH 31, 1998
AND FISCAL 1998 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT MARCH 31, 1998 (#) AT MARCH 31, 1998 ($)(2)
----------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE(1) EXERCISABLE UNEXERCISABLE(1)
---- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Craig S. Tysdal...... 546,875 43,125 $1,355,313 $43,556
Kenneth C. Kieley.... 201,750 33,750 456,650 33,750
Michael R. Turner.... 82,500 37,500 200,250 73,875
Robert C. Pojman..... 30,000 90,000 21,000 63,000
</TABLE>
- ---------------
(1) Shares shown as unexercisable are unvested shares under exercisable
options that may not be sold until vested.
(2) There was no public market for the common stock as of March 31, 1998.
Accordingly, these values have been calculated by determining the
difference between the estimated fair market value of the common stock
underlying the options as of March 31, 1998, as determined by the
Company's Board of Directors ($2.80 per share), and the aggregate
exercise price of the options.
No options were exercised by the Named Executive Officers during fiscal
1998.
LONG-TERM INCENTIVE COMPENSATION PLAN
The NetSolve, Incorporated Long-Term Incentive Compensation Plan (the "Long-
Term Incentive Plan") was adopted by the Board of Directors and approved by
the stockholders in July 1997. It is administered by the Compensation
Committee. The purpose of the Long-Term Incentive Plan is to assist NetSolve
in attracting, retaining and motivating executive officers, key employees and
directors and consultants who are essential to NetSolve's success through
performance-related incentives linked to long-range performance goals.
Performance goals under the Long-Term Incentive Plan may be based on
individual performance of the particular employee and/or include criteria such
as absolute or relative levels of total stockholder return, revenues, sales,
net income or net worth of the Company or any of its subsidiaries, divisions,
business units or other areas of the Company, all as the Compensation
Committee may determine.
The Long-Term Incentive Plan is a comprehensive, stock-based incentive
compensation plan, providing for discretionary awards of incentive stock
options, nonqualified stock options, stock appreciation rights, restricted
stock, restricted stock units, performance shares, performance units, bonus
stock and other stock-based awards. All awards under the Long-Term Incentive
Plan are made in, or based on the value of, the common stock.
Full-time employees and directors of, and consultants to, NetSolve are
eligible to participate in, and receive awards under, the Long-Term Incentive
Plan. The selection of participants under the Long-Term Incentive Plan, as
well as all terms, conditions, performance criteria and restrictions
applicable to each award, are determined by the Compensation Committee in its
sole discretion.
The maximum number of shares of common stock for which awards may be granted
under the Long-Term Incentive Plan is 1,350,000 subject to adjustment in the
event of a merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, or other similar event. Shares subject to previously
canceled, lapsed or forfeited awards, or awards paid in cash, may be reissued
under the Long-Term Incentive Plan. The shares to be issued under the Long-
Term Incentive Plan may consist of authorized but unissued shares, shares
issued and reacquired by the Company or shares purchased in the open market.
The Company expects that awards made under the Long-Term Incentive Plan will
be fully deductible for federal income tax purposes. In this connection, if
the Company becomes subject to Section 162(m) of the Internal Revenue Code of
1986, which limits such deductions for awards made to certain covered
participants,
48
<PAGE>
performance-based compensation that can be provided to any covered participant
in any year will be limited to stock options for up to 100,000 shares. No
other types of awards may be made under the Long-Term Incentive Plan to
covered participants.
As of September 30, 1998, options covering an aggregate of 553,324 shares of
common stock had been granted under the Long-Term Incentive Plan at exercise
prices ranging from $2.80 to $7.50. Each of these options has a term of ten
years and may be exercised at any time during such term. The exercise price
may be paid in cash or shares of common stock already held by the exercising
participant, or a combination of cash and shares. Each option vests over a
four-year period with one-sixteenth of the total amount vesting in each
calendar quarter following the grant. The unvested portion of any exercised
options are subject to a repurchase right of the Company upon termination of
employment.
The Long-Term Incentive Plan may be amended, modified, suspended or
terminated by the Board of Directors at any time. No amendment shall be
effective prior to approval of the stockholders to the extent such approval is
necessary to comply with any legal requirement. If not earlier terminated, the
Long-Term Incentive Plan shall terminate on December 31, 2006.
Stock Options. The Long-Term Incentive Plan authorizes (i) the grant of
options to purchase common stock intended to qualify as incentive stock
options under Section 422(b) of the Internal Revenue Code of 1986 ("incentive
options") and (ii) the grant of options that do not so qualify ("nonqualified
options"). The number of shares and other terms of each grant are determined
by the Compensation Committee. The exercise price of incentive options granted
under the Long-Term Incentive Plan must be at least equal to the fair market
value of the common stock on the date of grant. The exercise price of
incentive options granted to an optionee who owns stock possessing more than
10% of the voting power of the Company's outstanding capital stock must equal
at least 110% of the fair market value of the common stock on the date of
grant. The exercise price of non-qualified options granted under the Long-Term
Incentive Plan must not be less than 50% of the fair market value of the
common stock on the grant date. Incentive options may be granted under the
Long-Term Incentive Plan to employees, including officers and directors who
are also employees. Non-qualified options may be granted under the Long-Term
Incentive Plan to employees, officers, consultants and directors, whether or
not they are employees of the Company. The exercise price for options granted
under the Long-Term Incentive Plan may be paid in cash or with shares of
common stock. Options granted under the Long-Term Incentive Plan may remain
outstanding for no more than ten years.
Stock Appreciation Rights. Stock appreciation rights ("SARs") entitle the
participant to receive, upon exercise of the SAR, cash or, at the election of
the Administrator, shares of common stock or a combination thereof, in an
amount equal to the difference between the SAR exercise price and the fair
market value of the shares of common stock subject to the SAR. SARs may be
granted to participants under the Long-Term Incentive Plan on a freestanding
basis or in tandem with a stock option. The exercise price of SARs will not be
less than 100% of the fair market value of the common stock on the date of
grant. SARs granted under the Long-Term Incentive Plan will not be exercisable
until at least six months following the date of grant and no later than ten
years thereafter. Incentive options and SARs may not be transferred other than
by will or the laws of descent and distribution.
Stock and Stock Unit Awards. The Long-Term Incentive Plan also provides for
the granting of restricted stock, restricted stock units, performance shares
and performance stock units, bonus stock and other stock-based awards. The
number of shares or units and all terms and conditions, including the
restriction period, performance criteria and other restrictions and conditions
applicable to each such award, are determined by the Compensation Committee.
During the restriction period, participants may exercise full voting rights,
and are entitled to receive all dividends and other distributions paid, with
respect to restricted stock they have been granted, provided that stock
dividends, if any, remain subject to the same restrictions as the underlying
stock. Payment to the participant may be in shares of common stock or cash, or
a combination thereof, and in a lump sum or installments, all as determined by
the Compensation Committee. Shares of common stock may also be awarded to
participants under the Long-Term Incentive Plan as a bonus. Such shares may be
granted with or without restrictions. Shares
49
<PAGE>
awarded subject to performance criteria or other restrictions which are not
satisfied, are forfeited and must be returned to the Company. In addition to
the foregoing types of awards, the Long-Term Incentive Plan permits the
Compensation Committee to grant any other stock based award as the
Administrator may determine. Such stock based awards may be in the form of
common stock or other securities, the value of which is based, in whole or in
part, on the value of common stock on the award date.
Acceleration of Vesting Upon Change in Control. In the event of a change in
control of the Company, all outstanding stock options and SARs shall
immediately become fully vested, and all restrictions and performance criteria
relating to all outstanding awards shall be deemed to have been fully
satisfied, unless the transaction or event constituting the change in control
was approved in advance by a majority of the Board of Directors. Under the
terms of the Long-Term Incentive Plan, a change in control shall be deemed to
have occurred if: (1) any person becomes the beneficial owner of 20% or more
of the Company's voting securities; (2) the Company is involved in a merger,
acquisition or similar transaction pursuant to which the Company's directors
immediately before the transaction cease to constitute a majority of the
Company's directors after the transaction; or (3) the Company is involved in a
transaction pursuant to which it is not the surviving corporation, its common
stock is exchanged for, or converted into securities of another entity, it
becomes a subsidiary of another entity, or 50% or more of its aggregate assets
or earning power is sold to another entity.
1988 STOCK OPTION PLAN
The NetSolve, Incorporated 1988 Stock Option Plan (the "1988 Option Plan")
was adopted by the Board of Directors and approved by the Company's
stockholders in November 1988. The principal purpose of the 1988 Option Plan
is to advance the interests of the Company and its stockholders by enabling
the Company to attract qualified management and other key personnel and
encourage selected directors, officers and key employees of, and consultants
to, the Company to acquire and retain a proprietary interest in the Company
through the ownership of common stock. A total of 2,601,976 shares of common
stock has been reserved for issuance under the 1988 Option Plan.
The 1988 Option Plan provides for the granting of incentive options to
employees, including officers and directors, and for the granting of
nonqualified options to employees and consultants, including nonemployee
directors, of nonqualified stock options. To the extent an optionee would have
the right in any calendar year to exercise for the first time one or more
incentive options for shares having an aggregate fair market value (under all
plans of the Company and determined for each share as of the date the option
to purchase the shares was granted) in excess of $100,000, any such excess
options shall be treated as nonqualified options.
As of September 30, 1998, there were options outstanding under the 1988
Option Plan for 1,908,870 shares of common stock. As of such date, a total of
668,855 shares had been purchased pursuant to option exercises and the Company
had repurchased 6,600 unvested shares pursuant to the provisions of the 1988
Option Plan, leaving an aggregate of 30,851 shares available for future option
grants. No incentive options may be granted under the 1988 Option Plan after
November 20, 1998.
The 1988 Option Plan may be administered by the Board of Directors or a
committee of the Board (the "Option Plan Administrator"). The 1988 Option Plan
is currently administered by the Compensation Committee. The Option Plan
Administrator determines the terms of options granted under the 1988 Option
Plan, including the number of shares subject to the option, exercise price,
term and exercisability. The exercise price of each incentive option granted
under the 1988 Option Plan must be at least equal to the fair market value of
common stock on the date of grant. The exercise price of any incentive option
granted to an optionee who owns stock representing more than 10% of the total
combined voting power of all classes of outstanding capital stock of the
Company or any parent or subsidiary corporation of the Company must equal at
least 110% of the fair market value of common stock on the date of grant.
Payment of the exercise price may be made in cash or by delivery of previously
owned shares of common stock, or partly in cash and partly in common stock.
50
<PAGE>
The Option Plan Administrator determines the term of options, which may not
exceed ten years. No option may be transferred by an optionee other than by
will or the laws of descent or distribution. Each option may be exercised
during the lifetime of an optionee only by such optionee. The Option Plan
Administrator determines when options become exercisable. Options granted
under the 1988 Option Plan are generally exercisable at any time, but are
subject to a four-year vesting schedule with one-sixteenth of the stock
underlying the option vesting in each calendar quarter following the grant.
The unvested portion of exercised options may be repurchased by the Company at
the original exercise price upon termination of employment.
The Company has the authority to amend or terminate the 1988 Option Plan,
except that the Company may not increase the aggregate number of shares which
may be issued under options granted pursuant to the 1988 Option Plan, and no
action may be taken by the Company, not expressly provided for in the 1988
Option Plan, in derogation of the vested rights of any optionee under an
option previously granted thereunder.
401(K) RETIREMENT PLAN
Effective December 1, 1988, the Company established a 401(k) defined
contribution retirement plan (the "Retirement Plan") covering all employees
who are at least 21 years of age and have satisfied certain service
eligibility requirements. Effective February 1, 1997, the Retirement Plan was
amended to eliminate any service eligibility requirements so that employees
who otherwise met the eligibility criteria could commence participation upon
hire. The Retirement Plan provides for voluntary employee contributions in
amounts determined by the employees, subject to a maximum limit allowed by
Internal Revenue Service guidelines ($10,000 for 1998). The Company may
contribute such amounts to the accounts of participants in the Retirement Plan
as determined by the Board of Directors, subject to certain legal
requirements. To date, the Company has not made any contribution to the
Retirement Plan, and does not anticipate making any contribution to the
Retirement Plan in the foreseeable future.
BONUS PLAN
In July 1998, the Company adopted a bonus plan (the "Bonus Plan") pursuant
to which selected employees are eligible to receive cash bonuses on a
quarterly basis beginning with the quarter ended September 30, 1998 if, during
such quarter, the Company meets certain financial performance objectives
established from time to time by the Company. The Bonus Plan may be amended or
terminated at any time.
51
<PAGE>
CERTAIN TRANSACTIONS
Venture capital firms affiliated with Messrs. Gullard, Adams, Kramlich,
McCarthy, Prothro and Wolfe, directors of the Company, have certain rights
with respect to the registration of shares of common stock they may hold. See
"Description of Capital Stock--Registration Rights."
NetSolve intends to enter into indemnification agreements with its executive
officers and directors. Among other terms, under these agreements, NetSolve
would agree to:
. indemnify, to the fullest extent allowed by Delaware law, these
officers and directors against certain liabilities related to their
service or status as officers or directors; and
. in any proceeding in which they could be indemnified, advance to
these officers and directors the expenses they incur in those
proceedings.
NetSolve intends to execute similar indemnification agreements with its future
directors and executive officers. See "Management--Limitation of Liability and
Indemnification Matters."
As a matter of policy, all future transactions between the Company and any
director or executive officer will be subject to approval by a majority of the
independent and disinterested members of the Board of Directors and will be in
connection with bona fide purposes of the Company.
52
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information known to the Company with respect
to the beneficial ownership of common stock as of September 30, 1998, and as
adjusted to reflect the sale by the Company and the selling stockholders of
the shares of common stock offered by this prospectus, by (1) each of the
Company's directors, (2) each of the Named Executive Officers, (3) all current
directors and executive officers of the Company as a group, (4) each person
known to the Company to be the beneficial owner of more than five percent of
the outstanding shares of the common stock, and (5) each of the selling
stockholders. The selling stockholders will bear none of the expenses of this
offering other than the underwriting discounts and commissions applicable to
the shares of common stock to be sold by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING(2) OWNED AFTER OFFERING(2)
----------------------------- SHARES ----------------------------
NUMBER PERCENT(3) OFFERED(4) NUMBER PERCENT(3)
--------------- ------------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
DIRECTORS, NAMED
EXECUTIVE OFFICERS AND
ALL DIRECTORS AND
EXECUTIVE OFFICERS AS A
GROUP(1)
- -----------------------
C. Richard Kramlich(5).. 3,182,734 32.9% -- 3,182,734
Joel P. Adams(6)........ 2,257,089 23.3 429,242 1,827,847
John S. McCarthy(7)..... 875,000 9.0 -- 875,000
C. V. Prothro(8)........ 817,647 8.4 -- 817,647
Craig S. Tysdal(9)...... 790,000 7.5 -- 790,000
J. Michael Gullard(10).. 604,541 6.1 -- 604,541
Howard D. Wolfe,
Jr.(11)................ 302,589 3.1 -- 302,589
Kenneth C. Kieley(12)... 285,500 2.9 -- 285,500
Robert C. Pojman(13).... 170,000 1.7 -- 170,000
Michael R. Turner(14)... 120,000 1.2 -- 120,000
H. Leland Murphy(15).... 50,000 * -- 50,000 *
All directors and
executive officers as a
group (13
persons)(16)........... 8,807,453 76.8 -- --
OTHER 5% STOCKHOLDERS(1)
- ------------------------
New Enterprise Associ-
ates IV................ 2,365,087 24.4 -- 2,365,087
Limited Partnership
1119 St. Paul Street
Baltimore, MD 21202
APA/Fostin Pennsylva-
nia.................... 1,187,020 12.3 -- 1,187,020
Venture Capital Fund
518 Broad Street
Sewickley, PA 15143
Gateway Venture Partners
III, L.P. ............. 875,000 9.0 -- 875,000
8000 Maryland Avenue,
Suite 1190
St. Louis, MO 63105
Southwest Enterprise As-
sociates, L.P. ........ 817,647 8.4 -- 817,647
14305 Inwood Road, Suite
101-44
Dallas, TX 75244-3944
Fostin Capital Associ-
ates II................ 640,827 6.6 -- 640,827
518 Broad Street
Sewickley, PA 15143
OTHER SELLING
STOCKHOLDERS(1)
- ----------------
[Stockholder information
to come]
</TABLE>
53
<PAGE>
- --------
*Less than 1%.
(1) Unless otherwise indicated, the address of each of the individuals named
above is: c/o NetSolve, Incorporated, 12331 Riata Trace Parkway, Austin,
TX 78727.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Except pursuant to applicable
community property laws or as indicated in the footnotes of this table, to
the Company's knowledge, each stockholder identified in the table
possesses sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by such stockholder. The number
of shares beneficially owned by a person includes shares of common stock
subject to options and warrants held by that person that are currently
exercisable within 60 days of September 30, 1998. Such shares issuable
pursuant to such options and warrants are deemed outstanding for computing
the percentage ownership of the person holding such options and warrants
but are not deemed outstanding for the purposes of computing the
percentage ownership of any other person.
(3) For purposes of this table, the number of shares of common stock
outstanding prior to the offering is deemed to be 9,680,304, including
3,285,577 shares of common stock outstanding on September 30, 1998 and an
additional 6,394,727 shares issuable upon conversion of the Company's
preferred stock. For purposes of calculating the percentage beneficially
owned by any person, shares of common stock issuable to such person upon
the exercise of any options exercisable within 60 days of September 30,
1998 are also assumed to be outstanding. The number of shares of common
stock deemed outstanding after this offering includes the additional
shares being offered by the Company hereby, and assumes no exercise of the
underwriters' over-allotment option.
(4) Does not give effect to the exercise of the underwriters' over-allotment
option. If exercised in full, the number of additional shares offered and
beneficial ownership after the offering would be as follows:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED AFTER
ADDITIONAL EXERCISE OF OVER-ALLOTMENT OPTION
SHARES ---------------------------------
NAME OFFERED NUMBER PERCENT
---- ---------- -------- ---------
<S> <C> <C> <C>
</TABLE>
(STOCKHOLDER INFORMATION TO COME)
(5) Represents 2,365,087 shares held by New Enterprise Associates IV, Limited
Partnership ("NEA IV") and 817,647 shares held by Southwest Enterprise
Associates, Limited Partnership ("SEA"). Mr. Kramlich, a NetSolve director
and a general partner of NEA Partners IV, Limited Partnership, the general
partner of NEA IV, and a general partner of NEA Partners Southwest, L.P., a
general partner of SEA, disclaims beneficial ownership of the shares held
by NEA IV and SEA, except for his proportional pecuniary interest therein,
if any.
(6) Represents 2,257,089 shares held by APA/Fostin Pennsylvania Venture Capital
Fund, Fostin Capital Associates II and Loyalhanna Commonwealth Fund
("Loyalhanna"). Mr. Adams, a director of the Company and a General Partner
of the APA/Fostin Pennsylvania Venture Capital Fund, Fostin Capital
Associates II and Loyalhanna disclaims beneficial ownership of the shares
held by these entities except for his proportional pecuniary interest
therein, if any. All of the 429,242 shares held by Loyalhanna are being
offered. Mr. Adams has no pecuniary interest in such shares.
(7) Represents 875,000 shares held by Gateway Venture Partners III, L.P. Mr.
McCarthy, a NetSolve director and a partner of Gateway Venture Partners
III, L.P., disclaims beneficial ownership of the shares held by Gateway
Venture Partners III, L.P., except for his proportional pecuniary interest
therein, if any.
(8) Represents 817,647 shares held by SEA. Mr. Prothro, a NetSolve director and
a general partner of SEA, disclaims beneficial ownership of the shares held
by SEA, except for his proportional pecuniary interest therein, if any.
(9) Represents 790,000 shares that may be acquired upon the exercise of
options within 60 days of September 30, 1998.
(10) Includes 404,541 shares held by Cornerstone Ventures and Cornerstone
Ventures International C.V. and 200,000 shares which may be acquired
within 60 days of September 30, 1998 upon the exercise of options held by
Cornerstone Ventures and Cornerstone Ventures International C.V. Mr.
Gullard, a NetSolve director and a general partner of Cornerstone
Ventures and Cornerstone Ventures International C.V., disclaims
beneficial ownership of the shares held, and options exercisable, by
Cornerstone Ventures and Cornerstone Ventures International C.V., except
for his proportional pecuniary interest therein, if any.
(11) Represents 300,589 shares held by New Ventures Partners II, L.P. Mr.
Wolfe, a NetSolve director, is managing General Partner of New Venture
Partners II, L.P. Mr. Wolfe disclaims beneficial ownership of the shares
held by New Ventures Partners II, L.P., except for his proportional
pecuniary interest therein, if any. Also includes 2,000 shares that may
be acquired upon the exercise of options within 60 days of September 30,
1998.
(12) Represents 285,500 shares that may be acquired upon the exercise of
options within 60 days of September 30, 1998.
(13) Represents 170,000 shares that may be acquired upon the exercise of
options within 60 days of September 30, 1998.
(14) Represents 120,000 shares that may be acquired upon the exercise of
options within 60 days of September 30, 1998.
(15) Represents 50,000 shares that may be acquired upon the exercise of
options within 60 days of September 30, 1998.
(16) Includes 1,787,500 shares issuable upon exercise of options held by
directors and officers that are exercisable within 60 days of September
30, 1998. Shares that may be acquired by directors and officers upon the
exercise of options are subject to NetSolve's right to repurchase such
shares if such person's employment with the Company terminates before the
expiration of a specified period of time (typically four years from the
date of option grant). Includes shares held by certain entities with
which certain NetSolve directors are affiliated, as described above.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
After this offering, NetSolve's authorized capital stock will consist of
25,000,000 shares of common stock, $0.01 par value per share, and 7,500,000
shares of undesignated preferred stock, $0.10 par value per share.
COMMON STOCK
As of September 30, 1998, NetSolve had 109 stockholders that owned a total
of 9,680,304 shares of common stock outstanding (including shares issuable
upon conversion of all outstanding preferred stock). Options to purchase an
aggregate of 2,465,444 shares of common stock and warrants to purchase an
aggregate of 167,500 shares of common stock were also outstanding. There will
be shares of common stock outstanding after this offering (assuming no
exercise of the Underwriter's over-allotment option, and no exercise of
outstanding warrants or options after September 30, 1998) after giving effect
to the sale of the shares of common stock offered in this offering.
Each share of common stock is allowed one vote on all matters submitted to a
vote of the stockholders. Subject to preferences that may be applicable to the
holders of outstanding preferred stock issued in the future, if any, holders
of common stock are entitled to receive dividends as may be declared by the
Board of Directors. See "Dividend Policy." If NetSolve liquidates or
dissolves, subject to the rights of the holders of outstanding shares of
preferred stock issued in the future, if any, the holders of common stock
shall receive a share in all assets remaining after liabilities are paid and
preferential rights of any outstanding preferred stock are satisfied. The
common stock has no preemptive or conversion rights or other subscription
rights. All shares of common stock are, and those to be issued in this
offering will be, fully paid and non-assessable.
PREFERRED STOCK
Each share of preferred stock outstanding as of September 30, 1998 will be
converted into one share of common stock and automatically retired upon the
closing of this offering. Thereafter, the Board of Directors is authorized to
issue up to 7,500,000 shares of preferred stock. The Board of Directors may
designate one or more series of preferred stock and may assign differing
rights, preferences, privileges and restrictions, 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
stockholder vote or action.
If NetSolve issues preferred stock, this may delay, defer or prevent a
change in control of NetSolve without further stockholder action. The issuance
of preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of common stock, including voting rights, of the
holders of common stock. In certain circumstances, the market price of the
common stock may decrease as a result. As of the closing of this offering, no
shares of preferred stock will be outstanding and NetSolve currently has no
plans to issue any shares of preferred stock.
WARRANTS
As of September 30, 1998, NetSolve had outstanding exercisable warrants to
purchase 167,500 shares of common stock with a weighted average exercise price
of $2.72 per share. These warrants will expire between 1998 and 1999.
REGISTRATION RIGHTS
Following this offering, the holders of shares of common stock (the
"Registrable Securities") will be entitled to certain rights relating to the
registration of such shares under state and federal securities laws. These
rights, which are assignable, are outlined in an agreement between the Company
and the holders of the Registrable Securities. The holders of at least 30% of
the Registrable Securities may generally require that the Company register the
Registrable Securities for public resale. If NetSolve registers any of its
common stock,
55
<PAGE>
either for its own account or for the account of other security holders, the
holders of Registrable Securities are entitled to include their Registrable
Securities in such registration, subject to the ability of the underwriters to
limit the number of shares included in such offering. Holders of at least 20%
of the Registrable Securities may also require NetSolve (not more than one
time in any 12-month period) to register all or a portion of their Registrable
Securities on Form S-3, when use of such form becomes available, provided
that, among other limitations, the proposed aggregate selling price (net of
any underwriters' discounts or commissions) is at least $1,000,000. The
registration rights of each holder of Registerable Securities terminate at the
earlier of: (a) such time as the holder may, within a three-month period,
offer and sell all of his Registerable Securities pursuant to Rule 144 under
the Securities Act without any adverse effect on the price at which such
Registerable Securities may be sold, such determination as to such adverse
effect to be made by such holder acting in good faith; or (b) 48 months from
the closing of this offering.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
Certain provisions of Delaware law and NetSolve's restated certificate of
incorporation could complicate NetSolve's acquisition by means of a tender
offer, a proxy contest or otherwise. In addition, it might be difficult to
remove incumbent officers and directors. These provisions are expected to
discourage certain types of coercive takeover practices and inadequate
takeover bids and to encourage negotiation between NetSolve management and
those persons seeking control. NetSolve believes it is more advantageous to
protect its potential ability to negotiate, rather than discourage, unfriendly
or unsolicited third parties attempting to acquire or restructure NetSolve.
Among other things, negotiating such proposals could result in an improvement
of their terms.
NetSolve is subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless (with certain exceptions) the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns
(or within three years prior, did own) 15% or more of the corporation's voting
stock. This provision may delay, defer or prevent a change in control of
NetSolve without the stockholders taking further action.
It is more difficult for NetSolve's existing stockholders to replace the
Board of Directors as well as for another party to obtain control of NetSolve
by replacing the Board of Directors because cumulative voting is eliminated.
The Board of Directors has the power to retain and discharge officers, making
it more difficult for existing stockholders or another party to change the
management.
The foregoing provisions could have the effect of making it more difficult
for a third party to effect a change in the control of the Board of Directors.
In addition, these provisions could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, a majority of NetSolve's outstanding voting stock. See
"Risk Factors--Anti-Takeover Provisions."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Chase Mellon
Shareholder Services, L.L.C.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
There has not been any public market for NetSolve's common stock prior to
this offering. Future sales of substantial amounts of common stock in the
public market could adversely affect prevailing market prices from time to
time. Furthermore, only a limited number of shares will be available for sale
shortly after this offering because of certain resale restrictions (as
described below), and sales of substantial amounts of the common stock in the
public market after the restrictions lapse could adversely affect the
prevailing market price and NetSolve's ability to raise equity capital in the
future.
Upon completion of this offering, based on the number of shares outstanding
as of September 30, 1998, NetSolve will have outstanding an aggregate of
shares of common stock (assuming no exercise of warrants or options to
purchase common stock outstanding as of September 30, 1998). Of these shares,
the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless such
shares are purchased by an existing "affiliate" of NetSolve as that term is
defined in Rule 144 under the Securities Act (an "Affiliate"). The remaining
shares of common stock held by existing stockholders are "restricted
securities" as that term is defined in Rule 144 under the Securities Act
("Restricted Shares"). After 180 days from the date of this Prospectus (the
"Lock-up Period"): (1) of the Restricted Shares will be eligible for
immediate sale without restriction under Rules 144(k) or 701 under the
Securities Act, (2) of the Restricted Shares will be eligible for sale
subject to compliance with the volume and other restrictions of Rule 144, and
(3) of the Restricted Shares will become eligible for sale at various
times after the Lock-up Period upon expiration of applicable holding periods
under Rule 144, subject in some cases to the volume and other restrictions of
Rule 144. In addition, as of September 30, 1998, there were outstanding
2,465,444 options and 167,500 warrants to purchase shares of the Company and
all of such options and warrants will be subject to 180-day lock-up
agreements. After the Lock-up Period, all of the warrants will be exercisable
and of such options will be vested and exercisable.
All of NetSolve's officers and directors and certain stockholders have
entered into lock-up agreements. These agreements generally provide that they
will not 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, any of the shares of common stock or any securities convertible
into, or exercisable or exchangeable for, common stock owned by them.
Additionally, the lock-up agreements provide that these stockholders will not
enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of the common stock,
or any securities convertible into, or exercisable or exchangeable for, shares
of common stock, for a period of 180 days after the date of this Prospectus,
without the prior written consent of BancBoston Robertson Stephens, subject to
certain limited exceptions. BancBoston Robertson Stephens may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. BancBoston Robertson Stephens
currently has no plans to release any portion of the securities subject to
lock-up agreements. When determining whether or not to release shares from the
lock-up agreements, BancBoston Robertson Stephens will consider, among other
factors, the stockholder's reasons for requesting the release, the number of
shares for which the release is being requested and market conditions at the
time.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an Affiliate) would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: (i) one percent of the number of shares of common stock then
outstanding (which will equal approximately shares immediately after this
offering); or (ii) the average weekly trading volume of the common stock on
the Nasdaq National Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale. Sales under Rule 144 are
also subject to certain manner of sale provisions, notice requirements and to
the availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an Affiliate at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold
57
<PAGE>
for at least two years (including the holding period of any prior owner except
an Affiliate), is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144. Accordingly, unless otherwise restricted, "144(k) shares" may be
sold immediately upon the completion of this offering.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its
employees, directors, officers, consultants or advisors prior to the date the
issuer becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to written
compensatory benefit plans or written contracts relating to the compensation
of such persons. In addition, the Securities and Exchange Commission has
indicated that Rule 701 will apply to typical stock options granted by an
issuer before it becomes subject to the reporting requirements of the Exchange
Act, along with the shares acquired upon exercise of such options (including
exercises after the date of this Offering). Securities issued in reliance on
Rule 701 are restricted securities and, subject to the contractual
restrictions described above, beginning 90 days after the date of this
prospectus, may be sold by: (i) persons other than Affiliates, subject only to
the manner of sale provisions of Rule 144 and (ii) Affiliates, under Rule 144
without compliance with its one-year minimum holding period requirements.
Approximately 90 days after the completion of this offering, NetSolve
intends to file a registration statement under the Securities Act covering
approximately shares of common stock, subject to outstanding options or
reserved for issuance under the Company's Long-Term Incentive Plan and 1988
Option Plan. See "Management--Long-Term Incentive Compensation Plan" and "--
1988 Stock Option Plan." Accordingly, shares registered under such
registration statement will, subject to Rule 144 volume limitations applicable
to Affiliates, be available for sale in the open market, except to the extent
that such shares are subject to vesting restrictions with the Company.
Upon completion of this offering, the holders of approximately shares of
Registrable Securities or the transferees will be entitled to certain rights
with respect to registration of such shares under the Securities Act.
Registration of such shares under the Securities Act would result in such
shares becoming freely tradable without restriction under the Securities Act
(except for shares purchased by Affiliates) immediately upon the effectiveness
of such registration. See "Description of Capital Stock--Registration Rights."
58
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through their
representatives, BancBoston Robertson Stephens Inc. and Hambrecht & Quist LLC
(the "Representatives"), have severally agreed with NetSolve and certain
stockholders of the Company (the "Selling Stockholders"), subject to the terms
and conditions of the Underwriting Agreement, to purchase from NetSolve and
the Selling Stockholders the number of shares of common stock set forth
opposite their names below. The Underwriters are committed to purchase and pay
for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITERS SHARES
------------ -------
<S> <C>
BancBoston Robertson Stephens Inc....................................
Hambrecht & Quist LLC................................................
---
Total..............................................................
===
</TABLE>
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of common
stock to the public at the initial public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession of not in excess of $ per share, of which $ may be reallowed to
other dealers. After the initial public offering, the public offering price,
concession, and reallowance to dealers may be reduced by the Representatives.
No such reduction shall change the amount of proceeds to be received by the
Company and the Selling Stockholders as set forth on the cover page of this
Prospectus.
The Company and certain Selling Stockholders have granted to the
Underwriters an option, exercisable during the 30-day period after the date of
this Prospectus, to purchase up to additional shares of common stock at
the same price per share as the Company and the Selling Stockholders will
receive for the shares that the Underwriters have agreed to purchase. To
the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of common stock
to be purchased by it shown in the above table represents as a percentage of
the shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the shares
are being sold. The Company and such Selling Stockholders will be obligated,
pursuant to the option, to sell shares to the extent the option is exercised.
The Underwriters may exercise such option only to cover over-allotments made
in connection with the sale of the shares of common stock offered hereby.
The Underwriting Agreement contains covenants of indemnity among the
underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representation and warranties contained in the
Underwriting Agreement.
Each officer and director who holds shares of the Company and certain other
holders of shares of common stock have agreed, for the Lock-up Period, subject
to certain exceptions, not to offer to sell, contract to sell, or otherwise
sell, dispose of, loan, pledge or grant any rights with respect to any shares
of common stock, any options or warrants to purchase any shares of common
stock, or any securities convertible into or exchangeable for shares of common
stock owned as of the date of this Prospectus or thereafter acquired directly
by such
59
<PAGE>
holders or with respect to which they have the power of disposition, without
the prior written consent of BancBoston Robertson Stephens. However,
BancBoston Robertson Stephens may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-
up agreements. There are no existing agreements between the Representatives
and any of the Company's stockholders providing consent to the sale of shares
prior to the expiration of the Lock-up Period. In addition, the Company has
agreed that during the Lock-up Period the Company will not, without the prior
written consent of BancBoston Robertson Stephens, subject to certain
exceptions, (i) consent to the disposition of any shares held by stockholders
subject to lock-up agreements prior to the expiration of the Lock-up Period or
(ii) issue, sell, contract to sell, or otherwise dispose of, any shares of
common stock, any options or warrants to purchase any shares of common stock
or any securities convertible into, exercisable for or exchangeable for shares
of common stock other than the Company's sale of shares in this offering, the
issuance of common stock upon the exercise of outstanding options, and the
Company's issuance of options and shares under existing stock option and
incentive plans. See "Shares Eligible for Future Sale."
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price for the common stock
offered by this Prospectus will be determined through negotiations among the
Company, the Selling Stockholders and the Representatives. Among the factors
to be considered in such negotiations are prevailing market conditions,
certain financial information of the Company, market valuations of other
companies that the Company and the Representatives believe to be comparable to
the company, estimates of the business potential of the Company, the present
state of the Company's development and other factors deemed relevant.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of the common stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of common stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the common
stock. A "syndicate covering transaction" is the bid for or the purchase of
common stock on behalf of the Underwriters to reduce a short position incurred
by the Underwriters in connection with this offering. A "penalty bid" is an
arrangement permitting the Representatives to reclaim the selling concession
otherwise accruing to an Underwriter or syndicate member in connection with
this offering if the common stock originally sold by such Underwriter or
syndicate member is purchased by the Representatives in a syndicate covering
transaction and has therefore not been effectively placed by such Underwriter
or syndicate member. The Representatives have advised the Company that such
transactions may be effected on the Nasdaq National Market or otherwise and,
if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company and the Selling Stockholders by Worsham, Forsythe & Wooldridge,
L.L.P., Dallas, Texas. Certain legal matters will be passed upon for the
Underwriters by Foley, Hoag & Eliot LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of the Company at March 31, 1997 and
1998, and for each of the three years in the period ended March 31, 1998,
appearing in this Prospectus and the 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.
60
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (including all amendments
thereto, the "Registration Statement") 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 thereto. For further information with respect to the Company and the
common stock, reference is made to the Registration Statement and the exhibits
and schedules filed as a part thereof. Statements contained in this Prospectus
as to the contents of any contract or any other document referred to contain
the information required to be disclosed in this Prospectus pursuant to the
Securities Act and the rules and regulations thereunder, and, in each
instance, if the contract or document is filed as an exhibit, reference is
made to the copy of the contract or document filed as an exhibit to the
Registration Statement. Each such statement is qualified in all respects by
reference to the exhibit. The Registration Statement, including the exhibits
and schedules thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza., 450
Fifth Street N.W., Washington, D.C. 20549 and at the Regional Offices of the
Commission at Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and
7 World Trade Center, Thirteenth Floor, New York, New York 10048. Copies may
also be obtained from the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a Web site at
http:\\www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants, such as the Company, that make
electronic filings with the Commission.
NetSolve intends to send its stockholders annual reports containing audited
consolidated financial statements and quarterly reports containing unaudited
consolidated financial statements for the first three quarters of each fiscal
year.
61
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Consolidated Balance Sheets as of March 31, 1997 and 1998 and September
30, 1998................................................................. F-3
Consolidated Statements of Operations for each of the three years in the
period ended March 31, 1998 and the six months ended September 30, 1997
and 1998................................................................. F-4
Consolidated Statements of Stockholders' Equity (Deficit) for each of the
three years in the period ended March 31, 1998 and the six months ended
September 30, 1998....................................................... F-5
Consolidated Statements of Cash Flows for each of the three years in the
period ended March 31, 1998 and the six months ended September 30, 1997
and 1998................................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
NetSolve, Incorporated
We have audited the accompanying consolidated balance sheets of NetSolve,
Incorporated as of March 31, 1997 and 1998, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for
each of the three years in the period ended March 31, 1998. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of NetSolve,
Incorporated, at March 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Austin, Texas
April 30, 1998, except for Note 11,
as to which the date is September 30, 1998
F-2
<PAGE>
NETSOLVE, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK
AND
STOCKHOLDERS'
EQUITY
MARCH 31, (DEFICIT) AT
------------------ SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1998
-------- -------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $ 8,128 $ 1,333 $ 117
Restricted cash.............. -- 155 267
Certificates of deposit...... 3,000 4,532 4,091
Accounts receivable, net of
allowance for doubtful
accounts of $176 at March
31, 1997, $209 at March 31,
1998 and $193 at September
30, 1998.................... 844 1,602 2,929
Amounts held in escrow
account..................... 1,750 -- --
Inventory.................... 433 616 466
Deposits..................... 76 115 100
Prepaid expenses and other... 354 541 997
-------- -------- --------
Total current assets.......... 14,585 8,894 8,967
Noncurrent restricted cash.... -- 1,491 1,802
Property and equipment:
Network communications
equipment................... 88 77 430
Computer equipment and
software.................... 1,958 1,882 1,862
Other equipment.............. 442 305 233
Furniture, fixtures and
leasehold improvements...... 391 730 715
Equipment held under capital
leases...................... 392 2,185 2,826
-------- -------- --------
3,271 5,179 6,066
Less accumulated depreciation
and amortization............ (1,788) (2,337) (2,822)
-------- -------- --------
Net property and equipment.... 1,483 2,842 3,244
-------- -------- --------
Total assets.................. $ 16,068 $ 13,227 $ 14,013
======== ======== ========
LIABILITIES, REDEEMABLE
CONVERTIBLE PREFERRED STOCK
AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............. $ 1,942 $ 1,361 $ 1,920
Property taxes payable....... 137 53 43
Sales taxes payable.......... 46 49 80
Accrued liabilities.......... 1,575 1,200 1,291
Capital leases obligations... 113 591 747
Accrued liabilities from
discontinued operations..... 500 241 197
Net payable under management
agreement................... 808 -- --
-------- -------- --------
Total current liabilities..... 5,121 3,495 4,278
Capital leases obligation, net
of current portion........... 175 1,146 1,224
Redeemable convertible
preferred stock, $.10 par
value; 7,500,000 shares
authorized; 6,394,727 issued
and outstanding at March 31,
1997 and 1998 and at
September 30, 1998; aggregate
liquidation preferences of
$41,615 at March 31, 1998 and
$42,884 at September 30,
1998; none issued and
outstanding on a pro forma
basis at September 30, 1998.. 39,085 41,615 42,884 $ --
Stockholders' equity (deficit)
Common stock, $.01 par value;
13,000,000, 14,000,000 and
14,000,000 shares authorized
at March 31, 1997 and 1998
and at September 30, 1998,
respectively; 2,910,527,
3,265,094 and 3,285,577
issued and outstanding at
March 31, 1997 and 1998 and
at September 30, 1998,
respectively; 25,000,000
shares authorized and
9,680,304 shares issued and
outstanding on a pro forma
basis at
September 30, 1998.......... 29 33 33 97
Additional paid-in capital... (10,555) (13,049) (14,297) 28,523
Accumulated deficit.......... (17,787) (20,013) (20,109) (20,109)
-------- -------- -------- --------
Total stockholders' equity
(deficit).................... (28,313) (33,029) (34,373) $ 8,511
-------- -------- -------- ========
Total liabilities, redeemable
convertible preferred stock
and stockholders' equity
(deficit).................... $ 16,068 $ 13,227 $ 14,013
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
NETSOLVE, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------- --------------------
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Network management
services.............. $ 782 $ 2,830 $ 7,324 $ 3,247 $ 5,641
Equipment and other.... 2,888 3,486 7,199 3,436 6,344
--------- --------- --------- --------- ---------
Total revenues......... 3,670 6,316 14,523 6,683 11,985
Costs of revenues:
Cost of network
management services... 548 2,434 5,706 2,801 3,876
Cost of equipment and
other................. 1,998 2,638 5,348 2,582 4,950
--------- --------- --------- --------- ---------
Total cost of
revenues.............. 2,546 5,072 11,054 5,383 8,826
--------- --------- --------- --------- ---------
Gross profit............ 1,124 1,244 3,469 1,300 3,159
Operating expenses:
Development............ 1,132 1,262 1,902 958 824
Selling and marketing.. 732 2,246 2,562 1,398 1,449
General and
administrative........ 1,353 1,489 2,159 937 1,053
--------- --------- --------- --------- ---------
Total operating
expenses.............. 3,217 4,997 6,623 3,293 3,326
--------- --------- --------- --------- ---------
Operating loss.......... (2,093) (3,753) (3,154) (1,993) (167)
Other income (expense):
Interest income........ 15 163 470 265 176
Interest expense....... (151) (116) (159) (54) (134)
Other, net............. 26 (13) (186) (136) 29
--------- --------- --------- --------- ---------
(110) 34 125 75 71
--------- --------- --------- --------- ---------
Loss from continuing
operations before
income taxes........... (2,203) (3,719) (3,029) (1,918) (96)
Income tax benefit...... 618 1,257 297 187 --
--------- --------- --------- --------- ---------
Net loss from continuing
operations............. (1,585) (2,462) (2,732) (1,731) (96)
Discontinued operations:
Income from
discontinued
operations, net of
applicable income
taxes................. 2,041 2,142 165 169 --
Gain on sale of
discontinued
operations, net of
applicable income
taxes................. -- 10,615 341 151 --
--------- --------- --------- --------- ---------
Net income (loss)....... $ 456 $ 10,295 $ (2,226) $ (1,411) $ (96)
========= ========= ========= ========= =========
Dividends on redeemable
convertible preferred
stock.................. $ (2,537) $ (2,530) $ (2,530) $ (1,269) $ (1,269)
--------- --------- --------- --------- ---------
Net income (loss)
applicable to common
stock.................. $ (2,081) $ 7,765 $ (4,756) $ (2,680) $ (1,365)
========= ========= ========= ========= =========
Basic and diluted net
income (loss) per share
from:
Continuing operations.. $ (2.22) $ (1.75) $ (1.76) $ (1.02) $ (0.42)
Discontinued
operations............ 1.10 4.47 0.17 0.11 --
--------- --------- --------- --------- ---------
Net income (loss)...... $ (1.12) $ 2.72 $ (1.59) $ (0.91) $ (0.42)
========= ========= ========= ========= =========
Weighted average shares
used in per share
calculation............ 1,859,657 2,850,565 2,995,070 2,943,597 3,273,970
========= ========= ========= ========= =========
Pro forma basic and
diluted net income
(loss) per share from:
Continuing operations.. $ (0.29) $ (0.01)
Discontinued
operations............ 0.05 --
--------- ---------
Net income (loss)...... $ (0.24) $ (0.01)
========= =========
Pro forma weighted
average shares used in
per share calculation.. 9,389,797 9,668,697
========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
NETSOLVE, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
--------- ------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, March 31,
1995................... 1,264,914 $ 13 $ (5,521) $(28,538) $(34,046)
Exercise of common
stock options and
warrants............. 1,548,789 15 8 -- 23
Repurchase and
cancellation of
common stock......... (139) -- -- -- --
Dividends on
redeemable
convertible preferred
stock................ -- -- (2,537) -- (2,537)
Net income............ -- -- -- 456 456
--------- ---- -------- -------- --------
Balance, March 31,
1996................... 2,813,564 28 (8,050) (28,082) (36,104)
Exercise of common
stock options and
warrants............. 96,963 1 25 -- 26
Dividends on
redeemable
convertible preferred
stock................ -- -- (2,530) -- (2,530)
Net income............ -- -- -- 10,295 10,295
--------- ---- -------- -------- --------
Balance, March 31,
1997................... 2,910,527 29 (10,555) (17,787) (28,313)
Exercise of common
stock options and
warrants............. 354,567 4 36 -- 40
Dividends on
redeemable
convertible preferred
stock................ -- -- (2,530) -- (2,530)
Net loss.............. -- -- -- (2,226) (2,226)
--------- ---- -------- -------- --------
Balance, March 31,
1998................... 3,265,094 33 (13,049) (20,013) (33,029)
Exercise of common
stock options and
warrants
(unaudited).......... 20,483 -- 21 -- 21
Dividends on
redeemable
convertible preferred
stock (unaudited).... -- -- (1,269) -- (1,269)
Net loss (unaudited).. -- -- -- (96) (96)
--------- ---- -------- -------- --------
Balance, September 30,
1998 (unaudited)....... 3,285,577 $ 33 $(14,297) $(20,109) $(34,373)
========= ==== ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
NETSOLVE, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
-------------------------- ------------------
1996 1997 1998 1997 1998
------- -------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............. $ 456 $ 10,295 $(2,226) $ (1,411) $ (96)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization................. 820 776 863 391 667
(Gain) loss on disposition of
property and equipment....... (7) 29 (20) (1) (6)
Gain on sale of discontinued
operations................... -- (10,615) (341) (151) --
Change in assets and
liabilities:
(Increase) decrease in
accounts receivable, net.... (251) (1,628) 992 1,284 (1,327)
Increase in inventory,
deposits, prepaid expenses
and other................... (75) (478) (409) (425) (291)
Increase (decrease) in
accounts payable............ 303 784 (581) (1,463) 559
Increase (decrease) in
property and sales taxes
payable and accrued
liabilities................. (197) 741 (1,182) (941) 68
------- -------- ------- -------- --------
Net cash provided by (used in)
operating activities.......... 1,049 (96) (2,904) (2,717) (426)
Cash flows from investing
activities:
Investments in certificates of
deposit...................... -- (3,000) (1,532) (3,531) 441
Transfer of funds to
restricted cash.............. -- -- (1,646) -- (423)
Purchases of property and
equipment.................... (1,025) (1,541) (2,236) (833) (1,067)
Proceeds from sale of property
and equipment................ 307 231 34 18 4
Proceeds from sale of
discontinued operations...... -- 12,280 -- -- --
------- -------- ------- -------- --------
Net cash provided by (used in)
investing activities.......... (718) 7,970 (5,380) (4,346) (1,045)
------- -------- ------- -------- --------
Cash flows from financing
activities:
Proceeds from line of credit.. 350 -- -- -- --
Payments under line of
credit....................... -- (350) -- -- --
Proceeds from capital lease
financing.................... 326 218 1,706 846 562
Payments under capital lease
obligations.................. (517) (514) (257) (113) (328)
Proceeds from exercise of
common stock options and
warrants..................... 23 26 40 10 21
------- -------- ------- -------- --------
Net cash provided by (used in)
financing activities.......... 182 (620) 1,489 743 255
------- -------- ------- -------- --------
Net increase (decrease) in cash
and cash equivalents.......... 513 7,254 (6,795) (6,320) (1,216)
Cash and cash equivalents,
beginning of period........... 361 874 8,128 8,128 1,333
------- -------- ------- -------- --------
Cash and cash equivalents, end
of period..................... $ 874 $ 8,128 $ 1,333 $ 1,808 $ 117
======= ======== ======= ======== ========
Supplemental disclosure of cash
flow information:
Cash paid for interest........ $ 151 $ 116 $ 168 $ 54 $ 133
======= ======== ======= ======== ========
Income taxes paid............. $ 12 $ 39 $ 196 $ 315 $ 15
======= ======== ======= ======== ========
Dividends on redeemable
convertible preferred stock.. $ 2,537 $ 2,530 $ 2,530 $ 1,269 $ 1,269
======= ======== ======= ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED
1. ORGANIZATION AND DESCRIPTION OF THE COMPANY
NetSolve, Incorporated, a Delaware corporation, (the "Company") engages in
the business of providing enterprise data networking management services
within the U.S. These services include network design, installation and
implementation coordination, and ongoing network management. The Company also
resells data networking equipment manufactured by selected leading suppliers
of these products. The Company's services are designed to allow its clients to
selectively outsource, or "out-task" network specific tasks in order to
migrate to new technology, increase network reliability, and reduce overall
network costs.
The Company also previously provided data transport services to clients.
These services consisted of Private Line and Frame Relay networks (using the
Company's own nationwide network, which utilized network transmission
facilities leased by the Company from major carriers), as well as the resale
of a major carrier's Frame Relay service offering. The data transport services
business segment was discontinued in December 1996 (see Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of NetSolve,
Incorporated and its wholly-owned subsidiaries, Specialized Network Services,
Inc. and SNS Credit Corporation. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of 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.
Inventory
Inventory consists of purchased finished goods held for sale to customers.
Inventory is stated at the lower of cost or market with cost determined on a
specific identification basis.
Property and Equipment
Property and equipment are recorded at historical cost. Maintenance and
repairs are charged to expense as incurred and betterments which increase the
value or extend the useful life of the equipment are capitalized.
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets. The Company's assets are currently
depreciated over periods ranging from three to seven years. Leasehold
improvements are amortized over the life of the related lease or assets,
whichever is shorter. Amortization of assets recorded under capital leases is
included in depreciation expense.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) 109, Accounting for Income Taxes. This
statement prescribes the use of the liability method whereby deferred tax
asset and liability account balances are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
F-7
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed in Note 5, the alternative fair value accounting provided for under
SFAS 123, Accounting for Stock-Based Compensation, requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, no compensation expense has been recognized because all
of the Company's options were granted at prices equal to or in excess of the
fair market value of the underlying stock at the date of grant as determined
by the Board of Directors.
Earnings Per Share
The Company's earnings per share data are presented in accordance with SFAS
128, Earnings Per Share. Basic income (loss) per share is computed using the
weighted average number of common shares outstanding. Diluted income (loss)
per share is computed using the weighted average number of common shares
outstanding adjusted for the incremental shares attributed to outstanding
securities with the ability to purchase or convert into common stock. The
treasury stock method, using the average price of the Company's common stock
for the period, is applied to determine dilution from options and warrants.
The if-converted method is used for convertible securities. Potentially
dilutive common stock options and warrants that were excluded from the
calculation of diluted income (loss) per share because their effect is
antidilutive totaled 1,222,301, 1,317,224 and 1,265,861 in 1996, 1997 and
1998, respectively, and 1,303,283 and 1,469,727 for the six months ended
September 30, 1997 and 1998, respectively. For all periods presented,
6,394,727 shares of convertible preferred stock were excluded from the
calculation of diluted income (loss) per share as their effect is also
antidilutive.
A reconciliation of the numerators and denominators used in computing per
share net loss from continuing operations is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------------- ------------------------
1996 1997 1998 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss from
continuing
operations............ $(1,585,000) $(2,462,000) $(2,732,000) $(1,731,000) $ (96,000)
Dividends on redeemable
convertible
preferred stock....... (2,537,000) (2,530,000) (2,530,000) (1,269,000) (1,269,000)
----------- ----------- ----------- ----------- -----------
Numerator for basic and
diluted net loss per
share from continuing
operations............ $(4,122,000) $(4,992,000) $(5,262,000) $(3,000,000) $(1,365,000)
=========== =========== =========== =========== ===========
Denominator:
Weighted average common
shares outstanding.... 1,859,657 2,850,565 2,995,070 2,943,597 3,273,970
----------- ----------- ----------- ----------- -----------
Denominator for basic
and diluted net loss
per share from
continuing
operations............ 1,859,657 2,850,565 2,995,070 2,943,597 3,273,970
=========== =========== =========== =========== ===========
</TABLE>
Revenue Recognition
Network management services revenues are recognized in the period services
are provided based upon rates established by contract. Equipment revenues are
recognized in the period the equipment is shipped to the customer or upon
installation, depending on contract terms. Other revenues which consist
primarily of equipment maintenance services are recognized in the period
services are provided.
F-8
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense for
the years ended March 31, 1996, 1997 and 1998 and the six months ended
September 30, 1997 and 1998 was approximately $159,000, $242,000, $370,000,
$185,000 and $207,000, respectively.
Research and Development
Expenditures for research and development are expensed as incurred.
Cash, Cash Equivalents and Certificates of Deposit
The Company considers all investments purchased with an original maturity of
three months or less to be cash equivalents. Certificates of deposit consist
of investments that mature within one year.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company to concentrations
of credit risk as defined by SFAS 105, Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments
with Concentrations of Credit Risk, consist primarily of cash and cash
equivalents (including restricted cash), investments and accounts receivable.
The Company places its temporary cash investments with FDIC-insured financial
institutions in accounts which, at times, may exceed federally insured limits.
The Company has not experienced any losses in such accounts. The Company
believes it is not exposed to any significant credit risk on cash and cash
equivalents. The Company performs credit evaluations of its customers'
financial condition when management deems it appropriate and generally
requires no collateral from its customers. Concentrations of credit risk with
respect to accounts receivable are generally limited due to the credit-
worthiness of the customers. Accounts receivable from one reseller customer of
the Company's services represented 47% of the outstanding accounts receivable
balance at March 31, 1998.
The following table summarizes the changes in the allowance for doubtful
accounts for 1996, 1997 and 1998 (in thousands):
<TABLE>
<S> <C>
Balance at April 1, 1995.............................................. $ 224
Additions charged to costs and expenses............................. 59
Write-off of uncollectible accounts................................. (58)
-----
Balance at March 31, 1996............................................. 225
Additions charged to costs and expenses............................. 205
Write-off of uncollectible accounts................................. (254)
-----
Balance at March 31, 1997............................................. 176
Additions charged to costs and expenses............................. 80
Write-off of uncollectible accounts................................. (47)
-----
Balance at March 31, 1998............................................. 209
Additions charged to costs and expenses............................. 25
Write-off of uncollectible accounts................................. (41)
-----
Balance at September 30, 1998......................................... $ 193
=====
</TABLE>
F-9
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED
Concentrations of Revenues
Revenues from one reseller customer of the Company's services amounted to
52% of the Company's net revenues for the year ended March 31, 1998. The
Company currently is providing three different services to this customer under
a single agreement with separate amendments for each service. Management
believes its relationship with this customer is good and that the contract and
the related amendments, which expire at various dates through December 1999,
will be renewed or replaced.
Comprehensive Income (Loss)
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
Reporting Comprehensive Income. The Company adopted SFAS 130 in the six months
ended September 30, 1998. There was no impact to the Company as a result of
the adoption of SFAS 130, as there were no significant differences between net
income (loss) and comprehensive income (loss) for all periods presented.
Segments
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS 131
is effective for fiscal years beginning after December 15, 1997, but is not
required for interim disclosure in the first year of adoption. The Company
expects that implementation of this standard will not have a material effect
on its financial disclosures.
Unaudited Pro Forma Information
The Company's historical capital structure is not indicative of its
prospective structure due to the automatic conversion of all shares of
redeemable convertible preferred stock into common stock concurrent with the
closing of the Company's anticipated initial public offering. Therefore, the
pro forma calculations reflect the conversion of all outstanding shares of
redeemable convertible preferred stock into 6,394,727 shares of common stock
upon the Company's initial public offering using the if-converted method. Had
the conversion of the redeemable convertible preferred stock occurred on April
1, 1997, basic and diluted net income (loss) per share would have been $(0.24)
and $(0.01) for the year ended March 31, 1998 and for the six months ended
September 30, 1998, respectively.
Unaudited Interim Results
The accompanying consolidated balance sheet as of September 30, 1998, the
consolidated statements of operations and cash flows for the six months ended
September 30, 1997 and 1998 and the consolidated statements of stockholders'
equity (deficit) for the six months ended September 30, 1998 are unaudited. In
the opinion of management, the statements have been prepared on the same basis
as the audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
statement of the results of the interim periods. Operating results for the six
months ended September 30, 1998 are not necessarily indicative of the results
that may be expected for the year ending March 31, 1999.
Reclassifications
Certain reclassifications have been made to prior period balances to conform
to the current period presentation.
3. SALE OF TRANSPORT BUSINESS SEGMENT
In December 1996, the Company made a decision to discontinue its data
transport services business segment and closed a transaction with Intermedia
Communications Inc. of Florida ("Intermedia") for the sale of the Private Line
portion of that segment. The sale to Intermedia was closed on December 30,
1996 at a price of $12,280,000 of which $2,000,000 was placed in an escrow
account. The escrowed funds were released to the Company in November 1997.
F-10
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED
As a part of this transaction, all customer and supplier contracts related
to the Private Line portion of the business segment were assigned to
Intermedia, and the capital equipment related to this portion of the business
segment was sold to Intermedia. The agreement for this sale contains a non-
compete provision which prohibits the Company from competing in the data
transport business for five years.
In connection with this sale, the Company agreed to provide management
services to assist Intermedia in supporting the acquired customer base for a
period of 12 months. These services were provided through October 1997. The
Company recorded revenue of $500,000 and $715,000 in fiscal years 1997 and
1998, respectively, with respect to these services.
To complete the discontinuance of this business segment, the Company
assigned its rights and obligations to customer contracts for Frame Relay
services resold by the Company, and its obligations under a supplier contract,
effective October 1, 1997 to NetPlus, Inc. The purchase price was established
at 25% of NetPlus' gross profit from these services (as defined in the
purchase agreement) for a period of three years beginning April 1, 1998 up to
a maximum of $600,000. The Company has an ongoing obligation to provide
maintenance and management services, coordination of the telecommunications
provisioning requirements, and billing and collection services for the sold
customer base for a nominal fee over a term of 42 months. Management believes
the sale or assignment of this portion of the transport business segment will
have no material financial impact beyond March 31, 1998, and accordingly has
not made any provision in the accompanying financial statements. Revenues in
fiscal year 1998, prior to the assignment to NetPlus in October 1997, totaled
approximately $1,072,000, and related costs of providing such services
approximated $826,000. Revenues from this business segment were $18,408,000,
$13,223,000 and $1,072,000 for the years ended March 31, 1996, 1997, and 1998,
respectively.
During the fiscal year ended March 31, 1998, upon conclusion of all
remaining activities of this business segment, the Company reversed unused
accruals totaling approximately $557,000 (including $250,000 which was
provided to absorb potential reductions in the purchase price if billings to
the sold customer base fell below levels set forth in the agreement with
Intermedia).
4. REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company had issued and outstanding shares of redeemable convertible
preferred stock as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, SEPTEMBER 30,
1997 1998 1998
--------- --------- -------------
<S> <C> <C> <C>
Series A convertible preferred stock..... 3,944,184 3,944,184 3,944,184
Series B convertible preferred stock..... 2,450,543 2,450,543 2,450,543
</TABLE>
The Series A redeemable convertible preferred stock is redeemable at the
option of the Board of Directors of the Company. The redemption price for each
share of Series A redeemable convertible preferred stock is an amount equal to
the original issue price per share ($4.00), plus $.033 per share for each
month that has passed since the date of issuance (the "Premium"). The Series A
redeemable convertible preferred stock was issued during April through August
1991, resulting in a per share premium of $2.614 to $2.763 at March 31, 1998
and an aggregate redemption price of $26,541,000.
The Series A redeemable convertible preferred stock is convertible into
shares of common stock of the Company at the option of the holder at any time
after the date of issuance and prior to the date of redemption. Generally, the
conversion price will be the lower of the original issue price of the Series A
redeemable convertible preferred stock ($4.00 per share) or the price per
share of any subsequent equity financing which is
F-11
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED
less than the original issue price (there have been no such subsequent
offerings through September 30, 1998). In addition, all convertible preferred
stock will be automatically converted into common stock upon a public offering
of the Company's common stock which results in aggregate cash proceeds in
excess of $10,000,000 and at an offering price of at least $6.00 per share.
The Company has reserved 3,944,184 shares of common stock for issuance upon
conversion of the Series A redeemable convertible preferred stock.
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, holders of all the Series A redeemable
convertible preferred stock shall be entitled to receive an amount per share
equal to the sum of the original issue price plus the Premium prior and in
preference to any distribution of the Company's assets to holders of common
stock. In the event of a consolidation or merger in which the holders of all
series of convertible preferred stock hold less than 51% of the new entity,
such consolidation or merger shall, at the option of each holder, be deemed to
be a liquidation. If the assets of the Company are insufficient to satisfy the
full amount of liquidation preference, then the Company's assets will be
distributed among the holders of the Series A redeemable convertible preferred
stock pari passu with holders of any other series of redeemable convertible
preferred stock.
Holders of Series A redeemable convertible preferred stock are entitled to
annual per share dividends of $.40 when and as declared by the Company's Board
of Directors. Such dividends are not cumulative. Dividends on redeemable
convertible preferred stock are prior and in preference to any declaration or
payment of any dividend on the Company's common stock. Dividends must be
declared and paid on all series of redeemable convertible preferred stock if
declared or paid on any series of redeemable convertible preferred stock. No
dividends have been declared to date.
The holders of all series of redeemable convertible preferred stock are
entitled to one vote for each share of common stock into which such redeemable
convertible preferred stock could then be converted.
The Series A redeemable convertible preferred stock purchase agreement
contains various covenants, restrictions and provisions, including a
restriction on the payment of dividends on the Company's common stock other
than dividends payable solely in common stock of the Company. In addition,
this agreement restricts the Company's ability to make loans or advances to,
or investments in securities and obligations of, other entities and provides
restrictions as to the repurchase of outstanding shares of capital stock
except pursuant to the terms of any shareholder agreements with employees of
the Company or the redemption of redeemable convertible preferred stock.
The Series B redeemable convertible preferred stock has redemption and
conversion rights, liquidation preferences and voting rights identical to
those of the Series A redeemable convertible preferred stock except that the
Board of Directors' option to redeem the Series B redeemable convertible
preferred stock prior to March 31, 1999 requires the consent of at least two-
thirds of the then outstanding shares of the Series B redeemable convertible
preferred stock. Additionally, the Series B redeemable convertible preferred
stock purchase agreement contains covenants, restrictions and provisions
similar to those described above in the Series A redeemable convertible
preferred stock purchase agreement. The Series B redeemable convertible
preferred stock has a per share premium of $1.986 to $2.155 at March 31, 1998
and an aggregate redemption price of $15,074,000. The Company has reserved
2,450,543 shares of common stock for issuance upon conversion of the Series B
redeemable convertible preferred stock.
F-12
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED
5. STOCKHOLDERS' EQUITY (DEFICIT)
Stockholder Repurchase Rights
The Company has entered into stockholder agreements with certain
stockholders, and with all employees and consultants who have received grants
of options pursuant to the Company's stock option plans. These agreements
generally grant the Company certain repurchase rights with respect to common
stock purchased by the stockholders. The percentage of shares subject to
repurchase generally decreases by 25% on the first anniversary of the granting
of a stock option and quarterly (at 6.25% per quarter) thereafter. The
Company's repurchase rights are exercisable upon termination of employment of
the employee or consultant. The agreements also provide the Company a right of
first refusal on the sale of any shares issued pursuant to the agreements. At
March 31, 1998, total outstanding options subject to repurchase rights were
543,524.
Stock Option Plans
In November 1988, the Company adopted a stock option plan providing for the
granting of options to purchase shares of the Company's common stock to key
employees, directors, officers and consultants as designated by the Company's
Board of Directors. As of March 31, 1998, an aggregate of 2,601,976 shares was
approved for issuance under the Plan. The Plan provides for the issuance of
both Incentive Stock Options ("ISOs") as well as options not qualifying as
ISOs within the meaning of the Internal Revenue Code of 1986, as amended.
Under the terms of the Plan, the option price per share of ISOs may not be
less than 100% of the fair market value of the Company's common stock per
share at date of grant. Options may not be granted with a term exceeding 10
years and are immediately exercisable. Shares acquired pursuant to the
exercise of options are subject to certain vesting and repurchase requirements
as set forth above.
In July 1997, the Company adopted a long-term incentive compensation plan.
This plan is a comprehensive, stock-based incentive compensation plan,
providing for discretionary awards of incentive stock options within the
meaning of the Internal Revenue Code of 1986, as amended, nonqualified stock
options, stock appreciation rights, restricted stock, restricted stock units,
performance shares, performance units, bonus stock and other stock-based
awards. All awards will be made in, or based on the value of, the Company's
common stock. The plan will be administered by the Compensation Committee of
the Company's Board of Directors, which consists entirely of outside
directors. Regular, full-time employees of the Company, as well as directors
of, and consultants to, the Company will be eligible to participate in, and
receive awards under the plan. The maximum number of shares of common stock
for which awards may be granted under the plan is 600,000. The price payable
upon exercise of an option which is intended to constitute an incentive stock
option may not be less than 100% of the fair market value of the common stock
at the time of grant. There were approximately 47,000 options granted under
this plan during the fiscal year ended March 31, 1998.
The Company has also granted non-qualified options other than pursuant to
the above plans. None of these options were exercised in fiscal 1998. At March
31, 1998, such options outstanding totaled 3,250 shares representing grants to
two outside directors at exercise prices of $.80 and $1.20 per share.
At March 31, 1998 the Company had reserved 2,563,593 shares of common stock
for issuance upon exercise of all options.
Statement of Financial Accounting Standards No. 123
Pro forma information regarding net income (loss) is required by SFAS 123,
and has been determined as if the Company had accounted for its stock options
under the fair value method of that Statement. The fair value for these
options was estimated as of the date of grant using a minimum value option
pricing model with
F-13
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED
weighted-average risk free interest rates for 1996, 1997, 1998 and the six
months ended September 30, 1998 of 6.01%, 6.45%, 5.69% and 5.55%,
respectively; no dividends; and a weighted-average expected life of the option
of five years.
The minimum value option valuation model with a near zero volatility results
in an option value similar to the option value that would result from using
the Black-Scholes option valuation model with a near zero volatility. The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and which are
fully transferable. In addition, option valuation models in general require
the input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different than 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 stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The impact
on the pro forma results which follow may not be representative of
compensation expense in future periods when the effect of the amortization of
multiple awards may be reflected in the amounts. The Company's pro forma net
loss from continuing operations (net of income taxes) and pro forma basic and
diluted net loss per share follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED MARCH 31, ENDED
------------------------------------- SEPTEMBER 30,
1996 1997 1998 1998
----------- ----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Pro forma net loss from
continuing operations.. $(1,592,000) $(2,501,000) $(2,779,000) $(194,000)
Pro forma basic and
diluted net loss per
share.................. $ (0.86) $ (0.88) $ (0.93) $ (0.06)
</TABLE>
A summary of the Company's stock option activity under the Plan(s) and
related information follows (since options under the Plan(s) are immediately
exercisable, outstanding exercisable options at the end of the period are
shown both in total and for vested amounts which would not be subject to
repurchase if exercised):
<TABLE>
<CAPTION>
MARCH 31, 1996 MARCH 31, 1997 MARCH 31, 1998 SEPTEMBER 30, 1998
-------------------- -------------------- -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- --------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding--beginning
of period.............. 1,473,850 $0.22 1,745,087 $0.35 2,005,859 $0.81 2,007,647 $1.03
Granted................ 396,850 $0.83 582,500 $2.10 388,844 $2.57 517,824 $6.98
Exercised.............. (27,573) $0.29 (96,963) $0.27 (124,633) $0.30 (20,483) $1.05
Canceled............... (98,040) $0.36 (224,765) $0.82 (262,423) $1.96 (42,794) $2.34
--------- ----- --------- ----- --------- ----- --------- -----
Outstanding and
exercisable--end of
period--total.......... 1,745,087 $0.35 2,005,859 $0.81 2,007,647 $1.03 2,462,194 $2.26
========= ===== ========= ===== ========= ===== ========= =====
Outstanding and
exercisable--end of
period--vested......... 959,178 $0.24 1,188,793 $0.27 1,464,123 $0.53 1,429,519 $0.53
========= ===== ========= ===== ========= ===== ========= =====
Weighted-average fair
market value of options
granted during the
period................. $0.21 $0.52 $0.64 $1.69
</TABLE>
F-14
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED
Exercise prices for options outstanding at March 31, 1998 are as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
REMAINING
EXERCISE CONTRACTUAL
OPTIONS PRICE RANGE LIFE
--------- ----------- -----------
<S> <C> <C>
1,099,953 $0.20-$0.30 5.4
75,300 $0.40-$0.50 3.3
119,300 $0.80-$1.20 6.8
391,500 $1.70-$2.10 8.5
324,844 $2.30-$2.80 9.6
</TABLE>
Warrants
The Company has issued warrants to purchase up to 88,750 shares of Series A
and Series B redeemable convertible preferred stock in connection with certain
equipment financing leases. These warrants are exercisable at a price of $4.00
per share and expire in 2000 and 2002. Additional warrants to purchase up to
28,750 shares of common stock at an exercise price of $.01 per share were
issued under the anti-dilution provisions of the warrants for Series A and B
redeemable convertible preferred stock and expire in 2002. In addition, the
Company has issued a warrant to a bank to purchase up to 25,000 shares of
Series B redeemable convertible preferred stock at an exercise price of $4.00
per share and a warrant to purchase up to 25,000 shares of common stock at an
exercise price of $.01 per share. The warrants issued to the bank expire in
2000.
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred taxes as of March 31 are as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Installment sale income deferred for tax
purposes...................................... $ 740,000 $ --
----------- -----------
Gross deferred tax liabilities................... 740,000 --
----------- -----------
Deferred tax assets:
Tax carryforwards.............................. 6,626,000 6,923,000
Depreciable assets............................. 142,000 159,000
Accruals, reserves and other................... 606,000 365,000
----------- -----------
Gross deferred tax assets........................ 7,374,000 7,447,000
Valuation allowance.............................. (6,634,000) (7,447,000)
----------- -----------
Net deferred taxes............................... $ -- $ --
=========== ===========
</TABLE>
The valuation allowance increased by approximately $813,000 during the year
ended March 31, 1998 primarily as a result of the Company's operating losses
which were not benefited. The valuation allowance decreased by approximately
$3,671,000 during the year ended March 31, 1997.
F-15
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED
As of March 31, 1998, the Company had federal net operating loss
carryforwards of approximately $18,222,000 which will expire beginning in
2004, if not utilized. The Company has alternative minimum tax credit
carryforwards of $177,000 which do not expire. Utilization of the net
operating losses and credit carryforwards may be subject to a substantial
annual limitation due to the "change in ownership" provisions of the Internal
Revenue Code of 1986. The annual limitation may result in the expiration of
net operating losses before utilization.
Significant components of the benefit for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------
1996 1997 1998
--------- ----------- ---------
<S> <C> <C> <C>
Current................................... $(618,000) $(1,257,000) $ --
Deferred.................................. -- -- (297,000)
--------- ----------- ---------
$(618,000) $(1,257,000) $(297,000)
========= =========== =========
</TABLE>
Income tax expense (benefit) is included in the financial statements as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------
1996 1997 1998
--------- ----------- ---------
<S> <C> <C> <C>
Continuing operations.................... $(618,000) $(1,257,000) $(297,000)
Discontinued operations.................. 628,000 1,527,000 297,000
--------- ----------- ---------
$ 10,000 $ 270,000 $ --
========= =========== =========
</TABLE>
The tax benefit attributed to continuing operations in each of the years
ended March 31, 1996, 1997 and 1998 results from the application of SFAS 109
to the sale of discontinued operations (see Note 3). It is not expected that
similar tax benefits will be available to reduce future losses, if any.
The Company's benefit for income taxes attributable to continuing operations
differs from the expected tax benefit amount computed by applying the
statutory federal income tax rate of 34% to income before income taxes as a
result of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------
1996 1997 1998
------ ------ -------
<S> <C> <C> <C>
Federal statutory rate............................ 34.0% 34.0% 34.0%
Operating losses in excess of discontinued
operations....................................... -- -- (26.8)
Permanent differences and other................... (5.9) (0.2) 2.6
------ ------ -------
Total benefit..................................... 28.1% 33.8% 9.8%
====== ====== =======
</TABLE>
7. DEFINED CONTRIBUTION PLAN
Effective December 1, 1988, the Company adopted a 401(k) plan for all full-
time employees who have reached age 21 and completed certain service
requirements. Employer contributions may be made by the Company at the
discretion of the Board of Directors. No such employer contributions have been
made to date.
F-16
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED
8. COMMITMENTS AND CONTINGENCIES
The Company leases equipment and office space under noncancelable operating
leases. Future minimum lease payments under these leases as of March 31, 1998,
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
<S> <C>
1999........................................................... $1,451,000
2000........................................................... 1,519,000
2001........................................................... 1,504,000
2002........................................................... 1,573,000
2003........................................................... 1,572,000
----------
Total minimum lease payments..................................... $7,619,000
==========
</TABLE>
Total rental expense was approximately $547,000, $563,000, $639,000,
$330,000 and $642,000 for the years ended March 31, 1996, 1997 and 1998 and
the six month periods ended September 30, 1997 and 1998, respectively.
9. CAPITAL LEASES
The Company leases various computer, networking and other equipment under
capital lease arrangements. The following is a schedule by years of future
minimum lease payments under these capital leases together with the present
value of the net minimum lease payments as of March 31, 1998.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
<S> <C>
1999........................................................... $ 779,000
2000........................................................... 703,000
2001........................................................... 439,000
2002........................................................... 178,000
----------
Total minimum lease payments..................................... 2,099,000
Less amount representing interest................................ (362,000)
----------
Present value of net minimum lease payments...................... 1,737,000
----------
Less current portion............................................. (591,000)
----------
Non-current obligation........................................... $1,146,000
==========
</TABLE>
10. RESTRICTED CASH
At March 31, 1998, the Company had purchased irrevocable letters of credit
totaling $645,000 in favor of a lessor under a capital lease for equipment
representing seventy-five percent (75%) of the amount financed. These letters
of credit decline annually by 25%-33% of the original amount as long as no
event of default has occurred. These letters of credit are collateralized by
certificates of deposit.
Under the lease agreement covering the Company's headquarters facility, the
Company is required to purchase an irrevocable letter of credit which it
intends to collateralize with a certificate of deposit in the amount of
$1,000,000. The requirement for the letter of credit extends through the
earlier of the expiration of the lease (November 2003) or four consecutive
quarters of profitability.
F-17
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1998
INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED
11. SUBSEQUENT EVENT
On September 30, 1998, the Board of Directors authorized the filing with the
Securities and Exchange Commission that would permit the sale of shares of the
Company's common stock in connection with a proposed initial public offering.
On September 30, 1998, the Board of Directors approved, subject to
stockholder approval, an amendment to the Company's Certificate of
Incorporation increasing the number of authorized shares of common stock to
25,000,000.
On September 30, 1998 the Board of Director approved, subject to stockholder
approval, an amendment to the Company's Long-Term Incentive Plan increasing
the shares authorized under such plan to 1,350,000.
F-18
<PAGE>
[The inside back cover contains the following:]
[1. The background of the page consists of a photograph of a computer terminal
and keyboard.]
[2. The following text appears at the top of the page:]
NetSolve Customers and Locations
[3. A map of the continental United States appears in the middle of the page.
Dots on the map illustrate locations of NetSolve's end users.]
[4. The following text appears below the map:]
More than 375 companies currently use our services to manage more than 4800
network sites. We furnish our network management services remotely 24 hours
per day, seven days per week from our Network Management Center in Austin,
Texas. We market our services through relationships with resellers as well
as through our direct sales force.
[5. A diagram at the bottom of the page consists of a pyramid with the NetSolve
name and logo at the top. Lines lead downward from the NetSolve name and
logo to each of the following:]
Direct Customers Resellers
[Lines lead downward from Direct Customers to each of the following:]
Entertainment Financial Services High Technology Manufacturing
[Lines lead downward from Resellers to each of the following:]
Carriers Internet Service Providers Value-Added Resellers
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions payable by the registrant in connection
with the sale of the Common Stock being registered hereby. All amounts shown
are estimates, except the Securities and Exchange Commission registration fee
and the National Association of Securities Dealers, Inc. filing fee. The
Selling Stockholders will bear none of the expenses of this offering other
than the underwriting discounts and commissions applicable to the shares of
common stock to be sold by them.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee...................... $ 15,267
National Association of Securities Dealers, Inc. filing fee........ 5,675
Nasdaq National Market listing fee................................. 88,500
Blue Sky fees and expenses......................................... 7,500
Printing and engraving expenses.................................... 125,000
Legal fees and expenses............................................ 250,000
Accounting fees and expenses....................................... 185,000
Transfer agent and registrar fees.................................. 15,000
Miscellaneous...................................................... 58,058
--------
Total............................................................ $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers, as well as other
employees and agents. A corporation may indemnify those individuals against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or
in the right of the corporation). The individuals specified may be indemnified
in those actions, suits or proceedings if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests
of the corporation. Additionally, in a criminal action or proceeding, these
individuals may be indemnified only if they had no reasonable cause to believe
their conduct was unlawful. A similar standard is applicable in the case of
actions or suits by or in the right of the corporation, except that:
. indemnification only extends to expenses (including attorneys' fees)
incurred in connection with the defense or settlement of such actions or
suits; but
. if the person seeking indemnification has been found liable to the
corporation in respect of any claim, issue or matter, no indemnification
shall be made except to the extent a specified court determines the
person is fairly and reasonably entitled to indemnity for such expenses
as the court deems proper.
The indemnification under the statute is in addition to any other
indemnification that may be granted by a corporation's charter, by laws,
disinterested director vote, agreement or otherwise.
NetSolve's Bylaws provide that NetSolve shall indemnify its directors and
officers, and may indemnify its employees and agents, to the fullest extent
permitted by law. NetSolve believes that indemnification under its Bylaws
covers at least negligence and gross negligence on the part of indemnified
parties.
In addition to the protection directors receive under NetSolve's By-laws,
the DGCL and the indemnity agreements, NetSolve's Restated Certificate of
Incorporation limits the liability of directors to the fullest extent
permitted by Delaware law. Delaware law provides that a corporation's
certificate of incorporation may contain
II-1
<PAGE>
a provision eliminating or limiting the personal liability of directors to the
corporation or its stockholders for monetary damages for breach of their
fiduciary duties as directors, except for liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. improper payments of dividends or improper stock repurchases or
redemptions as provided in Section 174 of the DGCL; or
. any transaction from which the director derived an improper personal
benefit.
NetSolve has entered into agreements that indemnify its directors and
executive officers for certain expenses (including attorneys' fees) and, in
some instances, judgments, fines and settlement amounts they incur in certain
actions or proceedings. These actions or proceedings include any action by or
in the right of NetSolve, arising out of their services as a director or
officer of NetSolve, any subsidiary of NetSolve or any other company or
enterprise to which the person provides the services at the request of
NetSolve. NetSolve believes that these provisions and agreements are necessary
to attract and retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of NetSolve where indemnification will be
required or permitted. NetSolve is not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
Reference is also made to Section 8 of the Underwriting Agreement among the
Company, the Selling Stockholders and the Underwriters, filed as Exhibit 1.1
to this Registration Statement, for a description of indemnification
arrangements between the Company, the Selling Stockholders and the
Underwriters.
II-2
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since October 1, 1995, NetSolve has issued and sold unregistered securities
as follows:
Common Stock Issued Pursuant to Exercise of Warrants by Certain
Investors. In December 1997 and January 1998, NetSolve issued and sold an
aggregate of 229,934 shares of common stock to various unaffiliated entities
and individuals upon the exercise of outstanding warrants at an exercise price
of $0.01 per share. The warrants had been issued in October 1992 and February
1993, in connection with the sale of 229,934 shares of NetSolve's Series B
Preferred Stock under NetSolve's Series B Preferred Stock Purchase Agreement.
Each of the warrant holders was a party to such agreement.
The sales and issuance of these securities were exempt from registration
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant
to Section 4(2) on the basis that the transactions did not involve public
offerings.
Stock Options Granted to Employees. The Company has granted options to
purchase its common stock to its employees under the 1988 Stock Option Plan
and the Long-Term Incentive Compensation Plan as follows:
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SHARES WEIGHTED AVERAGE
OPTION SUBJECT TO EXERCISE PRICE OF
DATE OF GRANT GRANTEES OPTIONS OPTIONS GRANTED
- ------------- --------- ---------- ------------------
<S> <C> <C> <C>
11/16/95 5 35,500 1.70
1/18/96 6 13,250 1.90
4/18/96 11 119,000(1) 2.10
7/18/96 34 224,500(2) 2.10
10/17/96 8 58,500 2.10
2/13/97 14 180,500(3) 2.10
4/29/97 19 57,000 2.10
7/14/97 16 101,640 2.30
10/16/97 15 48,804 2.80
2/4/98 26 181,400(4) 2.80
4/22/98 13 57,080(5) 2.80
7/21/98 45 460,744(6) 7.50
</TABLE>
- --------
(1) The options granted include grants to the following executive officers: a
grant of 40,000, at an exercise price of $2.10 to Kenneth Kieley and a
grant of 50,000 at an exercise price of $2.10 to Craig Tysdal.
(2) The options granted include a grant to the following executive officer: a
grant of 20,000 at an exercise price of $2.10 to Michael Turner.
(3) The options granted include a grant to the following executive officer: a
grant of 120,000 at an exercise price of $2.10 to Robert Pojman.
(4) The options granted include a grant to the following executive officer: a
grant of 120,000 at an exercise price of $2.80 to Christopher Buffum.
(5) The options granted include a grant to the following executive officer: a
grant of 25,000 at an exercise price of $2.80 to Terrence Cheng.
(6) The options granted include grants to the following executive officers: a
grant of 25,000 at an exercise price of $7.50 to Terrence Cheng, a grant
of 50,000 at an exercise price of $7.50 to Kenneth Kieley, a grant of
50,000 at an exercise price of $7.50 to Robert Pojman, and a grant of
200,000 at an exercise price of $7.50 to Craig Tysdal.
II-3
<PAGE>
The sales and issuances of these securities were exempt from registration
under the Securities Act pursuant to either Rule 701 promulgated thereunder,
or pursuant to Section 4(2), on the basis that the transactions did not
involve public offerings.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Composite of Existing Restated Certificate of Incorporation of the
Company, together with all amendments thereto.
3.2 Form of Certificate of Amendment to be filed.
3.3 Form of Restated Certificate of Incorporation of the Company, as
amended, to be in effect upon the closing of this offering.
3.4 By-laws of the Company.
4.1 Specimen Form of Common Stock Certificate of the Company.*
5.1 Opinion of Worsham, Forsythe & Wooldridge, L.L.P.*
10.1 Contract Services Agreement between AT&T Corp. and the Company,
dated December 21, 1995, together with amendments relating
thereto.
10.2 Lease between CarrAmerica Realty, L.P., t/a Riata Corporate Park,
as Landlord, and the Company, as Tenant, dated as of September 30,
1997, relating to Riata Corporate Park.
10.3 Master Lease Agreement between Leasing Technologies International
Inc., as Lessor and the Company, as Lessee, dated October 30,
1995, relating to certain items of equipment.
10.4 Master Lease Agreement between Trimarc Financial, as Lessor, and
the Company, as Lessee, dated as of January 30, 1998, relating to
certain items of equipment.
10.5 Asset Acquisition Agreement between Intermedia Communications Inc.
and the Company, dated as of December 30, 1996.
10.6 Series B Preferred Stock Purchase Agreement, dated as of October
19, 1992, together with all amendments relating thereto.
10.7 Form of Indemnification Agreement.*
10.8 1988 Stock Option Plan, as amended.
10.9 Long-Term Incentive Compensation Plan.
10.10 Form of Proprietary Information and Inventions Agreement entered
into between the Company and each officer.
10.11 Offer Letter from the Company to Craig S. Tysdal, dated August 12,
1993.
10.12 Offer Letter from the Company to Christopher D. Buffum, dated
January 29, 1998.
10.13 Offer Letter from the Company to Terrence Cheng, dated April 15,
1998.
10.14 Stock Option Agreement with Howard D. Wolfe.
10.15 Shareholder Agreement with Howard D. Wolfe.
22.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Worsham, Forsythe & Wooldridge, L.L.P. (included in
Exhibit 5.1).*
24.1 Power of Attorney (included on page II-6).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or the required
information is shown in the Company's Consolidated Financial Statements or
Notes thereto.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
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 provisions described in Item 14, 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, 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 to provide to the Underwriters,
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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
of 1933, 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-5
<PAGE>
POWER OF ATTORNEY
Each director and/or officer of the registrant whose signature appears below
hereby appoints the Agent for Service named in this registration statement as
his attorney in fact to sign in his name and behalf, in any and all capacities
stated below, and to file with the Securities and Exchange Commission, any and
all amendments, including post-effective amendments, to this registration
statement, and the registrant hereof also appoints such Agent for Service as
its attorney-in-fact with like authority to sign and file any such amendments
in its name and behalf.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant has duly caused this registration statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Austin, State of Texas, on October 15, 1998.
Netsolve, Incorporated
/s/ Craig S. Tysdal
By: _________________________________
CRAIG S. TYSDAL,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and with date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Craig S. Tysdal Principal Executive October 15, 1998
______________________________________ Officer and Director
(CRAIG S. TYSDAL, PRESIDENT AND
CHIEF EXECUTIVE OFFICER)
/s/ Kenneth C. Kieley Principal Financial October 15, 1998
______________________________________ Officer and Principal
(KENNETH C. KIELEY, VICE PRESIDENT-- Accounting Officer
FINANCE, CHIEF FINANCIAL OFFICER
AND SECRETARY)
/s/ J. Michael Gullard Director October 15, 1998
______________________________________
(J. MICHAEL GULLARD, CHAIRMAN OF THE
BOARD)
/s/ C. Richard Kramlich Director October 15, 1998
______________________________________
(C. RICHARD KRAMLICH)
/s/ Joel P. Adams Director October 15, 1998
______________________________________
(JOEL P. ADAMS)
/s/ Howard D. Wolfe, Jr. Director October 15, 1998
______________________________________
(HOWARD D. WOLFE, JR.)
/s/ C. V. Prothro Director October 15, 1998
______________________________________
(C. V. PROTHRO)
/s/ H. Leland Murphy Director October 15, 1998
______________________________________
(H. LELAND MURPHY)
Director
______________________________________
(JOHN S. MCCARTHY)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement.
3.1 Composite of Existing Restated Certificate of Incorporation of the Company, together
with all amendments thereto.
3.2 Form of Certificate of Amendment to be filed.
3.3 Form of Restated Certificate of Incorporation of the Company, as amended, to be in
effect upon the closing of this offering.
3.4 By-laws of the Company.
4.1 Specimen Form of Common Stock Certificate of the Company.*
5.1 Opinion of Worsham, Forsythe & Wooldridge, L.L.P.*
10.1 Contract Services Agreement between AT&T Corp. and the Company, dated December 21, 1995,
together with amendments relating thereto.+
10.2 Lease between CarrAmerica Realty, L.P., t/a Riata Corporate Park, as Landlord, and the
Company, as Tenant, dated as of September 30, 1997, relating to Riata Corporate Park.
10.3 Master Lease Agreement between Leasing Technologies International Inc., as Lessor and
the Company, as Lessee, dated October 30, 1995, relating to certain items of equipment.
10.4 Master Lease Agreement between Trimarc Financial, as Lessor, and the Company, as Lessee,
dated as of January 30, 1998, relating to certain items of equipment.
10.5 Asset Acquisition Agreement between Intermedia Communications Inc. and the Company,
dated as of December 30, 1996.
10.6 Series B Preferred Stock Purchase Agreement, dated as of October 19, 1992, together with
all amendments relating thereto.
10.7 Form of Indemnification Agreement.*
10.8 1988 Stock Option Plan, as amended.
10.9 Long-Term Incentive Compensation Plan.
10.10 Form of Proprietary Information and Inventions Agreement entered into between the Company
and each officer.
10.11 Offer Letter from the Company to Craig S. Tysdal, dated August 12, 1993.
10.12 Offer Letter from the Company to Christopher D. Buffum, dated January 29, 1998.
10.13 Offer Letter from the Company to Terrence Cheng, dated April 15, 1998.
10.14 Stock Option Agreement with Howard D. Wolfe.
10.15 Shareholder Agreement with Howard D. Wolfe.
22.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Worsham, Forsythe & Wooldridge, L.L.P. (included in Exhibit 5.1).*
24.1 Power of Attorney (included on page II-6).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Certain information has been omitted from this exhibit. The omitted
information has been filed separately with the Commission with a request for
confidential treatment.
<PAGE>
EXHIBIT 1.1
_______________ SHARES/1/
NETSOLVE, INCORPORATED
Common Stock
UNDERWRITING AGREEMENT
----------------------
__________, 1998
Bancboston Robertson Stephens Inc.
Hambrecht & Quist LLC
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
NetSolve, Incorporated, a Delaware corporation (the "Company"), and certain
stockholders of the Company named in Schedule B hereto (hereafter called the
"Selling Stockholders") address you as the Representatives of each of the
persons, firms and corporations listed in Schedule A hereto (herein collectively
called the "Underwriters"") and hereby confirm their respective agreements with
the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell ________
---------------------
shares (the "Company Shares") of its authorized and unissued common stock, $.01
par value per share, to the several Underwriters. The Selling Stockholders,
acting severally and not jointly, propose to sell an aggregate of
________________ shares (the "Selling Stockholder Shares") of the Company's
authorized and outstanding common stock, $.01 par value per share, to the
several Underwriters. The Company Shares and the Selling Stockholder Shares are
hereinafter collectively referred to as the "Firm Shares." The Company and
certain Selling Stockholders also propose to grant, severally and not jointly,
to the Underwriters an option to purchase up to _______________ additional
shares of the Company's common stock, $.01 par value per share (the "Option
Shares"), as provided in Section 7. As used in this Agreement, the term "Shares"
shall include the Firm Shares and the Option Shares. All shares of the Company's
common stock, $.01 par value per share, to be outstanding after giving effect to
the sales contemplated hereby, including the Shares, are hereinafter referred to
as "Common Stock."
____________________
/1/ Plus an option to purchase up to ______ additional shares from the Company
and certain stockholders of the Company to cover over-allotments.
<PAGE>
2. Representations, Warranties and Agreements of the Company and the Selling
-------------------------------------------------------------------------
Stockholders.
------------
I. The Company represents and warrants to and agrees with each
Underwriter and each Selling Stockholder that:
(a) A registration statement on Form S-1 (File No. 333-_________)
with respect to the Shares, including a prospectus subject to completion, has
been prepared by the Company in conformity in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
applicable rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Act and has
been filed with the Commission; such amendments to such registration
statement, such amended prospectuses subject to completion and such
abbreviated registration statements pursuant to Rule 462(b) of the Rules and
Regulations as may have been required prior to the date hereof have been
similarly prepared and filed with the Commission; and the Company will file
such additional amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration
statements as may hereafter be required. Copies of such registration
statement and amendments, of each related prospectus subject to completion
(the "Preliminary Prospectuses") and of any abbreviated registration
statement pursuant to Rule 462(b) of the Rules and Regulations have been
delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare
and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) or, if BancBoston Robertson
Stephens Inc., on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or
(c), as applicable, of the Rules and Regulations pursuant to subparagraph
(1), (4) or (7) of Rule 424(b) of the Rules and Regulations or as part of a
post-effective amendment to the registration statement (including a final
form of prospectus). If the registration statement relating to the Shares
has not been declared effective under the Act by the Commission, the Company
will prepare and promptly file an amendment to the registration statement,
including a final form of prospectus, or, if BancBoston Robertson Stephens
Inc., on behalf of the several Underwriters, shall agree to the utilization
of Rule 434 of the Rules and Regulations, the information required to be
included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations. The term "Registration Statement"
as used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits, in the amended form in which it
became or becomes, as the case may be, effective (including, if the Company
omitted information from the registration statement pursuant to Rule 430A(a)
or files a term sheet pursuant to Rule 434 of the Rules and Regulations, the
information deemed to be a part of the registration statement at the time it
became effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and
Regulations) and, in the event of any amendment thereto or the filing of any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations relating thereto after the effective date of such registration
statement, shall also mean (from and after the effectiveness of such
amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement
shall mean the prospectus relating to the Shares as included in such
Registration Statement at the time it becomes effective (including, if the
Company omitted information from the Registration Statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part of
the Registration Statement at the time it became effective pursuant to Rule
430A(b) of the Rules and Regulations); provided, however, that if in reliance
on Rule 434 of the Rules and Regulations and with the consent of BancBoston
Robertson Stephens Inc., on behalf of the several Underwriters, the Company
shall
2
<PAGE>
have provided to the Underwriters a term sheet pursuant to Rule 434(b) or
(c), as applicable, prior to the time that a confirmation is sent or given
for purposes of Section 2(10)(a) of the Act, the term "Prospectus" shall mean
the "prospectus" subject to completion" (as defined in Rule 434(g) of the
Rules and Regulations) last provided to the Underwriters by the Company and
circulated by the Underwriters to all prospective purchasers of the Shares
(including the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 434(d) of the Rules and
Regulations). Notwithstanding the foregoing, if any revised prospectus shall
be provided to the Underwriters by the Company for use in connection with the
offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to the Underwriters
for such use. If in reliance on Rule 434 of the Rules and Regulations and
with the consent of BancBoston Robertson Stephens Inc., on behalf of the
several Underwriters, the Company shall have provided to the Underwriters a
term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time
that a confirmation is sent or given for purposes of Section 2(10)(a) of the
Act, the Prospectus and the term sheet, together, will not be materially
different from the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or instituted proceedings for that
purpose. Each Preliminary Prospectus has conformed in all material respects
to the requirements of the Act and the Rules and Regulations and, as of its
date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. At the time
the Registration Statement became or becomes, as the case may be, effective
and at all times subsequent thereto up to and on the Closing Date (as defined
in Section 3) and on any later date on which Option Shares are to be
purchased: (i) the Registration Statement and the Prospectus, and any
amendments or supplements thereto, contained and will contain all material
information required to be included therein by the Act and the Rules and
Regulations and will in all material respects conform to the requirements of
the Act and the Rules and Regulations; (ii) the Registration Statement, and
any amendments or supplements thereto, did not and will not include any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and (iii) the Prospectus, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, none of the representations and warranties
contained in this subparagraph (b) shall apply to information contained in or
omitted from the Registration Statement or Prospectus, or any amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, with all requisite
corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Prospectus; the Company owns all of
the outstanding capital stock of its subsidiaries free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest.
Each of the Company and its subsidiaries is duly qualified to do business as
a foreign corporation and is in good standing in each jurisdiction in which
the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified or
be in good standing would not have a material adverse effect on its condition
(financial
3
<PAGE>
or otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise. No proceeding has
been instituted in any such jurisdiction revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or
qualification. Each of the Company and its subsidiaries is in possession of
and operating in material compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities that are material to the conduct of its business, all
of which are valid and in full force and effect. Neither the Company nor
either of its subsidiaries is in violation of its charter or bylaws or in
default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any material bond, debenture,
note or other evidence of indebtedness, or in any material lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which the Company or either of its subsidiaries is
a party or by which it or either of its subsidiaries or their respective
properties may be bound. Neither the Company nor either of its subsidiaries
is in material violation of any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental
agency or body, domestic or foreign, having jurisdiction over the Company or
either of its subsidiaries or over their respective. The Company does not own
or control, directly or indirectly, any corporation, association or other
entity other than Specialized Network Services, Inc. and SNS Credit
Corporation, which are inactive wholly owned subsidiaries of the Company.
(d) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and
is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may
be limited by applicable law and except as the enforcement hereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws relating to or affecting creditors' rights generally or by general
equitable principles. The performance of this Agreement and the consummation
of the transactions herein contemplated will not result in a material breach
or violation of any of the terms and provisions of, or constitute a default
under: (i) any bond, debenture, note or other evidence of indebtedness, or
under any lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other agreement or instrument to which the
Company or either of its subsidiaries is a party or by which it or either of
its subsidiaries or their respective properties may be bound; (ii) the
charter or bylaws of the Company or either of its subsidiaries; or (iii) any
law, order, rule, regulation, writ, injunction, judgment or decree of any
court, government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or either of its subsidiaries or over their
respective properties. No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or either of its
subsidiaries or their respective properties is required for the execution and
delivery of this Agreement and the consummation by the Company or either of
its subsidiaries of the transactions herein contemplated, except such as may
be required under the Act, the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or under state or other securities or Blue Sky laws,
all of which requirements have been satisfied in all material respects.
(e) There is not any pending or, to the Company's knowledge,
threatened action, suit, claim or proceeding against the Company, either of
its subsidiaries or any of their respective officers or any of their
respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over
the Company or either of its subsidiaries or over their respective officers,
properties or otherwise that (i) might result in any material adverse change
in the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise or might materially and adversely
4
<PAGE>
affect their properties, assets or rights, (ii) might prevent consummation of
the transactions contemplated hereby or (iii) is required to be disclosed in
the Registration Statement or Prospectus and is not so disclosed. There are
no agreements, contracts, leases or documents of the Company or either of its
subsidiaries of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement by the Act or the Rules and Regulations that have not
been accurately described in all material respects in the Registration
Statement or Prospectus or filed as exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the Company (including
the Selling Stockholder Shares) have been duly authorized and validly issued
and are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or subject
to any preemptive rights or other rights to subscribe for or purchase
securities, and the authorized and outstanding capital stock of the Company
is as set forth in the Prospectus under the caption "Capitalization" and
conforms in all material respects to the statements relating thereto
contained in the Registration Statement and the Prospectus (and such
statements correctly state the substance of the instruments defining the
capitalization of the Company). The Shares to be purchased from the Company
hereunder have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the Company
against payment therefor in accordance with the terms of this Agreement, will
be duly and validly issued and fully paid and nonassessable, and will be sold
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest. No preemptive right, co-sale right, registration right,
right of first refusal or other similar right of stockholders exists with
respect to any of the Shares to be purchased from the Company hereunder or
the issuance and sale thereof other than those that have been expressly
waived prior to the date hereof and those that will automatically expire upon
and will not apply to the consummation of the transactions contemplated on
the Closing Date. No further approval or authorization of any stockholder,
the Board of Directors of the Company or others is required for the issuance
and sale or transfer of the Shares except as may be required under the Act,
the Exchange Act or under state or other securities or Blue Sky laws. Except
as disclosed in the Prospectus and the financial statements of the Company,
and the related notes thereto, included in the Prospectus, neither the
Company nor either of its subsidiaries has any outstanding options to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description of
the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus accurately and fairly presents the
information required to be shown with respect to such plans, arrangements,
options and rights in all material respects.
(g) Ernst & Young LLP, which has examined the consolidated financial
statements of the Company, together with the related schedules and notes, as
of March 31, 1997 and 1998 and for each of the years in the three years ended
March 31, 1998, filed with the Commission as a part of the Registration
Statement, which are included in the Prospectus, are independent accountants
within the meaning of the Act and the Rules and Regulations. The audited
consolidated financial statements of the Company, together with the related
schedules and notes, and the unaudited consolidated financial information
forming part of the Registration Statement and the Prospectus fairly present
the financial position and the results of operations of the Company and its
subsidiaries in all material respects at the respective dates and for the
respective periods to which they apply. All audited consolidated financial
statements of the Company, together with the related schedules and notes, and
the unaudited consolidated financial information filed with the Commission as
part of the Registration Statement have been prepared in accordance with
generally accepted accounting principles consistently applied
5
<PAGE>
throughout the periods involved except as may be otherwise stated therein.
The selected and summary financial and statistical data included in the
Registration Statement present fairly the information shown therein in all
material respects and have been compiled on a basis consistent with the
audited financial statements presented therein. No other financial statements
or schedules are required to be included in the Registration Statement.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i)
any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (ii) any transaction that is
material to the Company and its subsidiaries considered as one enterprise,
except transactions entered into in the ordinary course of business, (iii)
any obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock or outstanding indebtedness of the
Company or either of its subsidiaries that is material to the Company and its
subsidiaries considered as one enterprise, (v) any dividend or distribution
of any kind declared, paid or made on the capital stock of the Company or
either of its subsidiaries, or (vi) any loss or damage (whether or not
insured) to the property of the Company or either of its subsidiaries that
has been sustained or will have been sustained that has a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered
as one enterprise.
(i) Except as set forth in the Registration Statement and Prospectus,
(i) each of the Company and its subsidiaries has valid and indefeasible good
and marketable title to all properties and assets described in the
Registration Statement and Prospectus as owned by it, free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest,
other than such as would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise,
(ii) the agreements to which the Company or either of its subsidiaries is a
party described in the Registration Statement and Prospectus are valid
agreements, enforceable by the Company and its subsidiaries (as applicable),
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or affecting
creditors' rights generally or by general equitable principles and, to the
Company's knowledge, the other contracting party or parties thereto are not
in material breach or material default under any of such agreements, and
(iii) each of the Company and its subsidiaries has valid and enforceable
leases for all properties described in the Registration Statement and
Prospectus as leased by it, except as the enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
laws relating to or affecting creditors' rights generally or by general
equitable principles. Except as set forth in the Registration Statement and
Prospectus, the Company owns or leases all such properties as are necessary
to its operations as now conducted or as proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all necessary
federal income tax returns and all necessary state and foreign income and
franchise tax returns, and have paid all taxes shown thereon as due. There
is no tax deficiency that has been or, to the Company's knowledge, might be
asserted against the Company or either of its subsidiaries that might have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise. All material tax liabilities are
adequately provided for on the books of the Company and its subsidiaries.
6
<PAGE>
(k) The Company maintains insurance with insurers of recognized
financial responsibility of the types and in the amounts generally deemed
adequate for its business and consistent with insurance coverage maintained
by similar companies in similar businesses, including insurance covering real
and personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect. The Company
does not have any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise.
(l) To the Company's knowledge, no labor disturbance by the employees
of the Company or either of its subsidiaries exists or is imminent. The
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers or licensors or its significant
customers that might be expected to result in a material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise. No collective bargaining agreement exists with any of the
Company's employees and, to the Company's knowledge, no such agreement is
imminent.
(m) Each of the Company and its subsidiaries owns or possesses
adequate rights to use all patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names and copyrights that are
necessary to conduct its businesses as described in the Registration
Statement and Prospectus. The expiration of any patents, patent rights,
trade secrets, trademarks, service marks, trade names or copyrights would not
have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise. Except as set forth in the
Registration Statement and the Prospectus, the Company has not received any
notice of, and has no knowledge of, any infringement of or conflict with
asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights. Except as set forth in the Registration Statement and
the Prospectus, the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets, know-
how, trademarks, service marks, trade names or copyrights that, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or finding,
might have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise.
(n) The Common Stock has been approved for quotation on the Nasdaq
National Market, subject to official notice of issuance.
(o) The Company has been advised concerning the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder, and has in
the past conducted, and intends in the future to conduct, its affairs in such
a manner as to ensure that it will not become an "investment company" or a
company "controlled" by an "investment company" within the meaning of such
Act and rules and regulations.
(p) The Company has not distributed and will not distribute prior to
the later of (i) the Closing Date, or any later date on which Option Shares
are to be purchased, as the case may be, and (ii) completion of the
distribution of the Shares, any offering material in connection with the
offering
7
<PAGE>
and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted
by the Act.
(q) Neither the Company nor either of its subsidiaries has at any
time during the last five years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law or (ii) made any payment to any federal or state
governmental officer or official, or other person charged with similar public
or quasi-public duties, other than payments required or permitted by the laws
of the United States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company, each record holder of
Common Stock or warrants to purchase Common Stock, and each grantee of an
option to acquire more than shares of Common Stock has agreed in
writing that such person will not, for a period of 180 days after the date of
the Prospectus (the "Lock-Up Period"), offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities")
now owned or hereafter acquired directly by such person or with respect to
which such person has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or a distribution to limited partners,
members or partners or stockholders of such person, provided that the donees
or distributees thereof (as the case may be) agree in writing to be bound by
the terms of this restriction or (ii) with the prior written consent of
BancBoston Robertson Stephens Inc. The foregoing restriction has been
expressly agreed to preclude the holder of the Securities from engaging in
any hedging or other transaction which is designed to or reasonably expected
to lead to or result in a Disposition of Securities during the Lock-Up
Period, even if such Securities would be disposed of by someone other than
such holder. Such prohibited hedging or other transactions would include any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including any put or call option) with respect to any Securities
or with respect to any security (other than a broad-based market basket or
index) that includes, relates to or derives any significant part of its value
from the Securities. Notwithstanding the foregoing, this restriction shall
not prohibit (i) the sale of Shares by the Selling Stockholders to the
Underwriters pursuant to this Agreement or (ii) resales of shares of Common
Stock acquired either in the public offering to which the Registration
Statement relates or in subsequent open-market purchases. Furthermore, such
person also has agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
Securities held by such person except in compliance with this restriction.
The Company has provided to Foley, Hoag & Eliot llp, counsel for the several
Underwriters ("Underwriters' Counsel"), a complete and accurate list of all
securityholders of the Company and the number and type of securities held by
each securityholder. The Company has provided to Underwriters' Counsel true,
accurate and complete copies of all of the agreements pursuant to which its
officers, directors and stockholders have agreed to such or similar
restrictions (the "Lock-Up Agreements") presently in effect or effected
hereby. The Company hereby represents and warrants that it will not release
any of its officers, directors or other stockholders from any Lock-Up
Agreements currently existing or hereafter effected without the prior written
consent of BancBoston Robertson Stephens Inc.
(t) Except as set forth in the Registration Statement and Prospectus:
(i) the Company is in compliance with all existing rules, laws and
regulations relating to the use, treatment, storage and
8
<PAGE>
disposal of toxic substances and protection of health or the environment
("Environmental Laws") that are applicable to its business, the violation of
which might have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise, (ii) the Company
has received no notice from any governmental authority or third party of an
asserted claim under Environmental Laws, which claim is required to be
disclosed in the Registration Statement and the Prospectus; (iii) the Company
will not be required to make material capital expenditures to comply with
Environmental Laws; and (iv) no property that is owned, leased or occupied by
the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended
(42 U.S.C. ' 9601, et seq.), or has been otherwise designated as a
-- ----
contaminated site under applicable state or local law.
(u) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances
that: (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(v) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of
them, except as disclosed in the Registration Statement and the Prospectus.
(w) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or
with any person or affiliate located in Cuba.
II. Each Selling Stockholder, severally and not jointly, represents and
warrants to and agrees with each Underwriter and the Company that:
(a) Such Selling Stockholder now has and on the Closing Date, and on
any later date on which Option Shares are to be purchased from such Selling
Stockholder, will have valid marketable title to the Shares to be sold by
such Selling Stockholder, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest other than pursuant to
this Agreement. Upon delivery of such Shares hereunder and payment of the
purchase price as herein contemplated, each of the Underwriters will obtain
valid marketable title to the Shares purchased by it from such Selling
Stockholder, free and clear of any pledge, lien, security interest pertaining
to such Selling Stockholder or such Selling Stockholder's property,
encumbrance, claim or equitable interest, including any liability for estate
or inheritance taxes, or any liability to or claims of any creditor, devisee,
legatee or beneficiary of such Selling Stockholder.
(b) Such Selling Stockholder has duly authorized, executed and
delivered, in the form heretofore furnished to the Representatives, an
irrevocable Power of Attorney (the "Power of Attorney") appointing Craig S.
Tysdal and Kenneth C. Kieley as attorneys-in-fact (collectively, the
"Attorneys" and individually, an "Attorney") and a Letter of Transmittal and
Custody Agreement (the "Custody Agreement") with ______________________, as
custodian (the "Custodian"). Each of the
9
<PAGE>
Power of Attorney and the Custody Agreement constitutes a valid and binding
agreement on the part of such Selling Stockholder, enforceable in accordance
with its terms, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting creditors' rights generally or by general equitable
principles. Each of the Attorneys, acting alone, is authorized to execute and
deliver this Agreement and the certificate referred to in Section 6(h) on
behalf of such Selling Stockholder, to determine the purchase price to be
paid by the several Underwriters to such Selling Stockholder as provided in
Section 3, to authorize the delivery of the Shares to be sold by such Selling
Stockholder under this Agreement and to duly endorse (in blank or otherwise)
the certificate or certificates representing such Shares or a stock power or
powers with respect thereto, to accept payment therefor, and otherwise to act
on behalf of such Selling Stockholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders required for
the execution and delivery by such Selling Stockholder of the Power of
Attorney and the Custody Agreement, the execution and delivery by or on
behalf of such Selling Stockholder of this Agreement and the sale and
delivery of the Shares to be sold by such Selling Stockholder under this
Agreement (other than, at the time of the execution hereof (if the
Registration Statement has not yet been declared effective by the
Commission), the issuance of the order of the Commission declaring the
Registration Statement effective and such consents, approvals, authorizations
or orders as may be necessary under state or other securities or Blue Sky
laws) have been obtained and are in full force and effect. Such Selling
Stockholder, if other than a natural person, has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization as the type of entity that it purports to be. Such Selling
Stockholder has full legal right, power and authority to enter into and
perform its obligations under this Agreement and such Power of Attorney and
Custody Agreement, and to sell, assign, transfer and deliver the Shares to be
sold by such Selling Stockholder under this Agreement.
(d) Such Selling Stockholder will not, during the Lock-Up Period,
effect the Disposition of any Securities now owned or hereafter acquired
directly by such Selling Stockholder or with respect to which such Selling
Stockholder has or hereafter acquires the power of disposition, otherwise
than (i) as a bona fide gift, provided that the donees thereof agree in
writing to be bound by this restriction, or (ii) with the prior written
consent of BancBoston Robertson Stephens Inc. The foregoing restriction is
expressly agreed to preclude the holder of the Securities from engaging in
any hedging or other transaction which is designed to or reasonably expected
to lead to or result in a Disposition of Securities during the Lock-Up
Period, even if such Securities would be disposed of by someone other than
the Selling Stockholder. Such prohibited hedging or other transactions would
include any short sale (whether or not against the box) or any purchase, sale
or grant of any right (including any put or call option) with respect to any
Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from the Securities. Notwithstanding the foregoing, this
restriction shall not prohibit (i) the sale of Shares to the Underwriters
pursuant to this Agreement or (ii) resales of shares of Common Stock acquired
either in the public offering to which the Registration Statement relates or
in subsequent open-market purchases. Such Selling Stockholder also agrees
and consents to the entry of stop transfer instructions with the Company's
transfer agent against the transfer of Securities held by such Selling
Stockholder except in compliance with this restriction.
(e) Certificates in negotiable form for all Shares to be sold by such
Selling Stockholder under this Agreement, together with a stock power or
powers duly endorsed in blank by such Selling Stockholder, have been placed
in custody with the Custodian for the purpose of effecting delivery
hereunder.
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(f) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Stockholder and is a valid and
binding agreement of such Selling Stockholder, enforceable in accordance with
its terms, except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to
or affecting creditors' rights generally or by general equitable principles.
The performance of this Agreement and the consummation of the transactions
herein contemplated will not result in a breach or violation of any of the
terms and provisions of or constitute a default under any bond, debenture,
note or other evidence of indebtedness, or under any lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder, or any Shares to be sold by such Selling
Stockholder hereunder, may be bound or, to such Selling Stockholder's
knowledge, result in any violation of any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental
agency or body, domestic or foreign, having jurisdiction over such Selling
Stockholder or over the properties of such Selling Stockholder, or, if such
Selling Stockholder is other than a natural person, result in any violation
of any provisions of the charter, bylaws or other organizational documents of
such Selling Stockholder.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder and the Shares that is
contained in the representations and warranties of such Selling Stockholder
in such Selling Stockholder's Power of Attorney or set forth in the
Registration Statement or the Prospectus is, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date, and on any later date on
which Option Shares are to be purchased from such Selling Stockholder, was or
will be, true, correct and complete, and does not, and at the time the
Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date and any later
date on which Option Shares are to be purchased from such Selling
Stockholder, will not, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make such information not misleading.
(j) Such Selling Stockholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be
complied with or satisfied pursuant to this Agreement on or prior to the
Closing Date and any later date on which Option Shares are to be purchased
from such Selling Stockholder and will advise one of the Attorneys and
BancBoston Robertson Stephens Inc. prior to the Closing Date or such later
date on which Option Shares are to be purchased from such Selling
Stockholder, as the case may be, if any statement to be made on behalf of
such Selling Stockholder in the certificate contemplated by Section 6(h)
would be inaccurate if made as of the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be.
(k) Such Selling Stockholder does not have, or has waived prior to
the date hereof, any preemptive right, co-sale right or right of first
refusal or other similar right to purchase any of the
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Shares that are to be sold by the Company or the other Selling Stockholders
to the Underwriters pursuant to this Agreement. Such Selling Stockholder does
not have, or has waived prior to the date hereof, any registration right or
other similar right to participate in the offering made by the Prospectus,
other than such rights of participation as have been satisfied by the
participation of such Selling Stockholder in the transactions to which this
Agreement relates in accordance with the terms of this Agreement. Such
Selling Stockholder does not own any warrants, options or similar rights to
acquire, and does not have any right or arrangement to acquire, any capital
stock, rights, warrants, options or other securities from the Company, other
than those described in the Registration Statement and the Prospectus.
(l) Such Selling Shareholder is not aware (without having conducted
any investigation or inquiry) that any of the representations and warranties
of the Company set forth in Section 2.I. above is untrue or inaccurate in any
material respect. It is understood that, unless such Selling Stockholder is
a director or officer of the Company, the representation and warranty made in
the preceding sentence is made without such Selling Stockholder having
conducted any investigation or inquiry for the purposes hereof.
3. Purchase, Sale and Delivery of Shares. On the basis of the
-------------------------------------
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Stockholders, respectively, at a purchase price of $_____ per share,
the respective number of Company Shares as hereinafter set forth and Selling
Stockholder Shares set forth opposite the names of the Company and the Selling
Stockholders in Schedule B hereto. The obligation of each Underwriter to the
Company and to each Selling Stockholder shall be to purchase from the Company or
such Selling Stockholder that number of Company Shares or Selling Stockholder
Shares, as the case may be, which (as nearly as practicable, as determined by
you) is in the same proportion to the number of Company Shares or Selling
Stockholder Shares, as the case may be, set forth opposite the name of the
Company or such Selling Stockholder in Schedule B hereto as the number of Firm
Shares that is set forth opposite the name of such Underwriter in Schedule A
hereto (subject to adjustment as provided in Section 10) is to the total number
of Firm Shares to be purchased by all the Underwriters under this Agreement.
The certificates in negotiable form for the Selling Stockholder Shares
have been placed in custody (for delivery under this Agreement) under the
Custody Agreement. Each Selling Stockholder agrees that the certificates for
the Selling Stockholder Shares of such Selling Stockholder so held in custody
are subject to the interests of the Underwriters hereunder, that the
arrangements made by such Selling Stockholder for such custody, including the
Power of Attorney is to that extent irrevocable and that the obligations of such
Selling Stockholder hereunder shall not be terminated by the act of such Selling
Stockholder or by operation of law, whether by the death or incapacity of such
Selling Stockholder or the occurrence of any other event, except as specifically
provided herein or in the Custody Agreement. If any Selling Stockholder should
die or be incapacitated, or if any other such event should occur, before the
delivery of the certificates for the Selling Stockholder Shares hereunder, the
Selling Stockholder Shares to be sold by such Selling Stockholder shall, except
as specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be purchased
by the Underwriters pursuant to this Section 3 shall be made against payment of
the purchase price therefor by the several
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Underwriters by certified or official bank check or checks drawn in same-day
funds or by wire transfer of same-day funds, payable to the order of the Company
with regard to the Shares being purchased from the Company, and to the order of
the Custodian for the respective accounts of the Selling Stockholders with
regard to the Shares being purchased from such Selling Stockholders, at the
offices of Worsham, Forsythe & Wooldridge, L.L.P., 1601 Bryan Street, Suite
3000, Dallas, Texas 75201 (or at such other place as may be agreed upon among
the Representatives, the Company and the Attorneys), at 7 A.M., San Francisco
time (a) on the third full business day following the first day that Shares are
traded, (b) if this Agreement is executed and delivered after 1:30 P.M., San
Francisco time, the fourth full business day following the day that this
Agreement is executed and delivered or (c) at such other time and date not later
than seven full business days following the first day that Shares are traded as
the Representatives, the Company and the Attorneys may determine (or at such
time and date to which payment and delivery shall have been postponed pursuant
to Section 10), such time and date of payment and delivery being herein called
the "Closing Date"; provided, however, that if the Company has not made
available to the Representatives copies of the Prospectus within the time
provided in Section 4(d), the Representatives may, in their sole discretion,
postpone the Closing Date until no later than two full business days following
delivery of copies of the Prospectus to the Representatives. The certificates
for the Firm Shares to be so delivered will be made available to you at such
office or such other location including, without limitation, in New York City,
as you may reasonably request for checking at least one full business day prior
to the Closing Date and will be in such names and denominations as you may
request, such request to be made at least two full business days prior to the
Closing Date. If the Representatives so elect, delivery of the Firm Shares may
be made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the Representatives
of the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11) of the Firm Shares at an initial public offering price
of $____ per share. After the initial public offering, the several Underwriters
may, in their discretion, vary the public offering price.
The information set forth in the second sentence of the last paragraph on
the front cover page, on the inside front cover concerning stabilization and
over-allotment by the Underwriters, and in the second, sixth and eighth
paragraphs under the caption "Underwriting" in any Preliminary Prospectus and in
the Prospectus constitutes the only information furnished by the Underwriters to
the Company for inclusion in any Preliminary Prospectus, the Prospectus or the
Registration Statement, and you, on behalf of the respective Underwriters,
represent and warrant to the Company and the Selling Stockholders that the
statements made therein do not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the several
---------------------------------
Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible. The Company will use its best
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efforts to cause any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations as may be required subsequent to the date
the Registration Statement is declared effective to become effective as
promptly as possible. The Company will notify you, promptly after it shall
receive notice thereof, of the time when the Registration Statement, any
subsequent amendment to the Registration Statement or any abbreviated
registration statement has become effective or any supplement to the
Prospectus has been filed. If the Company omitted information from the
Registration Statement at the time it was originally declared effective in
reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective that is declared effective by the
Commission. If the Company files a term sheet pursuant to Rule 434 of the
Rules and Regulations, the Company will provide evidence satisfactory to you
that the Prospectus and term sheet meeting the requirements of Rule 434(b) or
(c), as applicable, of the Rules and Regulations, have been filed, within the
time period prescribed, with the Commission pursuant to subparagraph (7) of
Rule 424(b) of the Rules and Regulations. If for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules
and Regulations, it will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed with the Commission
within the time period prescribed. The Company will notify you promptly of
any request by the Commission for the amending or supplementing of the
Registration Statement or the Prospectus or for additional information.
Promptly upon your request, the Company will prepare and file with the
Commission any amendments or supplements to the Registration Statement or
Prospectus that, in the opinion of Underwriters' Counsel, may be necessary or
advisable in connection with the distribution of the Shares by the
Underwriters. The Company will promptly prepare and file with the
Commission, and promptly notify you of the filing of, any amendments or
supplements to the Registration Statement or Prospectus that may be necessary
to correct any statements or omissions, if, at any time when a prospectus
relating to the Shares is required to be delivered under the Act, any event
shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Shares as then in effect would include any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading. In case any Underwriter is required to
deliver a prospectus nine months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements
of Section 10(a)(3) of the Act. The Company will file no amendment or
supplement to the Registration Statement or Prospectus that shall not
previously have been submitted to you a reasonable time prior to the proposed
filing thereof or to which you shall reasonably object in writing, subject,
however, to compliance with the Act and the Rules and Regulations and the
provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive notice
or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceeding for that purpose. The Company will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order
should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the
Company
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shall not be required in connection therewith or as a condition thereof (i)
to qualify as a foreign corporation, (ii) to execute a general consent to
service of process in any jurisdiction in which it is not otherwise required
to be so qualified or (iii) to so execute a general consent to service of
process. In each jurisdiction in which the Shares shall have been qualified
as above provided, the Company will make and file such statements and reports
in each year as are or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and, in the
case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first full business day following the
first day that Shares are traded, copies of the Registration Statement (three
of which will be signed and which will include all exhibits), each
Preliminary Prospectus, the Prospectus and any amendments or supplements to
such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, all in such quantities as you may from time to
time reasonably request. Notwithstanding the foregoing, if BancBoston
Robertson Stephens Inc., on behalf of the several Underwriters, shall agree
to the utilization of Rule 434 of the Rules and Regulations, the Company
shall provide to you copies of a Preliminary Prospectus updated in all
respects through the date specified by you in such quantities as you may from
time to time reasonably request.
(e) The Company will make generally available to its securityholders as
soon as practicable, but in any event not later than the forty-fifth day
following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited)
complying with the provisions of Section 11(a) of the Act and covering a
twelve-month period beginning after the effective date of the Registration
Statement.
(f) During a period of five years after the date hereof, the Company will
furnish to its stockholders as soon as practicable after the end of each
respective period, annual reports (including financial statements audited by
independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters hereunder, upon written
request (i) concurrently with furnishing such reports to its stockholders,
statements of operations of the Company for each of the first three quarters
in the form furnished to the Company's stockholders, (ii) concurrently with
furnishing to its stockholders, a balance sheet of the Company as of the end
of such fiscal year, together with statements of operations, of stockholders'
equity, and of cash flows of the Company for such fiscal year, accompanied by
a copy of the certificate or report thereon of independent certified public
accountants, (iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders, (iv) as soon as they are
available, copies of all reports and financial statements furnished to or
filed with the Commission, any securities exchange or the National
Association of Securities Dealers, Inc. (the "NASD"), (v) every material
press release and every material news item or article in respect of the
Company or its affairs that was generally released to stockholders or
prepared by the Company or either of its subsidiaries, and (vi) any
additional information of a public nature concerning the Company or its
subsidiaries, or its business that you may reasonably request. During such
five-year period, if the Company shall have any active subsidiaries, the
foregoing financial statements shall be on a consolidated basis to the extent
that the accounts of the Company and such subsidiaries are consolidated and
shall be accompanied by similar financial statements for any significant
subsidiary that is not so consolidated.
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<PAGE>
(g) The Company will apply the net proceeds from the sale of the Shares
being sold by it in the manner set forth under the caption "Use of Proceeds"
in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be
the same entity as the transfer agent) for the Common Stock.
(i) If the transactions contemplated hereby are not consummated by reason
of any failure, refusal or inability on the part of the Company or any
Selling Stockholder to perform any agreement on their respective parts to be
performed hereunder or to fulfill any condition of the Underwriters'
obligations hereunder, or if the Company shall terminate this Agreement
pursuant to Section 11(a), or if the Underwriters shall terminate this
Agreement pursuant to Section 11(b)(i), the Company will reimburse the
several Underwriters for all out-of-pocket expenses (including fees and
disbursements of Underwriters' Counsel) reasonably incurred by the
Underwriters in investigating or preparing to market or marketing the Shares.
(j) If at any time during the ninety-day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your reasonable
judgment the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company
will, after written notice from you advising the Company to the effect set
forth above, forthwith prepare, consult with you concerning the substance of
and disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication
or event.
(k) During the Lock-Up Period, the Company will not, without the prior
written consent of BancBoston Robertson Stephens Inc., effect the Disposition
of, directly or indirectly, any Securities other than the sale of the Shares
to be sold by the Company hereunder and the Company's issuance of options or
Common Stock under the Company's Long-Term Incentive Compensation Plan and
1988 Stock Option Plan, each as presently authorized.
(l) During a period of ninety days from the effective date of the
Registration Statement, the Company will not file a registration statement
registering shares under the Company's Long-Term Incentive Compensation Plan
or 1988 Stock Option Plan or any other benefit plan.
5. Expenses.
--------
(a) The Company and the Selling Stockholders agree with each Underwriter
that:
(i) The Company will pay and bear all costs and expenses in
connection with: (A) the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any amendments
or supplements thereto; (B) the issuance and delivery of the Shares
hereunder to the several Underwriters, including transfer taxes, if any,
the cost of all certificates representing the Shares, and transfer
agents' and registrars' fees; (C) the fees and disbursements of counsel
for the Company; (D) all fees and other charges of the Company's
independent certified public accountants; (E) the cost of furnishing to
the several Underwriters copies of the Registration Statement (including
appropriate exhibits), Preliminary Prospectuses and the Prospectus and
any amendments or supplements to any of the foregoing; (F) NASD filing
fees and the cost of
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qualifying the Shares under the laws of such jurisdictions as you may
designate (including filing fees and fees and disbursements of
Underwriters' Counsel in connection with such NASD filings and Blue Sky
qualifications, which fees of Underwriters' Counsel shall not exceed
$10,000); and (G) all other expenses directly incurred by the Company and
the Selling Stockholders in connection with the performance of their
obligations hereunder. Any additional expenses incurred as a result of
the sale of the Shares by the Selling Stockholders will be borne
collectively by the Company and the Selling Stockholders. The provisions
of this Section 5(a)(i) are intended to relieve the Underwriters from the
payment of the expenses and costs that the Company and the Selling
Stockholders hereby agree to pay, but shall not affect any agreement that
the Company and the Selling Stockholders may make, or may have made, for
the sharing of any of such expenses and costs. Such agreements shall not
impair the obligations of the Company and the Selling Stockholders
hereunder to the several Underwriters.
(ii) In addition to its other obligations under Section 8(a), the
Company agrees that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding described in
Section 8(a), it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the Company's
obligation to reimburse the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the
Underwriters shall promptly return such payment to the Company together
with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest
credit standing) listed from time to time in The Wall Street Journal that
represents the base rate on corporate loans posted by a substantial
majority of the nation's thirty largest banks (the "Prime Rate"). Any
such interim reimbursement payments that are not made to the Underwriters
within thirty days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(iii) In addition to the other obligations under Section 8(b), each
Selling Stockholder agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(b) relating to such Selling Stockholder, it will
reimburse the Underwriters on a monthly basis for all reasonable legal or
other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
propriety and enforceability of such Selling Stockholder's obligation to
reimburse the Underwriters for such expenses and the possibility that
such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Selling Stockholders, together
with interest, compounded daily, determined on the basis of the Prime
Rate. Any such interim reimbursement payments that are not made to the
Underwriters within thirty days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section 8(c), the
Underwriters severally and not jointly agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(c), they will reimburse the Company and
each Selling Stockholder on a monthly basis for all reasonable legal or other
expenses incurred in
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connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company and each such Selling
Stockholder for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have
been improper, the Company and each such Selling Stockholder shall promptly
return such payment to the Underwriters together with interest, compounded
daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments that are not made to the Company and each such Selling
Stockholder within thirty days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Sections 5(a)(ii), 5(a)(iii)
and 5(b), including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall
be apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention
to arbitrate, therein electing the arbitration tribunal. In the event the
party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand
or notice is authorized to do so. Any such arbitration will be limited to
the operation of the interim reimbursement provisions contained in Sections
5(a)(ii), 5(a)(iii) and 5(b) and will not resolve the ultimate propriety or
enforceability of the obligation to indemnify for expenses that is created by
the provisions of Sections 8(a), 8(b) and 8(c) or the obligation to
contribute to expenses that is created by the provisions of Section 8(e).
6. Conditions of Underwriters' Obligations. The obligations of the several
---------------------------------------
Underwriters to purchase and pay for the Shares as provided herein shall be
subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholders
herein, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not later than
2 P.M., San Francisco time, on the date following the date of this Agreement,
or such later date as shall be consented to in writing by you. No stop order
suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge
of the Company, any Selling Stockholder or any Underwriter, threatened by the
Commission. Any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of Underwriters'
Counsel.
(b) All corporate proceedings and other legal matters in connection with
this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares,
shall have been reasonably satisfactory to Underwriters' Counsel, and
Underwriters' Counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section 6.
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(c) Subsequent to the execution and delivery of this Agreement and prior
to the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or Prospectus
that, in your sole judgment, is material and adverse and that makes it, in
your sole judgment, impracticable or inadvisable to proceed with the public
offering of the Shares as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, the following
opinion of Worsham, Forsythe & Wooldridge, L.L.P., counsel for the Company
and the Selling Stockholders, dated the Closing Date or such later date on
which Option Shares are to be purchased, addressed to the Underwriters and
with reproduced copies or signed counterparts thereof for each of the
Underwriters, to the effect that:
(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.
(ii) The Company has the corporate power and authority to own,
lease and operate its properties and to conduct its business as described
in the Prospectus.
(iii) The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction, if any, in which
the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified
or be in good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business of
the Company and its subsidiaries considered as one enterprise. To such
counsel's knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity other than
Specialized Network Services, Inc. and SNS Credit Corporation.
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein. The issued and
outstanding shares of capital stock of the Company (including the Shares
to be sold by the Selling Stockholders) have been duly and validly issued
and are fully paid and nonassessable and, to such counsel's knowledge,
have not been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or other similar
right.
(v) The Firm Shares or the Option Shares, as the case may be, to
be issued by the Company pursuant to the terms of this Agreement have been
duly authorized and, upon issuance and delivery against payment therefor
in accordance with the terms hereof, will be duly and validly issued and
fully paid and nonassessable, and will not have been issued in violation
of or subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right.
(vi) The Company has the corporate power and authority to enter
into this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder.
(vii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by the Company and, assuming due authorization, execution and
delivery by you, is a valid and binding agreement of the
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Company, enforceable in accordance with its terms, except insofar as
indemnification provisions may be limited by applicable law and except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or laws relating to or affecting creditors' rights generally or
by general equitable principles.
(viii) The Registration Statement has become effective under the Act,
and to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act.
(ix) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements,
including supporting schedules, and financial data derived therefrom, as
to which such counsel need express no opinion), as of the effective date
of the Registration Statement, complied as to form in all material
respects with the requirements of the Act and the applicable Rules and
Regulations.
(x) The information in the Prospectus under the caption
"Description of Capital Stock," to the extent that it constitutes matters
of law or legal conclusions, has been reviewed by such counsel and is a
fair summary of such matters and conclusions. The form of certificates
representing the Common Stock and filed as an exhibit to the Registration
Statement comply with the General Corporation Law of the State of
Delaware.
(xi) The description in the Registration Statement and the
Prospectus of the certificate of incorporation and bylaws of the Company
and of statutes are accurate and fairly present in all material respects
the information required to be presented by the Act and the applicable
Rules and Regulations.
(xii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement that are not described or referred to therein or filed as
required.
(xiii) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's
certificate of incorporation or bylaws or (b) to such counsel's knowledge,
result in a material breach or violation of any of the terms and
provisions of, or constitute a default under, (1) any bond, debenture,
note or other evidence of indebtedness, or any lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement
or instrument known to such counsel to which the Company is a party or by
which its properties are bound, (2) any applicable statute, rule or
regulation known to such counsel or (3) any order, writ or decree known to
such counsel of any court, government or governmental agency or body
having jurisdiction over the Company or either of its subsidiaries, or
over any of their properties or operations.
(xiv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body
having jurisdiction over the Company or either of its subsidiaries, or
over any of their properties or operations is necessary in connection with
the consummation by the Company of the transactions herein contemplated,
except such as have been
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<PAGE>
obtained under the Act or such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and the
distribution of the Shares by the Underwriters.
(xv) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or
either of its subsidiaries of a character required to be disclosed in the
Registration Statement or the Prospectus by the Act or the Rules and
Regulations, other than those described therein.
(xvi) To such counsel's knowledge, the Company is not presently (a)
in material violation of its certificate of incorporation or bylaws or (b)
in material breach of any applicable statute, rule or regulation known to
such counsel or, to such counsel's knowledge, any order, writ or decree of
any court or governmental agency or body having jurisdiction over the
Company or either of its subsidiaries, or over any of their properties or
operations.
(xvii) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or other
securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having
rights known to such counsel to registration of such shares of Common
Stock or other securities, because of the filing of the Registration
Statement by the Company have, with respect to the offering contemplated
thereby, waived such rights or such rights have expired by reason of lapse
of time following notification of the Company's intent to file the
Registration Statement or have included securities in the Registration
Statement pursuant to the exercise of and in full satisfaction of such
rights.
(xviii) Each Selling Stockholder that is not a natural person has
full right, power and authority to enter into and to perform its
obligations under the Power of Attorney and Custody Agreement to be
executed and delivered by it in connection with the transactions
contemplated herein. The Power of Attorney and Custody Agreement of each
Selling Stockholder that is not a natural person has been duly authorized
by such Selling Stockholder. The Power of Attorney and Custody Agreement
of each Selling Stockholder has been duly executed and delivered by or on
behalf of such Selling Stockholder. The Power of Attorney and Custody
Agreement of each Selling Stockholder constitutes the valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
or affecting creditors' rights generally or by general equitable
principles.
(xix) Each of the Selling Stockholders has full right (and, if such
Selling Stockholder is not a natural person, full power and authority) to
enter into and to perform its obligations under this Agreement and to
sell, transfer, assign and deliver the Shares to be sold by such Selling
Stockholder hereunder.
(xx) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of each Selling Stockholder.
(xxi) Upon the delivery of and payment for the Shares as
contemplated in this Agreement, each of the Underwriters will receive
valid marketable title to the Shares purchased by it from such Selling
Stockholder, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest. In rendering such opinion, such
counsel may assume that the Underwriters
21
<PAGE>
are without notice of any defect in the title of the Shares being
purchased from the Selling Stockholders.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters
were discussed, and although they have not verified the accuracy or
completeness of the statements contained in the Registration Statement or the
Prospectus, nothing has come to the attention of such counsel that leads them
to believe that, at the time the Registration Statement became effective and
at all times subsequent thereto up to and on the Closing Date and on any
later date on which Option Shares are to be purchased, the Registration
Statement and any amendment or supplement thereto (other than the financial
statements, including supporting schedules, and other financial and
statistical information derived therefrom, as to which such counsel need
express no comment) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or at the Closing Date or any
later date on which Option Shares are to be purchased, as the case may be,
the Registration Statement, the Prospectus and any amendment or supplement
thereto (except as aforesaid) contained any untrue statement of a material
fact or omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States, the State of Texas or the
General Corporation Law of the State of Delaware upon opinions of local
counsel, and as to questions of fact upon representations or certificates of
officers of the Company, the Selling Stockholders, and government officials,
in which case their opinion is to state that they are so relying and that
they have no knowledge of any material misstatement or inaccuracy in any such
opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, an opinion of
Underwriters' Counsel, in form and substance satisfactory to you, with
respect to the sufficiency of all such corporate proceedings and other legal
matters relating to this Agreement and the transactions contemplated hereby
as you may reasonably require, and the Company shall have furnished to
Underwriters' Counsel such documents as they may have requested for the
purpose of enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, a letter from
Ernst & Young LLP addressed to the Underwriters, dated the Closing Date or
such later date on which Option Shares are to be purchased, as the case may
be, confirming that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations and based upon the procedures described in
such letter delivered to you concurrently with the execution of this
Agreement (herein called the "Original Letter"), but carried out to a date
not more than five business days prior to the Closing Date or such later date
on which Option Shares are to be purchased, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth
in the Original Letter are accurate as of the Closing Date or such later date
on which Option Shares are to be purchased, as the case may be, and (ii)
setting forth any revisions and additions to the statements and conclusions
set forth in the Original Letter that are necessary to reflect any changes in
the facts
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<PAGE>
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information.
The letter shall not disclose any change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise from that set forth
in the Registration Statement or Prospectus that, in your sole judgment, is
material and adverse and that makes it, in your sole judgment, impracticable
or inadvisable to proceed with the public offering of the Shares as
contemplated by the Prospectus. The Original Letter from Ernst & Young LLP
shall be addressed to or for the use of the Underwriters in form and
substance satisfactory to the Underwriters and shall (i) represent that they
are independent certified public accountants with respect to the Company
within the meaning of the Act and the applicable published Rules and
Regulations, (ii) set forth their opinion with respect to their examination
of the consolidated balance sheets of the Company as of March 31, 1997 and
1998 and related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three year period ended March 31,
1998, and (iii) address other matters agreed upon by Ernst & Young LLP and
you. In addition, you shall have received from Ernst & Young LLP a letter
addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements
as of March 31, 1998, did not disclose any weaknesses in internal controls
that they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the Chief Executive
Officer and Chief Financial Officer of the Company, to the effect that, and
you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date
or any later date on which Option Shares are to be purchased, as the case
may be, and the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to
the Closing Date or any later date on which Option Shares are to be
purchased, as the case may be.
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act.
(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate: (a) the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained all material information required to be
included therein by the Act and the Rules and Regulations and in all
material respects conformed to the requirements of the Act and the Rules
and Regulations; (b) the Registration Statement, and any amendment or
supplement thereto, did not and does not include any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and
(c) the Prospectus, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit to state
a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading. Since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus that has
not been so set forth.
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(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been:
(a) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and
its subsidiaries considered as one enterprise; (b) any transaction that is
material to the Company and its subsidiaries considered as one enterprise,
except transactions entered into in the ordinary course of business; (c)
any obligation, direct or contingent, that is material to the Company and
its subsidiaries considered as one enterprise, incurred by the Company or
its subsidiaries, except obligations incurred in the ordinary course of
business; (d) any change in the capital stock or outstanding indebtedness
of the Company or either of its subsidiaries that is material to the
Company and its subsidiaries considered as one enterprise; (e) any
dividend or distribution of any kind declared, paid or made on the capital
stock of the Company or either of its subsidiaries; or (f) any loss or
damage (whether or not insured) to the property of the Company or either
of its subsidiaries that has been sustained or will have been sustained
and that has a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise.
(h) You shall be satisfied that, and you shall have received a certificate
from the Attorneys, dated the Closing Date or any later date on which Option
Shares are to be purchased from a Selling Stockholder, to the effect that, as
of the Closing Date or such later date, as the case may be, they have not
been informed that:
(i) the representations and warranties made by such Selling
Stockholder herein are not true or correct in any material respect on the
Closing Date or on any later date on which Option Shares are to be
purchased from such Selling Stockholder, as the case may be; or
(ii) such Selling Stockholder has not complied with any obligation
or satisfied any condition that is required to be performed or satisfied
on the part of such Selling Stockholder at or prior to the Closing Date or
any later date on which Option Shares are to be purchased from such
Selling Stockholder, as the case may be.
(i) The Company shall have obtained and delivered to you an agreement from
each officer and director of the Company, each Selling Stockholder and each
other record holder of Common Stock in writing prior to the date hereof that
such person will not, during the Lock-Up Period, effect the Disposition of
any Securities now owned or hereafter acquired directly by such person or
with respect to which such person has or hereafter acquires the power of
disposition, otherwise than (i) as a bona fide gift or a distribution to
limited partners, members or stockholders of such person, provided that the
donees or distributees thereof (or as the case may be) agree in writing to be
bound by the terms of this restriction or (ii) with the prior written consent
of BancBoston Robertson Stephens Inc. The foregoing restriction shall have
been expressly agreed to preclude the holder of the Securities from engaging
in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a Disposition of Securities during the Lock-
Up Period, even if such Securities would be disposed of by someone other than
the such holder. Such prohibited hedging or other transactions would include
any short sale (whether or not against the box) or any purchase, sale or
grant of any right (including any put or call option) with respect to any
Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from the Securities. Notwithstanding the foregoing, this
restriction shall not prohibit (i) the sale of Shares to the Underwriters
pursuant to this Agreement or (ii) resales of shares of Common Stock acquired
either in the public offering to which the Registration Statement relates or
in subsequent open-market purchases. Furthermore, such person will have also
agreed and consented to the entry of stop
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transfer instructions with the Company's transfer agent against the transfer
of the Securities held by such person except in compliance with this
restriction.
(j) The Company and the Selling Stockholders shall have furnished to you
such further certificates and documents as you shall reasonably request
(including certificates of officers of the Company, the Selling Stockholders
or officers of the Selling Stockholders (when the Selling Stockholder is not
a natural person) as to the accuracy of the representations and warranties of
the Company and the Selling Stockholders herein, as to the performance by the
Company and the Selling Stockholders of their respective obligations
hereunder and as to the other conditions concurrent and precedent to the
obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company and the Selling Stockholders will furnish
you with such number of conformed copies of such opinions, certificates, letters
and documents as you shall reasonably request.
7. Option Shares.
-------------
(a) On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, the
Company and the Selling Stockholders hereby grant, severally and not jointly,
to the several Underwriters, for the purpose of covering over-allotments in
connection with the distribution and sale of the Firm Shares only,
nontransferable options to purchase the respective number of Option Shares as
set forth opposite the names of the Company and the Selling Stockholders in
Schedule B hereto, all at the purchase price per share for the Firm Shares
set forth in Section 3. Such option may be exercised by the Representatives
on behalf of the several Underwriters on one or more occasions in whole or in
part during the period of thirty days after the date on which the Firm Shares
are initially offered to the public, by giving written notice to the Company
and the Selling Stockholders in accordance with Section 12. The number of
Option Shares to be purchased by each Underwriter upon the exercise of such
option shall be the same proportion of the total number of Option Shares to
be purchased by the several Underwriters pursuant to the exercise of such
option as the number of Firm Shares purchased by such Underwriter (set forth
in Schedule A hereto) bears to the total number of Firm Shares purchased by
the several Underwriters (set forth in Schedule A hereto), adjusted by the
Representatives in such manner as to avoid fractional shares. In the event
such option is exercised for less than all of the Option Shares, the Option
Shares to be purchased shall be purchased pro rata (based on the numbers of
Option Shares set forth in Schedule B hereto) from the Company and each of
the Selling Stockholders named in Schedule B hereto, adjusted by the
Representatives in such manner as to avoid fractional shares.
The certificates in negotiable form for Option Shares to be purchased
from the Selling Stockholders pursuant to the exercise of the option granted
by this Section 7 have been placed in custody (for delivery under this
Agreement) under the Custody Agreement. Each Selling Stockholder agrees that
the certificates for the Option Shares to be sold by such Selling Stockholder
so held in custody are subject to the interests of the Underwriters
hereunder, that the arrangements made by such Selling Stockholder for such
custody, including the Power of Attorney is to that extent irrevocable and
that the obligations of such Selling Stockholder hereunder shall not be
terminated by the act of such Selling Stockholder or by operation of law,
whether by the death or incapacity of such Selling Stockholder or the
occurrence of any other event, except as specifically provided herein or in
the Custody Agreement. If any Selling Stockholder should die or be
incapacitated, or if any other such event should occur, before the delivery
of the certificates for the Option Shares to be sold by such
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Selling Stockholder, such Option Shares shall, except as specifically
provided herein or in the Custody Agreement, be delivered by the Custodian in
accordance with the terms and conditions of this Agreement as if such death,
incapacity or other event had not occurred, regardless of whether the
Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the Option Shares to be purchased
by the several Underwriters pursuant to the exercise of the option granted by
this Section 7 shall be made against payment of the purchase price therefor
by the several Underwriters by certified or official bank check or checks
drawn in same-day funds or by wire transfer of same-day funds, payable to the
order of the Company with regard to the Option Shares being purchased from
the Company, and to the order of the Custodian for the respective accounts of
Option Stockholders with regard to the Option Shares being purchased from the
Option Stockholders. Such delivery and payment shall take place at the
offices of Worsham, Forsythe & Wooldridge, L.L.P., 1601 Bryan Street, Suite
3000, Dallas, Texas 75201 or at such other place as may be agreed upon among
the Representatives, the Company and the Attorneys (i) on the Closing Date,
if written notice of the exercise of such option is received by the Company
and the Selling Stockholders at least two full business days prior to the
Closing Date, or (ii) on a date that shall not be later than the third full
business day following the date the Company and the Selling Stockholders
receive written notice of the exercise of such option, if such notice is
received by the Company and the Selling Stockholders less than two full
business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location, including in New
York City, as you may reasonably request for checking at least one full
business day prior to the date of payment and delivery and will be in such
names and denominations as you may request, such request to be made at least
two full business days prior to such date of payment and delivery. If the
Representatives so elect, delivery of the Option Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior
to the date of payment and delivery for the Option Shares to be purchased by
such Underwriter or Underwriters. Any such payment by you shall not relieve
any such Underwriter or Underwriters of any of its or their obligations
hereunder.
(b) Upon exercise of any option provided for in Section 7(a), the
obligations of the several Underwriters to purchase such Option Shares will
be subject (as of the date hereof and as of the date of payment and delivery
for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company and the Selling
Stockholders herein, to the accuracy of the statements of the Company, the
Selling Stockholders and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Stockholders of their respective obligations hereunder, to the conditions set
forth in Section 6, and to the condition that all proceedings taken at or
prior to the payment date in connection with the sale and transfer of such
Option Shares shall be satisfactory in form and substance to you and to
Underwriters' Counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may request in order to evidence
the accuracy and completeness of any of the representations, warranties or
statements, the performance of any of the covenants or agreements of the
Company and the Selling Stockholders or the satisfaction of any of the
conditions herein contained.
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8. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter may become subject (including in its capacity as an
Underwriter), under the Act, the Exchange Act or otherwise, specifically
including losses, claims, damages or liabilities (or actions in respect
thereof) arising out of or based upon (i) any breach of any representation,
warranty, agreement or covenant of the Company herein contained, (ii) any
untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and agrees to reimburse each Underwriter for any legal
or other expenses reasonably incurred by it in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, such Preliminary
Prospectus or the Prospectus, or any such amendment or supplement thereto, in
reliance upon, and in conformity with, written information relating to any
Underwriter furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof and, provided further
that the indemnity agreement provided in this Section 8(a) with respect to
any Preliminary Prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any losses, claims, damages, liabilities or
actions based upon any untrue statement or alleged untrue statement of
material fact or omission or alleged omission to state therein a material
fact purchased Shares, if a copy of the Prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected had not been sent or given to such person within the time required
by the Act and the Rules and Regulations, unless such failure is the result
of noncompliance by the Company with Section 4(d).
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person,
if any, who controls any Underwriter within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any
liabilities that the Company may otherwise have.
(b) Subject to Section 8(f), each Selling Stockholder, severally and not
jointly, agrees to indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject (including in its capacity as an Underwriter)
under the Act, the Exchange Act or otherwise, specifically including losses,
claims, damages or liabilities (or actions in respect thereof) arising out of
or based upon (i) any breach of any representation, warranty, agreement or
covenant of such Selling Stockholder herein contained, (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and
27
<PAGE>
(iii) of this Section 8(b) to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information
furnished to the Company or such Underwriter by such Selling Stockholder,
directly or through such Selling Stockholder's representatives, specifically
for use in the preparation thereof, and agrees to reimburse each Underwriter
for any legal or other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement provided in this Section 8(b)
with respect to any Preliminary Prospectus shall not inure to the benefit of
any Underwriter from whom the person asserting any losses, claims, damages,
liabilities or actions based upon any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission to state therein
a material fact purchased Shares, if a copy of the Prospectus in which such
untrue statement or alleged untrue statement or omission or alleged omission
was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d).
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person,
if any, who controls any Underwriter within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any
liabilities that such Selling Stockholder otherwise may have.
(c) Each Underwriter, severally and not jointly, agrees to indemnify and
hold harmless the Company and each Selling Stockholder against any losses,
claims, damages or liabilities, joint or several, to which the Company or
such Selling Stockholder may become subject under the Act or otherwise,
specifically including losses, claims, damages or liabilities (or actions in
respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(c) to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such Underwriter, directly or through you, specifically for
use in the preparation thereof, and agrees to reimburse the Company and each
such Selling Stockholder for any legal or other expenses reasonably incurred
by the Company and each such Selling Stockholder in connection with
investigating or defending any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(c) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer
of the Company who signed the Registration Statement and each director of the
Company, each Selling Stockholder and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any
liabilities that each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made
28
<PAGE>
against any indemnifying party under this Section 8, notify the indemnifying
party in writing of the commencement thereof but the omission so to notify
the indemnifying party will not relieve it from any liability that it may
have to any indemnified party otherwise than under this Section 8. In case
any such action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving
the aforesaid notice from such indemnified party, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties that are different from or additional to
those available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal defenses
and to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that
the indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section
8(a), 8(b) or 8(c) who are parties to such action), (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the
indemnifying party shall have approved the terms of such settlement; provided
that such consent shall not be unreasonably withheld. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all
liability on all claims that are the subject matter of such proceeding.
(e) In order to provide for just and equitable contribution in any action
in which a claim for indemnification is made pursuant to this Section 8 but
it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides
for indemnification in such case, all the parties hereto shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that, except
as set forth in Section 8(f), the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company and the Selling Stockholders are responsible for the remaining
portion, provided, however, that (i) no Underwriter shall be required to
contribute any amount in excess of the amount by which the underwriting
discount applicable to the Shares purchased by such Underwriter exceeds the
amount of damages that such Underwriter has otherwise required to pay and
(ii) no person guilty of a fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. The
contribution agreement in this Section 8(e) shall extend upon the same terms
and conditions to, and shall inure to the benefit of, each
29
<PAGE>
person, if any, who controls any Underwriter, the Company or any Selling
Stockholder within the meaning of the Act or the Exchange Act and each
officer of the Company who signed the Registration Statement and each
director of the Company.
(f) The liability of each Selling Stockholder under the
representations, warranties and agreements contained herein and under the
indemnity and contribution agreements contained in the provisions of this
Section 8 shall be limited to an amount equal to the initial public offering
price of any Shares sold by such Selling Stockholder to the Underwriters
minus the amount of the underwriting discount paid thereon to the
Underwriters by such Selling Stockholder. The Company and such Selling
Stockholders may agree, as among themselves and without limiting the rights
of the Underwriters under this Agreement, as to the respective amounts of
such liability for which they each shall be responsible.
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including the provisions of this
Section 8, and are fully informed regarding said provisions. They further
acknowledge that the provisions of this Section 8 fairly allocate the risks
in light of the ability of the parties to investigate the Company and its
business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
9. Representations, Warranties, Covenants and Agreements to Survive
----------------------------------------------------------------
Delivery. All representations, warranties, covenants and agreements of the
- --------
Company, the Selling Stockholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter within the meaning of the Act or the Exchange
Act, or by or on behalf of the Company or any Selling Stockholder, or any of
their officers, directors or controlling persons within the meaning of the Act
or the Exchange Act, and shall survive the delivery of the Shares to the several
Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters shall
----------------------------
fail to take up and pay for the number of Firm Shares agreed by such Underwriter
or Underwriters to be purchased hereunder upon tender of such Firm Shares in
accordance with the terms hereof, and if the aggregate number of Firm Shares
that such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed ten percent of the Firm Shares, the remaining
Underwriters shall be obligated, severally in proportion to their respective
commitments hereunder, to take up and pay for the Firm Shares of such defaulting
Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate number
of Firm Shares that such defaulting Underwriter or Underwriters agreed but
failed to take up and pay for exceeds ten percent of the Firm Shares, the
remaining Underwriters shall have the right, but shall not be obligated, to take
up and pay for (in such proportions as may be agreed upon among them) the Firm
Shares that the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares that the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for twenty-
four hours to allow the several Underwriters the privilege of substituting
within twenty-four hours (including non-business hours) another underwriter or
underwriters (which may include any nondefaulting Underwriter) satisfactory to
the Company. If no such underwriter or underwriters shall have been substituted
as aforesaid by such postponed Closing Date, the Closing Date may, at the option
of the Company, be postponed for a further twenty-four hours, if necessary, to
allow the Company the privilege of finding another underwriter or underwriters,
satisfactory to you, to purchase the Firm Shares that the defaulting Underwriter
or Underwriters so agreed but failed to purchase.
30
<PAGE>
If it shall be arranged for the remaining Underwriters or substituted
underwriter or underwriters to take up the Firm Shares of the defaulting
Underwriter or Underwriters as provided in this Section 10, (i) the Company
shall have the right to postpone the time of delivery for a period of not more
than seven full business days, in order to effect whatever changes may thereby
be made necessary in the Registration Statement or the Prospectus, or in any
other documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement, supplements to the Prospectus or other
such documents that may thereby be made necessary, and (ii) the respective
number of Firm Shares to be purchased by the remaining Underwriters and
substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and pay
for all such Firm Shares so agreed to be purchased by the defaulting Underwriter
or Underwriters or substitute another underwriter or underwriters as aforesaid
and the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in Sections 5
and 8) nor shall any Underwriter (other than an Underwriter who shall have
failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Stockholder (except to the
extent provided in Sections 5 and 8).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
------------------------------------------------
(a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., San Francisco time, on the first full business day following the
effective date of the Registration Statement or (ii) the time of the initial
public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which
the Shares are first generally offered by the Underwriters to the public by
letter, telephone, telegram or telecopy, whichever shall first occur. By
giving notice as set forth in Section 12 before the time this Agreement
becomes effective, you, as Representatives of the several Underwriters, or
the Company, may prevent this Agreement from becoming effective without
liability of any party to any other party, except as provided in Sections
4(j), 5 and 8.
(b) You, as Representatives of the several Underwriters, shall have the
right to terminate this Agreement by giving notice as hereinafter specified
at any time on or prior to the Closing Date or on or prior to any later date
on which Option Shares are to be purchased, as the case may be, (i) if the
Company or any Selling Stockholder shall have failed, refused or been unable
to perform any agreement on its part to be performed, or because any other
condition of the Underwriters' obligations hereunder required to be fulfilled
is not fulfilled, including any change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise from that set forth
in the Registration Statement or Prospectus that, in your sole judgment, is
material and adverse, or (ii) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices
shall have been generally established on the New York Stock Exchange or on
the American Stock Exchange
31
<PAGE>
or in the over-the-counter market by the NASD, or trading in securities
generally shall have been suspended on either such exchange or in the over-
the-counter market by the NASD, or if a banking moratorium shall have been
declared by federal, New York or California authorities, or (iii) if the
Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as to interfere materially with
the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured or (iv) if there shall have
been a material adverse change in the general political or economic
conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery
of the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration
by the United States of a national emergency that, in the reasonable opinion
of the Representatives, makes it impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus. In the
event of termination pursuant to subparagraph (i) above, the Company shall
remain obligated to pay costs and expenses pursuant to Sections 4(j), 5 and
8. Any termination pursuant to any of subparagraphs (ii) through (v) above
shall be without liability of any party to any other party except as provided
in Sections 5 and 8.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed
by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify you by telephone,
telecopy or telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
-------
otherwise specifically provided, shall be in writing and shall be mailed,
delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by
letter) as follows:
(a) if sent to you, to you c/o BancBoston Robertson Stephens Inc., 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel;
(b) if sent to the Company, to NetSolve, Incorporated, 12331 Riata Trace
Parkway, Austin, Texas 78727, telecopier number (804) 817-7884, Attention:
President and Chief Executive Officer; and
(c) if sent to one or more of the Selling Stockholders, to Kenneth C.
Kieley, as Attorney-in-Fact for the Selling Stockholders, at NetSolve,
Incorporated, 12331 Riata Trace Parkway, Austin, Texas 78727, telecopier
number (804) 817-7884.
13. Parties. This Agreement shall inure to the benefit of and be binding
-------
upon the several Underwriters, the Company and the Selling Stockholders and
their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 8, any legal or equitable right, remedy or claim in
respect of this Agreement or any provisions herein contained, this Agreement and
all conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
32
<PAGE>
In all dealings with the Company under this Agreement, you shall act on
behalf of each of the several Underwriters, and the Company and the Selling
Stockholders shall be entitled to act and rely upon any statement, request,
notice or agreement made or given by you jointly or by BancBoston Robertson
Stephens Inc. on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed in
--------------
accordance with, the internal laws of the State of New York.
15. Construction. The headings in this Agreement are included only for
------------
convenience and shall not affect the meaning or interpretation of this
Agreement. The words "herein" and "hereof" and other words of similar import
refer to this Agreement as a whole and not to any particular part of this
Agreement. The word "including" as used herein shall not be construed so as to
exclude any other thing not referred to or described. All references herein to
Sections shall be deemed references to such parts of this Agreement, except as
otherwise provided.
16. Counterparts. This Agreement may be signed in several counterparts,
------------
each of which will constitute an original.
33
<PAGE>
If the foregoing correctly sets forth the understanding among the Company,
the Selling Stockholders and the several Underwriters, please so indicate in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement among the Company, the Selling Stockholders and the several
Underwriters.
Very truly yours,
NetSolve, Incorporated
By_____________________________________________
President and Chief Executive Officer
Selling Stockholders
By_____________________________________________
Attorney-in-Fact for the Selling Stockholders
named in Schedule B hereto
Accepted as of the date first above written:
BancBoston Robertson Stephens Inc.
Hambrecht & Quist LLC
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto
By BancBoston Robertson Stephens Inc.
By_______________________________________
Authorized Signatory
34
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
FIRM SHARES
TO BE
UNDERWRITERS PURCHASED
- ------------ -----------
<S> <C>
BancBoston Robertson Stephens Inc..................................
Hambrecht & Quist LLC..............................................
-----------
Total..............................................................
===========
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
FIRM SHARES OPTION SHARES
COMPANY OR SELLING STOCKHOLDER TO BE SOLD TO BE SOLD
- ------------------------------ ------------- -------------
<S> <C> <C>
NetSolve, Incorporated...................................
------------- -------------
Total....................................................
============= =============
</TABLE>
<PAGE>
EXHIBIT 3.1
COMPOSITE RESTATED
CERTIFICATE OF INCORPORATION
OF
NETSOLVE, INCORPORATED
INCLUDING ALL AMENDMENTS
AS IN EFFECT ON SEPTEMBER 30, 1998
NETSOLVE, INCORPORATED, a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
FIRST: The name of the Corporation is NetSolve, Incorporated.
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 1209 Orange Street, Wilmington, County of New
Castle, Delaware. The name of the registered agent at the Corporation of
such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or actions for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: (a) Authorized Shares and Classes of Stock. The total number
of shares of stock which the Corporation shall have authority to issue is
Twenty-One Million Five Hundred Thousand (21,500,000), of which Fourteen
Million (14,000,000) shares of the par value of One Cent ($.01) each,
amounting in the aggregate to One Hundred Forty Thousand Dollars
($140,000.00), shall be Common Stock and of which Seven Million Five
Hundred Thousand (7,500,000) shares of the par value of Ten Cents ($.10)
each, amounting in the aggregate to Seven Hundred Fifty Thousand Dollars
($750,000.00) shall be Preferred Stock.
(b) Designation, Rights, Preferences and Powers of the Series A
Preferred Stock.
1. Designation. The first series of Preferred Stock shall be
designated "Series A Preferred Stock."
2. Authorized Number. The number of shares constituting the Series
A Preferred Stock shall be 4,150,000 shares, which number may be increased
or decreased from time to time (but not decreased below the number of
shares then outstanding) by the Board of Directors pursuant to the
provisions of Section (c) hereof.
<PAGE>
3. Dividend Provisions. The holders of shares of Series A Preferred
Stock shall be entitled to receive dividends, out of the assets legally
available therefor, at the rate of $.40 per share per annum (the "Stated
Dividend Rate"), prior and in preference to any declaration or payment of
any dividend (payable other than in Common Stock of this Corporation) on
the Common Stock of this Corporation. Such dividends on each share of
Series A Preferred Stock shall be paid when and as declared by the Board of
Directors; provided, however, that the Corporation shall neither declare
nor pay a dividend on the shares of the Series A Preferred Stock unless,
simultaneously therewith, the Corporation shall declare or pay a dividend
on all outstanding series of Preferred Stock, each such dividend to be in
an amount such that the amount of each such dividend bears the same
proportionate relationship with the Stated Dividend Rate for each such
series. Such dividends shall not be cumulative.
4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
this Corporation, either voluntary or involuntary, the holders of
shares of Series A Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets
of this Corporation to the holders of the Common Stock, by reason
of their ownership thereof, an amount per share equal to the sum
of (i) $4.00 for each outstanding share of Series A Preferred
Stock (the "Original Series A Issue Price") and (ii) an amount
equal to $.0333 per share for each month that has passed since
April 9, 1991 (such amount being referred to herein as the
"Premium"). If upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series A
Preferred Stock shall be insufficient to permit the payment to
such holders of the full aforesaid preferential amounts, then the
entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of
the Series A Preferred Stock in proportion to the amount of such
stock owned by each such holder, pari passu with the holders of
any other series of Preferred Stock but in proportion to the
respective amounts due the holders of each such series.
(b) Upon the completion of the distribution required by subsection
4(a), if assets remain in this Corporation, the holders of the
Series A Preferred Stock and Common Stock of this Corporation,
shall receive all of the remaining assets of this Corporation,
pro rata in accordance with the number of shares of Common Stock
held by them or then issuable to them upon conversion of the
Preferred Stock, pari passu with the holders of any other series
of Preferred Stock.
- 2 -
<PAGE>
(c) A consolidation or merger of this Corporation with or into any
other corporation(s), person(s), entity or entities, or any other
corporate reorganization or a sale, conveyance or disposition of
all or substantially all of the assets of this Corporation, in
any transaction or series of related transactions, upon the
effectiveness of which stockholders of this Corporation
immediately prior thereto hold less than 51% of the voting power
of the surviving corporation or entity shall, at the option of
each holder of Series A Preferred Stock, be deemed to be a
liquidation within the meaning of this Section 4 entitling such
holder to all of the rights herein provided.
5. Redemption.
(a) On or at any time after March 31, 1998, this Corporation may at
any time it may lawfully do so, at the option of the Board of
Directors, redeem in whole or in part the Series A Preferred
Stock by paying in cash therefor a sum equal to the Original
Series A Issue Price per share, together with the Premium to the
Redemption Date (as hereinafter defined) (such total amount is
hereinafter referred to as the "Series A Redemption Price").
Notwithstanding the foregoing, however, the Corporation shall not
redeem in whole or in part the Series A Preferred Stock unless
all shares of each series of Preferred Stock are redeemed pari
passu in proportion to the respective amounts due the holders of
each such series.
(b) On or at any time after the receipt by this Corporation from the
holders of at least two-thirds (2/3) of the then outstanding
shares of Series A Preferred Stock, of their written consent to
redemption hereunder of their respective shares, this Corporation
may at any time it may lawfully do so, at the option of the Board
of Directors, redeem in whole or in part the Series A Preferred
Stock by paying in cash therefor a sum equal to the Series A
Redemption Price.
(c) (i) In the event of any redemption of only a part of the then
outstanding Series A Preferred Stock, this Corporation shall
effect such redemption pro rata according to the number of shares
held by each holder thereof.
(ii) At least 30 but no more than 60 days prior to the date
fixed for any redemption of Series A Preferred Stock (the
"Redemption Date"), written notice shall be given by
mailing, postage prepaid, to each holder of record (at the
close of business on the business day next preceding the
day on which notice is given) of the Series A Preferred
Stock to be redeemed, at the address last shown on the
records of this
- 3 -
<PAGE>
Corporation for such holder or given by the holder to this
Corporation for the purpose of notice, or if no such
address appears or is given at the place where the
principal executive office of this Corporation is located,
notifying such holder of the redemption to be effected,
specifying the Redemption Date, the Redemption Price, the
place at which payment may be obtained and the date on
which such holder's Conversion Rights (as hereinafter
defined) as to such shares terminate and calling upon such
holder to surrender to this Corporation, in the manner and
at the place designated, his certificate or certificates
representing the shares to be redeemed (the "Redemption
Notice"). The Redemption Notice shall be sufficiently
given only when and if received by each such holder of
record. Except as provided in subsection 5(c)(iii), on or
after the Redemption Date, each holder of Preferred Stock
to be redeemed shall surrender to this Corporation the
certificate or certificates representing such shares, in
the manner and at the place designated in the Redemption
Notice, and thereupon the Redemption Price of such shares
shall be payable to the order of the person whose name
appears on such certificate or certificates at the owner
thereof and each surrendered certificate shall be
canceled. In the event less than all the shares
represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed
shares.
(iii) From and after the Redemption Date, unless there shall
have been a default in payment of the Redemption Price,
all dividends on the Series A Preferred Stock designated
for redemption in the Redemption Notice shall cease to
accrue, all rights of the holders of such shares as
holders of Series A Preferred Stock (except the right to
receive the Redemption Price without interest upon
surrender of their certificate or certificates) shall
cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of this
Corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of the Corporation legally
available for redemption of shares of Series A Preferred
Stock on any Redemption Date are insufficient to redeem
the total number of shares of Series A Preferred Stock to
be redeemed on such date, those funds which are legally
available will be used to redeem the maximum possible
number of such shares ratably among the holders of such
shares to be redeemed. The shares of Series A Preferred
Stock not redeemed shall remain outstanding and entitled
to all the rights and preferences provided herein. At any
time thereafter when additional funds of the Corporation
are legally available for the redemption of shares of
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Series A Preferred Stock, such funds will immediately be
used to redeem the balance of the shares which the
Corporation has become obligated to redeem on any
Redemption Date but which it has not redeemed.
(iv) Three days prior to the Redemption Date, this Corporation
shall deposit the Redemption Price of all outstanding
shares of Series A Preferred Stock designated for
redemption of the Redemption Notice, and not yet redeemed
or converted, with a bank or trust company having
aggregate capital and surplus in excess of $50,000,000 as
a trust fund for the benefit of the respective holders of
the shares designated for redemption and not yet redeemed.
Simultaneously, this Corporation shall deposit irrevocable
instruction and authority to such bank or trust company to
publish the notice of redemption thereof (or to complete
such publication if theretofore commenced) and to pay, on
and after the date fixed for redemption or prior thereto,
the Redemption Price of the Series A Preferred Stock to
the holders thereof upon surrender of their certificates.
Any moneys deposited by this Corporation pursuant to this
subsection 5(c)(iv) for the redemption of shares which are
thereafter converted into shares of Common Stock pursuant
to Section 6 hereof no later than the close of business on
the Redemption Date shall be returned to this Corporation
forthwith upon such conversion. The balance of any moneys
deposited by this Corporation pursuant to this subsection
5(c)(iv) remaining unclaimed at the expiration of two
years following the Redemption Date shall thereafter be
returned to this Corporation upon its request expressed in
a resolution of its Board of Directors, provided that the
stockholder(s) to which such monies would be payable
hereunder shall be entitled, upon proof of its ownership
of the Series A Preferred Stock and payment of any bond
requested by the Corporation, to receive such monies but
without interest from the Redemption Date.
6. Conversion. The holders of the Series A Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Subject to subsection 6(c), each shares of Series A
Preferred Stock shall be convertible, at the option of the
holder thereof, at any time and from time to time after
the date of issuance of such share and prior to the close
of business on the
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Redemption Date as may have been fixed in any Redemption
Notice with respect to such share, at the office of this
Corporation or any transfer agent for the Series A
Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by
dividing the Original Series A Issue Price by the
Conversion Price at the time in effect for such share. The
initial Conversion Price per share for shares of Series A
Preferred Stock shall be the Original Series A Issue Price
(i.e., $4.00 per share); provided, however, that the
Conversion Price for the Series A Preferred Stock shall be
subject to adjustment as set forth in subsection 6(c).
(ii) In the event of a call for redemption of any shares of
Series A Preferred Stock pursuant to Section 5 hereof, the
Conversion Rights shall terminate as to the shares
designated for redemption at the close of business on the
Redemption Date, unless default is made in payment of the
Redemption Price.
(iii) Each share of Series A Preferred Stock shall automatically
be converted into shares of Common Stock as is determined
by dividing the original Series A Issue Price by the
Conversion Price at the time in effect for such Series A
Preferred Stock immediately upon the consummation of the
Corporation's sale of its Common Stock in a bona fide,
firm commitment underwriting pursuant to a Registration
Statement on Form S-1, or its equivalent, under the
Securities Act of 1933, as amended, which results in
aggregate cash proceeds to this Corporation of in excess
of $10,000,000, and the public offering price of which was
not less than $6.00 per share (adjusted to reflect
subsequent changes in the capitalization of the
Corporation). Such automatic conversion shall not be
effected with respect to any shares of Series A Preferred
Stock which this Corporation shall have elected to redeem
pursuant to the provisions of Section 5 hereof.
(iv) In the event of any Future Equity Financing (as defined
below), a portion of the shares of Series A Preferred
Stock held by any holder (a "Non-Participating Holder")
who does not acquire its full pro rata share of such
Future Equity Financing (determined by multiplying the
aggregate number of equity securities to be sold by the
Corporation in connection with the Future Equity Financing
by a fraction, the numerator of which is the number of
shares of Series A Preferred Stock held by the Non-
Participating Holder and the denominator is the aggregate
number of shares of Series A
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Preferred Stock outstanding immediately prior to the date
such Future Equity Financing is consummated) shall
automatically be converted into shares of Common Stock at
the then current Conversion Price. The number of shares of
the Non-Participating Holder's Series A Preferred Stock to
be automatically converted into shares of Common Stock
shall be determined by multiplying the number of shares of
Series A Preferred Stock held by the Non-Participating
Holder by a fraction, the numerator of which is the amount
of the Non-Participating Holder's pro rata share
(determined in accordance with the formula set forth
above) of the equity securities to be sold in connection
with the Future Equity Financing which are not purchased
by the Non-Participating Holder and the denominator of
which is the Non-Participating Holder's pro rata share of
the equity securities to be sold in connection with the
Future Equity Financing. The term "Future Equity
Financing" shall mean any equity financing of the
Corporation occurring after August 7, 1991, excluding: (i)
sales of equity securities of the Corporation in a single
financing transaction in which the aggregate sales price
of such equity securities is greater than $6,000,000; (ii)
sales of equity securities of the Corporation in a single
financing transaction in which the aggregate sales price
of such securities is equal to or greater than $1,000,000,
the price per share of such equity securities (adjusted to
appropriately reflect any stock dividend, stock split,
reverse stock split, share combination, reorganization,
recapitalization or the like, of or by the Corporation) is
$.20 or greater, and pursuant to which neither any then
existing holder of shares of Series A Preferred Stock nor
any affiliate thereof purchases any of such equity
securities; and (iii) any transaction exempted from the
right of refusal set forth in Section 9.5 of the
Corporation's Series A Preferred Stock Purchase Agreement
dated as of April 10, 1991, as amended from time to time
(the "Series A Agreement") pursuant to the provisions of
Subsection 9.5(d) of the Series A Agreement.
(b) Mechanics of Conversion. Before any holder of Series A Preferred
Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of this Corporation or of
any transfer agent for the Series A Preferred Stock, and shall
give written notice by mail, postage prepaid, to this Corporation
at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the
certificate or certificates for shares of Common
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Stock are to be issued. This Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such
holder of Series A Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such
surrender of the shares of Series A Preferred Stock to be
converted, and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such
shares of Common Stock as of such date.
(c) Conversion Price Adjustments of Preferred Stock. The Conversion
Price of the Series A Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) (A) If the Corporation shall issue any Additional Stock (as
defined below) without consideration or for a
consideration per share less than the Conversion Price
for the Series A Preferred Stock in effect immediately
prior to the issuance of such Additional Stock, the
Conversion Price shall be reduced to a price equal to
the consideration per share, if any, received by the
Corporation upon such issue.
(B) No adjustment of the Conversion Price for the Series A
Preferred Stock shall be made in an amount less than
one cent per share, provided that any adjustments which
are not required to be made by reason of this sentence
shall be carried forward and shall be either taken into
account in any subsequent adjustment made prior to
three years from the date of the event giving rise to
the adjustment being carried forward, or shall be made
at the end of three years from the date of the event
giving rise to the adjustment being carried forward.
Except to the limited extent provided for in
subsections 6(c)(i)(E)(3) and (c)(i)(E)(4) no
adjustment of such Conversion Price shall have the
effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such
adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable
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<PAGE>
discounts, commissions or other expenses allowed, paid
or incurred by this Corporation for any underwriting or
otherwise in connection with the issuance and sale
thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the
fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
(E) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by
their terms convertible into or exchangeable for Common
Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities (which are
not excluded from the definition of Additional Stock),
the following provisions shall apply:
1. The aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to
purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time
such options or rights were issued and for a
consideration equal to the consideration
(determined in the manner provided in Subsections
6(c)(i)(C) and (c)(i)(D)), if any, received by the
Corporation upon the issuance of such options or
rights plus the minimum purchase price provided in
such options or rights for the Common Stock
covered thereby.
2. The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in
exchange for any such convertible or exchangeable
securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the
time such securities were issued or such options
or rights were issued and for a consideration
equal to the consideration, if any, received by
the Corporation for any such securities and
related options or rights (excluding any cash
received
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<PAGE>
on account of accrued interest or accrued
dividends), plus the additional consideration, if
any, to be received by the Corporation upon the
conversion or exchange of such securities or the
exercise of any related options or rights (the
consideration in each case to be determined in the
manner provided in subsections 6(c)(i)(C) and
(c)(i)(D).
3. In the event of any change in the number of shares
of Common Stock deliverable upon exercise of such
options or rights or upon conversion of or in
exchange for such convertible or exchangeable
securities, including, but not limited to, a
change resulting from the antidilution provisions
thereof, the Conversion Price in effect at the
time for the Series A Preferred Stock shall
forthwith be readjusted to such Conversion Price
as would have obtained had the adjustment which
was made upon the issuance of such options, rights
or securities not converted prior to such change
or the options or rights related to such
securities not converted prior to such change been
made upon the basis of such change, but no further
adjustment shall be made for the actual issuance
of Common Stock upon the exercise of any such
options or rights or the conversion or exchange of
such securities.
4. Upon the expiration of any such options or rights,
the termination of any such rights to convert or
exchange or the expiration of any options or
rights related to such convertible or exchangeable
securities, the Conversion Price for the Series A
Preferred Stock shall forthwith be readjusted to
such Conversion Price as would have obtained had
the adjustment which was made upon the issuance of
such options, rights or securities or options or
rights related to such securities been made upon
the basis of the issuance of only the number of
shares of Common Stock actually issued upon the
exercise of such options or
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<PAGE>
rights, upon the conversion or exchange of such
securities or upon the exercise of the options or
rights related to such securities.
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to
subsection 6(c)(i)(E)) by this Corporation after April 9,
1991 other than
(A) Common Stock issued pursuant to a transaction
described in subsection 6(c)(iii), or
(B) 3,201,976 shares of Common Stock (excluding shares
repurchased by the Corporation) issuable or issued to
persons or entities including options therefor
issuable to such persons or entities pursuant to a
stock option plan approved by the stockholders and
directors of this Corporation (less any shares issued
or deemed to have been issued prior to April 9,
1991), or
(C) In addition to the shares of Common Stock provided in
subsection (B) above, 50,000 shares of Common Stock
(excluding shares repurchased by the Corporation),
including options or warrants therefor issuable or
issued from time to time in the discretion of the
Board of Directors of the Corporation, or
(D) Common Stock issued or issuable upon conversion of
Preferred Stock, or
(E) Common Stock issued or issuable upon the exercise of
those certain warrants issued by the Corporation to
certain lenders in connection with that certain
Secured Demand Note Agreement dated as of November
16, 1990, as amended and restated, or
(F) Common Stock issued or issuable upon the exercise of
those certain warrants (including the issuance of
such warrants) issued by the Corporation to certain
investors under that certain Series B Preferred Stock
Purchase Agreement dated as of October 19, 1992, as
amended, or
(G) Additional Common Stock issued or issuable upon the
exercise of warrants or options issued by the
Corporation by virtue of the operation of the
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<PAGE>
antidilution provisions of such warrants or options
previously issued by the Corporation or by amendment
thereto in satisfaction of such antidilution
provisions.
(iii) In the event the Corporation should at any time or from time to
time after April 9, 1991 fix a record date for the effectuation
of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive
directly or indirectly, additional shares of Common Stock
(hereinafter referred to as "Common Stock Equivalents") without
payment of any consideration by such holder for the additional
shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date
(or the date of such dividend distribution, split or
subdivision if no record date is fixed), the Conversion Price
of the Series A Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable
on conversion of such series shall be increased in proportion
to such increase of outstanding shares determined in accordance
with subsection 6(c)(i)(E).
(iv) If the number of shares of Common Stock outstanding at any time
after April 9, 1991 is decreased by a combination of the
outstanding shares of Common Stock, then, following the record
date of such combination, the Conversion Price for the Series A
Preferred Stock shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of such
series shall be decreased in proportion to such decrease in
outstanding shares.
(d) Other Distributions. In the event this Corporation shall
declare a distribution payable in securities of other persons,
evidences of indebtedness issued by this Corporation or other
persons, assets (excluding cash dividends) or options or rights
not referred to in subsection 6(c)(iii), then, in each such
case for the purpose of this subsection 6(d), the holders of
the Series A Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they
were the holders of the number of shares of Common Stock of the
Corporation into which their shares of Series A Preferred Stock
are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation
entitled to receive such distribution.
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<PAGE>
(e) Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets
transaction provided for elsewhere in this Section 6 or Section
4), provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon
conversion of the Series A Preferred Stock the number of shares
of stock or other securities or property of this Corporation or
otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 6 with respect to
the rights of the holders of the Series A Preferred Stock after
the recapitalization to the end that the provisions of this
Section 6 (including adjustment of the Conversion Price then in
effect and the number of shares purchasable upon conversion of
the Series A Preferred Stock) shall be applicable after that
event as nearly equivalent as may be practicable.
(f) No Impairment. This Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by this
Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 6 and in the
taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(g) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon conversion of
the Series A Preferred Stock, and the number of shares
of Common Stock to be issued shall be rounded to the
nearest whole share. Whether or not fractional shares
are issuable upon such conversion shall be determined on
the basis of the total number of shares of Series A
Preferred Stock the holder is at the time converting
into Common Stock and the number of shares of Common
Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Series A Preferred Stock
pursuant to this Section 6, this Corporation, at its
expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and,
through its chief financial officer,
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<PAGE>
certify such computation and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or
readjustment is based. This Corporation shall, upon the
written request at any time of any holder of Series A
Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Conversion Price at
the time in effect, and (C) the number of shares of
Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion
of a share of Series A Preferred Stock.
(h) Notices of Record Date. In the event of any taking by this
Corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend) or
other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, this
Corporation shall mail to each holder of Series A Preferred
Stock, at least 20 days prior to the date specified therein, a
notice specifying the date on which any such record is to be
taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or
right.
(i) Reservation of Stock Issuable Upon Conversion. This Corporation
shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the
purpose of effecting the conversion of the shares of the Series A
Preferred Stock such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of
all outstanding shares of the Series A Preferred Stock; and if at
any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the Series A Preferred Stock, this
Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
(j) Notices. Any notice required by the provisions of this Section 6
to be given to the holders of shares of Series A Preferred Stock
shall be deemed given if deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his
address appearing on the books of this Corporation.
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<PAGE>
7. Voting Rights. The holder of each share of Series A Preferred
Stock shall have the right to one vote for each share of Common Stock into
which such Series A Preferred Stock could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded
to the nearest whole share), and with respect to such vote, such holder
shall have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the Bylaws of this Corporation, and shall be
entitled to vote, together with holders of Common Stock, with respect to
any question upon which holders of Common Stock have the right to vote, as
a single class (except to the extent class voting is otherwise required by
applicable law).
8. Status of Redeemed or Converted Stock. In the event any shares of
Series A Preferred Stock shall be redeemed or converted pursuant to Section
5 or Section 6 hereof, or reacquired by the Corporation in any manner and
retired, such shares shall have the status of authorized and unissued
shares of Preferred Stock without designation and may be redesignated by
the Board of Directors as shares of the same or any other series.
(c) Designation, Rights, Preferences and Power of the Series B
Preferred Stock.
1. Designation. The second series of Preferred Stock shall be
designated "Series B Preferred Stock."
2. Authorized Number. The number of shares constituting the Series B
Preferred Stock shall be 3,250,000 shares, which number may be increased or
decreased from time to time (but not decreased below the number of shares
then outstanding) by the Board of Directors pursuant to the provisions of
the Corporation's Restated Certificate of Incorporation.
3. Dividend Provisions. The holders of shares of Series B Preferred
Stock shall be entitled to receive dividends, out of the assets legally
available therefor, at the rate of $.40 per share per annum (the "Stated
Dividend Rate"), prior and in preference to any declaration or payment of
any dividend (payable other than in Common Stock of this Corporation) on
the Common Stock of this Corporation. Such dividends on each share of
Series B Preferred Stock shall be paid when and as declared by the Board of
Directors; provided, however, that the Corporation shall neither declare
nor pay a dividend on the shares of the Series B Preferred Stock unless,
simultaneously therewith, the Corporation shall declare or pay a dividend
on all outstanding series of Preferred Stock, each such dividend to be in
an amount such that the amount of each such dividend bears the same
proportionate relationship with the Stated Dividend Rate for each such
series. Such dividends shall not be cumulative.
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4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
this Corporation, either voluntary or involuntary, the holders of
shares of Series B Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets
of this Corporation to the holders of the Common Stock, by reason
of their ownership thereof, an amount per share equal to the sum
of (i) $4.00 for each outstanding share of Series B Preferred
Stock (the "Original Series B Issue Price") and (ii) an amount
equal to $.0333 per share for each month that has passed since
October 19, 1992 (such amount being referred to herein as the
"Premium"). If upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series B
Preferred Stock shall be insufficient to permit the payment to
such holders of the full aforesaid preferential amounts, then the
entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of
the Series B Preferred Stock in proportion to the amount of such
stock owned by each such holder, pari passu with the holders of
any other series of Preferred Stock but in proportion to the
respective amounts due the holders of each such series.
(b) Upon the completion of the distribution required by subsection
4(a), if assets remain in this Corporation, the holders of the
Series B Preferred Stock and Common Stock of this Corporation,
shall receive all of the remaining assets of this Corporation,
pro rata in accordance with the number of shares of Common Stock
held by them or then issuable to them upon conversion of the
Preferred Stock, pari passu with the holders of any other series
of Preferred Stock.
(c) A consolidation or merger of this Corporation with or into any
other corporation(s), person(s), entity or entities, or any other
corporate reorganization or a sale, conveyance or disposition of
all or substantially all of the assets of this Corporation, in
any transaction or series of related transactions, upon the
effectiveness of which stockholders of this Corporation
immediately prior thereto hold less than 51% of the voting power
of the surviving corporation or entity shall, at the option of
each holder of Series B Preferred Stock, be deemed to be a
liquidation within the meaning of this Section 4 entitling such
holder to all of the rights herein provided.
5. Redemption.
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(a) On or at any time after March 31, 1999, this Corporation may at
any time it may lawfully do so, at the option of the Board of
Directors, redeem in whole or in part the Series B Preferred
Stock by paying in cash therefor a sum equal to the Original
Series B Issue Price per share, together with the Premium to the
Redemption Date (as hereinafter defined) (such total amount is
hereinafter referred to as the "Series B Redemption Price").
Notwithstanding the foregoing, however, the Corporation shall not
redeem in whole or in part the Series B Preferred Stock unless
all shares of each series of Preferred Stock are redeemed pari
passu in proportion to the respective amounts due the holders of
each such series.
(b) On or at any time after the receipt by this Corporation from the
holders of at least two-thirds (2/3) of the then outstanding
shares of Series B Preferred Stock, of their written consent to
redemption hereunder of their respective shares, this Corporation
may at any time it may lawfully do so, at the option of the Board
of Directors, redeem in whole or in part the Series B Preferred
Stock by paying in cash therefor a sum equal to the Series B
Redemption Price.
(c) (i) In the event of any redemption of only a part of the then
outstanding Series B Preferred Stock, this Corporation
shall effect such redemption pro rata according to the
number of shares held by each holder thereof.
(ii) At least 30 but no more than 60 days prior to the date
fixed for any redemption of Series B Preferred Stock (the
"Redemption Date"), written notice shall be given by
mailing, postage prepaid, to each holder of record (at the
close of business on the business day next preceding the
day on which notice is given) of the Series B Preferred
Stock to be redeemed, at the address last shown on the
records of this Corporation for such holder or given by
the holder to this Corporation for the purpose of notice,
or if no such address appears or is given at the place
where the principal executive office of this Corporation
is located, notifying such holder of the redemption to be
effected, specifying the Redemption Date, the Redemption
Price, the place at which payment may be obtained and the
date on which such holder's Conversion Rights (as
hereinafter defined) as to such shares terminate and
calling upon such holder to surrender to this Corporation,
in the manner and at the place designated, his certificate
or certificates representing the shares to be redeemed
(the "Redemption Notice"). The
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Redemption Notice shall be sufficiently given only when
and if received by each such holder of record. Except as
provided in subsection 5(c)(iii), on or after the
Redemption Date, each holder of Preferred Stock to be
redeemed shall surrender to this Corporation the
certificate or certificates representing such shares, in
the manner and at the place designated in the Redemption
Notice, and thereupon the Redemption Price of such shares
shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be
canceled. In the event less than all the shares
represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed
shares.
(iii) From and after the Redemption Date, unless there shall
have been a default in payment of the Redemption Price,
all dividends on the Series B Preferred Stock designated
for redemption in the Redemption Notice shall cease to
accrue, all rights of the holders of such shares as
holders of Series B Preferred Stock (except the right to
receive the Redemption Price without interest upon
surrender of their certificate or certificates) shall
cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of this
Corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of the Corporation legally
available for redemption of shares of Series B Preferred
Stock on any Redemption Date are insufficient to redeem
the total number of shares of Series B Preferred Stock to
be redeemed on such date, those funds which are legally
available will be used to redeem the maximum possible
number of such shares ratably among the holders of such
shares to be redeemed. The shares of Series B Preferred
Stock not redeemed shall remain outstanding and entitled
to all the rights and preferences provided herein. At any
time thereafter when additional funds of the Corporation
are legally available for the redemption of shares of
Series B Preferred Stock, such funds will immediately be
used to redeem the balance of the shares which the
Corporation has become obligated to redeem on any
Redemption Date but which it has not redeemed.
(iv) Three days prior to the Redemption Date, this Corporation
shall deposit the Redemption Price of all outstanding
shares of Series B Preferred Stock designated for
redemption of the Redemption Notice, and not yet redeemed
or converted, with a bank or trust company having
aggregate capital and surplus in excess of $50,000,000 as
a trust fund for the
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benefit of the respective holders of the shares designated
for redemption and not yet redeemed. Simultaneously, this
Corporation shall deposit irrevocable instruction and
authority to such bank or trust company to publish the
notice of redemption thereof (or to complete such
publication if theretofore commenced) and to pay, on and
after the date fixed for redemption or prior thereto, the
Redemption Price of the Series B Preferred Stock to the
holders thereof upon surrender of their certificates. Any
moneys deposited by this Corporation pursuant to this
subsection 5(c)(iv) for the redemption of shares which are
thereafter converted into shares of Common Stock pursuant
to Section 6 hereof no later than the close of business on
the Redemption Date shall be returned to this Corporation
forthwith upon such conversion. The balance of any moneys
deposited by this Corporation pursuant to this subsection
5(c)(iv) remaining unclaimed at the expiration of two
years following the Redemption Date shall thereafter be
returned to this Corporation upon its request expressed in
a resolution of its Board of Directors, provided that the
stockholder(s) to which such monies would be payable
hereunder shall be entitled, upon proof of its ownership
of the Series B Preferred Stock and payment of any bond
requested by the Corporation, to receive such monies but
without interest from the Redemption Date.
6. Conversion. The holders of the Series B Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Subject to subsection 6(c), each share of Series B
Preferred Stock shall be convertible, at the option of the
holder thereof, at any time and from time to time after
the date of issuance of such share and prior to the close
of business on the Redemption Date as may have been fixed
in any Redemption Notice with respect to such share, at
the office of this Corporation or any transfer agent for
the Series B Preferred Stock, into such number of fully
paid and nonassessable shares of Common Stock as is
determined by dividing the Original Series B Issue Price
by the Conversion Price at the time in effect for such
share. The initial Conversion Price per share for shares
of Series B Preferred Stock shall be the Original Series B
Issue Price (i.e., $4.00 per share); provided, however,
that the Conversion Price for
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the Series B Preferred Stock shall be subject to
adjustment as set forth in subsection 6(c).
(ii) In the event of a call for redemption of any shares of
Series B Preferred Stock pursuant to Section 5 hereof, the
Conversion Rights shall terminate as to the shares
designated for redemption at the close of business on the
Redemption Date, unless default is made in payment of the
Redemption Price.
(iii) Each share of Series B Preferred Stock shall automatically
be converted into shares of Common Stock as is determined
by dividing the original Series B Issue Price by the
Conversion Price at the time in effect for such Series B
Preferred Stock immediately upon the consummation of the
Corporation's sale of its Common Stock in a bona fide,
firm commitment underwriting pursuant to a Registration
Statement on Form S-1, or its equivalent, under the
Securities Act of 1933, as amended, which results in
aggregate cash proceeds to this Corporation of in excess
of $10,000,000, and the public offering price of which was
not less than $6.00 per share (adjusted to reflect
subsequent changes in the capitalization of the
Corporation). Such automatic conversion shall not be
effected with respect to any shares of Series B Preferred
Stock which this Corporation shall have elected to redeem
pursuant to the provisions of Section 5 hereof.
(b) Mechanics of Conversion. Before any holder of Series B Preferred
Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of this Corporation or of
any transfer agent for the Series B Preferred Stock, and shall
give written notice by mail, postage prepaid, to this Corporation
at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be
issued. This Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of
Series B Preferred Stock, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of
the shares of Series B Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common
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<PAGE>
Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common
Stock as of such date.
(c) Conversion Price Adjustments of Preferred Stock. The Conversion
Price of the Series B Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) (A) If the Corporation shall issue any Additional Stock (as
defined below) without consideration or for a
consideration per share less than the Conversion Price
for the Series B Preferred Stock in effect immediately
prior to the issuance of such Additional Stock, the
Conversion Price shall be reduced to a price equal to
the consideration per share, if any, received by the
Corporation upon such issue.
(B) No adjustment of the Conversion Price for the Series B
Preferred Stock shall be made in an amount less than
one cent per share, provided that any adjustments which
are not required to be made by reason of this sentence
shall be carried forward and shall be either taken into
account in any subsequent adjustment made prior to
three years from the date of the event giving rise to
the adjustment being carried forward, or shall be made
at the end of three years from the date of the event
giving rise to the adjustment being carried forward.
Except to the limited extent provided for in
subsections 6(c)(i)(E)(3) and (c)(i)(E)(4) no
adjustment of such Conversion Price shall have the
effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such
adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable
discounts, commissions or other expenses allowed, paid
or incurred by this Corporation for any underwriting or
otherwise in connection with the issuance and sale
thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to
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<PAGE>
be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
(E) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by
their terms convertible into or exchangeable for Common
Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities (which are
not excluded from the definition of Additional Stock),
the following provisions shall apply:
1. The aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to
purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time
such options or rights were issued and for a
consideration equal to the consideration
(determined in the manner provided in Subsections
6(c)(i)(C) and (c)(i)(D)), if any, received by the
Corporation upon the issuance of such options or
rights plus the minimum purchase price provided in
such options or rights for the Common Stock
covered thereby.
2. The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in
exchange for any such convertible or exchangeable
securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the
time such securities were issued or such options
or rights were issued and for a consideration
equal to the consideration, if any, received by
the Corporation for any such securities and
related options or rights (excluding any cash
received on account of accrued interest or accrued
dividends), plus the additional consideration, if
any, to be received by the Corporation upon the
conversion or exchange of such securities or the
exercise of any related options or rights (the
consideration in each case to be determined in the
manner
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<PAGE>
provided in subsections 6(c)(i)(C) and (c)(i)(D).
3. In the event of any change in the number of shares
of Common Stock deliverable upon exercise of such
options or rights or upon conversion of or in
exchange for such convertible or exchangeable
securities, including, but not limited to, a
change resulting from the antidilution provisions
thereof, the Conversion Price in effect at the
time for the Series B Preferred Stock shall
forthwith be readjusted to such Conversion Price
as would have obtained had the adjustment which
was made upon the issuance of such options, rights
or securities not converted prior to such change
or the options or rights related to such
securities not converted prior to such change been
made upon the basis of such change, but no further
adjustment shall be made for the actual issuance
of Common Stock upon the exercise of any such
options or rights or the conversion or exchange of
such securities.
4. Upon the expiration of any such options or rights,
the termination of any such rights to convert or
exchange or the expiration of any options or
rights related to such convertible or exchangeable
securities, the Conversion Price for the Series B
Preferred Stock shall forthwith be readjusted to
such Conversion Price as would have obtained had
the adjustment which was made upon the issuance of
such options, rights or securities or options or
rights related to such securities been made upon
the basis of the issuance of only the number of
shares of Common Stock actually issued upon the
exercise of such options or rights, upon the
conversion or exchange of such securities or upon
the exercise of the options or rights related to
such securities.
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<PAGE>
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to
subsection 6(c)(i)(E), by this Corporation after October
19, 1992 other than
(A) Common Stock issued pursuant to a transaction
described in subsection 6(c)(iii), or
(B) 3,201,976 shares of Common Stock (excluding shares
repurchased by the Corporation) issuable or issued to
persons or entities including options therefor
issuable to such persons or entities pursuant to a
stock option plan approved by the stockholders and
directors of this Corporation (less any shares issued
or deemed to have been issued prior to October 19,
1992), or
(C) In addition to the shares of Common Stock provided in
subsection (B) above, 50,000 shares of Common Stock
(excluding shares repurchased by the Corporation),
including options or warrants therefor issuable or
issued from time to time in the discretion of the
Board of Directors of the Corporation, or
(D) Common Stock issued or issuable upon conversion of
Preferred Stock, or
(E) Common Stock issued or issuable upon the exercise of
those certain warrants (including the issuance of
such warrants) issued by the Corporation to the
certain investors under that certain Series B
Preferred Stock Agreement dated as of October 19,
1992, as amended or,
(F) Additional Common Stock issued or issuable upon the
exercise of warrants or options issued by the
Corporation by virtue of the operation of the
antidilution provisions of such warrants or options
previously issued by the Corporation or by amendment
thereto in satisfaction of such antidilution
provisions."
(iii) In the event the Corporation should at any time or from
time to time after October 19, 1992 fix a record date for
the effectuation of a split or subdivision of the
outstanding
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<PAGE>
shares of Common Stock or the determination of holders of
Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock
or other securities or rights convertible into, or
entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment
of any consideration by such holder for the additional
shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable
upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution,
split or subdivision if no record date is fixed), the
Conversion Price of the Series B Preferred Stock shall be
appropriately decreased so that the number of shares of
Common Stock issuable on conversion of such series shall
be increased in proportion to such increase of outstanding
shares determined in accordance with subsection
6(c)(i)(E).
(iv) If the number of shares of Common Stock outstanding at any
time after October 19, 1992 is decreased by a combination
of the outstanding shares of Common Stock, then, following
the record date of such combination, the Conversion Price
for the Series B Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock
issuable on conversion of such series shall be decreased
in proportion to such decrease in outstanding shares.
(d) Other Distributions. In the event this Corporation shall declare
a distribution payable in securities of other persons, evidences
of indebtedness issued by this Corporation or other persons,
assets (excluding cash dividends) or options or rights not
referred to in subsection 6(c)(iii), then, in each such case for
the purpose of this subsection 6(d), the holders of the Series B
Preferred Stock shall be entitled to a proportionate share of any
such distribution as though they were the holders of the number
of shares of Common Stock of the Corporation into which their
shares of Series B Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common
Stock of the Corporation entitled to receive such distribution.
(e) Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction
provided for
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<PAGE>
elsewhere in this Section 6 or Section 4), provision shall be
made so that the holders of the Series B Preferred Stock shall
thereafter be entitled to receive upon conversion of the Series B
Preferred Stock the number of shares of stock or other securities
or property of this Corporation or otherwise, to which a holder
of Common Stock deliverable upon conversion would have been
entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of
this Section 6 with respect to the rights of the holders of the
Series B Preferred Stock after the recapitalization to the end
that the provisions of this Section 6 (including adjustment of
the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series B Preferred Stock)
shall be applicable after that event as nearly equivalent as may
be practicable.
(f) No Impairment. This Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by this
Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 6 and in the
taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the
Series B Preferred Stock against impairment.
(g) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon conversion of
the Series B Preferred Stock, and the number of shares of
Common Stock to be issued shall be rounded to the nearest
whole share. Whether or not fractional shares are issuable
upon such conversion shall be determined on the basis of
the total number of shares of Series B Preferred Stock the
holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such
aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series B Preferred Stock pursuant
to this Section 6, this Corporation, at its expense, shall
promptly compute such adjustment or readjustment in
accordance with the terms hereof and, through its chief
financial officer, certify such computation and prepare
and
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<PAGE>
furnish to each holder of Series B Preferred Stock a
certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment
or readjustment is based. This Corporation shall, upon the
written request at any time of any holder of Series B
Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Conversion Price at
the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at
the time would be received upon the conversion of a share
of Series B Preferred Stock.
(h) Notices of Record Date. In the event of any taking by this
Corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend) or
other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, this
Corporation shall mail to each holder of Series B Preferred
Stock, at least 20 days prior to the date specified therein, a
notice specifying the date on which any such record is to be
taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or
right.
(i) Reservation of Stock Issuable Upon Conversion. This Corporation
shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the
purpose of effecting the conversion of the shares of the Series B
Preferred Stock such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of
all outstanding shares of the Series B Preferred Stock; and if at
any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the Series B Preferred Stock, this
Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
(j) Notices. Any notice required by the provisions of this Section 6
to be given to the holders of shares of Series B Preferred Stock
shall be deemed given if deposited in the United States mail,
postage
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<PAGE>
prepaid, and addressed to each holder of record at his address
appearing on the books of this Corporation.
7. Voting Rights. The holder of each share of Series B Preferred
Stock shall have the right to one vote for each share of Common Stock into
which such Series B Preferred Stock could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded
to the nearest whole share), and with respect to such vote, such holder
shall have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the Bylaws of this Corporation, and shall be
entitled to vote, together with holders of Common Stock, with respect to
any question upon which holders of Common Stock have the right to vote, as
a single class (except to the extent class voting is otherwise required by
applicable law).
8. Status of Redeemed or Converted Stock. In the event any shares of
Series B Preferred Stock shall be redeemed or converted pursuant to Section
5 or Section 6 hereof, or reacquired by the Corporation in any manner and
retired, such shares shall have the status of authorized and unissued
shares of Preferred Stock without designation and may be redesignated by
the Board of Directors as shares of the same or any other series.
(d) Designation, Rights, Preferences and Powers of Preferred Stock
other than the Series A Preferred Stock:
1. Shares of Preferred Stock may be issued in one or more series at
such time or times and for such consideration or considerations as the
Board of Directors may determine. Authority is hereby expressly granted to
the Board of Directors to fix from time to time, by resolution or
resolutions providing for the issue of any series of Preferred Stock, the
designation of such series and the powers, preferences and rights of the
shares of such series, and the qualifications, limitations or restrictions
thereof, including the following:
(a) The distinctive designation and number of shares
comprising such series, which number may (except where
otherwise provided by the Board of Directors in creating
such series) be increased or decreased (but not below the
number of shares then outstanding) from time to time by
like action of the Board of Directors;
(b) The dividend rate or rates on the shares of such series
and the preferences, if any, over any other series (or of
any other series over such series) with respect to
dividends, the terms and conditions upon which dividends
shall be
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<PAGE>
payable, whether and upon what conditions such dividends
shall be cumulative and, if cumulative, the date or dates
from which dividends shall accumulate;
(c) Whether or not the shares of such series shall be
redeemable, the price or prices, limitations or
restrictions, and any other terms and conditions with
respect to such redemptions;
(d) The rights to which the holders of such series shall be
entitled, and the preferences, if any, over any other
series (or of any other series over such series), upon the
voluntary or involuntary liquidation, dissolution or
winding up of the Corporation;
(e) Whether or not the shares of such series shall be subject
to the operation of a purchase, retirement or sinking
fund, and, if so, whether and upon what conditions such
purchase, retirement or sinking fund shall be cumulative
or noncumulative, the extent to which and the manner in
which such fund shall be applied to the purchase or
redemption of the shares of such series for retirement or
to other corporate purposes and the terms and provisions
relative to the operation thereof;
(f) Whether or not the shares of such series shall be
convertible into or exchangeable for shares of stock of
any other class or classes, or of any other series of the
same class and, if so convertible or exchangeable, the
price of prices or the rate or rates of conversion or
exchange and method, if any, of adjusting the same, and
any other terms and conditions of such conversion or
exchange;
(g) The voting powers, if any, of the shares of such series,
and whether or not and under what conditions the shares of
such series shall be entitled to vote separately as a
single class for the election of one or more additional
directors of the Corporation in case of dividend
arrearages or other specified events, or upon other
matters;
(h) Any other preferences, privileges and powers, and
relative, participating, optional or other special rights,
and qualifications, limitations or restrictions of such
series, as the Board of Directors may deem advisable and
as shall not be inconsistent with the provisions of this
Certificate of Incorporation.
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<PAGE>
(e) Shares of Preferred Stock which have been redeemed or converted,
or which have been issued and reacquired in any manner and retired, shall
have the status of authorized and unissued Preferred Stock without
designation and may be redesignated by the Board of Directors as shares of
the same or any other series, unless otherwise provided with respect to any
series in the resolution of the Board of Directors creating such series.
FIFTH: The business and affairs of the Corporation shall be managed
by the Board of Directors. The election of Directors need not be by
written ballot.
SIXTH: In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware, the Board of Directors is expressly
authorized to adopt, amend or repeal the By-laws of the Corporation.
SEVENTH: (a) The Corporation may, to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware, as the same exists
or may hereafter be amended, indemnify all persons whom it may indemnify
pursuant thereto, and to the fullest extent otherwise permitted by
applicable law.
(b) To the fullest extent permitted by the General Corporation Law of
Delaware as the same exists or may hereafter be amended, no director of the
Corporation shall be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. If the
General Corporation Law of Delaware is amended after approval by the
stockholders of this provision 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 such law.
(c) No repeal or modification of this Article SEVENTH by the
stockholders of the Corporation shall adversely affect the right or
protection of a director or other person lawfully indemnified by the
Corporation existing at the time of such repeal or modification or with
respect to events occurring prior to such time.
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<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
NETSOLVE, INCORPORATED
NetSolve, Incorporated, a corporation organized and existing under and by
virtue of the
General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
FIRST: That at a special meeting of the Board of Directors of NetSolve,
Incorporated held on September 30, 1998, resolutions were duly adopted setting
forth proposed amendments to the Restated Certificate of Incorporation of said
Corporation, declaring said amendments to be advisable and calling for approval
thereof at the Annual Stockholders Meeting to be held on October 22, 1998. The
resolutions setting forth such proposed amendments are as follows:
RESOLVED, that the Corporation's Restated Certificate of Incorporation
be amended to increase the number of authorized shares of Common Stock from
14,000,000 shares to 25,000,000 shares and that, as amended, Section (a) of
Article Fourth of the Corporation's Restated Certificate of Incorporation shall
be and read as follows:
"Fourth" (a) The total number of shares of stock which the Corporation
shall have authority to issue is Thirty-Two Million Five Hundred
Thousand (32,500,000), of which Twenty-Five Million (25,000,000)
shares of the par value of One Cent ($.01) each, amounting in the
aggregate to Two Hundred Fifty Thousand Dollars ($250,000.00), shall
be Common Stock and of which Seven Million Five Hundred Thousand
(7,500,000) shares of the par value of Ten Cents ($.10) each,
amounting in the aggregate to Seven Hundred Fifty Thousand Dollars
($750,000.00), shall be Preferred Stock."
RESOLVED, that the Corporation's Restated Certificate of Incorporation
be amended to increase the total number of shares of Common Stock, or options or
stock-based awards therefor, issuable by the Corporation to employees of, and
consultants to, the Corporation under a stock option or stock-based compensation
plan of the Corporation, which are excluded from the definition of Additional
Stock for purposes of the antidilution rights of the Series A Preferred Stock,
such that, as amended, subsection (b)(6)(c)(ii) of Article Fourth of the
Corporation's Restated Certificate of Incorporation shall read in its entirety
as follows:
(ii) "Additional Stock" shall mean any shares of Common Stock issued
(or deemed to have been issued pursuant to subsection 6(c)(i)(E)) by
this Corporation
<PAGE>
after April 9, 1991, other than
(A) Common Stock issued pursuant to a transaction described in
Subsection 6(c)(iii), or
(B) 3,951,976 shares of Common Stock (excluding shares
repurchased by the Corporation) issuable or issued to
employees of and consultants to, this Corporation, including
options and other stock-based awards therefor issuable to
such consultants and employees pursuant to a stock option or
stock-based compensation plan approved by the stockholders
and directors of this Corporation (less any shares issued or
deemed to have been issued prior to April 9, 1991), or
(C) In addition to the shares of Common Stock provided in
subsection (B) above, 50,000 shares of Common Stock
(excluding shares repurchased by the Corporation), including
options or warrants therefor issuable or issued from time to
time in the discretion of the Board of Directors of the
Corporation, or
(D) Common Stock issued or issuable upon conversion of
Preferred Stock, or
(E) Common Stock issued or issuable upon the exercise of those
certain warrants issued by the Corporation to certain
lenders in connection with that certain Secured Demand Note
Agreement dated as of November 16, 1990, as amended and
restated, or
(F) Common Stock issued or issuable upon the exercise of those
certain warrants (including the issuance of such warrants)
issued by the Corporation to certain investors under that
certain Series B Preferred Stock Purchase Agreement dated as
of October 19, 1992, as amended, or
(G) Additional Common Stock issued or issuable upon the exercise
of warrants or options issued by the Corporation by virtue
of the operation of the antidilution provisions of warrants
or options previously issued by the Corporation or by
amendment thereto in satisfaction of such antidilution
provisions."
RESOLVED, that the Corporation's Restated Certificate of Incorporation be
amended to increase the total number of shares of Common Stock, or options or
stock-based awards therefor, issuable by the Corporation to persons or entities
under a stock option or stock-based compensation plan of the Corporation, which
are excluded from the definition of Additional Stock for purposes of the
antidilution rights of the Series B Preferred Stock, such that, as amended,
subsection (6)(c)(ii) of the Series B Designation shall read in its entirety as
follows:
<PAGE>
(ii) "Additional Stock" shall mean any shares of Common Stock issued
(or deemed to have been issued pursuant to subsection 6(c)(i)(E)) by
this Corporation after October 19, 1992, other than
(A) Common Stock issued pursuant to a transaction described in
Subsection 6(c)(iii), or
(B) 3,951,976 shares of Common Stock (excluding shares
repurchased by the Corporation) issuable or issued to
employees of and consultants to, this Corporation, including
options and other stock-based awards therefor issuable to
such consultants and employees pursuant to a stock option or
stock-based compensation plan approved by the stockholders
and directors of this Corporation (less any shares issued or
deemed to have been issued prior to October 19, 1992), or
(C) In addition to the shares of Common Stock provided in
subsection (B) above, 50,000 shares of Common Stock
(excluding shares repurchased by the Corporation), including
options or warrants therefor issuable or issued from time to
time in the discretion of the Board of Directors of the
Corporation, or
(D) Common Stock issued or issuable upon conversion of Preferred
Stock, or
(E) Common Stock issued or issuable upon the exercise of those
certain warrants (including the issuance of such warrants)
issued by the Corporation to certain investors under that
certain Series B Preferred Stock Purchase Agreement dated as
of October 19, 1992, as amended, or
(F) Additional Common Stock issued or issuable upon the exercise
of warrants or options issued by the Corporation by virtue
of the operation of the antidilution provisions of warrants
or options previously issued by the Corporation or by
amendment thereto in satisfaction of such antidilution
provisions."
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
the 1998 annual meeting of stockholders of the Corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware, at which meeting the necessary number of shares as
required by statute were voted in favor of said amendments.
THIRD: That each of said amendments were duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE>
FOURTH: That the capital of said Corporation shall not be reduced under or
by reason of said amendments.
IN WITNESS WHEREOF, the said NetSolve, Incorporated has caused this
certificate to be executed by Craig S. Tysdal, its President and Chief Executive
Officer, and attested by Kenneth C. Kieley, its Vice President-Finance, Chief
Financial Officer and Secretary, this ____ day of ___________, 1998.
NETSOLVE, INCORPORATED
By:
--------------------------------------
Craig S. Tysdal, President and
Chief Executive Officer
ATTEST:
- ----------------------------------
Kenneth C. Kieley, Vice President-
Finance, Chief Financial Officer
and Secretary
<PAGE>
EXHIBIT 3.3
RESTATED
CERTIFICATE OF INCORPORATION
OF
NETSOLVE, INCORPORATED
NetSolve, Incorporated., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is NetSolve, Incorporated The date of
filing its original Certificate of Incorporation with the Secretary of State of
Delaware was September 19, 1985. The name of the corporation under which its
original Certificate of Incorporation was filed with the Secretary of State of
Delaware was Southwest Defense Systems, Inc.
2. This Restated Certificate of Incorporation restates and integrates the
Restated Certificate of Incorporation of this corporation as follows:
The Designation of the Series A Preferred Stock is deleted in its
entirety, there being no shares of such series outstanding.
The Designation of the Series B Preferred Stock is deleted in its
entirety, there being no such shares of such series outstanding.
3. The text of the Restated Certificate of Incorporation as heretofore
amended or supplemented is hereby restated and further amended to read in its
entirety as follows:
FIRST: The name of the Corporation is NetSolve, Incorporated.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, Wilmington, County of New Castle,
Delaware. The name of the registered agent at the Corporation of such
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or actions for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: (a) The total number of shares of stock which the Corporation
shall have authority to issue is thirty-two million five hundred thousand
(32,500,000), of which twenty-five million (25,000,000) shares of the par
value of One Cent ($.01) each, amounting in the aggregate to Two Hundred
Fifty Thousand and No/100 Dollars ($250,000.00) shall be Common Stock and
of which seven million five hundred thousand (7,500,000) shares of the par
value of Ten Cents ($.10) each, amounting in the aggregate to Seven Hundred
Fifty Thousand and No/100 Dollars ($750,000.00) shall be Preferred Stock.
(b) Shares of Preferred Stock may be issued in one or more series at
such time or times and for such consideration or considerations as the
Board of Directors
<PAGE>
may determine. Authority is hereby expressly granted to the Board of
Directors to fix from time to time, by resolution or resolutions providing for
the issue of any series of Preferred Stock, the designation of such series and
the powers, preferences and rights of the shares of such series, and the
qualifications, limitations or restrictions thereof, including the following:
(a) The distinctive designation and number of shares comprising such
series, which number may (except where otherwise provided by the
Board of Directors in creating such series) be increased or
decreased (but not below the number of shares then outstanding)
from time to time by like action of the Board of Directors;
(b) The dividend rate or rates on the shares of such series and the
preferences, if any, over any other series (or of any other
series over such series) with respect to dividends, the terms and
conditions upon which dividends shall be payable, whether and
upon what conditions such dividends shall be cumulative and, if
cumulative, the date or dates from which dividends shall
accumulate;
(c) Whether or not the shares of such series shall be redeemable, the
price or prices, limitations or restrictions, and any other terms
and conditions with respect to such redemptions;
(d) The rights to which the holders of such series shall be entitled,
and the preferences, if any, over any other series (or of any
other series over such series), upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(e) Whether or not the shares of such series shall be subject to the
operation of a purchase, retirement or sinking fund, and, if so,
whether and upon what conditions such purchase, retirement or
sinking fund shall be cumulative or noncumulative, the extent to
which and the manner in which such fund shall be applied to the
purchase or redemption of the shares of such series for
retirement or to other corporate purposes and the terms and
provisions relative to the operation thereof;
(f) Whether or not the shares of such series shall be convertible
into or exchangeable for shares of stock of any other class or
classes, or of any other series of the same class and, if so
convertible or exchangeable, the price or prices or the rate or
rates of conversion or exchange and method, if any, of adjusting
the same, and any other terms and conditions of such conversion
or exchange;
2
<PAGE>
(g) The voting powers, if any, of the shares of such series, and
whether or not and under what conditions the shares of such
series shall be entitled to vote separately as a single class for
the election of one or more additional directors of the
Corporation in case of dividend arrearages or other specified
events, or upon other matters;
(h) Any other preferences, privileges and powers, and relative,
participating, optional or other special rights, and
qualifications, limitations or restrictions of such series, as
the Board of Directors may deem advisable and as shall not be
inconsistent with the provisions of this Certificate of
Incorporation.
(c) Shares of Preferred Stock which have been redeemed or converted, or
which have been issued and reacquired in any manner and retired, shall have the
status of authorized and unissued Preferred Stock without designation and may be
redesignated by the Board of Directors as shares of the same or any other
series, unless otherwise provided with respect to any series in the resolution
of the Board of Directors creating such series.
FIFTH: The business and affairs of the Corporation shall be managed by the
Board of Directors. The election of Directors need not be by written ballot.
SIXTH: In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized to
adopt, amend or repeal the By-laws of the Corporation.
SEVENTH: (a) The Corporation may, to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware, as the same exists or
may hereafter be amended, indemnify all persons whom it may indemnify pursuant
thereto, and to the fullest extent otherwise permitted by applicable law.
(b) To the fullest extent permitted by the General Corporation Law of
Delaware as the same exists or may hereafter be amended, no director of the
Corporation shall be liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. If the General Corporation
Law of Delaware is amended after approval by the stockholders of this provision
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 such law.
(c) No repeal or modification of this Article SEVENTH by the stockholders
of the Corporation shall adversely affect the right or protection of a director
or other person lawfully indemnified by the Corporation existing at the time of
such repeal or modification or with respect to events occurring prior to such
time.
3
<PAGE>
IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which
restates and integrates the provisions of the Corporation's Restated
Certificate of Incorporation and having been duly adopted by the Board of
Directors of the Corporation in accordance with the provisions of Section 245 of
the General Corporation Laws of the State of Delaware, has been executed this
_________ day of ________________, 1998 by Craig S. Tysdal, its President, and
attested by Kenneth C. Kieley, its Secretary.
NETSOLVE, INCORPORATED
By:
-----------------------------------
Craig S. Tysdal, President
ATTEST:
By:
--------------------------------
Kenneth C. Kieley, Secretary
4
<PAGE>
EXHIBIT 3.4
BY-LAWS
OF
NETSOLVE, INCORPORATED
ARTICLE ONE
OFFICES
Section 1.01. Registered Office. The initial registered office of the
corporation shall be at the place designated in the Certificate of
Incorporation. The address of the registered office may be changed by the Board
of Directors from time to time.
Section 1.02. Other Offices. The corporation may also 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.
ARTICLE TWO
STOCKHOLDERS
Section 2.01. Annual Meeting. The Board of Directors shall determine the
time and place of annual meetings of stockholders, at which time the
stockholders shall elect a Board of Directors and transact such other business
as may properly be brought before the meeting.
Section 2.02. Special Meetings. Special Meetings of stockholders may be
called by the President or the Board of Directors, and shall be called by the
President or Secretary at the request in writing of the holders of not less than
one quarter of all the outstanding shares of the corporation entitled to vote at
the meeting. The request shall state the purpose or purposes of the proposed
meeting.
Section 2.03. List of Stockholders. At least ten days before each meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, with the address of and the number of
shares held by each, shall be prepared by the officer or agent having charge of
the stock transfer books. For a period of ten days prior to the meeting, the
list shall be kept 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 so
specified, at the place where the meeting is to be held, and may be inspected by
any stockholder at any time during usual business hours. The list shall be
produced and kept open at the time and place of the meeting and may be inspected
by any stockholder during the whole time of the meeting. The Board of Directors
may fix in advance a record date for the purpose of determining stockholders
entitled to notice of or to vote at a meeting of stockholders, the record date
to be not less than ten nor more than 60 days prior to the meeting,
<PAGE>
or the Board of Directors may close the stock transfer books for the same
purpose for a period of not less than ten nor more than 60 days prior to the
meeting. In the absence of any action by the Board of Directors, the record date
shall be such date as is provided by statute.
Section 2.04. Notice. Written notice stating the place, day and hour of
any meeting of stockholders and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than 60 days before the date of the meeting, either personally or by
mail, by or at the direction of the President, the Secretary, or the persons
calling the meeting, to each stockholder of record entitled to vote at the
meeting.
Section 2.05. Quorum. The holder of a majority of the shares entitled to
vote, present in person or represented by proxy, will constitute a quorum at all
meetings of stockholders for the transaction of business except as otherwise
provided by the Certificate of Incorporation or Delaware General Corporation Law
(called "the Act" in these By-Laws). If, however, a quorum is not present or
represented at a meeting of stockholders, a majority of the stockholders
entitled to vote who are present in person or represented by proxy will have the
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present or represented, provided
that if the adjournment is for more than thirty 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. When the meeting is reconvened, if a quorum is present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. The stockholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
Section 2.06. Voting. So long as a quorum is present, the vote of the
holders of a majority of the shares, regardless of class, having voting power
present in person or represented by proxy at a meeting shall decide any question
brought before the meeting, unless the question is one upon which, by express
provision of the Act or of the Certificate of Incorporation or of these By-Laws,
a different vote is required. Each outstanding share, regardless of class, will
be entitled to one vote on each matter submitted to a vote at a meeting of
stockholders, except to the extent that the voting rights of the shares of a
class are limited or denied by the Certificate of Incorporation.
Section 2.07. Proxies. At a meeting of the stockholders, every
stockholder having the right to vote will be entitled to vote in person, or by
proxy appointed by an instrument in writing signed by the stockholder or by his
duly authorized attorney in fact, bearing a date not more than three years prior
to the meeting unless the instrument provides for a longer period. All proxies
shall be filed with the Secretary of the Corporation prior to or at the time of
the meeting.
Section 2.08. Action Without a Meeting. Any action which may be taken at
a meeting of stockholders may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so taken,
is signed by all of the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
2
<PAGE>
action at a meeting at which all shares entitled to vote thereon were present
and voted. Such written consents are subject to all requirements and
restrictions as stated in the Act.
ARTICLE THREE
DIRECTORS
Section 3.01. General Powers. The business and affairs of the corporation
shall be managed by its Board of Directors, who may exercise all such powers of
the corporation and do all such lawful acts and things as are not by the act or
by the Certificate of Incorporation or by these By-Laws directed or required to
be exercised or done by the stockholders.
Section 3.02. Number of Directors. The Board of Directors shall consist
initially of three Directors and always of not less than one nor more than
fifteen Directors, none of whom need to be a stockholder or a resident of the
State of Delaware, the precise number to be set thereafter from time to time by
resolution of the Board of Directors then serving pursuant to notice as herein
provided. The Directors shall be elected at the annual meeting of stockholders,
except as hereinafter provided, and each Director elected shall hold office
until a qualified successor is duly elected to replace him.
Section 3.03. Vacancies. The stockholders may at a special meeting remove
a Director with or without cause by the affirmative vote of a majority in number
of shares of the stockholders present in person or by proxy at the meeting and
entitled to vote for the election of the Director, if notice of the intention to
act upon such matter has been given in the notice calling the meeting. If a
vacancy occurs in the Board of Directors caused by death, resignation,
retirement, disqualification, removal from office, or otherwise, a majority of
the Directors then in office, though less than a quorum, may choose a successor,
who shall serve the unexpired term of his predecessor in office, unless the
vacancy shall be filled by action of the stockholders. A directorship to be
filled by reason of an increase in the number of Directors may also be filled by
the Board of Directors.
Section 3.04. Place of Meeting. The Directors may hold their meetings,
both regular and special, either within or without the State of Delaware.
Section 3.05. Annual Meetings. The first meeting of each newly elected
Board of Directors shall be held without further notice immediately following
the annual meeting of stockholders, and at the same place, unless by unanimous
consent of the Directors then elected and serving the time or place is changed.
Section 3.06. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from time
to time be determined by resolution of the Board.
3
<PAGE>
Section 3.07. Special Meetings. Special meetings of the Board of
Directors may be called by the President on not less than 48 hours' notice to
each Director, delivered personally or by mail or telegram; special meetings
shall be called by the President or Secretary in like manner and on like notice
at the written request of three Directors.
Section 3.08. Quorum. At all meetings of the Board of Directors the
presence of a majority of the number of Directors fixed by Section 3.02 of these
By-Laws will constitute a quorum for the transaction of business, and the
affirmative vote of a majority of the Directors present at any meeting at which
there is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by the Act or by the Certificate of
Incorporation or by these By-Laws. If a quorum is not present at a meeting of
Directors, the Directors present may adjourn the meeting from time to time
without notice other than announcement at the meeting until a quorum is present.
Section 3.09. Executive Committee. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate an executive
committee, to consist of two or more Directors. Notwithstanding the other
provisions hereof, to the extent provided in the resolution of the Board, the
executive committee will have all of the authority of the Board of Directors in
the management of the business and affairs of the corporation, except where
action by the Board of Directors is expressly required by the Act or by the
Certificate of Incorporation, and will have power to authorize the seal of the
corporation to be affixed to all papers which may require it. The executive
committee shall keep regular minutes of its proceedings and report the same at
the next meeting of the Board of Directors. Any member of the executive
committee may be removed, with or without cause, by the affirmative vote of a
majority of the whole Board of Directors. If a vacancy occurs in the executive
committee caused by death, resignation, retirement, disqualification, removal
from office, or otherwise, the vacancy shall be filled by the affirmative vote
of a majority of the whole Board of Directors.
Section 3.10. Other Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, establish other committees, each
committee to consist of two or more Directors, which committees shall have such
power and authority and shall perform such functions as may be provided in such
resolution.
Section 3.11. Compensation of Directors. Directors, as such, will not
receive any stated salary for their services, but, by resolution of the Board, a
fixed sum and expenses of attendance, if any, may be allowed for the attendance
at Board meetings. A Director may, nevertheless, serve the corporation in
another capacity and receive compensation therefor. Members of the executive
committee may, by resolution of the Board of Directors, be allowed similar
compensation for attending executive committee meetings.
Section 3.12. Action Without a Meeting. Any action which may be taken at
a meeting of the Board of Directors or any committee of the Board may be taken
without a meeting if a consent in writing, setting forth the action so taken, is
signed by all of the Directors entitled to vote with
4
<PAGE>
respect to the subject matter of the action and the writing or writings are
filed with the minutes of proceedings of the Board or committee.
ARTICLE FOUR
NOTICES
Section 4.01. Form of Notice. Notices required to be given by the Act,
the Certificate of Incorporation, or these By-Laws, may, unless the provision
requiring notice specifies otherwise, be personal notice or in writing by mail
addressed to the Director or stockholder at his address appearing on the books
of the corporation. Any notice required or permitted to be given by mail shall
be deemed to be given at the time it is deposited postage prepaid in the United
States mails. The business transacted at a meeting need not be limited to the
purposes stated in the notice of the meeting.
Section 4.02. Waiver. Whenever notice is required to be given to a
stockholder or Director of the corporation under the provisions of the Act or of
the Certificate of Incorporation or of these By-Laws, a waiver thereof in
writing signed by the person entitled to notice, whether before or after the
time stated in the notice, will be the equivalent to the giving of notice.
ARTICLE FIVE
OFFICERS
Section 5.01. In General. The officers of the corporation shall be
elected by the Board of Directors, and shall be a Chairman of the Board, a
President, and a Secretary. The Board of Directors may also choose Vice
Presidents, Assistant Secretaries, a Treasurer and Assistant Treasurers. Any
two or more offices may be held by the same person, except that the offices of
President and Secretary may not be held by the same person.
Section 5.02. Election. The Board of Directors at its annual meeting
shall choose a President and a Chairman of the Board from its members; and shall
choose a Secretary and may choose one or more Vice Presidents and a Treasurer,
none of whom need be a member of the Board.
Section 5.03. Other Officers and Agents. The Board of Directors may
appoint such other officers and agents as it deems necessary, who shall be
appointed for such terms and shall exercise such powers and perform such duties
as the Board specifies.
Section 5.04. Salaries. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors or a compensation committee
appointed by the Board.
5
<PAGE>
Section 5.05. Resignations. Any officer may resign at any time by giving
written notice thereof to the President or to the Board. Any such resignation
will take effect as of its date unless some other date is specified therein, in
which event it shall be effective as of that date. The acceptance of such
resignation shall not be necessary to make it effective.
Section 5.06. Term of Office and Removal. Each officer of the corporation
shall hold office until the earliest of his death, resignation, removal from
office, or the election of a qualified successor. Any officer or agent elected
or appointed by the Board of Directors may be removed at any time, with or
without cause, by the affirmative vote of a majority of the whole Board of
Directors, but such removal will not prejudice the contract rights, if any, of
the person so removed. If any office becomes vacant for any reason, the vacancy
may be filled by the Board of Directors.
Section 5.07. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the Board and shall be ex officio a member of all
committees of directors and shall perform such other duties as shall be assigned
him from time to time by the Board.
Section 5.08. President. The President shall be the chief executive
officer of the corporation. In the absence of the Chairman of the Board, he
shall preside at all meetings of stockholders and of the Board of Directors. If
there be no Chairman of the Board then he will be ex officio a member of all
standing committees. He will have general and active management and supervision
of the business of the corporation and shall see that all orders and resolutions
of the Board of Directors are carried into effect. He shall execute bonds,
mortgages, and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed, and except where the signing and execution thereof is expressly
delegated by the Board of Directors to some other officer or agent of the
corporation. He shall have such other powers and perform such other duties as
the Board of Directors may from time to time prescribe.
Section 5.09. Vice Presidents. The Vice Presidents, in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President. Each Vice President will have such other powers and
perform such other duties as the Board of Directors may from time to time
prescribe, or as the President may from time to time delegate to him.
Section 5.10. Secretary. The Secretary shall attend all meetings of the
Board of Directors and of the stockholders and record votes and minutes of
proceedings in a book to be kept for that purpose, and shall perform like duties
for the executive committee when required. He shall give, or cause to be given,
notice of all meetings of stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or President, under whose supervision he will be. He shall keep in
safe custody the seal of the corporation.
Section 5.11. Assistant Secretary. Each Assistant Secretary shall, in the
absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary. Each Assistant
6
<PAGE>
Secretary shall have such other powers and perform such duties as the Board of
Directors may from time to time prescribe or as the President may from time to
time delegate to him.
Section 5.12. Treasurer. The Treasurer shall have custody of corporate
funds and securities, shall keep full and accurate account of receipts and
disbursements of the corporation, and shall deposit all moneys and other
valuable effects in the name and to the credit of the corporation in such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the corporation pursuant to instructions from the Board of
Directors, and shall render to the President and the Directors, at the regular
meetings of the Board or whenever they may require it, an account of all his
transactions as Treasurer and of the financial condition of the corporation. He
shall perform such other duties as the Board of Directors may prescribe.
Section 5.13. Assistant Treasurers. Each Assistant Treasurer shall, in
the absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer. Each Assistant Treasurer will have such other powers
and perform such duties as the Board of Directors may from time to time
prescribe.
Section 5.14. Bonding. If required by the Board of Directors, all or
certain of the officers shall give the corporation a bond in such form, in such
sum, and with such surety as is satisfactory to the Board, for the faithful
performance of their duties and for the restoration to the corporation, in case
of their death, resignation, retirement, or removal from office, of all books,
papers, vouchers, money, and other property of whatever kind in their possession
or under their control belonging to the corporation.
ARTICLE SIX
CERTIFICATES REPRESENTING SHARES
Section 6.01. Form of Certificates. Certificates in such form as may be
determined by the Board of Directors, representing all shares to which he is
entitled shall be delivered to each stockholder. Certificates shall be
consecutively numbered and shall be entered in the books of the corporation as
they are issued. Each certificate shall state on the face thereof the holder's
name, the number, class of shares, and the par value. They shall be signed by
the Chairman of the Board, the President or a Vice President and the Secretary
or an Assistant Secretary, and may be sealed with the seal of the corporation or
a facsimile thereof. If a certificate is countersigned by a transfer agent or
an assistant transfer agent or registered by a registrar, either of which is
other than the corporation or an employee of the corporation, the signature of
the corporation's officers may be facsimiles. In case an officer who has signed
or whose facsimile signature has been placed on a certificate ceases to be such
officer before the certificate has been delivered by the corporation, the
certificate may nevertheless be issued and delivered as though the person who
signed the certificate or whose facsimile signature has been used thereon had
not ceased to be such officer.
7
<PAGE>
Section 6.02. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued in place of any
certificate 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 to be lost, stolen or destroyed. When authorizing such
issue of a new certificate, the Board of Directors, in its discretion and as a
condition precedent to the issuance thereof, may require the owner of the lost,
stolen or destroyed certificate or his legal representative to advertise the
same in such manner as it shall require and/or to give the corporation a bond in
such form, in such sum, and with such surety 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 6.03. Transfer of Shares. Shares of stock shall be transferable
on the books of the corporation by the holder thereof in person or by his duly
authorized attorney. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate representing shares duly endorsed or
accompanied by proper evidence of succession, assignment, or authority to
transfer, and compliance with any restriction relating to such transfer, it will
be the duty of the corporation or the transfer agent of the corporation, to
issue a new certificate to the person entitled thereto, cancel the old
certificate, and record the transaction upon its books.
In the event any restriction on the transfer of shares or registration of
the transfer of shares shall be agreed to or imposed by the corporation, an
executed counterpart of the document pursuant to which such restriction exists
shall be filed with the officer of the corporation charged with the maintenance
of the stock books of the corporation and shall be kept on file at the
corporation's principal place of business. Following such filing, each
certificate evidencing shares to which such restriction applies shall (1)
conspicuously set forth a full or summary statement of the restriction on the
face of the certificate, or (2) set forth such statement on the back of the
certificate and conspicuously refer to the same on the face of the certificate,
or (3) conspicuously state on the face or back of the certificate that such
restriction exists pursuant to a specified document and that the corporation
will furnish to the holder of the certificate, without charge, upon written
request to the corporation at its principal place of business or registered
office, a copy of the specified document.
If one or more of the stock of any class shall, by agreement among
themselves, restrict the transfer of any shares held by them through the
granting of preferential rights of purchase or otherwise, then any party to such
agreement may file an executed counterpart of the same with the officer of the
corporation charged with the maintenance of the stock books of the corporation
or with any transfer agent or registrar designated by the corporation in respect
to the shares of such class. Following the filing of any such counterpart, each
certificate evidencing shares to which such restriction applies which shall
thereafter be issued by the corporation shall bear an appropriate notice to such
restriction as described in the preceding paragraph and no share subject to such
restriction shall be transferred until written evidence satisfactory to the
corporation of compliance by the transfer with any such restriction shall have
been filed with the corporation.
8
<PAGE>
Section 6.04. Registered Stockholders. The corporation may treat the
holder of record of shares of stock as the person exclusively entitled to vote,
to receive notifications, and otherwise to exercise all the rights and powers of
an owner.
ARTICLE SEVEN
EXECUTION OF INSTRUMENTS
Section 7.01. Contract, etc. The Board or any committee thereunto duly
authorized may authorize any officer or officers, or agent or agents, to enter
into any contract or to execute and deliver in the name and on behalf of the
corporation any contract or other instrument, and such authority may be general
or may be confined to specific instances.
Section 7.02. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes, acceptances or other evidence of indebtedness
issued by or in the name of the corporation shall be signed by such officer or
officers, agent or agents, of the corporation and in such manner as shall be
determined from time to time by resolution of the Board, but in the absence of
any such determination by the Board, such checks, drafts, or other orders for
the payment of money, notes, acceptances or other evidences of indebtedness
shall be signed by the treasurer or any assistant treasurer, and countersigned
by the president or any vice president. Unless otherwise provided by resolution
of the Board, endorsements for deposit to the credit of the corporation in any
of its duly authorized depositories may be made by handstamped legend in the
name of the corporation or by written endorsement of any officer without
countersignature.
Section 7.03. Loans. No loans shall be contracted on behalf of the
corporation unless authorized by the Board, but, when so authorized, unless a
particular agent or officer is directed to negotiate the same, such loans may be
negotiated up to the amount so authorized by the president or any vice president
or the treasurer; and such officers are hereby severally authorized to execute
and deliver in the name and on behalf of the corporation notes or other
evidences of indebtedness countersigned by the president or a vice president for
the amount of such loans and to give security for the payment of any and all
loans, advances and indebtedness, hypothecating, pledging or transferring any
part or all of the property of the corporation, real or personal, at any time
owned by the corporation, without any action or consent as may be expressly
required by statute.
Section 7.04. Sale or Transfer of Securities Held by the Corporation.
Stock certificates, bonds or other securities at any time owned by the
corporation may be held on behalf of the corporation or sold, transferred or
otherwise disposed of pursuant to authorization by the Board or of any committee
thereunto duly authorized, and when so authorized to be sold, transferred or
otherwise disposed of, may be transferred from the name of the corporation by
the signature of the president or any vice president and the treasurer or any
assistant treasurer, or the secretary or any assistant secretary.
9
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ARTICLE EIGHT
GENERAL PROVISIONS
Section 8.01. Dividends. Dividends on outstanding shares of the
corporation, subject to the provisions of the Certificate of Incorporation, may
be declared by the Board of Directors at any regular or special meeting.
Dividends may be declared and paid in cash, in property, or in shares of the
corporation. The Board of Directors may fix in advance a record date for the
purposes of determining stockholders entitled to receive payment of a dividend,
the record date to be not more than 60 days prior to the payment of the
dividend, or the Board of Directors may close the stock transfer books for the
same purpose for a period of not more than 60 days prior to the payment date of
the dividend. In the absence of action by the Board of Directors, the date upon
which the Board of Directors adopts the resolution declaring the dividend will
be the record date.
Section 8.02. Reserves. There may be created by resolution of the Board
of Directors out of the earned surplus of the corporation such reserve or
reserves as the Directors from time to time, in their discretion, think proper
to provide for contingencies, or to equalize dividends, or to repair or maintain
any property of the corporation, or for such other purpose as the Directors
shall deem beneficial to the corporation, and the Directors may modify or
abolish any reserve in the manner in which it was created.
Section 8.03. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 8.04. Seal. The corporation may have a seal, which may be used by
causing it or a facsimile of it to be impressed or affixed or reproduced or
otherwise. Any officer of the corporation will have authority to affix the seal
to any document requiring it.
Section 8.05. Indemnification. The corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any 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 interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement or 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 he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect
10
<PAGE>
to any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful. The corporation shall 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 or in the right of the corporation to procure a
judgment in its favor 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) 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 and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty 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. The determination that an officer, director, employee or
agent, has met the applicable standard of conduct set forth hereinabove (unless
indemnification is ordered by a court) shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the stockholders.
Expenses incurred in defending a civil or criminal action, suit or proceeding
may be paid by the corporation in advance of the final disposition of such
action, suit or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation as
authorized herein. The indemnification provided hereunder shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any other by-law, 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 such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
Section 8.06. Annual Statement. The Board of Directors shall present at
each annual meeting and when called for by vote of the stockholders at special
meetings of stockholders, a full and clear statement of the business and
condition of the corporation.
11
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ARTICLE NINE
AMENDMENTS
Section 9.01. Amendments. These By-Laws may be altered, amended, or
repealed at any meeting of the stockholders or Board of Directors at which a
quorum is present by the affirmative vote of the holders of a majority of the
voting stock of the corporation or a majority of the Directors present, but only
if notice of the proposed alteration, amendment, or repeal is contained in the
notice of the meeting.
12
<PAGE>
EXHIBIT 10.1
AS INDICATED ON THE AFFECTED -1-
PAGES, PORTIONS OF THIS DOCUMENT
HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION WITH A
REQUEST FOR CONFIDENTIAL
TREATMENT OF THE OMITTED TERMS
CONTRACT SERVICES AGREEMENT
This Contract Services Agreement (the "Agreement") is entered into by and
between AT&T Corp., with offices at 745 Rte. 202/206, Bridgewater, New Jersey
08807 ("AT&T") and NetSolve, Incorporated, with offices at 9130 Jollyville Road,
Suite 200, Austin, Texas 78759 ("NetSolve").
PARAGRAPH 1 - STATEMENT OF WORK
[The original terms contained in Paragraph 1 have been superseded by the terms
set forth in Amendment Nos. 4, 5 and 6 which are attached hereto.]
PARAGRAPH 2 - CONTRACT REPRESENTATIVE
[The original terms contained in Paragraph 2 have been superseded by the terms
set forth in Amendment Nos. 4, 5 and 6 which are attached hereto.]
PARAGRAPH 3 - TERM
[The original terms contained in Paragraph 3 have been superseded by the terms
set forth in Amendment Nos. 4, 5 and 6 which are attached hereto.]
PARAGRAPH 4 - PAYMENT FOR SERVICES
[The original terms contained in Paragraph 4 have been superseded by the terms
set forth in Amendment Nos. 4, 5 and 6 which are attached hereto.]
PARAGRAPH 5 - TAXES
Unless AT&T provides a valid tax exempt certificate to NetSolve, AT&T agrees to
pay any taxes due on the services provided by NetSolve under this Agreement,
except for (i) any tax based on NetSolve's net income; (ii) state or local
privilege or excise taxes imposed on NetSolve based on gross receipts or gross
income; (iii) capital stock or franchise taxes imposed on NetSolve; or (iv) any
personal or real property taxes assessed against or payable by NetSolve.
AT&T PROPRIETARY
<PAGE>
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PARAGRAPH 6 - COMPETITION
A. NetSolve and AT&T shall not be precluded from competing against each other
for the same customer opportunity. However, (1) NetSolve shall not use customer
information that it obtains as a result of performing services hereunder or the
network designs developed hereunder to compete with AT&T or others; (2) NetSolve
shall not disclose such customer information or network designs to its
employees, agents, subcontractors or suppliers who compete with AT&T or others;
and (3) NetSolve shall not contact any customer for whom it has provided
contract services under this Agreement until at least ninety (90) days after
termination of this Agreement, unless the customer opportunity has been
developed other than as a result of performing services hereunder.
B. Additionally, unless AT&T has given NetSolve prior written- consent, NetSolve
shall not disclose to customers, potential customers or others that NetSolve is
a supplier of contract services to AT&T. Such disclosure shall not be prohibited
if NetSolve is required in a judicial, administrative or governmental proceeding
to disclose any such information, but NetSolve shall provide AT&T with prompt
notice of such requirement so that AT&T may seek an appropriate protective
order. If the required disclosure is part of a federal or state securities
filing, NetSolve shall provide AT&T with prompt notice of such requirement;
provided, however, that if the required information does not include customers'
proprietary information, AT&T shall not seek an appropriate protective order
without NetSolve's consent.
PARAGRAPH 7 - INVOICING AND PAYMENT
Invoices for recurring monthly charges and maintenance shall be sent monthly in
advance by NetSolve, based on the number of Router Sites installed and
maintained as of the date the invoice was sent. Invoives for equipment purchased
from NetSolve shall be sent when the equipment is shipped by NetSolve to the
Router Site. When the implementation of the end-user customer's network is
complete and operational NetSolve will invoice AT&T for the one-time, non-
recurring charges associated with the coordination of installed equipment.
Invoices shall be sent to AT&T at the address shown above, directed to the
personal attention of AT&T's Contract Representative, or other representative as
designated by AT&T. All undisputed amounts due shall be paid within forty-five
(45) days after AT&T's receipt of the invoice. Any unpaid disputed amount shall
be documented by AT&T prior to the due date. NetSolve may charge AT&T a one
percent (1%) late charge on any undisputed amounts not paid within forty-five
(45) days after AT&T's receipt of the invoice containing such amounts.
AT&T PROPRIETARY
<PAGE>
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PARAGRAPH 8 - ALTERNATE DISPUTE RESOLUTION
If a dispute arises out of or relates to this Agreement or its breach, and if
such dispute cannot be settled through good faith and negotiation of the
parties, the parties agree to submit the dispute to a sole mediator selected by
the parties or, at any time, at the option of a party, to non-binding mediation
by the American Arbitration Association ("AAA"). If not thus resolved it shall
be referred within thirty (30) days of the mediation to binding arbitration by a
sole arbitrator pursuant to the AAA Commercial Arbitration Rules. Judgment on
the arbitration award shall be made within six (6) months of selection of the
arbitrator and may be entered in any court having jurisdiction. The arbitrator
may not limit, expand or otherwise modify the terms of this Agreement, and may
not award punitive damages or damages excluded by the INDEMNITY AND LIMITATION
OF LIABILITY paragraph of this Agreement. The parties, their representatives,
other participants and the mediator and arbitrator shall hold the existence,
content and result of mediation and arbitration in confidence. The mediation and
arbitration shall be conducted in New York, unless otherwise mutually agreed
between the parties. Each party shall bear its own expenses, but those related
to the compensation of the mediator and arbitrator shall be borne equally.
PARAGRAPH 9 - ASSIGNMENT
NetSolve shall not assign any right or interest under this Agreement or orders
issued pursuant to this Agreement nor delegate any work or other obligation to
be performed or owed under this Agreement without the prior written consent Of
AT&T. Any attempted assignment or delegation in contravention of the above
provisions shall be void and ineffective. With AT&T's prior written consent,
which shall not be unreasonably withheld, NetSolve may subcontract installation
and maintenance responsibilities under this Agreement, but shall retain
responsibility for the subcontracted work. A list of approved sub-contractors is
provided in ATTACHMENT E hereto, "Approved NetSolve Subcontractor List". Such
list may be changed from time to time upon the mutual agreement of the parties.
PARAGRAPH 10 - AUDIT
NetSolve shall maintain accurate and complete records of all work performed in
support of this Agreement. NetSolve shall permit AT&T to examine and audit these
records at all reasonable times. The AT&T Contract Representative shall give
NetSolve at least ten (10) days advance notice of an examination or
AT&T PROPRIETARY
<PAGE>
-4-
audit. NetSolve shall retain all such records for a period of not less than two
(2) calendar years after the service is performed. AT&T shall avoid undue
disruption of NetSolve's business operations during an examination or audit. Any
information contained in the records examined during an examination or audit
shall be subject to the confidentiality provisions contained in Paragraph 26 of
this Agreement.
PARAGRAPH 11 - COMPLIANCE WITH LAWS
NetSolve and its employees, agents, subcontractors and suppliers shall comply
with all applicable federal, state and local laws, ordinances, regulations and
codes, including identification and procurement of required permits,
certificates, approvals and inspections, in performance under this Agreement.
NetSolve agrees to indemnify AT&T and its customers for any loss or damage that
is sustained by reason of any failure to do so.
PARAGRAPH 12 - EXPORT CONTROL ASSURANCE
A. Each party agrees that it does not intend to, and will not knowingly,
transmit directly or indirectly any technical data (written, oral or otherwise)
received from the other party (or any immediate product produced directly by the
use of such technical data, or any commodity produced by such immediate product)
to any country or person in violation of the Export Administration Regulations
issued by the United States Department of Commerce.
B. The above assurance shall not apply to data that have been made generally
available to the public in any form, including: (l) data released orally or
visually at open conferences, lectures, trade shows or other media open to the
public; (2) publications that may be obtained without cost or are readily
available at libraries open to the public; and (3) data not directly and
significantly related to design, production or utilization in industrial
processes.
PARAGRAPH 13 - FORCE MAJEURE
Neither party shall be responsible for any delay or failure in performance of
any part of this Agreement to the extent that such delay or failure is caused by
fire, flood, explosion, war, strike, embargo, government requirement, civil or
military authority, act of God, act or omission of carriers or other similar
causes beyond its control ("force majeure conditions"). If any force majeure
condition occurs, the party delayed or unable to perform shall give immediate
notice to the other party.
AT&T PROPRIETARY
<PAGE>
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PARAGRAPH 14 - INDEPENDENT CONTRACTORS
The relationship between AT&T and NetSolve is that of independent contractors.
NetSolve is not, and shall not hold itself out as, an agent, partner,
franchisee, or joint venturer of AT&T.
PARAGRAPH 15 INSURANCE
NetSolve shall maintain and cause NetSolve's, agents, subcontractors and
suppliers to maintain during the term of this Agreement (1) Workers'
Compensation insurance as prescribed by the law of the state in which work is
performed, (2) employer's liability insurance with limits of three hundred
thousand dollars ($300,000) for each occurrence, (3) comprehensive automobile
liability insurance, if the use of motor vehicles is required, with limits of
one million dollars ($1,000,000) combined single limit for bodily injury and
property damage for each occurrence, and (4) Public/Products Liability insurance
with limits of one million dollars ($1,000,000) for each and every claim in
respect of Public Liability and in the aggregate for each year in respect of
Products Liability. All Public/Products Liability insurance shall designate AT&T
Corp., its affiliates, and their officers, directors and employees (hereinafter
referred to in this paragraph as "AT&T") as an additional insured. All such
insurance must be primary and required to respond and pay prior to any other
available coverage. NetSolve agrees that NetSolve, NetSolve's insurer(s) and
anyone claiming by, through, under or in NetSolve's behalf shall have no claim,
right of action or right of subrogation against AT&T or its customers based on
any loss or liability insured against under the foregoing insurance. NetSolve
and NetSolve's agents, subcontractors, and suppliers shall, if requested,
furnish prior to the start of work certificates or adequate proof of the
foregoing insurance, including copies oil the endorsements and insurance
policies.
PARAGRAPH 16 - LICENSES
No licenses, express or implied, under any patents are granted by either party
to the other under this Agreement.
PARAGRAPH 17 - NON-WAIVER
No course of dealing or failure of either party strictly to enforce any term,
right or condition of this Agreement shall be construed as a waiver of such
term, right or condition.
AT&T PROPRIETARY
<PAGE>
-6-
PARAGRAPH 18 - PUBLICITY
A. Unless AT&T has given NetSolve prior written consent: (1) no AT&T
identification or references to AT&T or AT&T's customers or the activities
undertaken by NetSolve under this Agreement shall be used in any of NetSolve's
advertising or promotional efforts and (2) neither NetSolve nor any of
NetSolve's employees, agents, subcontractors and suppliers shall release for
publication any article or other statement relating to AT&T, AT&T's customers,
or the activities undertaken by NetSolve under this Agreement.
B. Such disclosure shall not be prohibited if NetSolve is required in a
judicial, administrative or governmental proceeding to disclose any such
information, but NetSolve shall provide AT&T with prompt notice of such
requirement so that AT&T may seek an appropriate protective order. If the
required disclosure is part of a federal or state securities filing, NetSolve
shall provide AT&T with prompt notice of such requirement; provided, however,
that if the required information does not include customers' proprietary
information, AT&T shall not seek an appropriate protective order without
NetSolve's consent.
PARAGRAPH 19 - RELEASES VOID
Neither party shall require waivers or releases of any personal rights from
representatives or customers of the other in connection with visits to its
premises and both parties agree that no such releases or waivers shall be
pleaded by them in any action or proceeding.
PARAGRAPH 20 - REVIEW OF WORK
All work rendered under this Agreement is subject to review by the individual
designated in this Agreement as AT&T's Contract Representative or, in the
absence of AT&T's Contract Representative, by others as may be designated by
AT&T in writing.
PARAGRAPH 21 - SEVERABILITY
If any provision of this Agreement is or becomes or is deemed invalid, illegal
or unenforceable in any jurisdiction, such provision shall be deemed amended to
conform to applicable laws so as to be valid and enforceable or, if it cannot be
amended without materially altering the intention of the parties, it shall be
stricken and the remainder of this Agreement shall remain in full force and
effect, and the parties shall negotiate in good faith a substitute provision.
PARAGRAPH 22 - SUPERVISION
A. Such work as NetSolve or any of NetSolve's employees, agents, subcontractors
or suppliers, render under this Agreement shall be rendered in NetSolve's
capacity as an independent contractor and it is
AT&T PROPRIETARY
<PAGE>
-7-
the intent of AT&T and NetSolve that NetSolve and NetSolve's employees, agents,
subcontractors or suppliers shall not, by reason of this Agreement or
performance of services under this Agreement, be considered employees of AT&T or
entitled to any AT&T benefits. AT&T's Contract Representative shall exercise no
supervision over NetSolve or NetSolve's employees, agents, subcontractors or
suppliers, but shall be available for consultation and advice. NetSolve shall
promptly notify AT&T's Contract Representative of any changes in personnel
assigned to work under this Agreement. NetSolve shall consider any changes in
employees, agents, subcontractors or suppliers that may be reasonably requested
by AT&T's Contract Representative.
B. NetSolve shall indemnify and save AT&T harmless from and against any losses,
damages, claims, demands, suits and liabilities that arise out of, or result
from, any failure by NetSolve to perform its obligations under this Paragraph.
NetSolve shall also indemnify and save AT&T harmless from any entitlement,
assertion or claim, which any of NetSolve's employees, agents, subcontractors or
suppliers might have or might make relative to rights or privileges in any AT&T
employee benefit plan and which arises out of work rendered under this
Agreement, and which is caused by or results from NetSolve's failure to perform
its obligations under this Paragraph.
PARAGRAPH 23 - SURVIVAL OF OBLIGATIONS
Obligations under this Agreement which by their nature would continue beyond the
termination, cancellation or expiration of this Agreement, including, by way of
illustration only and not limitation, those in the paragraphs ALTERNATE DISPUTE
RESOLUTION, INDEMNITY AND LIMITATION OF LIABILITY, COMPLIANCE WITH LAWS, EXPORT
CONTROL ASSURANCE, COMPETITION, USE OF INFORMATION, RELEASES VOID, AUDIT and
WARRANTY, shall survive termination, cancellation or expiration of this
Agreement.
PARAGRAPH 24 - TERMINATION
A. This Agreement may be terminated: (1) at any time by AT&T upon twenty-four
hours' written notice in the event of NetSolve's bankruptcy, liquidation,
insolvency or acquisition by a competitor of AT&T [such competitors include, but
are not limited to Ameritech, Avantis, Bell Atlantic, Bell South, CompuServe,
LCI (Litel), MCI, NYNEX, Pacific Telesis Group, Southwestern Bell, Sprint, U.S.
West, and WorldCom (Wiltel/LDDS)]; or (2) upon thirty (30) days advance written
notice by either party if the other party fails to perform any material term or
condition of this Agreement and does not remedy the failure within the notice
period.
B. Beginning January 1, 1998, a ten-month ramp-down period will take place. If
AT&T terminates this Agreement pursuant to Paragraph
AT&T PROPRIETARY
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26(A)(1) or (2), there will be no ramp-down period. If NetSolve terminates this
Agreement pursuant to Paragraph 26(A)(2), there will be no ramp-down period,
however, NetSolve shall be entitled to payment based upon the amount that would
have been received had the ramp-down period begun as of the effective date of
termination. During the ramp-down period, at AT&T's discretion, existing Router
Sites will be transitioned to other network management centers. The number of
Router Sites that will be transitioned will be based on a percentage of the
number of Router Sites existing at the beginning of the ramp-down period.
The following table illustrates the minimum target percentage of Router Sites
that will be supported by NetSolve during the ramp-down period. The actual
number of Router Sites that will be supported by NetSolve during the ramp-down
will be determined by AT&T, but if the actual percentage of Router Sites
supported is less than the minimum target percentage of Router Sites to be
supported, AT&T shall pay NetSolve based upon the minimum targeted percentage.
However, AT&T shall not be responsible to pay for minimum targeted percentage
shortfalls resulting from customers' terminations of Router Sites.
===================================================================
RAMP-DOWN PERIOD MINIMUM TARGET EXAMPLE: IF NETSOLVE
PERCENTAGE OF SITES SUPPORTS 1,200 SITES
SUPPORTED BY NETSOLVE AT THE BEGINNING OF
THE RAMP-DOWN PERIOD,
THE FOLLOWING NUMBERS
REPRESENT TARGETS FOR
SITES SUPPORTED DURING
THE TRANSITION.
===================================================================
Prior Month 100% 1,200
- -------------------------------------------------------------------
Month 1 90% 1,080
- -------------------------------------------------------------------
Month 2 80% 960
- -------------------------------------------------------------------
Month 3 70% 840
- -------------------------------------------------------------------
Month 4 60% 720
- -------------------------------------------------------------------
Month 5 50% 600
- -------------------------------------------------------------------
Month 6 40% 480
- -------------------------------------------------------------------
Month 7 30% 360
- -------------------------------------------------------------------
Month 8 20% 240
- -------------------------------------------------------------------
Month 9 10% 120
- -------------------------------------------------------------------
Month 10 0% 0
===================================================================
C. Upon termination, AT&T shall pay NetSolve the amount due for services
rendered up to and including the effective date of termination and no further
work shall be rendered under this Agreement. Such payment shall constitute a
full and complete discharge of AT&T's obligations under this Agreement.
AT&T PROPRIETARY
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PARAGRAPH 25 - TIMELY PERFORMANCE
If either party has knowledge that anything prevents or threatens to prevent the
timely performance of the work under this Agreement, such party shall promptly
notify the other party's appropriate representative thereof and include all
available relevant information concerning the delay or potential delay.
PARAGRAPH 26 - USE OF INFORMATION
A. Any specifications, drawings, sketches, models, samples, tools, computer
or other apparatus programs or code analyses, plans, business strategies or
other technical or business information or data, written, oral or otherwise (all
hereinafter designated "Information") furnished to one party by the other under
this Agreement or in contemplation of this Agreement shall remain the disclosing
party's property; provided, however, that all customer-specific information,
whether developed or furnished by AT&T or by NetSolve, shall be deemed AT&T's
Information and shall be treated as such by the parties. All copies of such
Information in written, graphic or other tangible form shall be returned to the
disclosing party at the disclosing party's request. Unless such Information was
previously known to the receiving party free of any obligation to keep it
confidential, has been or is subsequently made public by the disclosing party,
or was independently developed by the receiving party, such Information shall be
kept confidential by the receiving party, shall be used only in performing under
this Agreement, and may not be used for other purposes except upon such terms as
may be agreed upon between NetSolve and AT&T in writing. By way of example and
not limitation, the receiving party shall:
i. Restrict disclosure of the Information solely to those of its
employees, agents, subcontractors or suppliers with a need to know and
not disclose it to third parties; and
ii. Advise employees, agents, subcontractors or suppliers, who receive the
Information of the obligation of confidentiality hereunder; and
iii. Use and require employees, agents, subcontractors or suppliers to use
the same degree of care to protect the Information as is used by the
receiving party with its own proprietary information; and
NetSolve hereby acknowledges the sensitivity of the work as it may affect the
employees of AT&T, and NetSolve agrees to refrain from initiating any direct or
indirect communications with any employees of AT&T or its affiliated companies
without the prior written approval of
AT&T PROPRIETARY
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AT&T, unless such communication is required for NetSolve's fulfillment of its
obligations under this Agreement. NetSolve agrees not to disclose its
participation in this project except as otherwise provided herein.
B. Such disclosure shall not be prohiited if NetSolve is required in a judicial,
administrative or governmental proceeding to disclose any information, material,
records or files of AT&T which are obtained as a result of this Agreement, but
NetSolve shall provide AT&T with prompt notice of such requirement so that AT&T
may seek an appropriate protective order. If the required disclosure is part of
a federal or state securities filing, NetSolve shall provide AT&T with prompt
notice of such requirement; provided, however, that if the required information
does not include customers' proprietary information, AT&T shall not seek an
appropriate protective order without NetSolve's consent.
C. No license to a party, under any trademark, patent, copyright or any other
intellectual property right, is either granted or implied by the conveying of
Information to such party.
PARAGRAPH 27 - WARRANTY
NetSolve warrants that (1) the work performed under this Agreement shall proceed
with promptness and diligence and shall be executed in a first class workmanlike
manner, in accordance with the highest professional standards in the field and
to AT&T's reasonable satisfaction, and (2) that material furnished hereunder
will be free from defects in design (except to the extent designed by AT&T),
material and workmanship and will conform to and perform in accordance with
specifications.
PARAGRAPH 28 - HARMONY
NetSolve shall be entirely responsible for all persons furnished by NetSolve
working in harmony with all others when working on AT&T's premises or those of
AT&T's customers. AT&T shall be entirely responsible for all persons furnished
by AT&T working in harmony with all others when working on NetSolve's premises.
PARAGRAPH 29 - IDENTIFICATION CREDENTIALS
AT&T may, at its discretion, require NetSolve's employees, agents,
subcontractors and suppliers to exhibit identification credentials, which AT&T
may issue, in order to gain access to AT&T's premises or those of AT&T's
customers for the performance of contract services. If for any reason any of
NetSolve's employees, agents, subcontractors and suppliers are no longer
performing work, NetSolve shall immediately inform AT&T's Contract
Representative in the speediest manner possible.
AT&T PROPRIETARY
<PAGE>
-11-
Notification shall be followed by the prompt delivery to AT&T's Contract
Representative of the identification credentials involved or a written statement
of the reasons why the identification credentials cannot be returned.
PARAGRAPH 30 - INDEMNITY AND LIMITATION OF LIABILITY
A. Each party shall defend, indemnify and hold the other party, its affiliates,
any company it controls directly or indirectly, and its and their officers,
directors, employees, agents, subcontractors and suppliers, harmless from any
and all claims, suits, actions, demands, costs, settlements, losses, damages,
expenses and all other liabilities, including attorneys' fees, arising out of or
resulting from (1) the indemnifying party's breach of this Agreement; (2) the
intentional or negligent acts or omissions on the part of the indemnifying
party, its affiliates, employees, agents, subcontractors or suppliers in the
performance of or failure to perform the activities contemplated by this
Agreement; (3) assertions under Workers' Compensation or similar acts made by
persons furnished by the indemnifying party, or by any agent, subcontractor or
supplier of the indemnifying party or by reason of any injuries to such persons
for which the indemnified party would be responsible under Workers' Compensation
or similar acts if the persons were employed by the indemnified party; and (4)
any infringement or claim of infringement of any patent, trademark, copyright,
trade secret or other intellectual property right of third parties based on the
manufacture, repair, sale, use, importation, reproduction, and/or distribution
of materials furnished by the indemnifying party to the indemnified party
hereunder.
B. The indemnified party agrees to notify the indemnifying party within a
reasonable time of any written claims or demands against the indemnified party
for which the indemnifying party is responsible pursuant to this Paragraph 30.
C. A party's aggregate limit of liability under this Agreement with respect to
its obligations under Paragraph 30(A) and elsewhere in this Agreement shall be
$500,000; provided, however, that this limit of liability shall not apply with
respect to claims for damages to real or tangible personal property or for
bodily injury or death or with respect to the compensation set forth in
Paragraph 4. If claims for which a party is responsible under this Agreement
exceed the party's aggregate limit of liability and the party decides not to
increase its aggregate limit of liability to cover such claims, the other party
shall have the right to terminate this Agreement on ninety (90) days notice in
writing and, in the event of such termination by AT&T, the ramp-down period
shall not be applicable.
D. Except for bodily injury or death proximately caused by a party's negligence,
a party shall not be liable for indirect, incidental,
AT&T PROPRIETARY
<PAGE>
-12-
consequential, reliance or special damages, including without limitation damages
for harm to business, lost profits, lost savings or lost revenues, whether or
not such party has been advised of the possibility of such damages.
E. These limitations of liability shall apply regardless of the form of action
whether in contract, warranty, strict liability or tort, including without
limitation negligence of any kind, whether active or passive, and shall survive
failure of an exclusive remedy.
PARAGRAPH 31 - LIMITATION OF ACTION
Any legal action arising from or in connection with this Agreement, or any
services provided or work performed hereunder, must be brought within two (2)
years after the cause of action arises.
PARAGRAPH 32 - NOTICES
The addresses set forth above are the relevant addresses for notices under this
Agreement. Notices addressed to AT&T shall be directed to the personal attention
of AT&T's Contract Representative. Notices addressed to NetSolve shall be
directed to the personal attention of NetSolve's Chief Executive Officer. All
notices, to be effective, shall be sent by first class mail or private air
courier, in each case with request for receipt of delivery.
PARAGRAPH 33 - CHOICE OF LAW
This Agreement shall be governed by the local law, excluding its choice of law
principles, of the State of New York.
PARAGRAPH 34 - ENTIRE AGREEMENT; AMENDMENTS
This Agreement shall constitute the entire agreement between the parties with
respect to the subject matter of this Agreement and shall not be amended,
modified or rescinded, except in writing signed by NetSolve and AT&T. The
provisions of this Agreement supersede all prior oral and written quotations,
communications, agreements and understandings of the parties with respect to the
subject matter of this Agreement.
AT&T PROPRIETARY
<PAGE>
-13-
IN WITNESS WHEREOF, AT&T and NetSolve have executed this Agreement through duly
authorized representatives for effectiveness as set forth above.
NETSOLVE, INCORPORATED AT&T CORP.
By /s/ Craig S. Tysdal By /s/ R. M. Aquilina
-------------------- -------------------
Name Craig S. Tysdal Name R.M. Aquilina
------------------ -----------------
Title President & CEO Title VP Business Markets
---------------- ---------------------
Product Management
---------------------
Date 12/22/95 Date Jan. 4, 1996
--------- -------------
AT&T PROPRIETARY
<PAGE>
AMENDMENT NOS. 1, 2 AND 3 HAVE TERMINATED
<PAGE>
[AT&T Logo]
- --------------------------------------------------------------------------------
10 Independence Blvd.
Warren, NJ 07059
(908) 580-5599
Amendment No.4
The Contract Services Agreement effective August 1, 1995, between NetSolve,
Incorporated ("NetSolve") and AT&T Corp. ("AT&T") as heretofore modified by
Amendments Number 1, 2, and 3 (collectively the "Agreement") is further amended
as follows effective as of July 1, 1997:
1) This Contract Services Agreement is hereby assigned contract number
"GSA00D".
2) Attachment I entitled "CO FRAD Implementation and Management Services"
is hereby added and by this reference made part of this Agreement.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
NETSOLVE, INCORPORATED AT&T CORP.
By: Dorren L. Spohn By: Judi Arney
------------------- ----------
Signature: /s/ Dorren L. Spohn Signature: /s/ Judi Arney
------------------- --------------
Title: Chief Technology Officer Title: Supplies Manager
------------------------ ----------------
Date: 7/23/97 Date: 7/28/97
------- -------
<PAGE>
Attachment I
to Agreement No. GSA00D
ATTACHMENT I
CO FRAD IMPLEMENTATION AND MANAGEMENT SERVICES
This Attachment for Contract Services ("Attachment I") to the Agreement covers
CO FRAD Implementation and Management Services ("Services") that NetSolve shall
provide to AT&T in support of AT&T's CO FRAD Service offering, as requested by
AT&T and as described herein. This Attachment is an integral part of the
Agreement and shall be governed by the terms of the Agreement. In the event of
any conflict between the terms of this Attachment and the terms of the
Agreement, the terms of this Attachment shall prevail with respect to the
Services provided under this Attachment I.
For purposes of this Attachment I the following Paragraphs in the Agreement are
deleted in their entirety and replaced with the Paragraphs below:
PARAGRAPH I - STATEMENT OF WORK
NetSolve shall provide Services to AT&T in support of AT&T's CO FRAD Service
offering in accordance with the "Statement of Work," Attachments I-1, I-2 and I-
3 hereto. Services shall be available to AT&T in the United States and Canada.
Modifications to this Statement of Work and its requirements as set forth in
Attachments I-1, I-2 and I-3 may be requested from time to time by AT&T without
the need for a formal amendment to Attachment I-1, I-2 or I-3. The pricing
contained herein shall apply to Services requested or any modification, provided
that the modifications requested do not require the furnishing of more material
or labor by NetSolve or longer times for performance of services. NetSolve
shall immediately notify AT&T's Contract Representative, in writing, of any
requested modification which NetSolve feels will require an increase to the
prices contained in Paragraph 4 - Payment for Services, and shall furnish the
amount of such proposed increase in such writing. Following delivery of such
notice, NetSolve shall not proceed with Services for any such modification until
AT&T and NetSolve Contract Representatives agree, in writing, to the appropriate
charges.
"Orders" for Services pursuant to this Attachment I shall be sent to Netsolve
via an Application Profile Document (APD) form (shown in Attachment I-4).
Monthly recurring charges shall commence on the start date of Services as
requested by AT&T (such date is herein defined as the "CRD") and continue for
the number of months specified by AT&T on the APD (the "Service Term"). Upon
expiration of the Service Term, Services will continue to be provided by
NetSolve to AT&T on a month to month basis until terminated by either party as
set forth in Paragraph 24 of this Attachment I.
Upon expiration or termination of this Attachment I, all Services will continue
to be provided through the end of the Service Term and will be non-cancelable by
either party except as set forth in Paragraph 24 of this Attachment I.
PARAGRAPH 2 - CONTRACT REPRESENTATIVE:
AT&T's Contract Representative for this Attachment I is Owen Brennan. AT&T will
notify NetSolve in writing if a new Contract Representative is designated by
AT&T.
PARAGRAPH 3 - TERM
The effective date of this Attachment I is July 1, 1997 and it shall end on June
30, 2000.
<PAGE>
Attachment I
to Agreement No. GSA00D
PARAGRAPH 4 - PAYMENT FOR SERVICES
For services performed by NetSolve under this Attachment I, AT&T will pay
NetSolve the following:
1) For the Services described in Attachment I-1 the charges shall be as follows:
Implementation Services
$275 per port
$120 per DS0-A port / Channel moved or changed
Monthly Fees for CO FRAD Management Services
1 - 5000 ports $35 per port
5,001 ports and up $30 per port
The following monthly minimum billings apply with respect to the CO FRAD
Management Services Fees during the Term of this Attachment I and shall be
paid by AT&T for any month that the actual aggregated CO FRAD Management
Services Fees shown above total less than the minimum billing levels shown
below:
Minimum
Month Beginning Billing
--------------- ---------
August 1, 1997 $ 7,000
September 1, 1997 $ 7,000
October 1, 1997 $ 7,000
November 1, 1997 $14,000
December 1, 1997 $14,000
January 1, 1997 $14,000
February 1, 1998 $24,500
March 1, 1998 $24,500
April 1, 1998 $24,500
May 1, 1998 through end of
Term of this Attachment I $35,000
Rescheduling Fees (Per Occurrence)
$10 per port per billable reschedule
Billable reschedule shall mean any changes requested by AT&T less than two
weeks prior to the CRD, or any rescheduling of the CRD in excess of two
times per site.
Professional Services
$150 per hour
<PAGE>
Attachment I
to Agreement No. GSA00D
2) For the Services described in Attachment I-2 the charges shall be as follows:
One-Time Fees for CO FRAD CPE Procurement and Implementation Services
$500 per FRAD device
Monthly Fees for CO FRAD CPE Management Services
$150 per TurboFRAD device
$300 per OmniFRAD device
COFRAD equipment cost, installation, hardware and software maintenance and on-
site maintenance fees for the CO FRAD CPE are not included, and shall be agreed
upon by the parties. AT&T and NetSolve will negotiate pricing in good faith if
both parties agree to provide this service.
3) For the Services described in Attachment I-3 the charges shall be as follows:
Configuration Backup and Restoral
For the services described in Attachment I-3 for COFRAD NetFRAD
Configuration Backup and Restoral, which is in addition to the COFRAD
management services described above, the charges shall be as follows:
$1,000 per COFRAD per month with the following service assumption:
Five (5) minute backup duration per mode over a T1 line.
. Pricing will adjust proportionately to increased backup times, up
to a 20 minute maximum. The pricing structure will be renegotiated
when this threshold is crossed.
. Pricing will adjust proportionately to decreased backup times,
down to a 2.5 minute minimum. Pricing will not be adjusted below
the 2.5 minute minimum.
For example, if actual backup time is decreased to 3.0 minutes, the
charge per month would decrease to $600. If the actual backup time is
increased to 10 minutes, the charge per month would be $2000.
PARAGRAPH 7 - INVOICING AND PAYMENT
NetSolve's invoices shall be rendered 1) upon completion of the Services, 2)
monthly, sent in advance, for recurring monthly charges, or 3) at other times
expressly provided for in this Attachment I, and shall be payable when the
Services have been performed to the satisfaction of AT&T. NetSolve shall mail
invoices with copies of any supporting documentation required by AT&T to: Owen
Brennan, AT&T Route 202/206N, Bedminster NJ 07921-0752 Room 3A110E. Undisputed
invoices shall be paid within forty-five (45) days after AT&T's receipt of the
invoice.
PARAGRAPH 24 - TERMINATION
1) Termination of the Agreement - The termination of the Agreement shall not
affect the rights and obligations of either party under this Attachment I,
and this Attachment I shall continue in effect as though the Agreement had
not been terminated.
<PAGE>
Attachment I
to Agreement No. GSA00D
2) Termination of this Attachment I -
a) In the event NetSolve shall be in breach or default of any of the terms,
conditions or covenants of this Agreement, this Attachment 1, or any or
all Orders placed hereunder and such breach or default shall continue for
a period of thirty (30) days after the giving of written notice to
NetSolve thereof by AT&T, then in addition to all other rights and
remedies of law or equity or otherwise, (subject to limitations under
Paragraph 30 of the Agreement), AT&T shall have the right to terminate
this Attachment I and/or any such Orders placed by AT&T hereunder without
any charge, obligation or liability whatsoever, except as to the payment
for Services already received and accepted by AT&T.
b) This Attachment I and any or all Orders placed hereunder may be
terminated by AT&T, by notice in writing:
i) if NetSolve makes an assignment for the benefit of creditors (other
than solely an assignment of moneys due); or
ii) if NetSolve evidences an inability to pay debts as they become due,
unless adequate assurance of such ability to pay is provided within
thirty (30) days of such notice.
If a proceeding is commenced under an provision of the United States
Bankruptcy Code, voluntary or involuntary, by or against NetSolve, the
Agreement, this Attachment I, and any or all Orders my be immediately
terminated by AT&T.
c) This Attachment I and any or all Orders may be terminated at any time by
AT&T upon twenty-four hours' written notice in the event of NetSolve's
acquisition by or merger with a competitor of AT&T.
d) Effective July 1, 1998, AT&T may also terminate this Attachment I and
all Orders at its convenience at any time pursuant to the following:
Upon thirty (30) days written notification by AT&T, a 12 month ramp-down
period will take place. During this ramp down period, at AT&T's
discretion, any or all existing ports supported by NetSolve may be
transitioned. The number of ports that will be transitioned will be based
on a percentage of the number of ports existing at the beginning of the
ramp-down period.
The following targets represent the minimum percentage of ports that must
be supported by NetSolve during the ramp-down period, beginning the first
month of the period:
Ramp Down
Period Minimum Target Percentages to be Supported by NetSolve by
------ ---------------------------------------------------------
the end of the applicable three month period
--------------------------------------------
Months 1-3 85% of the number of ports existing at the beginning of
the ramp-down period
Months 4-6 60% of the number of ports existing at the beginning of
the ramp-down period
Months 7-9 30% of the number of ports existing at the beginning of
the ramp-down period
Months 10-12 0% of the number of ports existing at the beginning of the
ramp-down period
For example: If NetSolve is supporting 1000 ports at the beginning of the
ramp-down period, NetSolve must support 850 ports by the end of the third
month, 600 by the end of the sixth month, etc.
The actual number of ports that will be supported by AT&T during the
ramp-down period will be determined by AT&T, at its discretion, but if
the actual percentage of ports supported by NetSolve is less than the
minimum target percentages stated above, AT&T shall pay NetSolve based
upon the minimum targeted percentage at the rates established herein.
Such payment shall constitute a full and complete discharge of Company's
obligation.
For example: If AT&T decides that NetSolve will only support 600 ports in
month three, AT&T shall pay NetSolve for 850 ports in month three.
<PAGE>
Attachment I
to Agreement No. GSA00D
3) Termination of Individual Orders placed pursuant to this Attachment I -
a) AT&T may terminate such Order, without charge, upon 30 days written
notice if 1) AT&T's customer is dissatisfied with the Services performed
by NetSolve; or 2) AT&T's customer has a change in their normal course of
business that impacts services, such as relocation, office closings, or
moves; or if AT&T discontinues providing COFRAD services.
b) AT&T may terminate upon thirty (30) days written notice by AT&T, at no
charge, all Orders that upon expiration of the Service Term become "month
to month" Orders.
<PAGE>
Attachment I-1
to Agreement No. GSA00D
ATTACHMENT I-1
CO FRAD IMPLEMENTATION AND MANAGEMENT SERVICES
DESCRIPTION OF SERVICE
AT&T CO FRAD Service is a value-added wide-area networking service. It supports
only SDLC and Bisync protocols utilizing frame-relay as the backbone transport
mechanism. FRAD's located in AT&T POP's provide protocol specific encapsulation
and reliable end-to-end frame delivery without the express need for CPE
equipment other than the normally required CSU/DSU. Currently, the service is
available with the following options:
1. Remote SDLC device (Point-point or Multi-point) to SDLC Host.
2. Remote SDLC device (Point-point or Multi-point) to Token-Ring attached
Host. (Requires additional CPE).
3. Remote SDLC device (Point-point or Multi-point) to frame-relay attached
(RFC 1490) Host.
4. Remote Bisync device (Point-point or Multi-point) to Bisync Host. (Requires
additional CPE).
5. Remote Bisync device (Point-point or Multi-point) to frame-relay attached
Host. (Requires additional CPE).
The purpose of the CO FRAD Implementation and Management Services effort is to
define and implement services to meet AT&T customer expectations for end to end
CO FRAD service implementation and management.
CO FRAD IMPLEMENTATION AND MANAGEMENT SERVICES PROVIDED BY NETSOLVE
All of the service descriptions found in this Attachment I shall pertain only to
the (i) "CO FRAD" FRAD located at an AT&T Central Office and (ii) related FRAD
located on the customer premises (hereafter referred to as "CPE"). These
descriptions shall not apply to any LAN, workstation, Front End Processor (FEP),
mainframe computer, minicomputer, DACS, frame-relay switch or any other
equipment located at either the customer's location or at an AT&T location.
The following services are offered to AT&T:
. CO FRAD Implementation Services
. Documentation Review
. CO FRAD Configuration
. 2 hour Implementation Support
. Full test and turn up of each remote device to customer
satisfaction (as defined in the Implementation Support section of
this Attachment I-1)
. NMC Documentation
. CO FRAD Management Services
. 2/nd/ Level 7 X 24 Customer Fault Management
. CO FRAD 7 X 24 Event Monitoring
. CO FRAD NetFRAD Configuration Backup and Restoral
<PAGE>
Attachment I-1
to Agreement No. GSA00D
COFRAD IMPLEMENTATION SERVICES
Documentation Review
NetSolve shall review APD and supporting documentation.
This service includes:
. Review APD and supporting configuration documentation for completeness
and consistency,
. Verify that supplied information allows for a complete CO FRAD port
configuration.
. Verify with a high-level design review that supplied information and
configuration information fit into basic CO FRAD service.
. Respond to appropriate AT&T organizations with approval or rejection
of design and reasons for this.
. Work with AT&T to develop an appropriate, workable process for
reviewing and returning information.
AT&T shall:
. Enter all customers and information into an on-line APD document
. Assume responsibility for obtaining and verifying all information from
the customer.
CO FRAD Configuration
NetSolve shall create and enter a configuration into the CO FRAD based upon
information supplied by AT&T in the APD. NetSolve will download the
configuration no later than 1 business day before the scheduled install date or
else in coordination with an approved AT&T-defined change period or
implementation process.
This service includes:
. Downloading of necessary configuration information into COFRAD in
order to completely configure ports for customer connection.
. Configuration of both the COFRAD frame-relay interface and the COFRAD
port attached to the customer's local loop.
. Update COFRAD on-line documentation describing any changes that have
been made.
AT&T shall:
. Provide NetSolve with all needed provisioning information - APD will
be submitted to NetSolve coincident with submission of access in frame
relay component orders.
. Provide a process that indicates that a new physical port needs to be
configured.
Implementation Support
NetSolve shall provide the following end-to-end Implementation Support for the
implementation of the CO FRAD service for a customer. During the implementation
phase of the CO FRAD for a customer, NetSolve will:
. Be on-line by telephone with the customer and the appropriate AT&T
organizations for a 2-hour customer implementation period.
. Work with customer to verify end-to-end connectivity.
. Work with AT&T to resolve CO FRAD configuration.
AT&T shall:
. Insure that the customer has appropriate technical resources familiar
with customer's on-site CPE available to assist during the
implementation.
. Assume responsibility for additional services beyond the allotted time
at the Professional Services fee listed in Paragraph 4 - Payment for
Services.
NMC Documentation
NetSolve shall create a documentation database to provide a record of a
customer's inclusion into the CO FRAD service and to provide a central database
of information in the event of a problem.
<PAGE>
Attachment I-1
to Agreement No. GSA00D
This service includes:
. On-line documentation to enable NetSolve to support the COFRAD.
. CO FRAD configuration information
. Customer contact lists
. Remote/Host PU device lists
. Update NetSolve on-line documentation.
. E-Mail APD to AT&T maintenance when implementation is complete
AT&T shall:
. Provide all customer-specific information.
. Enter information directly into AT&T's own database where applicable.
. Be responsible for following any internal AT&T processes.
. Provide electronic or on-line database documentation to NetSolve for
all information.
COFRAD MANAGEMENT SERVICES
CO FRAD 7 X 24 X 365 Event Monitoring
Netsolve shall provide 7 X 24 X 365 event monitoring of the CO FRAD devices.
This service includes:
. 7 X 24 x 365 monitoring of the CO FRAD devices.
. Real-time response to CO FRAD device events.
. Proactive AT&T notification of CO FRAD based problems.
. Coordination of trouble resolution with AT&T NOC.
. Call Frame-relay NOC first if problem is customer affecting.
. Perform all back-ups for CO FRAD configurations and software.
AT&T shall:
. Provide Netsolve with on-line, real-time visibility to the CO FRAD
network.
. Allow NetSolve to make changes to COFRAD NetFrads where necessary or
as defined in
. AT&T provided guidelines.
. Provide a single POC for the resolution of troubles.
. Provide documented trouble handling procedures and information flows.
. Provide NetSolve with appropriate CO FRAD network documentation.
. Provide configuration support for the NetLink OmniView system on-site
at NetSolve used to provide network visibility.
. Provide updates so that NetSolve's NetLink OrnniView system remains at
the same information and software update levels as AT&T's system.
. Update all software and hardware on all CO FRAD NetFRAD's.
<PAGE>
Attachment I-1
to Agreement No. GSA00D
2nd Level 7 X 24 X 365 Customer Fault Management
NetSolve shall provide 2nd Level 7X24X365 fault management to AT&T in support of
CO FRAD customers. This would include the acceptance of trouble calls from AT&T,
isolation of 2nd level problems and working with AT&T to resolve them.
This service includes:
. 2nd Level 7 X 24 X 365 Fault Management for the COFRAD.
. Accepting trouble calls from AT&T Frame-relay NOC after 1st Level
Support has isolated the problem to the COFRAD
. Isolating troubles and escalating to Tier 3.
. Coordination with AT&T personnel
. Developing procedures with AT&T for accepting, resolving and closing
troubles.
AT&T shall:
. Provide Netsolve with on-line, real-time visibility to the CO FRAD
network.
. Provide a process to NetSolve for making CO FRAD changes to resolve
troubles.
. Provide a single POC for the resolution of troubles.
. Provide documented trouble handling procedures and information flows
with Accunet NOC and Frame-relay NOC.
. Provide 2nd level training sessions as required by NetSolve and AT&T.
<PAGE>
Attachment I-2
to Agreement No. GSA00D
ATTACHMENT I-2
CO FRAD CPE PROCUREMENT, IMPLEMENTATION AND MANAGEMENT SERVICES
1.0 DESCRIPTION OF SERVICE
If requested by AT&T via the APD, NetSolve will perform the following Services
in support of AT&T COFRAD NetFRAD CPE:
AT&T will provide standard equipment configurations to sales teams and DNCs.
DNC will then submit their requirements for CPE based on these configurations
via the APD to NetSolve.
NetSolve will:
. Validate equipment configuration and final pricing
. Provide final pricing and equipment configuration to AT&T DNC
* NetSolve will prepare a formal equipment order and e-mail to DNC
* Order will include parts list and price of CPE
* Order will include software maintenance and on-site maintenance fees
. Order CPE on AT&T's behalf under appropriate AT&T contract.
. Order software and on-site maintenance on AT&T's behalf under appropriate
AT&T contract.
. Receive, stage, and configure CPE
* Receive equipment on AT&T's behalf
* Verify that order is complete
* Load a software configuration into the CPE device and repackage equipment
for shipment to customer.
. Ship CPE to end user
. Notify AT&T to Order and provision the Frame-Relay PVC for management to
end user CPE.
* Provide any necessary information for ordering to AT&T.
. Coordinate installation using AT&T's vendor of choice.
* Dispatch on-site maintenance provider on AT&T's behalf
* Direct on-site maintenance activity
* Verify that CPE is installed and working properly
* Verify connectivity to COFRAD and end-to-end communications between
CPE and COFRAD
. Provide ongoing management of end user CPE
* 7x24x365 proactive fault management of the CPE to the COFRAD
* Perform software updates on the FRAD as needed and verifyng the CPE is
fully operational
<PAGE>
Attachment I-3
to Agreement No. GSA00D
ATTACHMENT I-3
CO FRAD NETFRAD CONFIGURATION BACKUP AND RESTORAL
NetSolve shall perform periodic CO FRAD network backups in order to maintain
back-up copies of the NetFRAD configurations in the event of a configuration
loss. This would include the downloading of the appropriate backup into a
NetFRAD in the event a configuration needs to be restored. This service
assumes and is made available under the condition that an AT&T/NetLink supplied
backup routine does provide a sufficient, accurate and complete backup of a
configuration. NetSolve shall re-negotiate the pricing for this service if AT&T
can reduce the time required for backups or provide a completely automated
backup system.
This service includes:
. Daily backups of each NetFRAD when needed.
. Backups performed with AT&T supplied backup routines and tools.
. A Primary backup of each CO FRAD NetFRAD will be made to the NetSolve
NetFRAD hard drive.
. A Secondary backup of each CO FRAD NetFRAD will also be made to AT&T's
Tier 3 FRAD
. Download of backup configuration into CO FRAD in the event of a
failure.
. Re-provisioning of one business day of adds/moves/changes in the event
a backup does not completely restore a configuration
AT&T shall:
. Provide a reliable, functional and accurate backup system to NetSolve
in Austin.
. Work to improve the backup procedure such that it can be fully
automated.
. Be responsible for the cost of re-provisioning CO FRAD NetFRAD's in
the event of a backup failure.
. Allow NetSolve to perform periodic test of backups.
. Test backups with new CO FRAD operating software downloads.
<PAGE>
- --------------------------------------------------------------------------------
Attachment I-4
to Agreement No. GSA00D
Application Profile Document (ADP) CO-FRAD - SDLC-to-FRAME Order Form
- --------------------------------------------------------------------------------
This Application Profile Document (APD) covers [xx] ports of CO FRAD Service and
[xx] CPE FRAD devices at the locations specified within this APD. This APD is
subject to all of the terms and conditions of Attachment I to the Agreement
between AT&T and Netsolve. The Service Term for the purposes of this ADP will be
[xx] months beginning [date] (the CRD).
By:
-------------------------------------
Authorized AT&T Representative
Name:
-----------------------------------
Title:
----------------------------------
Date:
-----------------------------------
1. Account Information
- --------------------------------------------------------------------------------
Company Name: [ ] AT&T Sales Contact: [ ]
Customer TCON: [ ] Attmail ID: [ ]
TCOM Phone: [ ] Telephone: [ ]
Sales Order Number: [ ] Port number [ ] of [ ]
- --------------------------------------------------------------------------------
2. ICORE FRAD Port Assignments
- --------------------------------------------------------------------------------
FRAD Name: [ ] Access Port: RLP [ ] Port [ ] Channel [ ]
Network Port: RLP [ ] Port [ ] DLCI [ ]
- --------------------------------------------------------------------------------
3. CO-FRAD SDLC Port/Device Information
- --------------------------------------------------------------------------------
Port Parameters Drop SDLC Device Parameters
- --------------------------------------------------------------------------------
Port Speed: [_] 2.4 [_] 4.8 [_] 9.6 [_] 56 1 Street Address: [ ]
Port Type: [_] Terminal [_] Host City/State: [ ]
PU id: [ ]
Window Size (1-7): [ ] Max Bytes Out: [ ]
Number of Drops: [ ]
----------------------------------
2 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
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3 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
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4 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
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5 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
----------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Attachment I-4
to Agreement No. GSA00D
Application Profile Document (ADP) CO-FRAD - SDLC-to-FRAME Order Form
- --------------------------------------------------------------------------------
----------------------------------
6 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
----------------------------------
7 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
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8 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
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9 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
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10 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
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11 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
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12 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
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13 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
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14 Street Address: [ ]
City/State: [ ]
PU id: [ ]
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<PAGE>
Agreement # GSA005D
Page 1 of 31
AT&T MNS AND NETSOLVE CONTRACT SERVICES AGREEMENT
Amendment No. 5
The Contract Services Agreement effective August 1, 1995, between NetSolve,
Incorporated ("NetSolve") and AT&T Corp. ("AT&T') ("Original Contract") as
heretofore modified by Amendments Number 1, 2, 3, and 4 (collectively the
"Agreement") is further amended as follows effective as of December 1, 1997:
Previous attachments A through E are hereby deleted and replaced with Attachment
A, B, D, H, H-I and Appendices A and B.
Paragraphs 1-4 and 24 are to be deleted in the Original Contract and replaced
with the following for purposes of this Amendment No. 5 and Attachment A, B, D
and H, H-I and Appendices A and B but otherwise remain in effect, where
applicable, with respect to the other Amendments and Attachments to the
Agreement:
PARAGRAPH 1 - STATEMENT OF WORK
NetSolve shall provide Services to AT&T in support of AT&T's Managed Network
Solutions (MNS) Service offering in accordance with the "Statement Of Work,"
(which is comprised of Attachments A, B, D, H and H-1, Appendices A and B).
Services shall be available to AT&T in the United States and Canada and, subject
to mutual agreement on pricing and DMOQs, in other countries. Modifications to
the Statement of Work may be requested from time to time by AT&T and any
modifications to Attachments A, B, D, H, H-1 or Appendices A and B shall be
approved and incorporated into this Amendment No. 5 upon the written agreement
of both parties. The pricing contained herein shall apply to Services requested
or any modification, provided that the modifications requested do not require
the furnishing of more material or labor by NetSolve or longer times for
performance of services. NetSolve shall immediately notify AT&T's Contract
Representative, in writing, of any requested modification which NetSolve feels
will require an increase to the prices contained in Paragraph 4-Payment for
Services, and shall furnish the amount of such proposed increase in such
writing. Following delivery of such notice, NetSolve shall continue to provide
Services without modification but shall not institute any such modification
until the AT&T Contract Representative and NetSolve agree, in writing, to the
appropriate charges.
PARAGRAPH 2 - CONTRACT REPRESENTATIVE
AT&T's MNS Contract Representative is the Director of Business Alliance. AT&T
will notify NetSolve in writing if a new Contract Representative is designated
by AT&T.
PARAGRAPH 3 - TERM
The effective date of this Amendment No. 5 is December 1, 1997 ("Effective
Date"). The terms and conditions of this Amendment No. 5 shall apply
retroactively to the Effective Date. The term of this Amendment No. 5 is from
the Effective Date through and including the later of (i) the day ending six (6)
months after either party notifies the other in writing that it intends to
terminate this Amendment No. 5 or (ii) December 31, 1999 (the "Expiration
Date"), subject to earlier termination in accordance with this Amendment No. 5.
Following the termination of this Amendment No. 5 the twelve (12) month ramp-
down period referenced in detail in Paragraph 24 e) of this Amendment No. 5 will
commence. Any extensions of this Amendment No. 5 beyond the Expiration Date, or
continued work beyond the end of the Ramp down period, shall be pursuant to a
written Agreement addendum signed by both parties.
12/17/97
<PAGE>
-2- Agreement # GSA005D
Page 2 of 31
At any time on or after July 1, 1999, NetSolve will have the right to refuse
NINS Managed Router Services (MRS) customer network business with respect to new
customers if AT&T notifies NetSolve that it intends to terminate this Amendment
No. 5.
PARAGRAPH 4 - PAYMENT FOR SERVICES
A. For services performed by NetSolve under this Amendment No. 5, AT&T will
pay NetSolve a monthly recurring charge for each Router Site having a total of
three or more WAN and / or LAN connections ("Hub Site") and a monthly recurring
charge for each Router Site having a total of less than three WAN and / or LAN
connections ("Non-Hub Site"). However, if a customer's network does not have at
least one Hub Site, NetSolve will be paid the monthly Hub Site recurring charge
for one of the customer's Router Sites and the monthly Non-Hub Site recurring
charge for each of the customer's other Router Sites. The monthly recurring
charges are set forth in Table I below and applicable Discounts are set forth in
Table 2 below, both of which will be applied retroactively to all business (both
existing business as of the Effective Date and new business added after the
Effective Date) as of the Effective Date. In addition, AT&T will pay certain one
time, non-recurring charges and Time and Material (T&M) charges as set forth in
Table I below.
B. Prices for the services in Items 1, 2, 3, 4, 5, 9, 10, and 11 of Table I
below are fixed for the term of this Amendment No. 5. Prices for Items 6, 7, 8,
and 12 may be changed by NetSolve at any time upon sixty (60) days written
notice but only if NetSolve's suppliers raise the underlying prices to NetSolve,
and the dollar amount of such increase will not exceed the net dollar increase
to NetSolve. In the event of a price change for Non-Recurring charges, orders
received prior to receipt by AT&T of the notice of the price change will be
provided at the lower of the new price or the previous price. Pricing for
equipment maintenance or other similar recurring charges which are provided by
third parties shall be applied to orders previously received based on the timing
of the price increase or decrease to NetSolve from the third party, which will
generally be on the anniversary of the start of service each year. If a price
increase exceeds 5% Netsolve shall use reasonable efforts to find substitute
suppliers. Further, AT&T may elect to utilize its own suppliers in lieu of
NetSolve's suppliers at the time an order is placed for non-recurring charges,
or thirty (30) days prior to the annual renewal of equipment maintenance
services.
TABLE 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
NETSOLVE SERVICE PERFORMED BILLING AT LIST PRICE DISC VOL?
(a) (b)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. CMID Sales Process activities for $ * per Proposal N Y
MRS defined in Attachment H and
H-1 [handwriting]
- -----------------------------------------------------------------------------------------------------------------
2. CMID Sales Process activities for $ * per Proposal for Proposals delivered after December 31, N Y
MRS and Express defined in 1997
Attachments H and H-1 for all other
quoting activity performed by
NetSolve
- -----------------------------------------------------------------------------------------------------------------
3. Router Managed Hub Sites $ * monthly per Hub Site Y Y
services as defined in Attachment A
- -----------------------------------------------------------------------------------------------------------------
4. Router Managed Non-Hub Sites $ * monthly per Non-Hub Site Y Y
services as defined in Attachment A
- -----------------------------------------------------------------------------------------------------------------
5. Implementation Coordination as $ * per Hub or Non-Hub Site Installed or Moved N N
defined in Attachment A
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
AN ASTERISK (*) APPEARS ON THIS PAGE AT EACH PLACE WHERE INFORMATION HAS BEEN
OMITTED. THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION WITH A REQUEST FOR CONFIDENTIAL TREATMENT OF THE OMITTED
INFORMATION.
- --------------------------------------------------------------------------------
12/17/97
<PAGE>
-3- Agreement # GSA005D
Page 3 of 31
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
NETSOLVE SERVICE PERFORMED BILLING AT LIST PRICE DISC VOL?
(a) (b)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6. Installation Charge Non-recurring fee per managed Router Site at
Manufacturer's list price at time of order from AT&T when
- -----------------------------------------------------------------------------------------------------------------
NetSolve's vendor is used. This charge will not apply
when NetSolve coordinates an installation on AT&T's
behalf utilizing AT&T's other vendor(s).
- -----------------------------------------------------------------------------------------------------------------
7. Equipment purchased by AT&T 80% of manufacturer's list price at time of order from N N
from NetSolve AT&T when NetSolve's vendor is used.
- -----------------------------------------------------------------------------------------------------------------
8. Customer Premise Equipment The current manufacturer's List Price at time of receipt of N N
Maintenance order from AT&T (subject to annual adjustment after
implementation) when NetSolve's vendor is used. This
charge will not apply when NetSolve orders maintenance
on AT&T's behalf from AT&T's other vendor(s).(c)
- -----------------------------------------------------------------------------------------------------------------
9. Implementation Reschedule Fee $50.00 per Router Site Postponed by AT&T or Customer N N
beginning with the second such postponement for the
Router Site.
- -----------------------------------------------------------------------------------------------------------------
10. Time and Material Activities $165.00 per Hour (minimum 2 hour charge) N N
applied for:
. After Hours Installation (Work All services are subject to a minimum of a two (2) hour
scheduled after 5:00 p.m.) T&M charge for remote support or a four (4) hour T&M
charge for on-site support.
. Multiple visits to customer site
due to customer non-readiness
. Site visit insisted by customer
though problem resolution is
determined and conveyed to be
linked to non-managed customer
equipment or due to fault of a
party other than NetSolve or its
subcontractors.
- -----------------------------------------------------------------------------------------------------------------
11. WorldNet MIS Pricing as PIM/CPE STAGING N Y
defined in Attachment B.
PIM/Integration...$ * per router site (non-recurring)
Telephone Installation...$ * per router site (non-recurring)
Onsite installation...$ * per router site (non-recurring)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
AN ASTERISK (*) APPEARS ON THIS PAGE AT EACH PLACE WHERE INFORMATION HAS BEEN
OMITTED. THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION WITH A REQUEST FOR CONFIDENTIAL TREATMENT OF THE OMITTED
INFORMATION.
- --------------------------------------------------------------------------------
12/17/97
<PAGE>
-4- Agreement # GSA005D
Page 4 of 31
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
NETSOLVE SERVICE PERFORMED BILLING AT LIST PRICE DISC VOL?
(a) (b)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CPE MANAGEMENT FEE Y Y
Scenario A - NetSolve is managing 700 WNMIS routers by 6/1/98
CPE Management Fee......$ * per router site per month
Scenario B - NetSolve is managing fewer than 700 WNMIS
routers by 6/1/98
CPE Management Fee......$ * per router site per month
- -----------------------------------------------------------------------------------------------------------------
SITE TRANSITION FEE N N
Scenario A - NetSolve is managing 700 WNMIS oruters by 6/1/98
Site Transition Fee......$50 per router site (non-recurring)
Scenario B - NetSolve is managing fewer than 700 WNMIS
routers by 6/1/98
Site Transition Fee......$100 per router site (non-recurring)
- -----------------------------------------------------------------------------------------------------------------
REPORTS N Y
Performance reports......$ * per router site per month
- -----------------------------------------------------------------------------------------------------------------
DMOQ REPORTING N N
Incremental DMOQ reports development......$10,000 non-
recurring
- -----------------------------------------------------------------------------------------------------------------
12. CUSTOMER TRANSITION FEE in Per Site MRS Hub...................................$ * N N
connection with contract expiration
or termination Per Site Non MRS...................................$ *
WorldNet MIS per router site.......................$ *
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) A 'Y' in this column indicates the pricing in this table is eligible
for the discounts described in Table 2 below.
(b) A 'Y' in this column indicates the billings for these services are
eligible for use in determining the volume levels set forth in Table 2
below for discounting purposes. Items *, *, *, *, * and * will become
eligible for use in determining the volume discount level when AT&T's
monthly billing exceeds $350,000.00.
(c) Maintenance services purchased utilizing NetSolve's vendor may only be
canceled by AT&T upon sixty (60) days written notice prior to each
anniversary of the service start date and are excluded from the Ramp
Down period calculations set forth in Paragraph 24 e).
- --------------------------------------------------------------------------------
AN ASTERISK (*) APPEARS ON THIS PAGE AT EACH PLACE WHERE INFORMATION HAS BEEN
OMITTED. THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION WITH A REQUEST FOR CONFIDENTIAL TREATMENT OF THE OMITTED
INFORMATION.
- --------------------------------------------------------------------------------
12/17/97
<PAGE>
-5- Agreement # GSA005D
Page 5 of 31
The following discounts shall apply with respect to the MRS Hub Sites and Non-
Hub Sites of AT&T MNS customers:
<TABLE>
<CAPTION>
TABLE 2
- ------------------------
TOTAL
MONTHLY %DISCOUNT
BILLING OFF LIST
AMOUNT AT PRICE
LIST
- -----------------------
<C> <S>
$100,000 *%
- -----------------------
$200,000 *%
- -----------------------
$350,000 *%
- -----------------------
$500,000 *%
- -----------------------
$750,000 *%
- -----------------------
</TABLE>
The following paragraph is to be deleted from the Original Contract and replaced
with the following:
PARAGRAPH 6B - COMPETITION
B. Such disclosure shall not be prohibited: (i) if NetSolve is required in a
judicial, administrative or governmental proceeding to disclose any such
information, but NetSolve shall provide AT&T with prompt notice of such
requirement so that AT&T may seek an appropriate protective order; or (ii) in
connection with a federal or state securities filing, or any other effort to
raise capital or borrow funds from any private or public source; provided
NetSolve shall provide AT&T with prompt notice of any disclosure (for example,
in connection with a road show regarding a pending public offering of
securities, NetSolve would inform AT&T in advance of the types of information
NetSolve proposes to disclose, such as the length and estimated value of this
contract). AT&T may seek an appropriate protective order if the parties do not
reach agreement about the scope or content of any proposed disclosure.
The following paragraph is to be deleted from the Original Contract and replaced
with the following:
PARAGRAPH 7 - INVOICING AND PAYMENT
Invoices for recurring monthly charges and maintenance shall be sent monthly in
advance by NetSolve, based on the number of Router Sites installed and
maintained as of the date the invoice was sent. Invoices for equipment purchased
from NetSolve shall be sent when the equipment is shipped by NetSolve to the
Router Site. When the implementation of the end-user customer's network is
complete and operational NetSolve will invoice AT&T for the one-time, non-
recurring charges associated with the coordination of installed equipment.
Invoices shall be sent to AT&T at the address shown below, directed to the
personal attention of AT&T's MNS Contract Representative, or other
representative as designated by AT&T. All undisputed amounts due shall be paid
within forty-five (45) days after AT&T"s receipt of the invoice. Any unpaid
disputed amount shall be documented by AT&T prior to the due date.
Invoices to be sent to:
AT&T
Attn: Sandra Cafro
Room 1B06
745 Rt. 202/206
Bridgewater, NJ 08807
The following paragraph is modified to be included in the paragraph from the
Original Contract:
- --------------------------------------------------------------------------------
AN ASTERISK (*) APPEARS ON THIS PAGE AT EACH PLACE WHERE INFORMATION HAS BEEN
OMITTED. THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION WITH A REQUEST FOR CONFIDENTIAL TREATMENT OF THE OMITTED
INFORMATION.
- --------------------------------------------------------------------------------
12/17/97
<PAGE>
-6- Agreement # GSA005D
Page 6 of 31
PARAGRAPH 15 - INSURANCE
Contractor will provide and use all reasonable efforts to cause its
subcontractors to provide the following minimum insurances:
(i) statutory workers compensation in accordance with all Federal, state and
local requirements;
(ii) employers' liability insurance in an amount not less than One Million
Dollars ($1,000,000) per each Bodily Injury Accident; One Million Dollars
($1,000,000) policy limit for Bodily Injury by disease; and One Million
Dollars ($1,000,000) each employee limit for Bodily Injury by disease;
(iii) commercial general liability (CGL) insurance in an amount not less than
One Million Dollars ($1,000,000) per each occurrence; Ten Million Dollars
($10,000,000) general aggregate limit. Such insurance shall include Broad
Form Contractual Liability, Broad Form Property Damage Liability, personal
and Advertising Injury, Completed Operations and Products. The general
aggregate limit may be satisfied by either a single CGL policy or
combination of a primary CGL and Umbrella Liability policies,
(iv) comprehensive auto liability covering all owned, non-owned, hired and
leased vehicles for Contractor's operations in an mount not less than One
Million Dollars ($1,000,000) combined single limit for bodily injury and
property damage for each occurrence.
(v) fidelity or crime insurance in an amount not less than One Million Dollars
($1,000,000) each occurrence covering loss in connection with any
fraudulent dishonest acts committed by the employees of Contractor, acting
alone or in collusion with others, including the property and funds of
others in their care, custody or control;
(vi) Contractor shall maintain All Risk Property insurance covering the full
replacement value of all improvements, betterments and contents for which
Contractor owns or is responsible wherever located, including all
equipment, data, media and valuable papers necessary in performance of the
services. Such All Risk Property insurance shall include coverage for a
loss of revenue and extra expenses incurred as a result of a peril covered
under the policy in an amount adequate to cover the actual loss sustained.
Such All Risk Property insurance shall include coverage for loss resulting
from any destruction, distortion, or corruption of any computer data,
coding, program, or Software;
(vii) Contractor shall maintain Professional Liability or Errors and Omissions
insurance acceptable to AT&T covering Contractor's liabilities for loss
due to error, omission, negligence, mistakes, or failure to take
appropriate action in the performance of business or professional duties
of their employees in an amount not less than Two Million Dollars
($2,000,000);
All Commercial General Liability and Automobile liability insurance shall
designate AT&T Corp., its affiliates and subsidiaries, its directors, officers
and employees ("Company") as Additional Insureds. All such insurance should be
primary and non-contributory, and is required to respond and pay prior to any
other insurance or self-insurance available to AT&T as it pertains to the
Supplier's liability solely under this clause. Any other coverage available to
the AT&T applies on an excess basis.
Contractor and all Contractor's subcontractors shall furnish prior to the start
of work, certificates or adequate proof of the foregoing insurance including, if
specifically requested by Company, copies of the endorsements and insurance
policies. Current certificates of insurance should be obtained prior to the
commencement of work and be maintained with the contract. Company shall be
notified in writing at least thirty (30) days prior to cancellation of or change
in a policy. Carriers providing coverage will be rated by A.M. best with at
least an A-rating and a financial size category of at least Class VII.
The following paragraph is to be deleted from the Original Contract and replaced
with the following:
12/17/97
<PAGE>
-7- Agreement # GSA005D
Page 7 of 31
PARAGRAPH 18 - PUBLICITY
A. Unless AT&T has given NetSolve prior written consent: (1) no AT&T
identification or references to AT&T or AT&T's customers or the activities
undertaken by NetSolve under this Agreement shall be used in any of
NetSolve's advertising or promotional efforts and (2) neither NetSolve nor
any of NetSolve's employees, agents, subcontractors and suppliers shall
release for publication any article or other statement relating to AT&T,
AT&T's customers, or the activities undertaken by NetSolve under this
Agreement.
B. Such disclosure shall not be prohibited: (i) if NetSolve is required in
ajudicial, administrative or governmental proceeding to disclose any such
information, but NetSolve shall provide AT&T with prompt notice of such
requirement so that AT&T may seek an appropriate protective order; or (ii) in
connection with a federal or state securities filing, or any other effort to
raise capital or borrow funds from any private or public source; provided
NetSolve shall provide AT&T with prompt notice of any disclosure (for
example, in connection with a road show regarding a pending public offering
of securities, NetSolve would inform AT&T in advance of the types of
information NetSolve proposes to disclose, such as the length and estimated
value of this contract). AT&T may seek an appropriate protective order if the
parties do not reach agreement about the scope or content of any proposed
disclosure.
The following paragraph is to be deleted from the Original Contract for this
Amendment No. 5 only and replaced with the following:
PARAGRAPH 24 - TERMINATION
Termination of the Agreement - The termination of the Agreement shall not affect
the rights and obligations of either party under this Amendment No. 5, and this
Amendment No.5 (and the provisions of the Agreement with respect to this
Amendment No. 5) shall continue in effect as though the Agreement had not been
terminated though
Termination of this Amendment No. 5 -
a) In the event either party shall be in breach or default of any of the terms,
conditions or covenants of this Agreement, or this Amendment No. 5, or any or
all Orders placed hereunder and such breach or default shall continue for a
period of thirty (30) days after the giving of written notice to the
defaulting party thereof by the non-defaulting party, then in addition to all
other rights and remedies of law or equity or otherwise (subject to the
limitations under Paragraph 36 of the Agreement), the non-defaulting party at
its discretion shall have the right to terminate any Orders placed by AT&T
hereunder which are directly affected by such breach or default without any
charge, obligation or liability whatsoever, except as to the payment for
Services already received and accepted by AT&T. If this Agreement is
terminated by AT&T due to NetSolve's breach or default, AT&T may begin a Ramp
Down period to transition existing Router Sites to other management centers
without limitation as to: (1) the number of sites transitioned per month, or
(2) decrease in the amount of monthly billing.
b) The Agreement and all Orders under Attachments A, B and H may be terminated
immediately by AT&T by notice in writing:
i) if NetSolve makes an assignment for the benefit of creditors (other than
solely an assignment of moneys due);
ii) if NetSolve evidences an inability to pay debts as they become due,
unless adequate assurance of such ability to pay is provided within thirty
(30) days of such notice;
12/17/97
<PAGE>
-8- Agreement # GSA005D
Page 8 of 31
(iii) if a proceeding is commenced under a provision of the United States
Bankruptcy Code, voluntarily by NetSolve,;
(iv) if a proceeding is commenced under a provision of the United States
Bankruptcy Code, involuntarily, against NetSolve, the Agreement may be
terminated by AT&T if such proceeding is not dismissed within thirty (30)
days.
c) This Amendment No. 5 and any or all Orders may be terminated at any time by
AT&T upon twenty-four hours written notice in the event of NetSolve's
acquisition by or merger with a competitor of AT&T.
d) Termination of Individual Orders placed pursuant to this Attachment A-AT&T
may terminate individual Orders for Router Sites without charge, upon 30 days
written notice, if: a) AT&T's customer is dissatisfied with the Services
performed by NetSolve and NetSolve is unable to correct the Services to the
customer's reasonable satisfaction within the 30 day notice period; or b)
AT&T's customer is expanding and NetSolve is unable to provide the services
defined in Attachment A or Attachment B.
e) Following the Expiration Date (as outlined in Paragraph 3 of this Attachment
A), a twelve month Ramp-Down will take place and existing Router Sites may be
transitioned to other management centers at AT&T's discretion.
Notwithstanding the previous sentence, the net billings to AT&T under Items 3
and 4 of Table 1, Paragraph 4, (regardless of the number of sites actually
managed by NetSolve) shall not be less than the net amount billed in the last
full month prior to the Expiration Date less 8% for each full month that has
passed following the Expiration Date; however, no amounts shall be due after
twelve (12) full months following the Expiration Date except for any Router
Sites still managed by NetSolve where AT&T and NetSolve have mutually agreed
NetSolve should still provide service.
f) In the event of expiration or termination of this Agreement, in whole or in
part, wherein all or some portion of the work will be performed by Company
itself or elsewhere, Supplier agrees to provide all reasonable efforts and
full cooperation in the orderly transition of the work to Company designated
Network Management centers, provision of reports, data configuration files
and similar customer specific information and media necessary for
continuation of the work transferred, continuation of work at reducing levels
if necessary during a transition period and at reduced levels if work is
transferred in part. Prices for additional work related to customer
transition are covered in Table 1, Paragraph 4, Amendment 5 of this
Agreement.
The following paragraph is to be deleted from the Original Contract and replaced
with the following:
PARAGRAPH 27 - WARRANTY
NetSolve warrants that (1) the work performed under this Agreement shall proceed
with promptness and diligence and shall be executed in a first class workmanlike
manner, in accordance with the highest professional standards in the field and
to AT&T's reasonable satisfaction, and 2) that material furnished hereunder will
be free from defects in design (except to the extent designed by AT&T), material
and workmanship and will conform to and perform in accordance with
specifications. Except as set forth in this Section 27, NetSolve makes no
warranty of merchantability, fitness for a particular purpose, noninfringement,
or of any other kind, express or implied. The products and services provided
hereunder do not constitute "consumer goods" for any purpose. NetSolve does not
warrant that any service, or the operation of any product or software, provided
under this Agreement will be uninterrupted or error-free. AT&T acknowledges that
the products and services provided hereunder are not designed or intended by
NetSolve for use or resale in, or for incorporation into products or services
used in, on-line control equipment in hazardous environments requiring fail-safe
performance, such as in the operation of nuclear facilities, aircraft navigation
or aircraft communication systems, air traffic control, direct life support
machines or weapons systems, in which the failure of the products or services
could lead directly to death, personal injury, or severe physical or
environmental damage ("High Risk Activities"). NetSolve specifically disclaims
any express or implied warranty of fitness for High Risk Activities.
The following paragraph is to be deleted from the Original Contract and replaced
with the following:
12/17/97
<PAGE>
-9- Agreement # GSA005D
Page 9 of 31
PARAGRAPH 30 - INDEMNITY
All persons furnished by NetSolve shall be considered solely NetSolve's
employees or agents, and NetSolve shall be responsible for payment of all
unemployment, social security and other payroll taxes, including contributions
when required by law. NetSolve agrees to defend, indemnify and save harmless
Company, its affiliates, its and their customers and each of their officers,
directors, employees, successors and assigns (all hereinafter referred to in
this Paragraph 30 as "Company") from and against any losses, damages, claims,
demands, suits, liabilities, fines, penalties and expenses (including reasonable
attorney's fees) that arise out of or result from: (1) bodily injuries or death
to persons or damage to real or tangible property, including theft, to the
extent caused (or until finally determined otherwise, alleged to have been
caused) by NetSolve's personnel or persons furnished by NetSolve to perform
installation, maintenance or similar services or Services on Company's premises
(provided that services or Services provided from a remote location, through
electronic means, will not be deemed to be furnished "on Company's premises");
(2) assertions under Workers' Compensation or similar acts made by persons
furnished by NetSolve or by any subcontractor or by reason of any bodily
injuries to such persons for which Company would be responsible under Workers'
Compensation or similar acts if the persons were employed by Company; (3) liens
against Company real or tangible property, or claims against Company, resulting
from NetSolve's failure to satisfy claims of subcontractors for payment for
labor, equipment or materials furnished by NetSolve under this Agreement; or (4)
any failure by NetSolve to perform NetSolve's obligations under this clause;
provided Company provides NetSolve prompt notice of any such claim, demand or
suit, fully cooperates in the defense and settlement thereof, and gives NetSolve
full control of the defense and settlement thereof. Notwithstanding the
foregoing, AT&T may join in the defense of any action, with its own counsel and
at its own expense, and in such circumstances, the parties' counsel will
reasonably coordinate their defense strategies. If a party is required, under a
proposed settlement, to take any action or refrain from taking any action, the
settlement may not be entered without such party's written consent, which will
not be unreasonably withheld or delayed.
The following paragraph is added to the Original Contract:
PARAGRAPH 35 - INFRINGEMENT
NetSolve shall indemnify and save harmless AT&T, its affiliates, and their
customers, and each of their officers, directors, employees, successors and
assigns (all hereinafter referred to in this clause as AT&T) from and against
any losses, damages, liabilities, fines, penalties, and expenses (including
reasonable attorneys' fees) that arise out of or result from any proved or
unproved claim of infringement of any patent, copyright trademark or trade
secret right, or other intellectual property right or any other proprietary
interest to the extent arising from the use of any product or service provided
hereunder, and will pay any judgment rendered on such claim (each of such claims
called an "INFRINGEMENT CLAIM"), provided AT&T provides NetSolve prompt notice
of any such claim, fully cooperates in the defense and settlement thereof, and
gives NetSolve full control of the defense and settlement thereof. NetSolve
further agrees that in the event that a lawsuit includes other claims in
addition to the indemnified infringement claims, AT&T shall retain sole control
of such other claims.
The foregoing obligations do not apply with respect to claims arising from or in
connection with: (i) equipment or products not bearing a NetSolve trademark
(such as Cisco routers, Bay Networks hubs and other third party equipment); (ii)
the combination of any product or service (including any Service) provided by
NetSolve with any service, product, data, process or material not obtained from
NetSolve hereunder, or (iii) any claim that could have been avoided if AT&T or
its customer had discontinued allegedly infringing activity after AT&T has been
advised of the alleged infringement and has failed to follow remedial actions
proposed by NetSolve. If any claim under exceptions (i) or (ii) is brought
against NetSolve, AT&T agrees to indemnify and defend NetSolve with respect to
each such claim (also called an "INFRINGEMENT CLAIM"). If an Infringement Claim
arises solely from NetSolve's adherence to AT&T's written instructions regarding
services or tangible or intangible goods provided by NetSolve ("ITEMS") and if
the Items are not (1) commercial items available on the open market or the same
as such items, or (2) items of NetSolve's designated origin, design or
selection, AT&T shall indemnify NetSolve. AT&T or NetSolve shall defend or
settle, at its own expense any demand, action or suit on any Infringement Claim
against the other for which it is the indemnitor under the preceding provisions
and each shall timely notify
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the other of any assertion against it of any Infringement Claim and shall
cooperate in good faith with the other to facilitate the defense or settlement
of any such claim.
The following paragraph is to be added to the Original Contract:
PARAGRAPH 36 - LIMITATION OF LIABILITY
Notwithstanding any other provision of this Agreement:
1) Neither party shall be liable for incidental or consequential damages or for
loss of profits or revenue (all such damages referred to herein individually
and collectively as "Indirect Damages") arising from or in connection with
this Agreement or any service (including any Service) or product ordered or
provided hereunder, whether or not foreseeable and whether or not based on
breach of warranty, contract, negligence, strict liability, tort or
otherwise; provided, however, that this limitation of liability shall not
apply to "special damages" (e.g., lost wages) arising from bodily injury or
death to persons, or to a party's obligations under the following Sections:
a) Indemnity (provided, however, except for special damages arising from
bodily injury or death to persons, NetSolve shall not be liable for
Indirect Damages if a claim arises out of or in connection with the use
or supply of any product or service (including any Service) obtained
hereunder, and AT&T could legally have disclaimed liability for such
Indirect Damages in its contract with its customer).
b) Infringement
c) Insurance (provided NetSolve's liability for breach of the Section
entitled "Insurance" shall not exceed the liability that would have
existed if NetSolve had complied with the provisions of such Section)
d) Compliance with laws.
e) Use of Information (provided that this exception will apply only to a
willful breach by a party of its obligation not to disclose to
unauthorized third parties confidential information regarding the other
party's customers. In the event of such a breach: (i) the breaching
party's total aggregate liability, for direct damages, Indirect Damages
or otherwise, arising from or in connection with such breach shall not
exceed one million dollars ($1,000,000) in total; and (ii) damages
awarded under this exception (e) will not "count" toward the aggregate
damage limit set forth in subsection 2 below. The party alleging such a
breach will have the burden of proving all elements of the alleged breach
and any alleged damages, including willfulness, proximate causation and
amount of damages, which must be capable of being ascertained with
substantial certainty.)
For purposes of this Agreement. conduct by a party's employee or contractor
acting outside the scope of his, her or its authority will not be attributed to
that party, except to the extent such losses are covered by the party's
insurance (or, if AT&T is self-insured, to the extent such losses would have
been covered by insurance if AT&T had the same policies of insurance as NetSolve
then has).
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2. Notwithstanding the foregoing, neither party's total aggregate liability
(for direct damages, Indirect Damages or otherwise) arising from or in
connection with this Agreement or any product or service (including any Service)
ordered or provided hereunder shall exceed:
(i) for claims for which the party has insurance coverage, the amount paid
to the party by the insurance carrier (or, if AT&T is self-insured, the
amount that would have been paid to ALT&T by an insurance carrier if
AT&T had the same policies of insurance as NetSolve then has);
(ii) for all other claims, one million dollars ($1,000,000) in total,
provided, however, that these limitations of liability shall not apply to direct
or special damages arising from bodily injury or death to persons, or to a
party's obligations under the following Sections:
a) Indemnity (provided, however, except for special damages arising from
bodily injury or death to persons, NetSolve shall not be liable for
damages if a claim arises out of or in connection with the use or supply
of any product or service (including any Service) obtained hereunder, and
AT&T could legally have disclaimed liability for such damages in its
contract with its customer).
b) Infringement
c) Insurance (provided NetSolve's liability for breach of the Section
entitled "Insurance" shall not exceed the liability that would have
existed if NetSolve had complied with the provisions of such Section)
d) Payment for Services, Payment, Taxes, Invoicing and Payment
e) Use of Information (provided that this exception will apply only to a
willful breach by a party of its obligation not to disclose to
unauthorized third parties confidential information regarding the other
party's customers. In the event of such a breach: (i) the breaching
party's total aggregate liability, for direct damages, Indirect Damages
or otherwise, arising from or in connection with such breach shall not
exceed one million dollars ($1,000,000) in total; and (ii) damages
awarded under this exception (e) will not "count" toward the aggregate
damage limits set forth above. The party alleging such a breach will have
the burden of proving all elements of the alleged breach and any alleged
damages, including willfulness, proximate causation and amount of
damages, which must be capable of being ascertained with substantial
certainty.)
The limitations on and disclaimers of remedies, warranties and damages set forth
in this Agreement will apply whether or not any remedy provided hereunder fails
of its essential purpose.
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The following paragraph is to be added to the Original Contract:
PARAGRAPH 37 - YEAR 2000 COMPLIANCE
NetSolve warrants that any computer software or services supplied or delivered
by or for NetSolve under this Agreement (i) will handle date information before,
during and after January 1, 2000, including but not limited to accepting date
input, providing date output and performing calculations on dates or portions of
dates, (ii) will function without any adverse change in operations caused by the
advent of the new century, (iii) will respond to two-digit year date input, or
allow the user to enter a four digit year, in a way that resolves the ambiguity
as to century in a disclosed, defined and predetermined manner, and (iv) will
store and provide output of date information in ways that are unambiguous as to
century.
ALL OTHER TERMS AND CONDITIONS REMAIN THE SAME
<TABLE>
<CAPTION>
NETSOLVE, INCORPORATED AT&T CORP.
<S> <C> <C> <C>
By: [Craig S. Tysdal (printed)] By: [Diane Fennel (printed)]
---------------------------- ------------------------------------
Signature: [Craig S. Tysdal [signature] By: [Diane Fennel (signature)]
---------------------------- ------------------------------------
Title: [President & CEO (printed)] Title: [Supplier Mgr-Data Netw'g (printed)]
---------------------------- ------------------------------------
Date: [12-24-97 (printed)] Date: [1/14/98 (printed)]
---------------------------- ------------------------------------
</TABLE>
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ATTACHMENT A
MANAGED NETWORK SOLUTIONS AND NETSOLVE
This Attachment A to Amendment No. 5 of the Contract Services Agreement, (the
"Agreement") covers Managed Router Solutions ("MRS") that NetSolve shall provide
to AT&T in support of AT&T's Managed Network Solutions ("MNS") offering, when
requested by AT&T and as described herein. This Attachment is an integral part
of the Agreement and shall be governed by the terms of the Agreement. In the
event of any conflict between the terms of this Attachment and the terms of the
Agreement, the terms of this Attachment shall prevail with respect to the
Services provided under this Attachment A.
RESPONSIBILITIES
NetSolve's support of MRS will occur during pre-sale activities, post-sale
project management, and ongoing network management. In each of these
activities, NetSolve will act as a subcontractor of AT&T. In any customer
communication, NetSolve will represent itself as AT&T, not as NetSolve. NetSolve
as a distinct organization will be transparent to the customer. AT&T shall have
the sole and independent responsibility for marketing MRS, including the
determination of customer pricing, and in no event shall NetSolve be permitted
to review or have access to AT&T's offer pricing to end-user Customers,
strategic marketing information, or other competitively sensitive information.
NetSolve shall only receive proposals and reports that are needed to perform
quality services for AT&T in a timely manner. AT&T and NetSolve will jointly
work in defining terms and definitions for an Attachment C to be added within
sixty (60) days from the execution of Amendment 5: such definitions shall not
serve to change the scope of the work provided by NetSolve hereunder.
NETSOLVE'S ROLES AND RESPONSIBILITIES ARE AS FOLLOWS:
A. NETSOLVE PRE-SALES RESPONSIBILITIES
. Receive pre-qualification form
. Develop preliminary design of network, router, and DSU/CSU
. Consult with account team and customer
. Finalize overall network design
. Provide monthly report of number of customers and sites designed
. CMID Sales Process activities outlined in Attachment H and H-1 and similar
activities for, other quotes as provided for in this Attachment A
B. NETSOLVE POST-SALES RESPONSIBILITIES
Implementation Coordination:
. Overall Project Management of Implementation
. Deliver Project Plan to Customer
. Inform customer of necessary preparations
. Place order for equipment with vendors (acting on AT&T's behalf with
AT&T`s vendors if directed to do so by AT&T, or directly with NetSolve's
vendors if equipment is contained on the Customer Service Orders "CSO")
. Place order with equipment maintenance vendors (acting on AT&T`s behalf
with AT&T's vendors if directed to do so by AT&T, or directly with
NetSolve's vendors if equipment maintenance is contained on the CSO)
. Place order with equipment install vendors (acting on AT&T's behalf with
AT&T's vendors if directed to do so by AT&T, or directly with NetSolve's
vendors if equipment install is contained on the CSO)
Installation Activities:
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. Provide all necessary documentation for installation and management of
AT&T's equipment and equipment service supplier
. Receive, stage, and configure equipment
. Coordinate provisioning activity of transport and equipment vendors
. Verify that network and equipment connectivity and configurations are
supporting customer applications
. Schedule and coordinate Test and Turn-up activities
. Provide monthly report of installed customers and sites
. Provide installation through NetSolve's vendors (if equipment
installation is contained on the CSO) or AT&T's vendors
C. NETSOLVE ON-GOING RESPONSIBILITIES
. Pro-actively monitor and manage customer networks 24 X 365
. Receive customer inquiry and trouble calls
. Perform appropriate software upgrades
. Isolate and work with equipment vendor to correct router software bugs
. Contact with vendors (including AT&T) for trouble resolution
. Contact with customers regarding progress of trouble resolution
. Provide monthly availability report to AT&T Project Managers and customers
. Maintain documentation of network design
. Provide monthly summary report of customer and sites supported
. Provide monthly reports as mutually agreed to within sixty (60) days from
execution of agreement
. Proactively manage performance of Customer Network
. Provide maintenance through NetSolve's vendors (if equipment maintenance is
contained on the CSO) or AT&T's vendors
AT&T ROLES AND RESPONSIBILITIES ARE AS FOLLOWS:
A. AT&T Pre-Sales Responsibilities
. Assess initial requirements
. Provide pre-qualification form
. Develop design and customer pricing for network transport and equipment
. Present proposal to potential customer
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B. AT&T POST-SALES RESPONSIBILITIES
. Provide all appropriate customer information
. Place order for network transport
. Inform NetSolve of network transport due date
. Place equipment orders when required
. Deliver project plan to Customer
STRATEGIC RELATIONSHIP APPROACH
AT&T MNS and NetSolve agree that in order for a strategic relationship to be
successful a clear understanding of strategies and goals and an overall
governing leadership team made up of the parties is required. In order to foster
this close cooperation, NetSolve, and MNS agree to establish a Leadership Team
within a reasonable time frame following execution of this Agreement. The team
shall meet on at least a quarterly basis during the term of this Agreement. This
team shall review, coordinate and share strategic long-term planning with
respect to the services purchased by AT&T (but neither party shall be required
to divulge any proprietary information in this regard), establish principles and
policies governing the strategic relationship, set future directions, and
resolve issues presented to the team. This team shall include, at a minimum,
members from AT&T that are capable of providing functional requirements in line
with the strategies of MNS. This team shall include, at a minimum, members from
NetSolve that can understand and communicate requirements presented by AT&T
representatives to NetSolve's planning process.
PERFORMANCE METRICS AND CREDITS
Performance Metrics include the performance of NetSolve, any third party
suppliers of NetSolve and the performance of any suppliers recommended by AT&T
for which NetSolve has management responsibilities under this Attachment A. The
Performance Metrics will be used to determine any credits due AT&T by NetSolve,
subject to the adjustments set forth in the second paragraph of the section
titled "Credits for Missed DMOQs" of this Attachment A. Upon expiration of
NetSolve's equipment maintenance agreements with respect to existing customers,
AT&T may request that the renewal of such equipment maintenance services be
placed with any AT&T third party suppliers
TABLE 1
=================================================================
DIRECT MEASURES OF QUALITY TARGET
(DMOQ")
=================================================================
Network Availability 99.5% for each end user
- -----------------------------------------------------------------
Pro-Active Monitoring - % of 80% in the aggregate for all
troubles NetSolve calls end users
customer first and within 30
minutes.
- -----------------------------------------------------------------
On-Time Installation - First 95% in the aggregate for all
Sites end user installations
- -----------------------------------------------------------------
On-Time Installation - Overall 95% in the aggregate for all
end user installations
- -----------------------------------------------------------------
Mean Time to Restore - With 12 Hrs, or 4 Hrs after
Dispatch deadline for technician
arrival at site based on
maintenance coverage
purchased, whichever is
later
- -----------------------------------------------------------------
Mean Time To Restore - 4 Hrs for all outages for
Overall all
end users in the aggregate
=================================================================
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=================================================================
DIRECT MEASURES OF QUALITY TARGET
(DMOQ")
=================================================================
Call Receipt - Average time 80% within 30 seconds in
customer in queue waiting to be the aggregate for all end
picked up for trouble reporting users
=================================================================
NETWORK AVAILABILITY METRICS
For purposes of these sections the following are defined as:
Network Component: all NetSolve-provided or approved components, in a network
designed and mutually agreed upon utilizing service and equipment providers
approved by NetSolve, including the frame relay ports and PVCs, local access to
AT&T's frame relay switch. T1 multiplexers, CSU/DSUs, routers (to the router LAN
port), and cabling between such units, which are covered by Services under a CSO
accepted by NetSolve.
Link or Network Link: the logical connection between two customer sites covered
by NetSolve Services and consists of all of the Network Components required for
connectivity between such sites.
Downtime: the total time in a given month, measured in minutes for each Network
Link, that a Network Link is not available to the customer. For purposes of
determining whether the Network Availability target is met, Downtime excludes
outages resulting from (i) any, operator error, improper act, or omission of
AT&T, AT&T's end user customer, or the affiliates, representatives, invitees,
licensees, vendors, or the like of either of them; (ii) inaccurate information
provided to NetSolve by AT&T or AT&T's end user customer; (iii) failure of any
facilities, equipment services, or the like which are not Network Components,
including but not limited to LAN components; (iv) failure of AT&T or AT&T's end
user customer to perform any of their respective responsibilities under the
Agreement or this Attachment A; (v) unavailability of AT&T or AT&T's end user
customer personnel to grant NetSolve access to facilities as required for
NetSolve to perform its responsibilities; (vi) preventive or scheduled
maintenance activities of AT&T, AT&T's end user customer, or any other third
party not a sub-contractor or otherwise directed or consented to by NetSolve; or
(vii) any large scale outage of the AT&T network or a network segment, or a
significant portion of either thereof. This time will not be excluded from the
reported DMOQ, however this time will be excluded from the calculated credits.
Network Availability: the aggregate link minutes in one month (links multiplied
by minutes) minus the Downtime minutes, all divided by the aggregate link
minutes in one month (links multiplied by minutes) expressed as a percentage for
each month. Network Availability includes the physical layer, the data link
layer and the network layer of the Network, provided that the source of the
problem(s) is a Network Component.
PRO-ACTIVE MONITORING METRICS
NetSolve is responsible for first contact with customers for proactive trouble
monitoring for any customer's network. Pro-Active Monitoring is defined to mean
contacting the customer before the customer calls in and, in any event, within
30 minutes of receipt of alarm (managed devices only). This metric does not
apply in the event of a large-scale network outage which would affect more than
20% of the customers being managed by NetSolve.
INSTALLATION METRICS On-Time Installation (First Sites) - Since Installations
and MACs are scheduled by NetSolve Project Implementation Managers with the end-
user customer, it is imperative that the service provider arrive on the
scheduled date and time. Arrival at the customer premise must be in ample time
to allow the installation to be completed successfully and service turned up on
the scheduled date. On- Time Installation (First Sites) means the customer's
initial two sites were successfully installed on the scheduled installation
date. The scheduled installation date is determined by the later of (i) 60 days,
from contract
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acceptance by AT&T; (ii) the customer requested due date; or (iii) 50 days from
receipt by NetSolve of a CSO executed by AT&T.
On-Time Installation (Overall) - On time Installation (Overall) means all of the
customer's sites installed after the initial two sites were successfully
installed on the scheduled installation date.
MAINTENANCE METRICS
Mean Time To Restore (MTTR) - Overall shall be defined as the arithmetic mean of
the time to clear trouble tickets (utilizing Downtime eligible for calculating
credits as the measure of Time To Restore).
Mean Time To Restore (MTTR) With Dispatch shall be defined as the arithmetic
mean of the time to clear trouble tickets (utilizing Downtime eligible for
calculating credits as the measure of Time To Restore) when dispatching of a
technician (LEC or equipment maintenance) is required to restore the customer's
network to satisfactory operating condition.
CALL RECEIPT
NetSolve shall produce monthly reporting showing the Average time MNS customers
wait in queue to be picked up for trouble reporting. This metric does not apply
in the event of a large-scale network outage which would affect more than 20% of
the customers being managed by Netsolve.
CREDITS FOR MISSED DMOQ'S
Beginning sixty days after the effective date of Amendment No. 5, if NetSolve
fails to meet the target monthly objectives in any month, NetSolve shall provide
AT&T with a credit in each succeeding month that the target objective is not
met. The credits associated with each performance metric are set forth in the
following table. In no event will the credits for Network Availability, Pro-
Active Monitoring, Mean Time to Restore Overall, or Mean Time to Restore with
Dispatch with respect to a customer site in any given month exceed the total net
billings to AT&T by NetSolve for that month for the charges for the affected
router managed hub sites and router managed non-hub sites set forth in Items 3
and 4 of Table 1 in Paragraph 4 of Amendment No. 5. In no event will the credits
for On-Time Installation (First Sites), On-Time Installation (Overall), and
Customer Satisfaction Metrics - Installation (below) exceed the total net
billings to AT&T by NetSolve for the charges for installation set forth in Item
6 of Table I in Paragraph 4 of Amendment No. 5.
No credit will be issued by NetSolve for any DMOQ for a particular customer to
the extent the missed DMOQ is caused by a negligent act, omission or failure of
AT&T or its affiliates, service supplier, or end user customer. In the event any
act, omission, or failure of AT&T's service suppliers (but not AT&T or its
affiliates) can be reasonably managed by NetSolve to increase the DMOQ, NetSolve
will attempt to work with that service supplier to increase that supplier's
performance if such work does not, in NetSolve's sole opinion, significantly
increase NetSolve's costs.
- --------------------------------------------------------------------------------
NETWORK AVAILABILITY If NetSolve does not achieve a Network
Availability rate of ninety-nine and one-half
percent (99.5%) for any customer's network during
any two (2) months of a rolling twelve (12) month
period, NetSolve shall provide AT&T with a one
(1) month credit for the net monthly fees for the
charges set forth in Items 3 and 4 of Table 1
Paragraph 4 of Amendment No. 5 for all the Router
Sites associated with the customer.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
PRO-ACTIVE MONITORING For the first month the objective is not met, the
credit will be equal to $/*/ for each router site
which had downtime for an outage and was not
reported by NetSolve within thirty (30) minutes.
For any subsequent months the target objective is
not met, the credit will be equal to $/*/ for
each router side which had downtime for an outage
and was not
- --------------------------------------------------------------------------------
reported by NetSolve within thirty (30) minutes.
- --------------------------------------------------------------------------------
MEAN TIME TO RESTORE The credit will be equal to $/*/ for each router
(MTTR) OVERALL site that had Downtime and was restored without
dispatch in more than four hours if the MTTR
Overall with Downtime for all customers exceed
four hours.
- --------------------------------------------------------------------------------
MEAN TIME TO RESTORE The credit will be equal to $/*/ for each router
(MTTR) WITH DISPATCH site that had Downtime and was restored with
dispatch in excess of the time allowed as set
forth above. No credit will be due if a credit is
issued for Mean Time to Restore Overall.
- --------------------------------------------------------------------------------
ON TIME INSTALLATION (FIRST The credit will be equal to $/*/ for each router
SITES) site that was installed after the scheduled due
date. No credit will be due for any site that is
rescheduled with an interval of less than five
(5) business days from the end of the day the
reschedule notice was received by NetSolve.
- --------------------------------------------------------------------------------
ON TIME INSTALLATION The credit will be equal to $/*/ for each router
(OVERALL) site that was installed after the scheduled due
date. No credit will be due for any site that is
rescheduled with an interval of less than five
(5) business days from the end of the day the
reschedule notice was received by Netsolve.
- --------------------------------------------------------------------------------
CUSTOMER SATISFACTION METRICS
CUSTOMER SATISFACTION REQUIREMENTS - If any NetSolve activity ( installation or
maintenance) is concluded by any AT&T end-user to be unsatisfactory, and AT&T
provides a credit for such performance, the following credit is due to AT&T. No
credit shall be due to AT&T if the service failure is due solely to any act,
omission, or failure of AT&T or its service suppliers set forth below. If the
service failure is due in part to any act, omission or failure of NetSolve or
NetSolve suppliers, and AT&T or AT&T suppliers, the credit should be reduced by
50% of the amount calculated below.
===============================================================
Activity Performed Credit Due
- ---------------------------------------------------------------
Installation Actual Credit to Customer
Not to exceed 50% of Installation
Fee for the affected sites
- ---------------------------------------------------------------
- ----------------------------------------------------------------------------
AN ASTERISK (/*/) APPEARS ON THIS PAGE AT EACH PLACE WHERE INFORMATION HAS BEEN
OMITTED. THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION WITH A REQUEST FOR CONFIDENTIAL TREATMENT OF THE OMITTED
INFORMATION.
- ----------------------------------------------------------------------------
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- -------------------------------------------------------------------
Maintenance Actual Credit to Customer
Not to exceed 25% of
maintenance for the affected sites
for the month
===================================================================
. The credit due will be reduced by the amount of any credit issued to the
end user for On-Time Installation (First Sites) and On-Time Installation
(Overall) under the section titled 'Credits for Missed DMOQs' in this
Attachment A.
For any event that precipitates this type of credit due, AT&T and NetSolve will
jointly perform an operational review to determine the factors that contributed
to the situation. Both AT&T and NetSolve will engage the proper extended team to
develop process changes to ensure these situations will be remedied for all
future activities.
The credits set forth above constitute NetSolve's sole liability, and AT&T's
sole and exclusive remedy, for any failure to meet any DMOQs or other metrics.
MISCELLANEOUS
Insufficiently Prepared Site -- In the event that NetSolve or its supplier
arrives at a site and cannot complete an installation and must be dispatched a
second time due to the site being insufficiently prepared, NetSolve will bill
AT&T T&M charges incurred (this is in addition to the standard installation
fee). T&M charges will not apply if the site is prepared in accordance with the
site survey instructions and the instructions are reasonably deemed
inappropriate or inadequate and the condition giving rise to such assessment are
reported to NetSolve in writing.
PERFORMANCE REPORTS
NetSolve shall produce the following reports in a timely fashion on a monthly
basis:
================================================================================
Management Center Reports DMOQ Results including:
. Network Availability
. Mean Time to Restore (MTTR) Requiring Dispatch
. Mean Time to Restore (MTTR) Overall
. On Time installation - First Sites
. On Time installation - Overall
. Pro-Active Monitoring
. Trended Ticket & Down Time Report
. Service Performance by Customer
- --------------------------------------------------------------------------------
Customer Reports . Port Utilization (provided to NetSolve by
AT&T)
. Link Availability (provided to NetSolve by
AT&T)
. Router Utilization (through a mechanism to be
agreed upon within sixty (60) days from
execution of this agreement)
. Ticket Summary
================================================================================
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ATTACHMENT B
AT&T MANAGED NETWORK SOLUTIONS WORLDNET MANAGED INTERNET SERVICE
Statement of Work - Summary of Roles and Responsibilities
INTRODUCTION
NetSolve will provide specific services in support of the AT&T MNS Managed
Internet Service during the term of this agreement. This document specifies
those services that will be provided by NetSolve in support of the AT&T MNS MIS'
request. All descriptions found in this section pertain to the "edge router"
found on customer premises and do not pertain to LAN or workstation
configurations or management. The only exception is the Professional Services
section. The definitions and terms found in Attachment D shall apply to this
Attachment B.
AT&T MNS MIS PRE-SALE RESPONSIBILITIES
. Identify opportunities.
. Meet with customer and assess initial requirements.
. Provide updated Technical Questionnaire and WOTS, including appropriate
information as will be specified for MNS SE to support the MIS "Plus" offer.
. Develop customer pricing for network transport and equipment.
. Develop and present proposal to potential customer.
. Assign a Customer Care PM to work with the particular customer.
. Secure signature on contracts.
. Customer Care refer to the AT&T MIS' Account Team an MNS Professional
Services Contract to obtain the customer signature to proceed with any
required Professional Services.
NETSOLVE PRE-SALE RESPONSIBILITIES
. Provide engineering consulting to Emerging Services Technical Support
personnel for non-standard requests in support of an efficient pre-sales
process.
. Develop standard configuration templates for MIS standard CPE configurations.
AT&T MNS MIS POST-SALE RESPONSIBILITIES
. Provide NetSolve a completed order form.
. Provide all appropriate customer information to MNS SE for CPE provisioning.
. Inform NetSolve of network transport due date.
. Conduct telephone site surveys.
. Insure that a Direct Inward Dial line is ordered for Out Of Band testing.
NETSOLVE POST-SALE RESPONSIBILITIES (PRIOR TO INSTALLATION)
. Assign a SE to work with the Customer Care PM after a contract is signed by
the customer, and the appropriate ordering documents are available.
. Provide appropriate Technical documentation for Managed Access Router
provisioning.
. Prepare the System Design Document (SDD/SDP) to include: The customer
networking objectives and requirements and a list of equipment to be ordered
from a standard list.
. Specify and design router and other DCE (DSU/CSU) physical and logical
configurations and connectivity to meet AT&T Managed Internet Service design
parameters.
. Design and document Network Management connectivity requirements.
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. Finalize network physical and logical design/map.
. Verify and place order with AT&T's equipment vendors on AT&T's behalf if
requested by AT&T(AT&T MIS places circuit orders).
. Place order for equipment on AT&T's behalf through MNS agreements with
vendors if requested by AT&T.
. Sell equipment to AT&T MNS if requested by AT&T.
. Provide tiered support for the CPE managed equipment and configurations to
Customer Care at test and turn-up.
AT&T WS CUSTOMER CARE INSTALLATION RESPONSIBILITIES
. Advise all team members of project schedule and track progress.
. Site review and survey performed via telephone interview.
. Insure that the Direct Inward Dial line is installed and working.
. Work with the customer to tele-install the CPE equipment.
. Acceptance testing, confirm connection to router and network.
. Verify that network and equipment connectivity and configurations are
supporting customer ordered MIS features.
. Notify the MNS Center, via telephone call, of customer acceptance.
PIM/CPE STAGING
NetSolve will coordinate the installation process and develop all necessary
configurations. NetSolve can either stage and configure the equipment at
NetSolve headquarters, or work with an AT&T designated service provider. Options
for on-site installation or telephone-supported installation are available.
NETSOLVE INSTALLATION RESPONSIBILITIES
. Design and document equipment configurations and associated router software
configurations.
. Coordinate, order, receive, stage, configure and ship CPE equipment if
requested by MNS.
. Coordinate Installation Activities (physical and logical).
. Set destination and source address filters, as defined in the TQ by customer.
. Enable IP default routes on customer edge router(s).
. Set routing filters on customer edge router(s).
. Support AT&T Customer Care to tele-install access router on customer site -
both on-site physical installation as well as any remote configuration
activities, as required.
. Pass any necessary information to AT&T MIS Network Care necessary to
configure MIS access routers (Source Address Assurance, etc.).
. Any installation support or project management not defined above will be
referred to and charged for as Professional Services.
PROVISIONING DMOQS
. The NetSolve Center will have 1 calendar day from the time of notification
that the tele-install is complete to confirm end-to-end connectivity and
verify that the customer's router can be seen by the Center.
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MAINTENANCE SUPPORT
. Primarily, the NetSolve Center is responsible for pro-active monitoring of a
'Plus' customer's site and taking appropriate action based on alarm
conditions.
AT&T MIS CUSTOMER CARE MAINTENANCE RESPONSIBILITIES
. Point of contact for all customer issues.
. Customer Care provides Single Point of Contact (SPOC) to the customer and
dispatches appropriately. Any problems not isolated back to the Managed Edge
Router will be dispatched by Customer Care unless defined in the Professional
Services section (e.g., local loop, transport, frame relay, or Internet
access problems).
. Directory Administration (NOC).
. Billing to the end-user customer.
. Collections.
. MIS Customer Care will keep customers apprised of progress of trouble
isolation.
. MIS Customer Care will only refer troubles isolated to the edge router to the
NetSolve Center, unless cooperative testing is necessary to isolate the
trouble.
. MIS Customer Care receives customer inquiry and trouble calls - NetSolve
Center provides CPE back office support to AT&T MIS Customer Care Group.
NetSolve Management Center Maintenance Responsibilities
. Proactively monitor Customer Premise Equipment (edge router to MIS cloud), 7
days per week. 24 hours per day (7x24) and report to AT&T MIS Customer Care
any Service affecting CPE troubles and transport alarms detected by the CPE.
. Proactively diagnose, isolate, and resolve troubles with physical equipment
(hardware and software) or logical routing and filtering.
. Work with AT&T MIS Customer Care for trouble resolution.
. Support CPE configurations and protocol environments defined in the MIS TSD
as listed in appendix A.
Document and maintain:
. network design (SDD/SDP).
. database of all CPE (manufacturer, type, model, serial number, and rev
number).
. edge router IP access filters (and provide AT&T MIS information needed to re-
configure AT&T's access filters) if ordered.
. edge router password administration.
. edge router configurations.
. centralized backup of routing configurations with Inband and Out of Band
download capability.
. CPE capacity management (CPU utilization, Inbound - Outbound Interface
utilization - plus other capabilities to be mutually agreed upon within sixty
(60) days following execution of agreement. conformance to the AT&T Managed
Internet Service User Network Interface. For example, no unregistered IP
addresses will be propagated to the AT&T Managed Internet Service network
(configure edge routers to block all IPX SAPs to AT&T network).
. Reload of configurations in emergency conditions.
. Loading of certified router IOS software updates as mutually agreed between
AT&T NUS and MNS.
. Coordinate actions with AT&T Managed Internet Service Network Care whenever
changing router parameters specified in the Technical Provisioning Document
or otherwise affecting the AT&T Managed Internet Service.
. Participate in testing and turning up of service on the AT&T Managed Internet
Service network.
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REFERRALS/HANDOFFS BETWEEN AT&T MIS CUSTOMER CARE AND NETSOLVE DMOQ'S
. Every maintenance call will be handled in a courteous and professional manner
100% of the time.
. All incoming calls will have an "average speed of answer" of 30 seconds or
less during business hours.
. MIS Customer Care will be advised every 60 minutes of the status of any CPE
trouble.
. MIS Customer Care will be given an estimated time of repair upon each update.
. A trouble ticket will be generated for every trouble call.
. All trouble calls referred to MNS will be tracked and databased for:
. Time generated
. Time resolved
. Trouble reported
. Resolution
. Status of trouble
[Text is marked through here, with a note to move to page 25]
Enhanced Maintenance DMOQ's (Provided option for systems work is contracted for
by AT&T)
. Customers sites will be monitored for active service and AT&T MIS Customer
Care will be informed of a service outage within:
. 5 minutes 85% of the system reported time
. 10 minutes 95% of the system reported time
. 15 minutes 100% of the system reported time
. Repairs will be completed in the time frames promised to the MIS Customer
Care 90% of the time, +/-15 minutes.
. CPE only troubles will be diagnosed and restore steps taken within 1 hour of
trouble reporting 98% of the time.
AVERAGE TIME TO RESTORE SERVICE
NetSolve will report MTTR by cause and restoral time histogram, as is reported
for MRS. If AT&T elects to purchase the Incremental DMOQ reports development,
then the following DMOQ's will be reported as well:
LOGICAL RELATED TROUBLES (IN-BAND OR OUT OF BAND FIX):
. CPE troubles will be resolved within 2 hours 40% of the time
. CPE troubles will be resolved within 4 hours 85% of the time
. CPE troubles will be resolved within 8 hours 90% of the time
. Repairs will be fixed correctly on the first occurrence, 95% of the time
HARDWARE RELATED TROUBLES (ADVANCED REPLACEMENT NEXT DAY OPTION) UPON CUSTOMER
RECEIPT OF EQUIPMENT
AND TELE INSTALL
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. CPE troubles will be resolved within 2 business hours 40% of the time
. CPE troubles will be resolved within 4 business hours 85% of the time
. CPE troubles will be resolved within 6 business hours 90% of the time
. Repairs will be fixed correctly on the first occurrence, 95% of the time
3) PROCESS DEVELOPMENT AND INTEGRATION
The MNS product management organization must allocate resources to work process
integration issues with AT&T WorldNet MIS. These process include 1)
Provisioning, 2) Maintenance 3) Disconnect 4) Expedite 5) CPE ordering, staging,
shipment, 6) In process metric reporting, 7) In process metric root cause
analysis and improvement 8) Offer improvement/modifications.
4) NEW OFFER DEVELOPMENT SUPPORT
New services or service features may be co-developed and offered at mutually
agreed upon prices such as:
1) Extended Service options for CPE
2) Additional CPE configurations and vendors (Bay)
3) Integrated service offers,
4) Security management options
5) MUX support
6) MBONE
7) Professional Services may also be offered to the customer under a contract
with MNS.
8) Components of Professional Services may be added to this statement of work
in the future as their demand and marketability are better understood.
Appendix B contains an initial set of potential Professional Services that
may be offered to customers. Professional services pricing from NetSolve to
AT&T is the same as item 10, in Table 1, Paragraph 4, of Amendment No.5 to
the agreement.
5) SERVICE DISCONNECTION
Based on an order from AT&T MIS Customer Care, MNS SE will coordinate the
disconnection of service from a customers site. This effort will include:
. Date/time coordination
. Remove monitoring capability
. provide instructions for CPE return
. Track returned CPE
6) IN PROCESS METRIC REPORTING
MNS Center will report once a month on all listed DMOQs. DMOQs that are not
being met, will be reported bi weekly with corrective action plans.
DMOQ REPORTING
NetSolve currently provides an extensive range of DMOQ reporting for MRS each
month. If these reports can be used as already developed, they can readily be
provided for WNMIS at no additional fee.
The WNMIS SOW requests several additional reports, including:
. % of time customers notified of problems within specified time windows
. % of time logical troubles resolved within 2, 4, and 8 hours
. % of time hardware fixed within 2, 4, or 8 hours after tech arrives
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System development work and staff training will be required to provide these
reports, and can be undertaken for a one-time fee. Professional services pricing
from NetSolve to AT&T is the same as item 10, in Table 1, Paragraph 4, of
Amendment No.5 to the agreement.
<TABLE>
<CAPTION>
=======================================================================================================================
DIRECT MEASURES OF TARGET CREDIT FOR MISSED DMOQ
QUALITY ("DMOQ")
=======================================================================================================================
<S> <C> <C>
Pro-Active Monitoring 80% in the aggregate For the first month the objective is not met, the credit will
- % of troubles for all end users be equal to $/*/ for each WNMIS site which had downtime
NetSolve calls for an outage and was not reported by NetSolve within
Customer Care first and thirty (30) minutes. for any subsequent months the target
within 30 minutes objective is not met, the credit will be equal to $/*/ for each
WNMIS site which had downtime for an outage and was
not reported by NetSolve within thirty (30) minutes.
- -----------------------------------------------------------------------------------------------------------------------
On-Time Installation 95% in the aggregate The credit will be equal to $/*/ for each WNMIS site that
for all end user was installed after the scheduled due date. No credit will
installations be due for any site that is rescheduled with an interval of
less than five (5) business days from the end of the day the
reschedule notice was received by NetSolve.
- -----------------------------------------------------------------------------------------------------------------------
Average Time to The MTTR The credit will be equal to $/*/ for each WNMIS site that
Restore Service requirements set forth had Average Time to Restore Service in excess of the
under Average Time to Target. The credit will not exceed $/*/ per WNMIS site per
Restore Service - month.
Logical and Hardware
- -----------------------------------------------------------------------------------------------------------------------
Call Receipt - Average 80% within 30 seconds None
time customer in queue in the aggregate for all
waiting to be picked up end users
for trouble reporting
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
[Handwritten note]
7) NETWORK ACCESS, SUPPORT SYSTEMS
AT&T MNS will need to procure redundant and diverse access into the common
backbone for the purpose of monitoring "in band access" of customer CPE. AT&T
and NetSolve organizations will need to architect this access to fit their
organization and support needs. Additionally, there will be a need for network
support systems to deliver the MIS offer that are the responsibility of
NetSolve. The cost of this access and support systems are the responsibility of
AT&T
- ----------------------------------------------------------------------------
AN ASTERISK (/*/) APPEARS ON THIS PAGE AT EACH PLACE WHERE INFORMATION HAS BEEN
OMITTED. THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION WITH A REQUEST FOR CONFIDENTIAL TREATMENT OF THE OMITTED
INFORMATION.
- ----------------------------------------------------------------------------
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APPENDIX A
SUPPORTED CPE
This section may be updated in the future based upon mutual agreement between
AT&T and NetSolve. The following vendors' access routers are supported as part
of the Managed Access Router Service/Managed Internet Services:
ROUTERS
Cisco 2501 Router
Cisco 2502 Router
Cisco 2513 Router
Cisco 2514 Router
Cisco 2515 Router
Cisco 4500 Router
Cisco 4700 Router
Option - Dual Ethernet
Option - Token Ring
Cisco 7505 Router with HSSI Interface
Option - Dual Ethernet
Option - Dual Fast Ethernet
Option - Dual Token Ring
Option - FDDI Multimode
Option - 64MB DRAM
ROUTER IOS
Cisco IOS 11.x
CSU/DSU
Cray DCP 3080
Digital Link Solo Encore
Digital Link 3100
Paradyne 316x
Paradyne 3610
Paradyne 96xx
OUT OF BAND MODEMS
Multi Modem MT 1932BL
Paradyne 3820
PROTOCOLS
IP
ROUTING PROTOCOLS
BGP4, RIPV1, RIPV2 and Static
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APPENDIX B
- ADDITIONAL PROFESSIONAL SERVICES AVAILABLE THROUGH NETSOLVE
These services will be billed based on time and materials expended by NetSolve.
These charges, when requested in writing by AT&T MNS, will be included in the
bill to AT&T from NetSolve. The types of on-site services to be provided will
be :
. Perform address renumber design for customer network.
. Perform individual address (IP) assignments behind the customer access
router.
. Perform on-site surveys.
. Obtain information from customer as required to Change the LAN physical and
logical design (if addressing changes needed).
. Enable dynamic address discovery scheme (i.e. DHCP) for corporate LAN users
(note: remote access assignment is performed by AT&T).
. Installation Support.
. Configuration of client workstations, proxy servers, and IP gateways with
address of AT&T DNS Server.
. recommend performance improvements to customer.
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ATTACHMENT D
NetSolve will direct all aspects of installation, including connectivity
testing, acceptance and service turnup. Installation has both logical and
physical components as described below for WorldNet IVUS.
Logical Installation
NetSolve will provide logical connectivity testing of the client network to
ensure that client network nodes are able to communicate utilizing the MNS-
supported client network protocols. The initial test will ensure that the
NetSolve management work center has connectivity to the client's network. Upon
verification of that service link. NetSolve will verify that each node can
successfully communicate with other client network nodes as specified in the
logical routing tables.
NetSolve will; (1) conduct logical connectivity testing of the work center's
monitoring capability, and; (2) develop and cooperatively apply standard network
acceptance tests between the work center and designated client interface(s) to
ensure connectivity from one client router LAN port to another. These tests will
exercise the designated client routing protocols.
PHYSICAL INSTALLATION:
NetSolve will provide staging of new or re-installed client network site
equipment in which CPE is configured, burned-in and shrink wrapped for shipping
to the designated client site.
NetSolve will perform physical site installations of CPE between the hours of 8
AM to 5 PM [local time] Monday through Friday, utilizing either an AT&T 3rd
party onsite supplier or a NetSolve contracted supplier.
Out-of-hours physical installation will be performed subject to a time and
materials charge dependent on a geographic installation scale. Clients must make
arrangements at least 10 business days in advance for this support.
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ATTACHMENT H
MANAGED NETWORK SERVICE COMMERCIAL & MIDDLE MARKET SALES PROCESS
This Attachment for Contract Services ("Attachment H') to the Agreement covers
services ("Services") that NetSolve shall provide to AT&T in support of the
Commercial & Middle Markets (CMID) Sales process for quoting Managed Network
Services (MNS), as requested by AT&T and as described herein. This Attachment is
an integral part of the Agreement and shall be governed by the terms of the
Agreement. In the event of any conflict between the terms of this Attachment and
the terms of the Agreement, the terms of this Attachment shall prevail with
respect to the Services provided under this Attachment.
For purposes of this Attachment the following Paragraphs in the Agreement are
replaced with the Paragraphs below:
PARAGRAPH I - STATEMENT OF WORK
NetSolve shall provide contract services to AT&T in support of AT&T's CMID Sales
Process in accordance with the "Statement of Work," Attachment H-1 hereto.
Variations to this Statement of Work and its requirements as set forth in
Attachment H-1 may be requested from time to time by AT&T without the need for
formal amendment of Attachment H-1. The pricing contained herein shall apply to
services requested or any variations, provided that the variations requested do
not require the furnishing of more material or labor by NetSolve or longer times
for performance of services. NetSolve shall immediately notify AT&T's Contract
Representative, in writing, of any requested variations which NetSolve feels
will require an increase to the prices contained in Paragraph 4 - Payment for
Services, and shall furnish the amount of such proposed increase in such
writing. NetSolve shall not proceed with Services for any such variation for
which increased changes are proposed, unless and until AT&T and NetSolve
Contract Representatives agree, in writing, to NetSolve's increased charges.
PARAGRAPH 2 - CONTRACT REPRESENTATIVE:
AT&T's Contract Representative for this Attachment H is the Director of Business
Alliance. AT&T will notify NetSolve in writing if a new Contract Representative
is designated by AT&T.
PARAGRAPH 3 - TERM
The effective date of this Attachment H is October 1, 1997 and it shall end on
December 31, 1999.
PARAGRAPH 4 - PAYMENT
For services performed by NetSolve under this Attachment H, AT&T will pay
NetSolve the following:
1. AT&T agrees to pay $/*/ per proposal for all Managed Network Service
proposals. NetSolve will modify an existing proposal up to three times to
include a new site or an alternate maintenance or lease term at no
additional charge. Significant redesigns or a change of hardware vendor will
be considered a new proposal.
2. AT&T agrees to pay $/*/ for each pre-qualification form sent to NetSolve
where it is determined that the solution will not fit into a standard MNS
bundle.
PARAGRAPH 7 - INVOICING AND PAYMENT
NetSolve's invoice shall be rendered at the end of each month, and shall be
payable within 30 days of receipt. NetSolve shall mail invoices with copies of
any supporting documentation required by AT&T to the address shown on this
Agreement or an order.
- --------------------------------------------------------------------------------
AN ASTERISK (/*/) APPEARS ON THIS PAGE AT EACH PLACE WHERE INFORMATION HAS BEEN
OMITTED. THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION WITH A REQUEST FOR CONFIDENTIAL TREATMENT OF THE OMITTED
INFORMATION.
- --------------------------------------------------------------------------------
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ATTACHMENT H-1
MRS PROPOSAL STATEMENT OF WORK
1. OVERVIEW
NetSolve and AT&T Commercial & Middle markets (CMM) wish to streamline the cycle
time, and improve accuracy in the design and pricing of the new bundles for
Managed Router Services. NetSolve will develop a network design and price quote
for opportunities generated by AT&T's CMID sales organization that fit within
the new MRS bundles.
2. NETSOLVE PRE-SALES RESPONSIBILITIES
2.1 INTERVIEW PROSPECT
Pre-qualification forms for MRS bundled services will be sent to NetSolve. Upon
receiving a pre-qualification form, NetSolve will contact a prospect and conduct
a technical interview to gather the necessary information to design and price a
Managed Router bundle. The initial prospect call will be made within one
business day of receipt of the pre-qualification form. Although NetSolve will
attempt to contact the prospect within one business day, the prospect's schedule
and knowledge of their network dictate the actual time required for interview
completion. If NetSolve is unsuccessful in obtaining an interview schedule with
the prospect after three attempts (including voice mail), the qualification form
will be returned to the appropriate DNAE and DNSM for follow up.
2.2 DETERMINE SOLUTION FIT
NetSolve will utilize a standard set of criteria included in Exhibit 1 in order
to determine the proper solution. If the solution is determined to fall outside
one of the bundles, NetSolve will forward the opportunity back to the DNAE to be
sent to his/her Data Network Consultant (DNC for completion.
2.3 COMPLETE STANDARD MNS PRICING AND DESIGN
NetSolve will complete an appropriate network design and pricing within 48 hours
for non-SNA offer bundles, and 96 hours for other offer bundles. The timing on
this deliverable is measured from the completion of the prospect interview. The
pricing includes quotes for management, equipment, cables, installation, and
maintenance. Equipment pricing will include terms indicated on the pre-
qualification form.
2.4 CREATE NETWORK MAP
NetSolve will create a network map that accompanies the pricing information in
2.3.
2.5 PROVIDE DNAE CHECKLIST
NetSolve will include the appropriate DNAE checklist with each pricing, and
design package.
3. NETSOLVE POST SALES RESPONSIBILITIES
3.1 COMPLETE AND FORWARD CUSTOMER IMPLEMENTATION PLAN
After AT&T has received a contract for a Managed Router Service solution,
NetSolve will complete and forward a Project Summary Description to facilitate
the transfer of information to the appropriate "service factory." A copy of this
implementation plan is provided in Exhibit 2.
3.2 SALES PROCESS PERFORMANCE REPORTING
NetSolve will track and report on all the bundled Managed Router Service quoting
activity for the Commercial and Middle Markets organization completed by
NetSolve. Monthly and calendar year to date statistics will be warehoused and
reported. NetSolve will report the following metrics by service product type and
total:
. Number of Proposals
. Number of Sites
. Closure percentage
. Proposal aging histogram
. Interval from proposal information release to contract sign
. Interval from pre-qualification arrival to interview
. Interval from interview to proposal
3.3 UPDATE PRODUCT FEATURES AND PRICING
NetSolve will update product features and pricing within three business days of
receipt from AT&T. If AT&T should release changes on a more periodic basis than
monthly, then AT&T and NetSolve agree to negotiate an appropriate increase in
the fee per proposal.
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4. COMMUNICATIONS
4.1 NETSOLVE/SALES FORCE
NetSolve will communicate initially with the field using ATTmail and Word
documents in RTF format. In the long term, the intention is to use a Web
interface to communicate to the field from a pre-qualification form and proposal
response perspective.
4.2 NETSOLVE FACTORIES
The Project Summary Description included in Exhibit 2 will be the primary method
for interfacing the quoting capability of NetSolve with other AT&T MNS
factories.
4.3 NETSOLVE/PRODUCT HOUSE
NetSolve will interface at least quarterly with the AT&T individuals and
organizations responsible for the MRS family in order to stay current with
future directions and strategy.
5. AT&T RESPONSIBILITIES
5.1 PRE-SALES
AT&T DNAEs will determine whether the solution to be offered fits within a
standard MRS bundle prior to sending the pre-qualification form to NetSolve. If,
after NetSolve contacts the customer to develop the network design, it is
determined that the proposal will not fit into a standard bundle, then NetSolve
will contact the DNAE to explain the situation, and pass along all new
information gathered. The DNAE is then responsible for working with an AT&T DNC
to develop the design and price quote.
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<PAGE>
-1- Exhibit 1
EXPRESS/MRS/FRAD DIFFERENCES
EXPRESS:
================================================================================
Size: . Target less than 50 Customer Sites
- --------------------------------------------------------------------------------
Protocols: . IP, IPX, SDLC and LLC2
- --------------------------------------------------------------------------------
Equipment: . Cisco, Bay Networks and 3COM routers
. Racal, Larscom CSUs (others supported, but
not sold)
- --------------------------------------------------------------------------------
Router Ownership: . AT&T or Customer Owned
- --------------------------------------------------------------------------------
Geography: . USA (48 Contiguous States) and Canada
- --------------------------------------------------------------------------------
Transport: . Frame Relay
- --------------------------------------------------------------------------------
Integrated Access . Logical Pass-Through Support
- --------------------------------------------------------------------------------
Performance: . 99.5% Service Availability Guarantee (USA,
AT&T Provided Routers). Must miss 2
consecutive months for refund.
- --------------------------------------------------------------------------------
Installation: . 45-Day Interval (60 Days With SNA)
================================================================================
MRS
MRS is any router-based service that falls outside of the Express definition.
There are some service definitions to understand:
================================================================================
FEATURE COMMENTS
- --------------------------------------------------------------------------------
Equipment . Cisco, Bay routers
. Paradyne, Cray CSUs. No CSU required
internationally.
. Racal and Motorola modems required globally
- --------------------------------------------------------------------------------
Protocols . TCP/IP
. Novell IPX
. Data Link Switching (DLSw)
. Source Route Bridging
. Sync Pass Through
. SDLC to LLC 2 Conversion (SDLLC)
. AppleTalk Phase II
. Transparent Bridging
. OSI (ISO CLNS)
. Banyan VINES
. DEC MOP Bridging
. DECnet IV
. DEC LAT Bridging
- --------------------------------------------------------------------------------
<PAGE>
-1- Exhibit 1
================================================================================
Translational Bridging
- --------------------------------------------------------------------------------
Interfaces . Token Ring 4 & 16 Mbps
. FDDI Single, Multi, Hybrid
. Integrated Ethernet Hubs
. HSSI
. Ethernet/802.3 10 Mbps
. SNA / SDLC Serial
. Integrated ISDN BRI Interface
. Asynchronous Terminal Interface
- --------------------------------------------------------------------------------
Integrated Access . Logical pass-through
. Shared access for WorldNet and WICS requires
COB approval
- --------------------------------------------------------------------------------
Dial back-up . ISDN: U.S. only; MRS only
. POTS: Worldwide MRS or FRAD (ICB for Express)
. For International, PTT will provide any CSU
or modems needed; just quote basic router
(2501, e.g.)
- --------------------------------------------------------------------------------
Enhanced Performance . Qtly, intended to give more insight than the
Reports Option regular monthly reports
. MRS and FRAD
- --------------------------------------------------------------------------------
Bell Labs Review Option . Annual meeting to review network performance
- --------------------------------------------------------------------------------
Transport . MRS supports PL, FR, hybrid, and switched
digital
- --------------------------------------------------------------------------------
Mgmt channel port/PVC . Included for frame networks
. Additional charge for PL networks
- --------------------------------------------------------------------------------
Fault Management Service . Maintenance MUST be purchased through AT&T,
even though the equipment wasn't
- --------------------------------------------------------------------------------
Network Support Service . Proactive monitoring only
- --------------------------------------------------------------------------------
Installation . 60 days for the first two sites
- --------------------------------------------------------------------------------
Other . Site survey included
. No availability guarantee
. Custom Offer board (COB) for networks not
covered by the above description.
================================================================================
FRAD
Managed FRAD service is targeted at those networks that are almost exclusively
SNA, and plan to be so for the next three years. A few key points to know:
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FEATURE COMMENTS
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Equipment . Motorola Vanguard
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Transport . Frame relay only
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Protocols . SDLC
. BSC-3270
. SDLC Conversation
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<PAGE>
-1- Exhibit 1
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Interfaces .Serial
.Ethernet/802.3
.Token Ring 802.5
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Integrated Access .Logical Pass-through support
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Geography .U.S. only
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Options available .Enhanced reporting (see MRS)
.AT&T Labs Review (see MRS)
.POTS dial back-up
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Installation .60 days
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<PAGE>
-2- Exhibit 2
[Graphic]
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CUSTOMER NAME
PROJECT SUMMARY DOCUMENT
AT&T Managed Network Service
(Customer Engineer)
AT&T Managed Router Service
9130 Jollyville Rd., Suite 200
Austin, TX 78759
<PAGE>
-2- Exhibit 2
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(CUSTOMER NAME)
PROJECT SUMMARY DOCUMENT
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AT&T Managed Network Service
(customer engineer)
Abstract: This document describes all known information about the proposal
process and initial design work done for the named customer network.
This document is to be used by AT&T implementation factories to
deploy Managed Networks.
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Version 1.0 Form Version 2.0
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-2- Exhibit 2
REVISION AND REVIEW HISTORY
This Document has been modified as follows:
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Date Revision Author Sections
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12/24/97 1.0 Author Initial Creation
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This Document has been reviewed as follows:
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Date Revision Author Sections
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12/24/97 1.0 Contact Name Customer Name
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This Form has been modified as follows:
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Date Revision Author Sections
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12/16/95 1.0 Steve Davies Initial Creation
12/19/95 1.1 Steve Davies All
04/24/96 1.2 Jorge Chong All
05/29/96 1.3 Steve Davies 5
08/09/96 1.4 Steve Davies 9
03/05/97 2.0 Steve Davies Modified for Factory Use
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Version 1.0 Form Version 2.0
<PAGE>
-2- Exhibit 2
Table of Contents
1.0 INTRODUCTION...............................................................6
1.01 GENERAL.............................................................6
1.02 TIMELINE............................................................6
1.03 CONTACTING THE AUSTIN NMC...........................................6
2.0 PRE-QUALIFICATION INFORMATION..............................................6
3.0 CUSTOMER INTERVIEW INFORMATION.............................................9
4.0 PROJECT SUMMARY DATA.......................................................7
4.01 STATEMENT OF PURPOSE................................................7
4.02 CURRENT CUSTOMER ENVIRONMENT........................................7
4.02.1 Current Network/Application Architecture.....................7
4.02.2 Business Goals/ Network Overview.............................7
4.03 SOLUTION REQUIREMENTS...............................................7
4.03.1 Application Description and Traffic Requirements.............7
4.03.2 Performance Requirements.....................................8
4.03.3 Availiability Requirements...................................8
4.03.4 Diaster Recovery Requirements................................8
4.03.5 Network Management Requirements..............................8
4.03.6 Architecture/Design Assumptions and Constraints..............8
4.03.7 Unresolved Issues and/or Other Requirements..................8
4.04 SOLUTION DESCRIPTION................................................8
4.04.1 Description of End-to-End Solution...........................8
4.04.2 ACCUWAN Configuration - Remote Sites.........................8
4.04.3 ACCUWAN Configuration - Central Sites........................8
4.04.4 Back-up and Disaster Recovery Configuration..................8
5.0 CONTACT INFORMATION........................................................8
5.01 PRIMARY CUSTOMER CONTACTS...........................................8
5.02 SYSTEM AND APPLICATION CONTACTS.....................................9
6.0 LOCATIONS..................................................................9
6.01 EXISTING EQUIPMENT..................................................9
6.02 NEW EQUIPMENT.......................................................9
7.0 NETWORK ADDRESS DESIGN....................................................10
7.01 IP ADDRESS PLAN....................................................10
7.02 IPX ADDRESS PLAN...................................................10
7.03 SNA ADDRESS PLAN...................................................11
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Version 1.0 Form Version 2.0
<PAGE>
-2- Exhibit 2
List of Figures
FIGURE 1 TIMELINE..............................................................6
FIGURE 3 EXISTING EQUIPMENT LOCATIONS..........................................9
FIGURE 4 IP ADDRESS INFORMATION...............................................10
FIGURE 5 IPX ADDRESS INFORMATION..............................................11
FIGURE 6 SNA ADDRESS INFORMATION..............................................11
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Version 1.0 Form Version 2.0
<PAGE>
Exhibit 2
1.0 INTRODUCTION
This document provides reference information about the information gathered to
date while working with this customer. You will find tables in this document
that are blank, or sparsely populated because we may not discover all of the
information this document is capable of relaying.
1.01 GENERAL
The document outlines data gathered in the standard interview and pre-design
phases of a Managed Network Solution sale. We have also documented any
information that we feel is out of the ordinary.
1.02 TIMELINE *(N/A)
The following table outlines key milestones in this project from a customer
expectation perspective.
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ACTIVITY PLAN DATE COMPLETE DATE
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Customer Signature
AT&T Frame Relay Group Acceptance
Frame Relay Orders Issued
AT&T Equipment Group Acceptance
Equipment Orders Issued
Customer Orders Modem Lines
First circuit install date
First router install date
Last router install date
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FIGURE 1 TIMELINE
1.03 CONTACTING THE AUSTIN NMC *(N/A)
The primary interface for questions about this information will be the Austin
AT&T Network Management Center (NMC). Please direct all inquiries to the NMC.
AT&T Network Management Center
PIM Name
Project Implementation Manager
Pager: PIM's Pager number
Fax correspondence may be directed to
2.0 PRE-QUALIFICATION INFORMATION
Shown below is data gathered from the DNAE in the initial stages of the sales
process.
(PREQUALIFICATION FORM)
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Version 1.0 -6- Form Version 2.0
<PAGE>
Exhibit 2
3.0 CUSTOMER INTERVIEW INFORMATION
During the sales unprocess, our center contacts the customer and performs an
interview designed to uncover missing information and unusual circumstances. The
results of that interview are shown below along with the questions asked.
(CUSTOMER INTERVIEW QUESTIONNAIRE)
4.0 PROJECT SUMMARY DATA
This section is intended to follow the outline of a PSD. We will provide as much
data as we have. In some instances, since we are remote from the customer, we
will not be able to provide as much data as a PSD produced by a Data Network
Consultant.
4.01 STATEMENT OF PURPOSE
The intent of this section is to provide a concise summary of work done on an
ACCUWAN project to serve as a handoff mechanism to the ACCUWAN Implementation
Engineers. The document contains information on the customer's environment and
requirements, and specific details of the solution proposed. It is believed that
most of the information requested below will be readily available as a result of
work done on a project. Making references to attached documents (as long as they
are available electronically) is permitted. Italicized text is used to give an
explanation of each section.
4.02 CURRENT CUSTOMER ENVIRONMENT
4.02.1 CURRENT NETWORK/APPLICATION ARCHITECTURE
4.02.2 BUSINESS GOALS/NETWORK OVERVIEW
4.03 SOLUTION REQUIREMENTS
4.03.1 APPLICATION DESCRIPTION AND TRAFFIC REQUIREMENTS*(N/A)
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Version 1.0 -7- Form Version 2.0
<PAGE>
Exhibit 2
4.03.2 PERFORMANCE REQUIREMENTS *(N/A)
4.03.3 AVAILABILITY REQUIREMENTS *(N/A)
4.03.4 DISASTER RECOVERY REQUIREMENTS
4.03.5 DIAL BACKUP SUPPORT IS/IS NOT REQUIRED AT THIS TIME
4.03.6 NETWORK MANAGEMENT REQUIREMENTS *(N/A)
4.03.7 ARCHITECTURE/DESIGN ASSUMPTIONS AND CONSTRAINTS *(N/A)
4.03.8 UNRESOLVED ISSUES AND/OR OTHER REQUIREMENTS *(N/A)
4.04 SOLUTION DESCRIPTION
4.04.1 DESCRIPTION OF END-TO-END SOLUTION
4.04.2 ACCUWAN CONFIGURATION - REMOTE SITES
See attached Powerpoint diagram
4.04.3 ACCUWAN CONFIGURATION - CENTRAL SITES
See attached Powerpoint diagram
4.04.4 BACK-UP AND DISASTER RECOVERY CONFIGURATION
5.0 CONTACT INFORMATION
5.01 PRIMARY CUSTOMER CONTACTS
The two primary interfaces from (customer name) for the network implementation
will be:
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Version 1.0 -8- Form Version 2.0
<PAGE>
Name :
-----------------------------------
Phone:
-----------------------------------
Pager:
-----------------------------------
Customer Technical Contact will be considered the decision maker for technical
issues during the implementation.
5.02 SYSTEM AND APPLICATION CONTACTS*(N/A)
System :
--------------------- ---------------------
Administrator :
--------------------- ---------------------
Phone Number :
--------------------- ---------------------
Pager :
--------------------- ---------------------
6.02 LOCATIONS
6.01 EXISTING EQUIPMENT
The following sites are known to have existing equipment. This equipment will
be utilized in the new network and thus will be converted to AT&T frame relay
service.
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SITE ZIP MAKE MODEL DESCIRPTION OPERATIONAL STAGING
ADDRESS CITY ST CODE OF EQUIPMENT YES/NO DATE
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FIGURE 2 EXISTING EQUIPMENT LOCATIONS
6.02 NEW EQUIPMENT
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Version 1.0 -9- Form Version 2.0
<PAGE>
Exhibit 2
For a detailed, site-by-site list of equipment to be installed, refer to the
Network Design document attached to this Implementation Plan.
7.0 NETWORK ADDRESS DESIGN *(N/A)
If during our work with the customer, we have identified any protocol specific
information about this design, we will list it here. Understanding that the
implementing center will have their own requirements, we will limit this seciton
to special circumstances.
7.01 IP ADDRESS PLAN *(N/A)
Listed below are any special circumstances related the IP Address plan.
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SITE IP ADDRESS SUBNET
CITY ST
ADDRESS NPA/NXX RANGE IN USE MASK
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FIGURE 3 IP ADDRESS INFORMATION
We assume the implementing AT&T factory will create an IP network address plan
additional data gathered from the customer, along with standard practices and
procedures for network design..
7.02 IPX ADDRESS PLAN *(N/A)
Listed below are any special circumstances related the IPX Address plan.
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SITE SOFTWARE INTERNAL EXTERNAL FRAME
VERSION
ADDRESS CITY ST NPA/NXX OF NETWARE IPX ADDRESS IPX ADDRESS TYPE
SERVER
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Version 1.0 -10- Form Version 2.0
<PAGE>
Exhibit 2
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FIGURE 4 IPX ADDRESS INFORMATION
We assume the implementing AT&T factory will create an IPX network address plan
using additional information gathered from the customer, along with standard
practices and procedures for network design.
7.03 SNA ADDRESS PLAN *(N/A)
Listed below are any special circumstances related to the IPX Address plan.
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SITE IBM TOKEN RING OR RING XID SDLC
SERIAL ATTACHED
ADDRESS CITY ST NPA/NXX DEVICE NUMBER ADDRESS ADDRESS
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FIGURE 5 SNA ADDRESS INFORMATION
We assume the implementing AT&T factory will create an SNA network address plan
using additional information gathered form the customer, along with standard
practices and procedures for network design.
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Version 1.0 -11- Form Version 2.0
<PAGE>
Attachment J
To Agreement No. GSA00D
Amendment No. 6
The Contract Services Agreement effective August 1, 1995, between NetSolve,
Incorporated ("NetSolve") and AT&T Corp. (AT&T") as heretofore modified by
Amendments Number 1, 2, 3, 4 and 5 (collectively the "Agreement" ) is further
amended as follows effective as of February 20, 1998:
1) Attachment J entitled "Smart Frame Relay Service offerings Trial Period" is
hereby added and by this reference made part of this Agreement.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
NETSOLVE, INCORPORATED AT&T CORP.
By: [Michael Turner] By: [Judi Arney]
-------------- ----------
Signature: [Signature of Michael Turner] Signature: [Signature of Judi Arney]
--------------------------- -----------------------
Title: [VP Marketing] Title: [Supplier Manager]
------------ ----------------
Date: [2/19/98] Date: [2/23/98]
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Version 1.0 -12- Form Version 2.0
<PAGE>
Attachment J
To Agreement No. GSA00D
ATTACHMENT J
Smart Frame Relay Service
Trial Period
This Attachment for Contract Services ("Attachment J") to the Agreement covers
the trial period for CO FRAD Smart Frame Relay Service, Systems Integration,
Project Management and Installation Coordination ("Service") that NetSolve shall
provide to AT&T in support of AT&T's CO FRAD Service offering, as requested by
AT&T and as described herein. This Attachment is an integral part of the
Agreement and shall be governed by the terms of the Agreement. In the event of
any conflict between the terms of this Attachment and the terms of the
Agreement, the terms of this Attachment shall prevail with respect to the
Services provided under this Attachment J.
For purposes of this Attachment J the following Paragraphs in the Agreement are
deleted in their entirety and replaced with the Paragraphs below:
PARAGRAPH 1 - STATEMENT OF WORK:
NetSolve shall provide Services to AT&T in support of AT&T's CO FRAD Smart Frame
Relay Service offering trial period in accordance with the "Statement of Work,"
Attachments J-1, J-2, and J-3 hereto. Services shall be available to AT&T in the
United States. Modifications to this Statement of Work and its requirements as
set forth in Attachments J-1, J-2 and J-3 may be requested from time to time by
AT&T without the need for a formal amendment to Attachment J. The pricing
contained herein shall apply to Services requested or any modification, provided
that the modifications requested do not require the furnishing of more material
or labor by NetSolve or longer times for performance of services. NetSolve shall
immediately notify AT&T's Contract Representative, in writing, of any requested
modification which NetSolve feels will require an increase to the prices
contained in Paragraph 4 - Payment for Services, and shall furnish the amount of
such proposed increase in such writing. Following delivery of such notice,
NetSolve shall not proceed with Services for any such modification until AT&T
and NetSolve Contract Representatives agree, in writing, to the appropriate
charges.
PARAGRAPH 2 - CONTRACT REPRESENTATIVE:
AT&T's Contract Representative for this Attachment J is Owen Brennan. AT&T will
notify NetSolve in writing if a new Contract Representative is designated by
AT&T.
PARAGRAPH 3 - TERM
The effective date of this Amendment No. 6 is February 20, 1998. This Amendment
covers a "Trial Period", which is defined as a minimum of 1000 units installed
and in service. This Amendment shall continue until replaced with a new
amendment which AT&T intends to execute for full deployment of the CO FRAD Smart
Frame Relay Service after the initial Trial Period. When that amendment is
signed, those fees and terms and conditions will supercede all provisions of
this Amendment No. 6.
Either AT&T or NetSolve may terminate this Amendment No. 6 (in which case AT&T
will assume the NetSolve responsibilities) effective ninety days after written
notice.
NetSolve will be ready to implement customer networks forty-five 45 days after
contract signature.
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Version 1.0 -13- Form Version 2.0
<PAGE>
Attachment J
To Agreement No. GSA00D
PARAGRAPH 4 - PAYMENT FOR SERVICES
For services performed by NetSolve under this Attachment J, AT&T will pay
NetSolve the following:
1) For the Services described in Attachments J-1 through J-3 the charges shall
be as follows:
Monthly Service Prices - Recurring Services
SFRS 1 - $/*/ Per DSU Per Month
SFRS 2 - $/*/ Per DSU Per Month
Services Prices - Non Recurring Services
Project Implementation Fee - Waived for Trial Period
Remote Installation using an AT&T contractor - Waived for Trial Period
Rescheduling Charges
Standard NetSolve rescheduling fee for each site that requires rescheduling with
less than seven (7) days advance notice. No charges will be assessed for the
first such rescheduling of each site.
Standard Rescheduling Fee - $50 per DSU site
Monthly Minimum (To be negotiated after the Trial Period during the General
Agreement)
Time and Material Services
All Time and Material Services are to be authorized in writing by AT&T prior to
the actual dispatch of on-site work by NetSolve or a NetSolve provider.
. $200 per hour for on-site work (minimum of 4 hours plus travel expenses if
requested for on-site work); $165 per hour for Time and Material Services
done remotely. No travel expenses will apply if none are incurred by
NetSolve or charged to NetSolve by its provider.
Project Initiation Fees
AT&T has agreed to provide, at no charge, a number of important infrastructure
cost, e.g., management ports and PVCs, Visual DSUs, and all the necessary
hardware and software required to implement the Visual PAM function. In
addition, NetSolve will be required to modify and add new systems, processes and
tools in order to support this service. A one time charge for implementing this
project due upon initiation of the Trial Period is $350,000.
Pricing After initial Trial Period
The pricing of the Services described in Attachment J will be reviewed after the
completion of a 1000 device trial installation and support period (Trial
Period). Pricing may be either increased or decreased upon mutual agreement
based on NetSolve's experience in interfacing with the AT&T systems and other
processes, as well as NetSolve gaining an understanding of the time actually
required to perform these services. Absent such agreement on pricing, either
AT&T or NetSolve may elect to cap the number of devices to be installed and
managed or to terminate the Services and this Amendment 6.
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Version 1.0 -14- Form Version 2.0
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ASTERISK (/*/) APPEARS ON THIS PAGE AT EACH PLACE WHERE INFORMATION HAS BEEN
OMITTED. THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION WITH A REQUEST FOR CONFIDENTIAL TREATMENT OF THE OMITTED
INFORMATION.
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<PAGE>
Attachment J
To Agreement No. GSA00D
ATTACHMENT J-1
DESCRIPTION OF SERVICES
SYSTEMS INTEGRATION, PROJECT MANAGEMENT, AND INSTALLATION COORDINATION -
STATEMENT OF WORK
Service Description This Statement of Work for NetSolve's Systems Integration,
Project Management, and Installation Coordination service defines the
responsibilities and deliverables for AT&T and NetSolve with respect to
coordinated ordering, delivery, and installation coordination of DSU/CSUs (DSU)
and ports and PVCs in support of the AT&T Smart Frame Relay Service Level 1 and
Level 2 (SFRS1 & SFRS2, respectively).
The terms Network or Network Components mean all hardware and network components
from the managed DSU at one location to the managed DSU at any other location,
including the frame relay ports and PVCs and local access to the AT&T frame
relay switch, for any locations covered by SFRS1 or SFRS2.
NETSOLVE RESPONSIBILITIES
Program Management
NetSolve will develop the NetSolve Operations Support Systems (OSS) and
Performance Archive Manager (PAM) system enhancements to provide the
SFRS1&2 service.
Project Management
NetSolve will perform the following project management tasks:
A. Input required End User information into AT&T's Order Manager system
B. Input required End User information into NetSolve's OSS Management
system
C. Enter required End User information in the Performance Archive Manager
(PAM) platform based on SFRS level supported
D. Place order with AT&T (to be billed to End User) for the Network
Components of the SFRS service including the ports and PVCs
E. Place order with AT&T for the PVC management channel from each DSU to
the NetSolve NMC (to be billed to End User or provided at no charge by
AT&T)
F. Develop an installation schedule with the End User contact for each site
based on installation intervals supplied by AT&T
G. Verify correct circuit numbers, DLCI information, and firm order
commitment dates (against End User requested date) as received from AT&T
Order management system
H. Provide site survey information for the End User, as required, to enable
proper equipment installation
I. Track and report systems integration and equipment installation status
to AT&T and End User at times and in a format selected by NetSolve and
follow up with AT&T, the equipment suppliers, and the End User to
reschedule if dates are missed, or change
J. Interface directly with mutually agreed upon AT&T systems
K. Conduct a post-installation review with the End User and initiate
necessary corrective action
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Version 1.0 -15- Form Version 2.0
<PAGE>
Attachment J
To Agreement No. GSA00D
L. Create, issue, manage, and maintain the IP address plan to connect the
DSUs to the management tools
Installation
NetSolve will perform the following with respect to End User installations:
A. NetSolve will coordinate testing of the End User premise DSU equipment
with the AT&T frame relay to test for end-to-end Link Management
Interface (LMI) connectivity of all the managed components as each site
installation is completed
B. NetSolve will turn up and verify the operational status of the OSS and
Visual Networks polling and archiving systems in accordance with the
SFRS1&2 services
Post Installation Activities
. NetSolve will coordinate with the appropriate groups inside AT&T to
expeditiously enable an installed customer to upgrade from SFRS1 to SFRS2
Service
. NetSolve will provide post-installation end user moves/adds/changes (M/A/Cs)
as requested by AT&T, and coordinate such activity within the guidelines of
new service implementation contained herein
NetSolve Reporting
A. NetSolve will report on the following metrics:
1. Number of Sites Scheduled
2. Number of Sites Installed
3. % Installed On Time to Interval
4. % On Time to Customer Request Date
5. Average Interval:
a. AT&T Signed Order to Installation Complete
b. Order to NetSolve to NetSolve Order of Services
c. Order to NetSolve to All Firm Order Commitment Dates Received
6. Jeopardy Analysis for Misses categorized by:
a. Customer issues
b. NetSolve Internal Operations
c. Vendor (Install, Maintenance)
d. Carrier (LEC and IXC) Provisioning
e. Non-Carrier Vendors
NetSolve and AT&T will mutually agree on these metrics as well as the metrics
containing performance penalties.
Billing
A. NetSolve will provide AT&T information reasonably required for AT&T to
resolve billing issues with End Users.
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Version 1.0 -16- Form Version 2.0
<PAGE>
Attachment J
To Agreement No. GSA00D
AT&T RESPONSIBILITIES
Program Management
A. Provide NetSolve with an order document (either electronic or FAX)
containing information mutually agreed to by NetSolve and AT&T
B. Provide NetSolve the recommended equipment configurations for Network
Components
C. Provide NetSolve with Visual Networks PAM software and the appropriate
hardware and operating environment at no charge
D. Provide NetSolve with on-line access to the appropriate AT&T internal
systems at no charge
E. Provide Visual Networks DSUs to a third party service provider chosen by
AT&T for NetSolve to coordinate with on Installation.
F. Introduce to NetSolve appropriate third party contacts to allow NetSolve to
escalate to these partners in the event of a possible customer satisfaction
issue
Systems Integration
AT&T shall provide the following systems integration support:
A. Train the appropriate NetSolve staff (at NetSolve's location) on the AT&T
internal systems to be used by NetSolve
Project Management
AT&T shall provide the following project management support:
A. Provide the properly configured DSUs and associated cables to each customer
location to support the program
B. Provide necessary installation of DSUs at each customer location
C. Manage issues pertaining to circuit installation by the local exchange
carrier on an escalation basis as requested by NetSolve
D. Provide NetSolve with site, contact (including any applicable escalation
lists and off-hours contacts), and technical information reasonably required
by NetSolve to perform its responsibilities
E. Provide NetSolve with the network management transport components including
PVCs, ports, circuits, and access charges at the NetSolve NMC
Billing
AT&T will manage all policy based billing issues relative to the End User
END USER RESPONSIBILITIES
A. AT&T is responsible for site preparation in accordance with manufacturer's
specifications
B. AT&T will allow access to their site for installation services, as
reasonably requested
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Version 1.0 -17- Form Version 2.0
<PAGE>
Attachment J
To Agreement No. GSA00D
ATTACHMENT J-2
SMART FRAME RELAY SERVICE-LEVEL 1 ("SFRS1") - STATEMENT OF WORK
Service Description SFRS1 is a network management service for frame relay data
transport and RMONbased DSUs/CSUs supplied by Visual Networks ("DSU"). The
service includes proactive monitoring of the DSU, certain defined fault
identification and resolution processes, DSU software upgrade services, and
reporting. These services will be provided to AT&T end user customers ("End
Users") by NetSolve acting on behalf of AT&T. These services will be provided
remotely from the NetSolve Network Management Center ("NMC").
The terms Network or Network Components mean all hardware and network components
from the managed DSU at one location to the managed DSU at any other location,
including the frame relay ports and PVCs and local access to the AT&T frame
relay switch, for any locations covered by SFRS1.
NETSOLVE RESPONSIBILITIES
Monitoring and Fault Management
NetSolve will perform the following Monitoring and Fault Management
activities:
A. Provide the End User with appropriate NMC contact information.
B. Provide 24 hour per day, 7 day per week monitoring of the End User's DSUs
from the NMC. Monitoring will consist of a combination of polling and
threshold alarms from the DSU. The following parameters will be set in the
DSU to generate alarms:
1. PVC utilization and throughput
2. Access line utilization and throughput
C. Upon receipt of a "Loss of LMI" alarm at the NMC from a DSU, or a call
from customer indicating a network outage or performance issue, fault
identification and resolution procedures will be implemented to include
the following:
1. Notify the End User (except where the End User has reported the
outage) that an alarm has been received and that the fault
identification and resolution process is being implemented
2. Notify the End User designated contact of the outage and provide such
contact with status updates
3. Open a Trouble Ticket in NetSolve's Trouble Ticket system and initiate
fault isolation procedures including:
a. Notify End User to verify site power and operating location
integrity
b. Analyze alarm/trap log for the site to determine source of trouble
c. Check DSU for availability and if site DSU appears functional
NetSolve will:
i) Open a Trouble Ticket electronically in AT&T's Ticket
Manager system
ii) Monitor Ticket Manager for updates from AT&T/LEC testing
iii) Upon resolution notification from Ticket Manager, test for
LMI and notify the End User of service restoration
d. If trouble appears to be site DSU related, NetSolve will:
i) Utilize additional non-managed parameters available from
the DSUs to assist in troubleshooting efforts and customer
presentation as needed from either the NMC or AT&T Network
Operations Center
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Version 1.0 -18- Form Version 2.0
<PAGE>
Attachment J
To Agreement No. GSA00D
ii) Dispatch a service technician to the End User site when
necessary, and manage situation to service restoration
iii) Close ticket in AT&T's Ticket Manager system
D. Escalate Trouble Tickets within the NetSolve organization on a standard
schedule established by NetSolve which is based upon target fault
isolation and repair times. While escalation is automatic, the End User
may request escalation with NetSolve at any time.
E. When fault isolation procedures indicate a problem with non-Network
Components, NetSolve will provide the End User with information gathered
during the fault isolation process in an effort to aid the End User in
restoring service.
F. Store information to be mutually agreed upon (for a period of time to be
mutually agreed upon) from each polled DSU in the Performance Archive
Manager (PAM) system to aid in the analysis of network performance
problems on an as needed basis.
Information Management and Reporting.
NetSolve will provide the following reporting on a monthly basis, to begin
following the first full month of SFRS1, for each DSU included in Network
Components.
A. End User Network Availability Report and Trouble Ticket Summary Report
detailing the measured availability and recorded periods of network
outage
B. DMOQ performance on the following metrics:
1. Call Center Responsiveness
a. Number of Calls
b. Average Speed of Answer
c. Abandoned Call Rate
d. Average Time for Abandon Calls
2. Operations & Fault Management
A sample of the current Managed Router Service report is attached to
demonstrate the type of reports that can be made available. The
reports will be modified to reflect the difference between MRS and
the SFRS services.
3. NetSolve and AT&T will mutually agree on these metrics as well as
the metrics containing performance penalties.
Post Installation Activities
. NetSolve will coordinate with the appropriate groups inside AT&T to
expeditiously enable an installed customer to upgrade from SFRS1 to SFRS2
Service
. NetSolve will provide post-installation end user moves/adds/changes (M/A/Cs)
as requested by AT&T, and coordinate such activity within the guidelines of
new service implementation contained herein
Software and Firmware Control
NetSolve will perform the following with respect to Software and Firmware
Control:
A. Remotely install software upgrades which the End User is entitled to
under applicable maintenance agreements between the End User and their
equipment maintenance provider, or
- --------------------------------------------------------------------------------
Version 1.0 -19- Form Version 2.0
<PAGE>
Attachment J
To Agreement No. GSA00D
which are provided by the manufacturer to correct defects. Upgrades
requiring additional software / firmware, additional or upgraded
hardware, or on-site installation will be performed at an additional
fee. Software upgrades in excess of one per DSU per year will be at an
additional charge to be mutually agreed upon by AT&T and NetSolve.
B. Maintain a back-up copy of the DSU software in a management platform in
the NMC for downloading or modification.
AT&T RESPONSIBILITIES
Program Management
A. Provide NetSolve the recommended equipment configurations for Network
Components
B. Provide NetSolve with Visual Networks PAM software and the appropriate
hardware and operating environment at no charge
C. Provide NetSolve with on-line access to the appropriate AT&T internal
systems at no charge
D. Provide the Visual Networks DSUs to each End User at no charge to
NetSolve, and provide insurance coverage to cover risk of loss or damage
while in transit or in NetSolve's possession
E. Introduce to NetSolve appropriate partner contacts to allow NetSolve to
escalate to these partners in the event of a possible customer
satisfaction issue
END USER RESPONSIBILITIES
A. The End User is responsible for managing all non-Network Components,
including the LAN or other network environment located on the local side
of the DSU. If in connection with providing SFRS1 services, NetSolve
isolates the problem to be on the LAN side of the Network Components, an
NMC engineer will consult with the End User and obtain written
authorization prior to performing additional work, which will be at
NetSolve's standard rates for Professional Services. In the event such
work is approved and the problem is finally determined to be with a
Network Component, no such additional charges will be billed to the End
User.
B. The End User must provide at its cost a management channel PVC from each
DSU to the NMC.
C. The End User must provide the NMC with notice of any changes which the
End User intends to make to the Network Components before such changes
are made.
- --------------------------------------------------------------------------------
Version 1.0 -20- Form Version 2.0
<PAGE>
Attachment J
To Agreement No. GSA00D
ATTACHMENT J-3
SMART FRAME RELAY SERVICE-LEVEL 2 ("SFRS2") - STATEMENT OF WORK
Service Description SFRS2 is a network management service for frame relay data
transport and RMON-based DSUs/CSUs supplied by Visual Networks ("DSU"). The
service includes proactive monitoring of the DSU, certain defined fault
identification and resolution processes, DSU software upgrade services, and
reporting. These services will be provided to AT&T end user customers ("End
Users") by NetSolve acting on behalf of AT&T. These services will be provided
remotely from the NetSolve Network Management Center ("NMC").
The terms Network or Network Components mean all hardware and network components
from the managed DSU at one location to the managed DSU at any other location,
including the frame relay ports and PVCs and local access to the AT&T frame
relay switch, for any locations covered by SFRS2.
NETSOLVE RESPONSIBILITIES
Monitoring and Fault Management
NetSolve will perform the following Monitoring and Fault Management
activities:
A. Provide the End User with appropriate NMC contact information.
B. Provide 24 hour per day, 7 day per week monitoring of the End User's DSUs
from the NMC. Monitoring will consist of a combination of polling and
threshold alarms from the DSU. The following parameters will be set in
the DSU to generate alarms:
1. PVC utilization and throughput
2. Access line utilization and throughput
C. Upon receipt of a "Loss of LMI" alarm at the NMC from a DSU, or a call
from customer indicating a network outage or performance issue, fault
identification and resolution procedures will be implemented to include
the following:
1. Notify the End User (except where the End User has reported the
outage) that an alarm has been received and that the fault
identification and resolution process is being implemented
2. Notify the End User designated contact of the outage and provide such
contact with status updates
3. Open a Trouble Ticket in NetSolve's Trouble Ticket system and
initiate fault isolation procedures including:
a. Notify End User to verify site power and operating location
integrity
b. Analyze alarm/trap log for the site to determine source of
trouble
c. Check DSU for availability and if site DSU appears functional
NetSolve will:
i) Open a Trouble Ticket electronically in AT&T's Ticket
Manager system
ii) Monitor Ticket Manager for updates from AT&T/LEC
testing
iii) Upon resolution notification from Ticket Manager, test
for LMI and notify the End User of service restoration
d. If trouble appears to be site DSU related, NetSolve will:
i) Utilize additional non-managed parameters available
from the DSUs to assist in troubleshooting efforts and
customer presentation as needed from either the NMC or
AT&T Network Operations Center
- --------------------------------------------------------------------------------
Version 1.0 -21- Form Version 2.0
<PAGE>
Attachment J
To Agreement No. GSA00D
ii) Dispatch a service technician to the End User site when
necessary, and manage situation to service restoration
iii) Close ticket in AT&T's Ticket Manager system
D. Escalate Trouble Tickets within the NetSolve organization on a standard
schedule established by NetSolve which is based upon target fault
isolation and repair times. While escalation is automatic, the End User
may request escalation with NetSolve at any time.
E. When fault isolation procedures indicate a problem with non-Network
Components, NetSolve will provide the End User with information gathered
during the fault isolation process in an effort to aid the End User in
restoring service.
F. Store information to be mutually agreed upon (for a period of time to be
mutually agreed upon) from each polled DSU in the Performance Archive
Manager (PAM) system to aid in the analysis of network performance
problems on an as needed basis.
Reporting
. NetSolve will provide SFRS2 customers with Web access to monthly performance
and availability reports as defined by AT&T and mutually agreed.
. NetSolve will provide report interpretation and consultation to the End User
at a rate of 30 minutes per 20 SFRS2 sites (in the aggregate), per month.
Interpretation and consultation requirements in excess of this amount of
time will be billed to AT&T by NetSolve as professional services fees.
Information Management and Reporting
NetSolve will provide the following reporting on a monthly basis, to begin
following the first full month of SFRS2, for each DSU included in Network
Components.
A. End User Network Availability Report and Trouble Ticket Summary Report
detailing the measured availability and recorded periods of network
outage
B. DMOQ performance on the following metrics:
1. Call Center Responsiveness
a. Number of Calls
b. Average Speed of Answer
c. Abandoned Call Rate
d. Average Time for Abandon Calls
2. Operations & Fault Management
A sample of the current Managed Router Service report is attached to
demonstrate the type of reports that can be made available. The
reports will be modified to reflect the difference between MRS and
the SFRS services.
3. NetSolve and AT&T will mutually agree on these metrics as well as the
metrics containing performance penalties.
Post Installation Activities
. NetSolve will coordinate with the appropriate groups inside AT&T to
expeditiously enable an installed customer to upgrade from SFRS1 to SFRS2
Service
- --------------------------------------------------------------------------------
Version 1.0 -22- Form Version 2.0
<PAGE>
Attachment J
To Agreement No. GSA00D
. NetSolve will provide post-installation end user moves/adds/changes (M/A/Cs)
as requested by AT&T, and coordinate such activity within the guidelines of
new service implementation contained herein
Software and Firmware Control
NetSolve will perform the following with respect to Software and Firmware
Control:
A. Remotely install software upgrades which the End User is entitled to under
applicable maintenance agreements between the End User and their equipment
maintenance provider, or which are provided by the manufacturer to correct
defects. Upgrades requiring additional software / firmware, additional or
upgraded hardware, or on-site installation will be performed at an
additional fee. Software upgrades in excess of one per DSU per year will be
at an additional charge to be mutually agreed upon by AT&T and NetSolve.
B. Maintain a back-up copy of the DSU software in a management platform in the
NMC for downloading or modification.
AT&T RESPONSIBILITIES
Program Management
A. Provide NetSolve the recommended equipment configurations for Network
Components
B. Provide NetSolve with Visual Networks PAM software and the appropriate
hardware and operating environment at no charge
C. Provide NetSolve with on-line access to the appropriate AT&T internal
systems at no charge
D. Provide the Visual Networks DSUs to each End User at no charge to NetSolve,
and provide insurance coverage to cover risk of loss or damage while in
transit or in NetSolve's possession
E. Introduce to NetSolve appropriate partner contacts to allow NetSolve to
escalate to these partners in the event of a possible customer satisfaction
issue
END USER RESPONSIBILITIES
A. The End User is responsible for managing all non-Network Components,
including the LAN or other network environment located on the local side of
the DSU. If in connection with providing SFRS2 services, NetSolve isolates
the problem to be on the LAN side of the Network Components, an NMC engineer
will consult with the End User and obtain written authorization prior to
performing additional work, which will be at NetSolve's standard rates for
Professional Services. In the event such work is approved and the problem is
finally determined to be with a Network Component, no such additional
charges will be billed to the End User.
B. The End User must provide at its cost a management channel PVC from each DSU
to the NMC.
C. The End User must provide the NMC with notice of any changes which the End
User intends to make to the Network Components before such changes are made.
-23-
<PAGE>
EXHIBIT 10.2
* * * * * * * * * * * * * * * * * * * *
Lease
RIATA CORPORATE PARK
* * * * * * * * * * * * * * * * * * * *
Between
NETSOLVE, INCORPORATED
(Tenant)
and
CARRAMERICA REALTY, L.P.
T/A RIATA CORPORATE PARK
(Landlord)
<PAGE>
TABLE OF CONTENTS
Page
----
1. LEASE AGREEMENT......................................................... 1
A. Lease of Premises................................................ 1
B. Determination of Building Site................................... 1
C. Determination of Rentable Square Feet............................ 1
D. Definitions...................................................... 2
(1) Usable Area............................................... 2
(2) General Common Areas...................................... 2
(3) Floor Common Areas........................................ 2
2. RENT.................................................................... 2
A. Types of Rent.................................................... 2
(1) Base Rent................................................. 3
(2) Operating Cost Share Rent................................. 3
(3) Additional Rent........................................... 3
(4) Rent...................................................... 3
B. Payment of Operating Cost Share Rent............................. 4
(1) Payment of Estimated Operating Cost Share Rent............ 4
(2) Correction of Operating Cost Share Rent................... 4
(3) Tenant's Audit Rights..................................... 4
C. Definitions...................................................... 5
(1) Included Operating Costs.................................. 5
(2) Excluded Operating Costs.................................. 6
(3) Taxes..................................................... 7
(4) Lease Year................................................ 7
(5) Fiscal Year............................................... 7
(6) Tenant's Proportionate Share.............................. 7
D. Computation of Base Rent and Rent Adjustments.................... 8
(1) Prorations................................................ 8
(2) Default Interest.......................................... 8
(3) Rent Adjustments.......................................... 8
(4) Miscellaneous............................................. 8
3. PREPARATION AND CONDITION OF PREMISES; POSSESSION AND
SURRENDER OF PREMISES................................................... 8
A. Condition of Premises............................................ 8
B. Tenant's Possession.............................................. 8
C. Maintenance...................................................... 9
4. PROJECT SERVICES........................................................ 9
A. Heating and Air Conditioning...................................... 9
B. Elevators......................................................... 9
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<PAGE>
C. Electricity....................................................... 9
D. Water.............................................................10
E. Janitorial Service................................................10
F. Parking...........................................................10
G. Building Security.................................................11
H. Interruption of Services..........................................11
5. ALTERATIONS AND REPAIRS.................................................11
A. Landlord's Consent and Conditions.................................11
B. Damage to Systems.................................................12
C. No Liens..........................................................12
D. Ownership of Improvements.........................................13
E. Removal at Termination............................................13
6. USE OF PREMISES.........................................................13
7. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES............................14
8. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE............................14
A. Waiver of Claims..................................................14
B. Indemnification...................................................14
C. Tenant's Insurance................................................15
D. Insurance Certificates............................................16
E. Landlord's Insurance..............................................16
9. FIRE AND OTHER CASUALTY.................................................16
A. Termination.......................................................16
B. Restoration.......................................................17
10. EMINENT DOMAIN..........................................................17
11. RIGHTS RESERVED TO LANDLORD.............................................17
A. Name..............................................................17
B. Signs.............................................................17
C. Window Treatments.................................................17
D. Keys..............................................................18
E. Access............................................................18
F. Preparation for Reoccupancy.......................................18
G. Heavy Articles....................................................18
H. Show Premises.....................................................18
I. Intentionally Deleted.............................................18
J. Use of Lockbox....................................................18
K. Repairs and Alterations...........................................18
L. Landlord's Agents.................................................19
M. Building Services.................................................19
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<PAGE>
N. Other Actions.....................................................19
12. TENANT'S DEFAULT........................................................19
A. Rent Default......................................................19
B. Assignment/Sublease or Hazardous Substances Default...............19
C. Other Performance Default.........................................19
D. Credit Default....................................................19
E. Vacation or Abandonment Default...................................20
13. LANDLORD REMEDIES.......................................................20
A. Termination of Lease or Possession................................20
B. Lease Termination Damages.........................................20
C. Possession Termination Damages....................................20
D. Landlord's Remedies Cumulative....................................20
E. Waiver of Trial by Jury...........................................21
F. Litigation Costs..................................................21
14. SURRENDER...............................................................21
15. HOLDOVER................................................................21
16. SUBORDINATION TO GROUND LEASES AND MORTGAGES............................21
A. Subordination.....................................................21
B. Termination of Ground Lease or Foreclosure of Mortgage............22
C. Security Deposit..................................................22
D. Notice and Right to Cure..........................................22
E. Definitions.......................................................22
17. ASSIGNMENT AND SUBLEASE.................................................23
A. In General........................................................23
B. Landlord's Consent................................................23
C. Procedure.........................................................23
D. Excess Payments...................................................24
E. Recapture.........................................................24
18. CONVEYANCE BY LANDLORD..................................................24
19. ESTOPPEL CERTIFICATE; FINANCIAL STATEMENTS..............................24
20. SECURITY DEPOSIT........................................................25
21. FORCE MAJEURE...........................................................25
22. NOTICES.................................................................25
A. Landlord..........................................................26
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<PAGE>
B. Tenant............................................................26
23. QUIET POSSESSION........................................................27
24. REAL ESTATE BROKER......................................................27
25. MISCELLANEOUS...........................................................27
A. Successors and Assigns............................................27
B. Date Payments Are Due.............................................27
C. Meaning of "Landlord", "Re-Entry, "including" and "Affiliate".....27
D. Time of the Essence...............................................27
E. No Option.........................................................27
F. Severability......................................................27
G. Governing Law.....................................................28
H. Lease Modification................................................28
I. No Oral Modification..............................................28
J. Landlord's Right to Cure..........................................28
K. Captions..........................................................28
L. Authority.........................................................28
M. Landlord's Enforcement of Remedies................................28
N. Entire Agreement..................................................28
O. Landlord's Title..................................................28
P. Light and Air Rights..............................................28
Q. Singular and Plural...............................................28
R. No Recording by Tenant............................................29
S. Exclusivity.......................................................29
T. No Construction Against Drafting Party............................29
U. Survival..........................................................29
V. Rent Not Based on Income..........................................29
W. Building Manager and Service Providers............................29
X. Late Charge and Interest on Late Payments.........................29
Y. Usury Savings.....................................................29
Z. Waiver of Warranties..............................................30
AA. Effective Date....................................................30
BB. Special Provisions................................................30
26. UNRELATED BUSINESS INCOME...............................................30
27. HAZARDOUS SUBSTANCES....................................................30
28. LANDLORD'S DEFAULT; EXCULPATION.........................................30
29. LANDLORD'S LIEN.........................................................31
iv
<PAGE>
APPENDIX A - LEGAL DESCRIPTION OF LAND AND PLAN OF THE PREMISES
APPENDIX A-1 - INITIAL PROJECT SITE PLAN
APPENDIX B - RULES AND REGULATIONS
APPENDIX C - TENANT IMPROVEMENT AGREEMENT
APPENDIX D - MORTGAGES CURRENTLY AFFECTING THE PROJECT
APPENDIX E - COMMENCEMENT DATE CONFIRMATION
APPENDIX F - SPECIAL PROVISIONS
v
<PAGE>
LEASE
THIS LEASE (the "Lease") is made as of September 30, 1997 between
CarrAmerica Realty, L.P., a Delaware limited partnership, t/a Riata Corporate
Park (the "Landlord"), and the Tenant as named in the Schedule below. The term
"Building" means the building known as "Riata Corporate Park Building 4, 5 or 6"
(see Section 1B below) with a local address of 12,331-A (Building 4), 12,331-B
(Building 5) or 12,357-A (Building 6) Riata Trace Parkway, Austin, Texas, and
situated on the land legally described in Appendix A. "Premises" means that part
of the Building leased to Tenant described in the Schedule and outlined on
Appendix A. The Building is part of an office development (the "Project") known
as "Riata Corporate Park," the extent and configuration of which shall be
determined by Landlord from time to time. The initial configuration of the
Project is outlined on the site plan attached hereto as Appendix A-1.
The following schedule (the "Schedule") is an integral part of this Lease.
Terms defined in this Schedule shall have the same meaning throughout the Lease.
SCHEDULE
1. Tenant: NetSolve, Incorporated, a Delaware corporation
2. Premises: Suites 100, 200 and 300, Riata Corporate Park Building 4, 5 or 6
3. Rentable Square Feet: Approximately 69,877 (all of the 2nd and 3rd floors
and a portion of the 1st floor)
4. Tenant's Proportionate Share: 76.51% (based upon a total of 91,332
rentable square feet in the Building)
5. Security Deposit: $1,000,000.00 Letter of Credit
6. Tenant's Real Estate Broker for this Lease: Robert M. Ehrlich, Inc.
7. Landlord's Real Estate Broker for this Lease: Oxford Commercial, Inc.
8. Tenant Improvements: See the Tenant Improvement Agreement attached hereto
as Appendix C
9. Commencement Date: Later of (a) the Completion Date (as defined in
Appendix C), or (b) the date established by Landlord, provided that
Landlord provide written notice thereof to Tenant at least one hundred
fifty (150) days prior to the date established and that such date not occur
prior to March 1, 1998 or after May 1, 1998 (if Landlord fails to give such
notice timely, the "date established by Landlord" for purposes of this
clause (b) shall be May 1, 1998); Landlord and Tenant shall execute a
Commencement Date Confirmation substantially in the form of Appendix E
promptly following the Commencement Date.
10. Termination Date/Term: Sixty-eight (68) months after the Commencement
Date, or if the Commencement Date is not the first day of a month, then
after the first day of the following month.
11. Base Rent:
Estimated Monthly
Period Annual Base Rent Base Rent Payment
------ ---------------- -----------------
Months 1 - 36 $12.75 per rentable square foot $74,244.31
Months 37 - 68 $15.50 per rentable square foot $90,257.79
12. Initial estimated Operating Cost Share Rent: $7.00 per rentable square
foot per year ($489,139.00 per year/$40,761.58 per month).
<PAGE>
1. LEASE AGREEMENT.
A. Lease of Premises. On the terms stated in this Lease, Landlord leases
the Premises to Tenant, and Tenant leases the Premises from Landlord, for the
Term beginning on the Commencement Date and ending on the Termination Date
unless extended or sooner terminated pursuant to this Lease.
B. Determination of Building Site. Tenant acknowledges that while
Landlord and Tenant have agreed on the amount of approximate rentable square
feet within the Premises to be leased by Tenant hereunder, Landlord has not yet
determined whether such Premises will be located in Building 4, 5 or 6 within
the Project, as shown on Appendix A-1. Landlord shall make such determination
and provide Tenant written notice thereof at least one hundred fifty (150) days
prior to the Commencement Date. Upon such determination, the Building reference
in the first paragraph of this Lease, in the Schedule, and in the Commencement
Date Confirmation shall be deemed to be the numeric identification of the
Building in which the Premises are located, and Tenant and Landlord shall
execute an addendum to this Lease acknowledging such determination.
C. Determination of Rentable Square Feet. Landlord and Tenant
acknowledge and agree that the Rentable Square Footage as stated in the Schedule
is an approximation and cannot be conclusively determined until after completion
of construction of the Premises and the Building. Within sixty (60) days of the
Completion Date, the Rentable Square Footage of the Premises shall be determined
and certified in writing by Landlord's architect using the modified "BOMA"
standard, as described below. For purposes of this determination, Rentable
Square Footage for the Premises shall be calculated by taking the sum of the
following:
(1) (i) Square footage of Tenant's Usable Area within the first (1st)
floor of the Building plus (ii) an "add-on factor" for Tenant's share of
General Common Area and the Floor Common Area for the 1st floor. The
current estimate for the add-on-factor for the 1st floor of the Building,
so long as Tenant shares such floor with other tenants, is 16.52% times
Tenant's Usable Area within the 1st floor. In the event only Tenant
occupies such floor, the current estimate for the add-on factor for the 1st
floor is 4.84% times Tenant's Usable Area within the 1st floor.
(2) (i) Square footage of all Usable Area within the second (2nd)
floor of the Building, including Floor Common Area plus (ii) an "add-on
factor" to account for Tenant's share of General Common Area. The current
estimate for the add-on-factor for the 2nd floor of the Building, so long
as such floor is occupied only by Tenant, is 4.44% times all Usable Area
within the 2nd floor.
(3) (i) Square footage of all Usable Area within the third (3rd) floor
of the Building, including Floor Common Area plus (ii) an "add-on factor"
to account for Tenant's share of General Common Area. The current estimate
for the add-on-factor for the 3rd floor of the Building, so long as such
floor is occupied only by Tenant, is 4.25% times all Usable Area within the
3rd floor.
1
<PAGE>
Notwithstanding anything to the contrary in the foregoing, (i) the calculation
of total Rentable Square Footage for any one floor in the Building shall not be
affected by whether such floor is single-tenant or multi-tenant, (ii) the sum of
all Usable Area within the Building plus the applicable add-on factors as set
forth above shall not exceed the total Rentable Square Footage of the Building,
and (iii) in no event shall the Rentable Square Footage of the Premises exceed
one hundred five percent (105%) of the approximate square footage figure set
forth in the Plans (as defined in the Tenant Improvement Agreement attached as
Appendix C) as finally approved by Landlord and Tenant.
D. Definitions.
(1) Usable Area. "Usable Area" is computed (i) with respect to multi-
tenant floors, by measuring to the finished surface of the Premises side of the
corridor and other permanent walls, to the center of partitions that separate
the Premises from adjoining Usable Areas, and to the inside finished surface of
the dominant portion of the permanent outer building walls, and (ii) with
respect to single tenant floors, by measuring to the inside finished surface of
the dominant portion of the permanent outer building walls, excluding major
vertical penetrations of the floor. Deductions are not made for columns and
projections necessary to the building.
(2) General Common Areas. "General Common Areas" are defined as all
areas intended for use by all building tenants (including building lobby,
mailroom, elevator equipment rooms, security office and fire sprinkler rooms).
(3) Floor Common Areas. "Floor Common Areas" are defined as all areas
for use by tenants of a single floor only, and include restrooms, janitor's
closets, mechanical, electrical, telephone rooms and building corridors,
calculated by subtracting all Usable Area on a multi-tenant floor from the
Usable Area for such floor as determined for occupancy by a single tenant.
2. RENT.
A. Types of Rent. Tenant shall pay the following Rent in the form of a
check to Landlord at the following address:
CarrAmerica Realty, L.P.
t/a Riata Corporate Park
P.O. Box ________ [to be provided by Landlord prior to Commencement
Date]
Atlanta, GA 30384-0566
2
<PAGE>
or by wire transfer as follows:
NationsBank, N.A. (South)
ABA Number 061-000-052
Account Number _______ [to be provided by Landlord prior to
Commencement Date]
or at such other address or using such other wiring instructions as Landlord may
notify Tenant in writing:
(1) Base Rent in monthly installments in advance, the first monthly
installment payable within ten (10) days after Landlord gives Tenant the
notice required under Section 1.B above, the second monthly installment
payable on the first day of the second full calendar month following the
Commencement Date, and thereafter on or before the first day of each
succeeding calendar month of the Term in the amount set forth on the
Schedule. In addition, Tenant shall pay on the Commencement Date prorated
Base Rent for any partial month in which the Commencement Date occurs, if
the Commencement Date falls on a day other than the first (1st) day of such
month.
(2) Operating Cost Share Rent in an amount equal to the Tenant's
Proportionate Share of the Operating Costs for the applicable fiscal year
of the Lease, paid monthly in advance in an estimated amount. Definitions
of Operating Costs and Tenant's Proportionate Share, and the method for
billing and payment of Operating Cost Share Rent, are set forth in Sections
2B, 2C and 2D hereof.
(3) Additional Rent in the amount of all costs, expenses,
liabilities, and amounts which Tenant is required to pay under this Lease,
excluding Base Rent and Operating Cost Share Rent, but including any
interest for late payment of any item of Rent.
(4) Rent as used in this Lease means Base Rent, Operating Cost Share
Rent and Additional Rent. Except as expressly provided herein, Tenant's
agreement to pay Rent is an independent covenant, with no right of setoff,
deduction or counterclaim of any kind. Notwithstanding the foregoing,
Tenant shall be entitled to an abatement of Base Rent and Operating Cost
Share Rent allocable to 16,475 Rentable Square Feet on the 3rd floor of the
Building, such abatement period commencing on the Commencement Date and
ending on the same day of the eighth (8th) calendar month thereafter,
including any partial month in which the Commencement Date occurs and any
partial month at the end of such abatement period (i.e., a 23.5% total 8-
month abatement assuming Rentable Square Footage of 69,877 for the entire
Premises). If Tenant defaults under this Lease beyond any applicable
period of notice and cure, any remaining rent abatement shall cease from
the date of such default, and Tenant shall immediately pay to Landlord all
sums previously abated hereunder.
3
<PAGE>
B. Payment of Operating Cost Share Rent.
(1) Payment of Estimated Operating Cost Share Rent. Landlord shall
estimate the Operating Costs of the Project by April 1 of each Fiscal Year,
or as soon as reasonably possible thereafter. Landlord may revise these
estimates whenever it obtains more accurate information, such as the final
real estate tax assessment or tax rate for the Project, but Landlord shall
not revise the Operating Cost estimate more than once during each Fiscal
Year and shall provide Tenant with all calculations and documents
supporting the appropriateness of such revisions.
Within ten (10) days after receiving the original or revised estimate
from Landlord, Tenant shall pay Landlord one-twelfth (1/12th) of Tenant's
Proportionate Share of this estimate, multiplied by the number of months
that have elapsed in the applicable fiscal year to the date of such payment
including the current month, minus payments previously made by Tenant for
the months elapsed. On the first day of each month thereafter, Tenant
shall pay Landlord one-twelfth (1/12th) of Tenant's Proportionate Share of
this estimate, until a new estimate becomes applicable.
(2) Correction of Operating Cost Share Rent. Landlord shall deliver
to Tenant a report for the previous Fiscal Year (the "Operating Cost
Report") by April 1 of each year, or as soon as reasonably possible
thereafter, setting forth (a) the actual Operating Costs incurred for each
major expense category, compared to Landlord's corresponding estimates for
such expenses, (b) the amount of Operating Cost Share Rent applicable to
Tenant as calculated in accordance with this Lease, and (c) the amount of
Operating Cost Share Rent paid by Tenant. Within twenty (20) days after
such delivery, Tenant shall pay to Landlord the amount due minus the amount
paid. If the amount paid exceeds the amount due, Landlord shall apply the
excess to Tenant's payments of Operating Cost Share Rent next coming due or
shall reimburse such amount to Tenant if such amount exceeds two (2)
calendar months of Operating Cost Share Rent. Upon request by Tenant,
Landlord shall provide sufficient documentation evidencing the accuracy of
the actual Operating Costs.
(3) Tenant's Audit Rights. Landlord shall maintain books and records
reflecting the Operating Costs in accordance with sound accounting and
management practices. Tenant and, if Tenant elects, its certified public
accountant shall have the right to inspect Landlord's records at Landlord's
office upon at least seventy-two (72) hours' prior notice during normal
business hours during the ninety (90) days following the delivery of the
Operating Cost Report. The results of any such inspection shall be kept
strictly confidential by Tenant and its agents, and Tenant and, if
applicable, its certified public accountant must agree, in their contract
for such services, to such confidentiality restrictions and shall
specifically agree that the results shall not be made available to any
other tenant of the Project. Unless Tenant sends to Landlord any written
exception to such report within said ninety (90) day period, such report
shall be deemed final and accepted by Tenant. Tenant shall pay the amount
shown on the Operating Cost Report in the manner prescribed in this Lease,
whether or not Tenant takes any such written exception,
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without any prejudice to such exception. If Tenant makes a timely
exception, Landlord shall cause its independent certified public accountant
to issue a final and conclusive resolution of Tenant's exception. Tenant
shall pay the cost of such certification unless Landlord's original
determination of annual Operating Costs overstated the amounts thereof by
more than five percent (5%).
C. Definitions.
(1) Included Operating Costs. "Operating Costs" means any expenses,
costs and disbursements paid or incurred by Landlord in connection with the
management [including an annual management fee, which shall not exceed four
and one-half percent (4 1/2%) of Rent (net of the management fee) for such
year], maintenance, operation, insurance, repair, replacement and other
related activities in connection with any part of the Building (or the
Project, in accordance with Section 2D(3) below) and of the personal
property, fixtures, machinery, equipment, systems and apparatus used in
connection therewith, including the cost of providing those services
required to be furnished by Landlord under this Lease. Operating Costs
shall also include Taxes (as defined below) and the costs of any capital
improvements which are intended to reduce Operating Costs or improve
safety, and those made to keep the Project in compliance with governmental
requirements applicable from time to time (collectively, "Included Capital
Items"); provided, that the costs of any Included Capital Item shall be
amortized by Landlord (together with an amount equal to interest at ten
percent (10%) per annum on the unamortized portion of such capital costs,
computed on a monthly basis) over the estimated useful life of such item,
and such amortized costs shall be included in Operating Costs only for that
portion of the useful life of the Included Capital Item which falls within
the Term.
If the Building is not fully occupied during any portion of any Fiscal
Year, Landlord may adjust (an "Equitable Adjustment") Operating Costs to
equal what would have been incurred by Landlord had the Building been fully
occupied, provided that Landlord shall use commercially-reasonable
standards in determining the extent of each such adjustment. This
Equitable Adjustment shall apply only to Operating Costs which are variable
and therefore increase as occupancy of the Building increases. Landlord
may incorporate the Equitable Adjustment in its estimates of Operating
Costs.
If Landlord does not furnish any particular service whose cost would
have constituted an Operating Cost to a tenant other than Tenant who has
undertaken to perform such service itself, Operating Costs shall be
increased by the amount which Landlord would have incurred if it had
furnished the service to such tenant, which amount shall equal the product
of such tenant's rentable square footage times Landlord's average cost per
rentable square foot for providing such service to other Building tenants.
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(2) Excluded Operating Costs. Operating Costs shall not include:
(a) costs of alterations of tenant premises;
(b) costs of capital improvements other than Included Capital
Items;
(c) interest and principal payments on mortgages or any other
debt costs, or rental payments on any ground lease of the
Project;
(d) real estate brokers' leasing commissions;
(e) legal fees, space planner fees and advertising expenses, or
any other expenses incurred with regard to leasing the
Building or portions thereof;
(f) any cost or expenditure for which Landlord is reimbursed, by
tenants, insurance proceeds or otherwise, except by Operating
Cost Share Rent;
(g) the cost of any service furnished to any other tenant of the
Building which Landlord does not make available to Tenant;
(h) depreciation (except on any Included Capital Items);
(i) franchise or income taxes imposed upon Landlord;
(j) costs of correcting defects in construction of the Building
(as opposed to the cost of normal repair, maintenance and
replacement expected with the construction materials and
equipment installed in the Building in light of their
specifications);
(k) legal and auditing fees which are for the benefit of Landlord
such as collecting delinquent rents, preparing tax returns
and other financial statements, and audits other than those
incurred in connection with the preparation of reports
required pursuant to Section 2B above;
(l) the wages or any other costs (direct or allocated) of any
employee for services not related directly to the management,
maintenance, operation and repair of the Project;
(m) fines, penalties and interest; and
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(n) in the event Landlord contracts with a person or entity
which is affiliated with Landlord for a good or service, any
portion of the actual cost thereof which exceeds the fair
market cost thereof.
(3) Taxes. "Taxes" means any and all taxes, assessments and charges
of any kind, general or special, ordinary or extraordinary, levied against
the Building and adjacent portions of the Project, which Landlord shall pay
or become obligated to pay in connection with the ownership, leasing,
renting, management, use, occupancy, control or operation of the Project or
of Landlord's personal property, fixtures, machinery, equipment, systems
and apparatus used in connection therewith. Taxes shall include real
estate taxes, personal property taxes, sewer rents, water rents, special or
general assessments, transit taxes, ad valorem taxes, assessments by any
property owners association or under any deed or other restrictive
covenants and any tax levied on the rents hereunder or the interest of
Landlord under this Lease (the "Rent Tax"). Taxes shall also include all
fees and other costs and expenses reasonably incurred by Landlord in
reviewing any tax and in seeking a refund or reduction of any Taxes,
whether or not the Landlord is ultimately successful.
For any year, the amount to be included in Taxes (a) from taxes or
assessments payable in installments, shall be the amount of the
installments (with any interest) due and payable and actually paid during
such year, and (b) from all other Taxes, shall be the amount actually paid
in such year. Any refund or other adjustment to any Taxes by the taxing
authority, shall apply during the year in which the adjustment is made.
Taxes shall not include any net federal or state income (except Rent
Tax), capital, stock, succession, transfer, franchise, gift, estate or
inheritance taxes.
(4) Lease Year. "Lease Year" means each consecutive twelve-month
period beginning with the Commencement Date, except that if the
Commencement Date is not the first day of a calendar month, then the first
Lease Year shall be the period from the Commencement Date through the final
day of the twelve months after the first day of the following month, and
each subsequent Lease Year shall be the twelve months following the prior
Lease Year.
(5) Fiscal Year. "Fiscal Year" means the calendar year, except that
the first Fiscal Year and the last Fiscal Year of the Term may be a partial
calendar year.
(6) Tenant's Proportionate Share. "Tenant's Proportionate Share"
means a fraction, the numerator of which is the total Rentable Square
Footage of the Premises, and the denominator of which is the total Rentable
Square Footage of the Building.
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D. Computation of Base Rent and Rent Adjustments.
(1) Prorations. If this Lease begins on a day other than the first
day of a month, the Base Rent and Operating Cost Share Rent shall be
prorated for such partial month based on the actual number of days in such
month. If this Lease begins on a day other than the first day, or ends on
a day other than the last day, of the Fiscal Year, Operating Cost Share
Rent shall be prorated for the applicable Fiscal Year.
(2) Default Interest. Any sum due from Tenant to Landlord not paid
within five (5) days from the date that it is due shall bear interest from
the date due until paid at eighteen percent (18%) per annum.
(3) Rent Adjustments. If any Operating Cost paid in one Fiscal Year
relates to more than one Fiscal Year, Landlord shall proportionately
allocate such Operating Cost among the related Fiscal Years. Operating
Costs allocable to the Project as a whole (as opposed to a single building
within the Project), including all maintenance, repair, replacement,
insurance, Taxes and other Operating Costs associated with the parking and
driveway areas, landscaping, project and directional signage and other
common areas within the Project (but excluding any costs incurred by
Landlord for the purpose of holding land within the Project for future
development), shall be allocated among the completed buildings in the
Project based upon the relative Rentable Square Feet within such buildings,
and Operating Cost Share Rent shall include Tenant's Proportionate Share of
such Operating Costs allocated to the Building.
(4) Miscellaneous. So long as Tenant is in continuing default of any
obligation under this Lease, Tenant shall not be entitled to any refund of
any amount from Landlord until such default is cured. If this Lease is
terminated for any reason prior to the annual determination of Operating
Cost Share Rent, either party shall pay the full amount due to the other in
accordance with Sections 2B(2) and 2B(3) hereof. Landlord may commingle
any payments made with respect to Operating Cost Share Rent, without
payment of interest.
3. PREPARATION AND CONDITION OF PREMISES; POSSESSION AND SURRENDER OF
PREMISES.
A. Condition of Premises. Except to the extent of Landlord's
construction obligations as set forth in Appendix C, Landlord is leasing the
Premises to Tenant "as is" (subject to completion of such construction), without
any obligation to alter, remodel, improve, repair or decorate any part of the
Premises. Landlord shall cause the Premises to be completed in accordance with
the Tenant Improvement Agreement attached as Appendix C.
B. Tenant's Possession. Tenant's taking possession of any portion of the
Premises shall be conclusive evidence that the Premises was in good order,
repair and condition unless Tenant notifies Landlord in writing to the contrary
within ten (10) days of such taking of
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possession. If Landlord authorizes Tenant to take possession of any part of the
Premises prior to the Commencement Date for purposes of doing business, all
terms of this Lease shall apply to such pre-Term possession, including Base Rent
at the rate set forth in the Schedule for months 1-36 of the Term, prorated for
any partial month.
C. Maintenance. Throughout the Term, Landlord shall maintain the
structural members, roof and mechanical, electrical and other systems (including
building standard lighting) of the Premises and the Building in good condition
and repair subject to Landlord's reimbursement for the costs thereof by Tenant's
payment of Operating Cost Share Rent. Tenant shall maintain all other portions
of the Premises in their condition as of the Completion Date, loss or damage
caused by the elements, ordinary wear, and fire and other casualty excepted. To
the extent Tenant fails to perform this obligation, Landlord may, but need not,
restore the Premises to such condition and Tenant shall pay the cost thereof.
4. PROJECT SERVICES. Landlord shall furnish services as follows:
A. Heating and Air Conditioning. During the normal business hours of
7:00 a.m. to 6:00 p.m., Monday through Friday, and 8:00 a.m. to 1:00 p.m. on
Saturday, excluding New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day, Landlord shall furnish heating and air
conditioning to provide a comfortable temperature, in Landlord's reasonable
judgment, for normal business operations, except to the extent Tenant installs
equipment which adversely affects the temperature maintained by the air
conditioning system. If Tenant installs such equipment, Landlord or Tenant may
install supplementary air conditioning units in the Premises, and Tenant shall
pay to Landlord upon demand as Additional Rent the cost of installation,
operation and maintenance thereof. Tenant's installation of such supplementary
units shall be subject to Section 5 hereof.
Landlord shall furnish heating and air conditioning after business hours if
Tenant provides Landlord reasonable prior notice, and pays Landlord all then
current charges for such additional heating or air conditioning, not to exceed
one hundred fifteen percent (115%) of actual costs (including reasonable
depreciation). Landlord shall consult with Tenant as to the most efficient
method for providing after-hours service, and shall be reasonable in determining
the method to be used.
B. Elevators. Landlord shall provide passenger elevator service during
normal business hours to Tenant in common with Landlord and all other tenants,
if applicable. Landlord shall provide limited passenger service (or full
passenger service upon Tenant's request and at Tenant's expense) at other times,
except in case of an emergency. Landlord shall install and maintain an
electronic access control system in all elevators for the use of Tenant and the
other tenants of the Building, to the extent such other tenants are located
above the 1st floor of the Building.
C. Electricity. Landlord shall provide sufficient electricity to operate
normal office lighting and equipment, and such additional electricity as may be
provided in the Plans. Tenant shall not install or operate in the Premises any
electrically operated equipment or other machinery,
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other than business machines and equipment normally employed for general office
use which do not require high electricity consumption for operation, without
obtaining the prior written consent of Landlord, except as provided in the
Plans. If any or all of Tenant's equipment requires electricity consumption in
excess of that which is necessary to operate normal office equipment, or if
Tenant's extended operating hours require electricity consumption in excess of
that which is necessary to operate a normal office, such consumption (including
consumption for computer or telephone rooms and special HVAC equipment) shall be
submetered by Landlord at Tenant's expense, and Tenant shall reimburse Landlord
as Additional Rent for the cost of its submetered consumption based upon
Landlord's average cost of electricity. Such additional rent shall be in
addition to Tenant's obligations pursuant to Section 2A(2) to pay its
Proportionate Share of Operating Costs.
D. Water. Landlord shall furnish hot and cold tap water for drinking and
toilet purposes, and for the showers, sink and dishwasher to be located in the
break room in the Premises as shown on the Plans. Tenant shall pay Landlord for
water furnished for any other purpose as Additional Rent at rates fixed by
Landlord. Tenant shall not permit water to be wasted.
E. Janitorial Service. Landlord shall furnish janitorial service as is
generally provided for similar quality office space in Austin, Texas.
F. Parking. Landlord shall provide parking areas for the Project, as
designated by Landlord from time to time, for the nonexclusive use by Tenant and
its employees and other invitees in common with Landlord and other tenants of
Project and their respective employees and other invitees, which parking areas
shall contain a total of no fewer than four (4) parking spaces (including
visitor parking spaces) for every one thousand (1,000) Rentable Square Feet
contained within the Project. Landlord shall provide ten (10) parking spaces
within such parking areas within close proximity to the Building, which shall be
reserved for Tenant's exclusive use. Subject to the foregoing, Tenant shall have
no right to exclusive parking with respect to any parking spaces within the
Project, and Tenant shall not tow cars or otherwise enforce its parking rights
against third parties. Tenant shall not allow its employees or other invitees
to park within any public streets adjacent to the Project. Landlord shall not
be responsible for enforcing Tenant's parking rights against third parties and
Landlord shall have no liability to Tenant due to Tenant's inability to utilize
parking spaces within the Project; however, Landlord shall have the right, but
not the obligation, to impose reasonable rules and regulations as Landlord may
deem necessary to regulate parking within the Project, including registration of
license plate numbers for vehicles driven by Tenant's employees, issuance and
monitoring of parking tags or permits and/or designation of exclusive parking
spaces; further and not withstanding the foregoing, upon request by Tenant,
Landlord shall consult with Tenant and shall use all reasonable efforts to
resolve parking problems within the Project identified by Tenant, which may
include imposition of reasonable rules, regulations and enforcement policies in
an effort to resolve such problems, and if not resolved Tenant may allow its
employees or invitees to park within adjacent public streets if allowed under
applicable laws and any restrictive covenants. Surface visitor parking shall be
available at no charge to Tenant or Tenant's visitors.
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G. Building Security. Landlord shall install and maintain an electronic
access control system for entry into the Building during hours other than normal
business hours as set forth above for the use of Tenant and the other tenants of
the Building. The access system for entry into the Building and the access
system for entry into Tenant's spaces within the Building shall be coordinated.
Upon the request of Tenant and at Tenant's expense, Landlord shall provide
Tenant with copies of Landlord's log books showing records of access activity.
Landlord shall also install and maintain a fire sprinkler system for the
Building in accordance with applicable governmental requirements.
H. Interruption of Services. If any of the Building equipment or
machinery ceases to function properly for any cause, Landlord shall use
reasonable diligence to repair the same promptly. In the event such repair work
would be unreasonably disruptive to Tenant's business in the Premises, Landlord
shall perform such work during non-business hours unless Landlord must perform
such work during business hours for safety or security reasons. Landlord's
inability to furnish, to any extent, the Project services set forth in this
Section 4, or any cessation thereof resulting from any causes, including any
entry for repairs pursuant to this Lease, and any renovation, redecoration or
rehabilitation of any area of the Project shall not render Landlord liable for
damages to either person or property or for interruption or loss to Tenant's
business, nor be construed as an eviction of Tenant, nor work an abatement of
any portion of Rent except as provided below, nor relieve Tenant from
fulfillment of any covenant or agreement hereof. In the event that an
interruption of the Project services set forth in this Section 4 causes the
Premises to be untenantable for a period of at least three (3) consecutive
business days, monthly Rent shall be abated proportionately.
5. ALTERATIONS AND REPAIRS.
A. Landlord's Consent and Conditions. Tenant shall not make any
improvements or alterations to the Premises (the "Work") without in each
instance submitting plans and specifications for the Work to Landlord and
obtaining Landlord's prior written consent, which consent shall not be
unreasonably withheld or delayed and shall be deemed given if not refused within
ten (10) business days after written request therefor. Landlord will be deemed
to be acting reasonably in withholding its consent for any Work which (a)
impacts the base structural components or systems of the Building, (b) impacts
any other tenant's premises, or (c) is visible from outside the Premises.
The following requirements shall apply to all Work:
(1) Prior to commencement, Tenant shall furnish to Landlord building
permits, certificates of insurance satisfactory to Landlord, and, at
Landlord's request, security for payment of all costs.
(2) Tenant's Work shall not unreasonably interfere with other work to
be performed or services to be rendered in the Project.
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(3) The Work shall be performed in a good and workmanlike manner,
meeting the standard for construction and quality of materials in the
Building, and shall comply with all insurance requirements and all
applicable governmental laws, ordinances and regulations ("Governmental
Requirements").
(4) Tenant shall perform all Work so as to minimize or prevent
disruption to other tenants, and Tenant shall comply with all reasonable
requests of Landlord in response to complaints from other tenants.
(5) Tenant shall perform all Work in compliance with Landlord's
"Policies, Rules and Procedures for Construction Projects" in effect at the
time the Work is performed.
(6) Tenant shall permit Landlord to supervise all Work. Landlord may
charge a supervisory fee not to exceed seven and one-half percent (7 1/2%)
of labor, material, and all other costs of the Work (excluding the Initial
Improvements), if Landlord's employees or contractors perform the Work.
(7) Upon completion, Tenant shall furnish Landlord with contractor's
affidavits and full and final statutory waivers of liens from all
contractors and subcontractors, as-built plans and specifications, and
receipted bills covering all labor and materials, and all other close-out
documentation required in Landlord's "Policies, Rules and Procedures for
Construction Projects".
(8) Tenant shall pay for the cost of all Work.
B. Damage to Systems. If any part of the mechanical, electrical or other
systems in the Premises shall be damaged as a result of the Work, Tenant shall
promptly notify Landlord, and Landlord shall repair such damage. Landlord may
also at any reasonable time make any repairs or alterations which Landlord deems
necessary for the safety or protection of the Project, or which Landlord is
required to make by any court or pursuant to any Governmental Requirement.
Other than as set forth in Section 3(C) hereof, Tenant shall at its expense make
all other repairs necessary to keep the Premises, and Tenant's fixtures and
personal property, in good order, condition and repair; to the extent Tenant
fails to do so within ten (10) days after written demand by Landlord (or with no
demand in the case of an emergency), Landlord may make such repairs itself. The
cost of any repairs made by Landlord on account of Tenant's default, or on
account of the mis-use or neglect by Tenant or its invitees, contractors or
agents anywhere in the Project, shall become Additional Rent payable by Tenant
on demand.
C. No Liens. Tenant has no authority to cause or permit any lien or
encumbrance of any kind to affect Landlord's interest in the Project; any such
lien or encumbrance shall attach to Tenant's interest only. If any mechanic's
lien shall be filed or claim of lien made for work or materials furnished to
Tenant, then Tenant shall at its expense within ten (10) days thereafter either
discharge or contest the lien or claim. If Tenant contests the lien or claim,
then Tenant shall (i) within such ten (10) day period, provide Landlord adequate
security for the lien or claim
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by bonding in accordance with the Texas Property Code, (ii) contest the lien or
claim in good faith by appropriate proceedings that operate to stay its
enforcement, and (iii) pay promptly any final adverse judgment entered in any
such proceeding. If Tenant does not comply with these requirements, Landlord may
discharge the lien or claim, and the amount paid, as well as attorney's fees and
other expenses incurred by Landlord, shall become Additional Rent payable by
Tenant on demand.
D. Ownership of Improvements. All Initial Improvements constructed under
Appendix C shall become the property of Landlord upon installation, and shall be
surrendered to Landlord with the Premises at the termination of this Lease or of
Tenant's right to possession. All Work (not including the Initial Improvements)
as defined in this Section 5, partitions, hardware, equipment, machinery and all
other improvements and fixtures (except trade fixtures designated as such by
Tenant in any request for Landlord's approval of alterations) constructed in the
Premises by either Landlord or Tenant (i) shall become Landlord's property upon
installation without compensation to Tenant, unless Landlord consents otherwise
in writing, and (ii) shall at Landlord's option either (a) be surrendered to
Landlord with the Premises at the termination of the Lease or of Tenant's right
to possession, or (b) be removed in accordance with Section 5E below; provided
that any Work paid for by Tenant may be removed by Tenant and, in such event,
Tenant shall restore the Premises to its condition prior to the installation of
such Work.
E. Removal at Termination. Upon the termination of this Lease or
Tenant's right of possession, Tenant shall remove from the Building, at Tenant's
cost, its designated trade fixtures, furniture, moveable equipment and other
personal property, any improvements which Landlord elects shall be removed by
Tenant pursuant to Section 5D, and any improvements made by Tenant to any
portion of the Building or the Project other than the Premises. Tenant shall
repair all damage caused by the installation or removal of any of the foregoing
items. If Tenant does not timely remove such property, then Tenant shall be
conclusively presumed to have, at Landlord's election (i) conveyed such property
to Landlord without compensation or (ii) abandoned such property, and Landlord
may dispose of or store any part thereof in any manner at Tenant's sole cost,
without waiving Landlord's right to claim from Tenant all expenses arising out
of Tenant's failure to remove the property, and without liability to Tenant or
any other person. Landlord shall have no duty to be a bailee of any such
personal property. If Landlord elects abandonment, Tenant shall pay to
Landlord, upon demand, any expenses incurred for removal, repair or disposition.
6. USE OF PREMISES. Tenant shall use the Premises only for general
office purposes. Tenant shall not allow any use of the Premises which will
negatively affect the cost of coverage of Landlord's insurance on the Project.
Tenant shall not allow any inflammable or explosive liquids or materials to be
kept on the Premises. Tenant shall not allow any use of the Premises which
would cause the value or utility of any part of the Premises to diminish or
would interfere with any other tenant or with the operation of the Project by
Landlord. Tenant shall not permit any nuisance or waste upon the Premises, or
allow any offensive noise or odor in or around the Premises. In the event the
use by any other tenant within the Project would violate the terms of this
Section 6 with respect to such tenant's premises, Tenant shall have no
obligation
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to share in any increase in costs caused by such use which would otherwise be
chargeable to Tenant.
If any governmental authority shall deem the Premises to be a "place of
public accommodation" under the Americans with Disabilities Act or any other
comparable law as a result of Tenant's use, Tenant shall either modify its use
to cause such authority to rescind its designation or be responsible for any
alterations, structural or otherwise, required to be made to the Building, the
Project or the Premises under such laws.
7. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES. Tenant shall comply
with all Governmental Requirements applying to its use of the Premises. Tenant
shall also comply with all reasonable rules established for the Project from
time to time by Landlord. The present rules and regulations are contained in
Appendix B. Failure by another tenant to comply with the rules or failure by
Landlord to enforce them shall not relieve Tenant of its obligation to comply
with the rules or make Landlord responsible to Tenant in any way. Landlord
shall use reasonable efforts to apply the rules and regulations uniformly with
respect to Tenant and tenants in the Project. In the event of alterations and
repairs performed by Tenant, Tenant shall comply with the provisions of Section
5 of this Lease and also Landlord's "Policies, Rules and Regulations for
Construction Projects".
8. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE.
A. Waiver of Claims. To the extent permitted by law, Tenant waives any
claims it may have against Landlord or its officers, directors, employees or
agents for business interruption or damage to property sustained by Tenant as
the result of any act or omission of Landlord, to the extent typically covered
under policies of "All Risks" Property Insurance.
To the extent permitted by law, Landlord waives any claims it may have
against Tenant or its officers, directors, employees or agents for loss of rents
or damage to property sustained by Landlord as the result of any act or omission
of Tenant, to the extent typically covered under policies of "All Risks"
Property Insurance.
B. Indemnification. Tenant shall indemnify, defend and hold harmless
Landlord and its officers, directors, employees and agents against any claim by
any third party for injury to any person or damage to or loss of any property
occurring in the Project and arising from Tenant's use or occupancy of the
Premises or from any other act or omission or negligence of Tenant or any of
Tenant's employees or agents. Tenant's obligations under this section shall
survive the termination of this Lease.
Landlord shall indemnify, defend and hold harmless Tenant and its
officers, directors, employees and agents against any claim by any third party
for injury to any person or damage to or loss of any property occurring in the
Project and arising from any act or omission or negligence of Landlord or any of
Landlord's employees or agents. Landlord's obligations under this section shall
survive the termination of this Lease.
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C. Tenant's Insurance. Tenant shall maintain insurance as follows, with
such other terms, coverages and insurers, as Landlord shall reasonably require
from time to time:
(1) Commercial General Liability Insurance, with (a) Contractual
Liability including the indemnification provisions contained in this Lease,
(b) a severability of interest endorsement, (c) limits of not less than Two
Million Dollars ($2,000,000) combined single limit per occurrence and not
less than Two Million Dollars ($2,000,000) in the aggregate for bodily
injury, sickness or death, and property damage, and umbrella coverage of
not less than Five Million Dollars ($5,000,000).
(2) Property Insurance against "All Risks" of physical loss covering
the replacement cost of all improvements, fixtures and personal property in
the Premises. Tenant waives all rights of subrogation, and Tenant's
property insurance shall include a waiver of subrogation in favor of
Landlord and its employees and agents.
(3) Workers' compensation or similar insurance in form and amounts
required by law, and Employer's Liability with not less than the following
limits:
Each Accident $500,000
Disease--Policy Limit $500,000
Disease--Each Employee $500,000
Such insurance shall contain a waiver of subrogation provision in
favor of Landlord and its employees and agents.
Tenant's insurance shall be primary and not contributory to that carried by
Landlord, its agents, or mortgagee. Landlord, and if any, Landlord's building
manager or agent, mortgagee and ground lessor shall be named as additional
insureds as respects to insurance required of the Tenant in Section 8C(1) above.
The company or companies writing any insurance which Tenant is required to
maintain under this Lease, as well as the form of such insurance, shall at all
times be subject to Landlord's reasonable approval, and any such company shall
be licensed to do business in the state in which the Building is located. Such
insurance companies shall have an A.M. Best rating of A VI or better.
Tenant shall cause any contractor of Tenant performing work on the Premises
to maintain insurance as follows, with such other terms, coverages and insurers,
as Landlord shall reasonably require from time to time:
(1) Commercial General Liability Insurance, including contractor's
liability coverage, contractual liability coverage, completed operations
coverage, broad form property damage endorsement, and contractor's
protective liability coverage, to afford protection with limits, for each
occurrence, of not less than One Million Dollars ($1,000,000) with respect
to personal injury, death or property damage.
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(2) Workers' compensation or similar insurance in form and amounts
required by law, and Employer's Liability with not less than the following
limits:
Each Accident $500,000
Disease--Policy Limit $500,000
Disease--Each Employee $500,000
Such insurance shall contain a waiver of subrogation provision in
favor of Landlord and its employees and agents.
Tenant's contractor's insurance shall be primary and not contributory to
that carried by Tenant, Landlord, their agents or mortgagees. Tenant and
Landlord, and if any, Landlord's building manager or agent, mortgagee or ground
lessor shall be named as additional insured on Tenant's contractor's insurance
policies.
D. Insurance Certificates. Tenant shall deliver to Landlord certificates
evidencing all required insurance no later than five (5) days prior to the
Commencement Date and each renewal date. Each certificate will provide for ten
(10) days prior written notice of cancellation to Landlord and Tenant.
E. Landlord's Insurance. Landlord shall maintain "All-Risk" property
insurance at replacement cost, including loss of rents, on the Building, and
Commercial General Liability insurance policies covering the common areas of the
Building and the Project, each with such terms, coverages and conditions as are
normally carried by reasonably prudent owners of properties similar to the
Project. With respect to property insurance, Landlord and Tenant mutually waive
all rights of subrogation, and the respective "All-Risk" coverage property
insurance policies carried by Landlord and Tenant shall contain enforceable
waiver of subrogation endorsements.
9. FIRE AND OTHER CASUALTY.
A. Termination. If a fire or other casualty causes substantial damage to
the Building or the Premises, Landlord shall engage a registered architect to
certify within one (1) month of the casualty to both Landlord and Tenant the
amount of time needed to restore the Building and the Premises to tenantability,
using standard working methods. If the time needed exceeds nine (9) months from
the beginning of the restoration, or two (2) months therefrom if the restoration
would begin during the last twelve (12) months of the Lease, then in the case of
the Premises, either Landlord or Tenant may terminate this lease, and in the
case of the Building, Landlord may terminate this Lease, by notice to the other
party within ten (10) days after the notifying party's receipt of the
architect's certificate. The termination shall be effective thirty (30) days
from the date of the notice and Rent shall be paid by Tenant to that date, with
an abatement for any portion of the Premises which has been untenantable after
the casualty.
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B. Restoration. If a casualty causes damage to the Building or the
Premises but this Lease is not terminated for any reason, then subject to the
rights of any mortgagees or ground lessors, Landlord shall obtain the applicable
insurance proceeds and diligently restore the Building and the Premises subject
to current Governmental Requirements. Tenant shall replace its damaged
improvements, personal property and fixtures. Rent shall be abated on a per
diem basis during the restoration for any portion of the Premises which is
untenantable, except to the extent that Tenant's negligence caused the casualty
as established by a court having jurisdiction over the Project.
10. EMINENT DOMAIN. If a part of the Project is taken by eminent domain
or deed in lieu thereof which is so substantial that the Premises cannot
reasonably be used by Tenant for the operation of its business, then either
party may terminate this Lease effective as of the date of the taking. If any
substantial portion of the Building is taken without affecting the Premises,
then Landlord may terminate this Lease as of the date of such taking. Rent
shall abate from the date of the taking in proportion to any part of the
Premises taken. The entire award for a taking of any kind shall be paid to
Landlord. Tenant may pursue a separate award for its trade fixtures and moving
expenses in connection with the taking, but only if such recovery does not
reduce the award payable to Landlord. All obligations accrued to the date of
the taking shall be performed by the party liable to perform said obligation as
set herein.
11. RIGHTS RESERVED TO LANDLORD. Landlord may exercise at any time any of
the following rights respecting the operation of the Project without liability
to the Tenant of any kind:
A. Name. To change the name or street address of the Project or the
Building or the suite number(s) of the Premises.
B. Signs. To install and maintain any signs within the Project in the
interior of the Building, to install and maintain building identification signs
on the exterior of the Building, and to approve at its sole discretion, prior to
installation, any of Tenant's signs in the Premises visible from the common
areas or the exterior of the Building. Notwithstanding the foregoing, Landlord
agrees that Tenant shall have the right to install, at Tenant's expense (but
which may be reimbursed out of Landlord's Contribution under Appendix C), its
signage on the exterior of the Building and on a monument sign located within
the Project common areas, as well as one (1) interior sign on the second floor
front entrance to the Premises visible from the first floor lobby, all subject
to (i) Landlord's signage and architectural guidelines applicable to the Project
and (ii) Landlord's approval as to the size, location and design thereof
pursuant to the Tenant Improvement Agreement. Tenant shall be solely
responsible for and shall obtain all sign permits and other governmental
approvals required for its signage.
C. Window Treatments. To approve, at its reasonable discretion, prior to
installation, any shades, blinds, ventilators or window treatments of any kind,
as well as any lighting within the Premises that may be visible from the
exterior of the Building or any interior common area.
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D. Keys. To retain and use passkeys to enter the Premises or any door
within the Premises upon reasonable advance notice (except in case of
emergency), but only for the purpose of performing Landlord's duties or as
otherwise permitted under the Lease. Tenant shall not alter or add any lock or
bolt.
E. Access. To have access to inspect the Premises, perform its
obligations hereunder, and make repairs, alterations, additions or improvements
as permitted by this Lease, upon reasonable advance notice (except in case of
emergency).
F. Preparation for Reoccupancy. To decorate, remodel, repair, alter or
otherwise prepare the Premises for reoccupancy at any time after Tenant abandons
the Premises, without relieving Tenant of any obligation to pay Rent through the
date of termination of this Lease.
G. Heavy Articles. To approve the weight, size, placement and time and
manner of movement within the Building of any safe, central filing system or
other heavy article of Tenant's property. Tenant shall move its property
entirely at its own risk.
H. Show Premises. To show the Premises to prospective purchasers, non-
leasing brokers, lenders, investors, rating agencies or others at any reasonable
time after reasonable prior notice (which may be oral), and to show the Premises
to prospective tenants and leasing brokers within twelve (12) months prior to
the expiration of the Term (or such earlier period of time as may be consented
to by Tenant, in Tenant's sole discretion), provided that Landlord gives prior
notice to Tenant and does not materially interfere with Tenant's business or use
of the Premises or conduct of business therein.
I. [Intentionally Deleted]
J. Use of Lockbox. To designate a lockbox collection agent for
collections of amounts due Landlord. In that case, the date of payment of Rent
or other sums shall be the date of the agent's receipt of such payment or the
date of actual collection if payment is made in the form of a negotiable
instrument thereafter dishonored upon presentment.
K. Repairs and Alterations. To make repairs or alterations to the
Project or the Building and in doing so transport any required material through
the Premises, to close entrances, doors, corridors, elevators and other
facilities in the Project or the Building, to open any ceiling in the Premises,
or to temporarily suspend services or use of common areas in the Project or the
Building, provided that Landlord shall use all reasonable efforts to perform
such work in a manner that does not unreasonably interfere with Tenant's use of
the Premises. Landlord may perform any such repairs or alterations during
ordinary business hours, except that Tenant may require any work in the Premises
to be done after business hours if Tenant pays Landlord for overtime and any
other expenses incurred; provided, however, that Tenant shall not be obligated
to pay such expenses if Tenant is requiring that the work be done after business
hours in order to prevent an unreasonable interference with Tenant's use of the
Premises. Landlord may do or permit any work on any nearby building, land,
street, alley or way.
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L. Landlord's Agents. If Tenant is in default under this Lease,
possession of Tenant's funds or negotiation of Tenant's negotiable instrument by
any of Landlord's agents shall not waive any breach by Tenant or any remedies of
Landlord under this Lease.
M. Building Services. To install, use and maintain through the Premises,
pipes, conduits, wires and ducts serving the Building, provided that such
installation, use and maintenance does not unreasonably interfere with Tenant's
use of the Premises. In the event such work will, in Tenant's reasonable
business judgment, unreasonably interfere with Tenant's use of the Premises,
Tenant may require that such work be done after business hours.
N. Other Actions. To take any other action which Landlord reasonably
deems necessary or desirable in connection with the operation, maintenance or
preservation of the Project or the Building.
12. TENANT'S DEFAULT. Any of the following shall constitute a default by
Tenant:
A. Rent Default. Tenant fails to pay any Rent when due, and, in the case
of the first two (2) such failures each Lease Year during the Term of this
Lease, this failure continues for ten (10) days after written notice from
Landlord;
B. Assignment/Sublease or Hazardous Substances Default. Tenant defaults
in its obligations under Section 17 Assignment and Sublease or Section 27
Hazardous Substances;
C. Other Performance Default. Tenant fails to perform any other
obligation to Landlord under this Lease, and this failure continues for fifteen
(15) days after written notice from Landlord, except that if Tenant begins to
cure its failure within the fifteen (15) day period but cannot reasonably
complete its cure within such period, then, so long as Tenant continues to
diligently attempt to cure its failure, the fifteen (15) day period shall be
extended to thirty (30) days, or such lesser period as is reasonably necessary
to complete the cure;
D. Credit Default. One of the following credit defaults occurs:
(1) Tenant commences any proceeding under any law relating to
bankruptcy, insolvency, reorganization or relief of debts, or seeks
appointment of a receiver, trustee, custodian or other similar official for
the Tenant or for any substantial part of its property, or any such
proceeding is commenced against Tenant and either remains undismissed for a
period of sixty (60) days or results in the entry of an order for relief
against Tenant which is not fully stayed within seven days after entry;
(2) Tenant becomes insolvent or bankrupt, does not generally pay its
debts as they become due, or admits in writing its inability to pay its
debts, or makes a general assignment for the benefit of creditors;
(3) Any third party obtains a levy or attachment under process of law
against Tenant's leasehold interest.
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E. Vacation or Abandonment Default. Tenant vacates or abandons the
Premises.
13. LANDLORD REMEDIES.
A. Termination of Lease or Possession. If Tenant defaults and does not
cure such default within the applicable cure period, if any, Landlord may elect
by notice to Tenant either to terminate this Lease or to terminate Tenant's
possession of the Premises without terminating this Lease. In either case,
Tenant shall immediately vacate the Premises and deliver possession to Landlord,
and Landlord may repossess the Premises and may, at Tenant's sole cost, remove
any of Tenant's signs and any of its other property, without relinquishing its
right to receive Rent or any other right against Tenant.
B. Lease Termination Damages. If Landlord terminates the Lease, Tenant
shall pay to Landlord all Rent due on or before the date of termination, plus
Landlord's reasonable estimate of the aggregate Rent that would have been
payable from the date of termination through the Termination Date, reduced by
the rental value of the Premises calculated as of the date of termination for
the same period, taking into account anticipated vacancy prior to reletting,
reletting expenses and market concessions, both discounted to present value at
the rate of seven percent (7%) per annum. If Landlord shall relet any part of
the Premises for any part of such period before such present value amount shall
have been paid by Tenant or finally determined by a court, then the amount of
Rent payable pursuant to such reletting (taking into account vacancy prior to
reletting and any reletting expenses or concessions) shall be deemed to be the
reasonable rental value for that portion of the Premises relet during the period
of the reletting. Landlord agrees to use reasonable efforts to relet the
Premises and otherwise mitigate any damages arising out of Tenant's default.
C. Possession Termination Damages. If Landlord terminates Tenant's right
to possession without terminating the Lease and Landlord takes possession of the
Premises itself, Landlord may relet any part of the Premises for such Rent, for
such time, and upon such terms as Landlord in its sole discretion shall
determine, without any obligation to do so prior to renting other vacant areas
in the Project. Any proceeds from reletting the Premises shall first be applied
to the expenses of reletting, including redecoration, repair, alteration,
advertising, brokerage, legal, and other reasonably necessary expenses. If the
reletting proceeds after payment of expenses are insufficient to pay the full
amount of Rent under this Lease, Tenant shall pay such deficiency to Landlord
monthly upon demand as it becomes due. Any excess proceeds shall be retained by
Landlord.
D. Landlord's Remedies Cumulative. All of Landlord's remedies under this
Lease shall be in addition to all other remedies Landlord may have at law or in
equity. Waiver by Landlord of any breach of any obligation by Tenant shall be
effective only if it is in writing, and shall not be deemed a waiver of any
other breach, or any subsequent breach of the same obligation. Landlord's
acceptance of payment by Tenant shall not constitute a waiver of any breach by
Tenant, and if the acceptance occurs after Landlord's notice to Tenant, or
termination of the Lease or of Tenant's right to possession, the acceptance
shall not affect such notice or termination. Acceptance of payment by Landlord
after commencement of a legal proceeding or
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final judgment shall not affect such proceeding or judgment. Landlord may
advance such monies and take such other actions for Tenant's account as
reasonably may be required to cure or mitigate any default by Tenant. Tenant
shall immediately reimburse Landlord for any such advance, and such sums shall
bear interest at the default interest rate under Section 2D(2) above until paid.
E. Waiver of Trial by Jury. EACH PARTY WAIVES TRIAL BY JURY IN THE EVENT
OF ANY LEGAL PROCEEDING BROUGHT BY THE OTHER IN CONNECTION WITH THIS LEASE.
EACH PARTY SHALL BRING ANY ACTION AGAINST THE OTHER IN CONNECTION WITH THIS
LEASE IN A FEDERAL OR STATE COURT LOCATED IN TRAVIS COUNTY, TEXAS, CONSENTS TO
THE JURISDICTION OF SUCH COURTS, AND WAIVES ANY RIGHT TO HAVE ANY PROCEEDING
TRANSFERRED FROM SUCH COURTS ON THE GROUND OF IMPROPER VENUE OR INCONVENIENT
FORUM.
F. Litigation Costs. The prevailing party in any dispute between
Landlord and Tenant concerning this Lease shall be entitled to recover its
reasonable attorneys' fees and other costs in enforcing this Lease, whether or
not suit is filed, from the non-prevailing party.
14. SURRENDER. Upon termination of this Lease or Tenant's right to
possession, Tenant shall return the Premises to Landlord broom clean and in good
order and condition, ordinary wear and casualty damage excepted. If Landlord
requires Tenant to remove any alterations as permitted under Section 5 hereof,
then Tenant shall remove the alterations in a good and workmanlike manner and
restore the Premises to its condition prior to their installation.
15. HOLDOVER. Tenant shall have no right to holdover possession of the
Premises after the expiration or termination of this Lease without Landlord's
prior written consent, which Landlord may withhold in its sole and absolute
discretion. If, however, Tenant retains possession of any part of the Premises
after the Term, Tenant shall become a month-to-month tenant for the entire
Premises upon all of the terms of this Lease as might be applicable to such
month-to-month tenancy, except that Tenant shall pay all of Base Rent and
Operating Cost Share Rent at one hundred fifty percent (150%) of the rate in
effect immediately prior to such holdover, computed on a monthly basis for each
full or partial month Tenant remains in possession. Tenant shall also pay
Landlord all of Landlord's direct and, if Tenant fails to surrender the Premises
within thirty (30) days of written notice, Landlord's consequential damages. No
acceptance of Rent or other payments by Landlord under these holdover provisions
shall operate as a waiver of Landlord's right to regain possession upon demand,
or any other of Landlord's remedies.
16. SUBORDINATION TO GROUND LEASES AND MORTGAGES.
A. Subordination. This Lease shall be subordinate to any present or
future ground lease or mortgage respecting the Building or any other portion of
the Project, and any amendments to such ground lease or mortgage, at the
election of the ground lessor or mortgagee as the case may be, effected by
notice to Tenant in the manner provided in this Lease. The subordination shall
be effective upon such notice, but at the request of Landlord or ground lessor
or mortgagee,
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Tenant shall within fifteen (15) days of the request, execute and deliver to the
requesting party any reasonable documents provided to evidence the
subordination.
B. Termination of Ground Lease or Foreclosure of Mortgage. If any ground
lease is terminated or mortgage foreclosed or deed in lieu of foreclosure given
and the ground lessor, mortgagee, or purchaser at a foreclosure sale shall
thereby become the owner of the Building, then, at the option of such ground
lessor, mortgagee or purchaser and conditioned upon its agreement not to disturb
Tenant's quiet possession of the Premises so long as Tenant is not in default
hereunder, Tenant shall attorn to such ground lessor or mortgagee or purchaser
without any deduction or setoff by Tenant, and this Lease shall continue in
effect as a direct lease between Tenant and such ground lessor, mortgagee or
purchaser. The ground lessor or mortgagee or purchaser shall be liable as
Landlord only during the time such ground lessor or mortgagee or purchaser is
the owner of the Building. At the request of Landlord, ground lessor or
mortgagee, Tenant shall execute and deliver within ten (10) days of the request
any document furnished by the requesting party to evidence Tenant's agreement to
attorn and the ground lessor or mortgagee's agreement not to disturb Tenant's
quiet possession, so long as Tenant is not in default hereunder.
C. Security Deposit. Any ground lessor or mortgagee shall be responsible
for the return of any security deposit by Tenant only to the extent the security
deposit is received by such ground lessor or mortgagee. Tenant shall not be
required to place any additional security deposit with such ground lessor or
mortgagee beyond that already then required and in place under this Lease.
D. Notice and Right to Cure. The Building is subject to any ground lease
and mortgage identified with name and address of ground lessor or mortgagee in
Appendix D to this Lease (as the same may be amended from time to time by
written notice to Tenant). Tenant agrees to send by registered or certified
mail to any ground lessor or mortgagee identified either in such Appendix or in
any later notice from Landlord to Tenant a copy of any notice of default sent by
Tenant to Landlord. If Landlord fails to cure such default within the required
time period under this Lease, but ground lessor or mortgagee begins to cure
within ten (10) days after such period and proceeds diligently to complete such
cure, then ground lessor or mortgagee shall have such additional time as is
reasonably necessary to complete such cure, including any time necessary to
obtain possession if possession is necessary to cure, and Tenant shall not begin
to enforce its remedies so long as the cure is being diligently pursued.
E. Definitions. As used in this Section 16, "mortgage" shall include
"deed of trust" and "mortgagee" shall include "beneficiary" under such deed of
trust, "mortgagee" shall include the mortgagee of any ground lessee, and "ground
lessor", "mortgagee", and "purchaser at a foreclosure sale" shall include, in
each case, all of its successors and assigns, however remote.
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17. ASSIGNMENT AND SUBLEASE.
A. In General. Tenant shall not, without the prior consent of Landlord
in each case, (i) make or allow any assignment or transfer, by operation of law
or otherwise, of any part of Tenant's interest in this Lease, (ii) grant or
allow any lien or encumbrance, by operation of law or otherwise, upon any part
of Tenant's interest in this Lease, (iii) sublet any part of the Premises, or
(iv) permit anyone other than Tenant and its employees, resellers and supplier
partners to occupy any part of the Premises, provided that such resellers and
supplier partners shall not be separately identified to the outside public.
Tenant shall remain primarily liable for all of its obligations under this
Lease, notwithstanding any assignment or transfer. No consent granted by
Landlord shall be deemed to be a consent to any subsequent assignment or
transfer, lien or encumbrance, sublease or occupancy. Tenant shall pay all of
Landlord's reasonable attorneys' fees and other expenses incurred in connection
with any consent requested by Tenant or in reviewing any proposed assignment or
subletting. Any assignment or transfer, grant of lien or encumbrance, or
sublease or occupancy without Landlord's prior written consent shall be void. If
Tenant shall assign this Lease other than as permitted herein or sublet the
Premises in its entirety, any rights of Tenant to renew this Lease, extend the
Term or to lease additional space in the Project shall be extinguished thereby
and will not be transferred to the assignee or subtenant, all such rights being
personal to the Tenant named herein. The sale, conveyance or issuance of
capital stock of Tenant shall not constitute an assignment of this Lease.
B. Landlord's Consent. Landlord will not unreasonably withhold its
consent to any proposed assignment or subletting. It shall be reasonable for
Landlord to withhold its consent to any assignment or sublease if (i) Tenant is
in default under this Lease, (ii) the proposed assignee or sublessee is a tenant
in the Project or an affiliate of such a tenant or a party that Landlord has
identified as a prospective tenant in the Project, (iii) the financial
responsibility and nature of business of the proposed assignee or subtenant are
not all reasonably satisfactory to Landlord, (iv) in the reasonable judgment of
Landlord the purpose for which the assignee or subtenant intends to use the
Premises (or a portion thereof) is not in keeping with Landlord's standards for
the Project or the Building or are in violation of the terms of this Lease or
any other leases in the Project, (v) the proposed assignee or subtenant is a
government entity, or (vi) the proposed assignment (but not a sublease) is for
less than the entire Premises or for less than the remaining Term of the Lease.
The foregoing shall not exclude any other reasonable basis for Landlord to
withhold its consent.
C. Procedure. Tenant shall notify Landlord of any proposed assignment or
sublease at least thirty (30) days prior to its proposed effective date. The
notice shall include the name and address of the proposed assignee or subtenant,
its corporate affiliates in the case of a corporation and its partners in a case
of a partnership, an execution copy of the proposed assignment or sublease, and
sufficient information to permit Landlord to determine the financial
responsibility of the proposed assignee or subtenant. As a condition to any
effective assignment of this Lease, the assignee shall execute and deliver in
form satisfactory to Landlord at least fifteen (15) days prior to the effective
date of the assignment, an assumption of all of the obligations of Tenant under
this Lease. As a condition to any effective sublease, subtenant shall execute
and deliver in form satisfactory to Landlord prior to the effective date of the
sublease, an agreement to comply
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with all of Tenant's obligations under this Lease, and at Landlord's option, an
agreement (except for the economic obligations which subtenant will undertake
directly to Tenant) to attorn to Landlord under the terms of the sublease in the
event this Lease terminates before the sublease expires.
D. Excess Payments. If Tenant shall assign this Lease or sublet any part
of the Premises for consideration in excess of the pro-rata portion of Rent
applicable to the space subject to the assignment or sublet, then Tenant shall
pay to Landlord as Additional Rent 50% of any such excess immediately upon
receipt.
E. Recapture. Landlord may, by giving written notice to Tenant within
thirty (30) days after receipt of Tenant's notice of assignment or subletting,
terminate this Lease with respect to the space described in Tenant's notice, as
of the effective date of the proposed assignment or sublease and all obligations
under this Lease as to such space shall expire except as to any obligations that
expressly survive any termination of this Lease.
18. CONVEYANCE BY LANDLORD. If Landlord shall at any time transfer its
interest in the Building or this Lease, Landlord shall be released of any
obligations occurring after such transfer provided any transferee of Landlord
assumes in writing all of Landlord's obligations under this Lease, including the
return of any security deposit delivered to such transferee, except that
Landlord shall not be released of the obligation to return to Tenant any
security deposit not delivered to its transferee. Tenant shall look solely to
Landlord's successors for performance of such obligations. This Lease shall not
be affected by any such transfer.
19. ESTOPPEL CERTIFICATE; FINANCIAL STATEMENTS. Tenant shall, within ten
(10) days of receiving a request from Landlord, execute, and deliver to
Landlord or its designee (i) financial statements, including an income statement
and balance sheet, for Tenant's most recently ended fiscal year, provided that
any recipient thereof executes a reasonable non-disclosure agreement so long as
Tenant's stock is privately held, and (ii) a certificate acknowledged in
recordable form stating, subject to a specific statement of any applicable
exceptions, that the Lease as amended to date is in full force and effect, that
the Tenant is paying Rent and other charges on a current basis, and that to the
best of the knowledge of Tenant, Landlord has committed no uncured defaults and
Tenant has no offsets or claims. Tenant may also be required to state the date
of commencement of payment of Rent, the Commencement Date, the Termination Date,
the Base Rent, the current Operating Cost Share Rent estimate, the status of any
improvements required to be completed by Landlord, the amount of any security
deposit, and such other matters as may be reasonably requested. Failure to
deliver such statement after a second 5-day notice shall be conclusive evidence
against Tenant that this Lease, with any amendments identified by Landlord, is
in full force and effect, that there are no uncured defaults by Landlord, that
not more than one month's Rent has been paid in advance, that Tenant has not
paid any security deposit in excess of that set forth herein, and that Tenant
has no claims or offsets against Landlord.
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20. SECURITY DEPOSIT. Tenant shall deposit with Landlord within ten (10)
days after Landlord gives Tenant the notice required under Section 1.B. hereof
security (the "Security Deposit") for the performance of all of its obligations
in the amount set forth on the Schedule, which security shall be in the form of
an unconditional and irrevocable letter of credit (the "Letter of Credit") (i)
in form and substance reasonably satisfactory to Landlord, (ii) naming Landlord
or its assignees as beneficiary, (iii) expressly allowing Landlord to draw upon
it at any time from time to time by delivering to the issuer notice that
Landlord is entitled to draw thereunder, (iv) drawable on an FDIC-insured
financial institution reasonably satisfactory to Landlord, and (v) redeemable in
the state of Landlord's choice. If Tenant does not provide Landlord with a
substitute Letter of Credit complying with all of the requirements hereof at
least ten (10) days before the stated expiration date of the current Letter of
Credit, then Landlord shall have the right to draw upon the current Letter of
Credit and hold the funds drawn as the Security Deposit until a substitute
Letter of Credit is provided. If Tenant defaults under this Lease (after lapse
of any applicable notice and cure period), Landlord may use any part of the
Security Deposit to pay or perform any obligation of Tenant under this Lease as
permitted hereunder, or to compensate Landlord for any loss or damage resulting
from any such default as permitted hereunder. To the extent any portion of the
Security Deposit is used, Tenant shall within five (5) days after demand from
Landlord reinstate the Security Deposit to its full amount. Landlord shall
return the Letter of Credit to Tenant upon the earlier to occur of (i) thirty
(30) days after the end of the Term, provided Tenant has performed all of its
obligations under this Lease and returned the Premises to Landlord at the end of
the Term or (ii) Tenant's delivery to Landlord of audited financial statements
showing that Tenant has earned a net operating profit for four (4) consecutive
calendar quarters following the Commencement Date, provided Tenant deposits in
cash with Landlord, prior to such return, a replacement Security Deposit equal
to $115,000.00. The Security Deposit shall not serve as an advance payment of
Rent or a measure of Landlord's damages for any default under this Lease. If
Landlord transfers its interest in the Project or this Lease, Landlord may
transfer the Security Deposit to its transferee. Upon such transfer and
assumption by the transferee of the obligation to return the Security Deposit,
Landlord shall have no further obligation to return the Security Deposit to
Tenant, and Tenant's right to the return of the Security Deposit shall apply
solely against Landlord's transferee.
21. FORCE MAJEURE. Landlord shall not be in default under this Lease to
the extent Landlord is unable to perform any of its obligations on account of
any strike or labor problem, energy shortage, governmental pre-emption or
prescription, national emergency, or any other cause of any kind beyond the
reasonable control of Landlord ("Force Majeure").
22. NOTICES. All notices, consents, approvals and similar communications
to be given by one party to the other under this Lease, shall be given in
writing, mailed or personally delivered as follows:
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A. Landlord. To Landlord as follows:
CarrAmerica Realty, L.P.
t/a Riata Corporate Park
400 West 15th Street, Suite 1400
Austin, Texas 78701
Attn: Market Officer
with a copy to:
CarrAmerica Realty Corporation
1700 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attn: Lease Administration
or to such other person at such other address as Landlord may designate by
notice to Tenant.
B. Tenant. To Tenant as follows:
(i) Prior to the Commencement Date:
NetSolve, Incorporated
9130 Jollyville Road, Suite 200
Austin, Texas 78759
Attn: Chief Financial Officer
(ii) On or after the Commencement Date:
NetSolve, Incorporated
12,331-A Riata Trace Parkway
Austin, Texas 78727
Attn: Chief Financial Officer
with a copy to:
L. Scott Austin, Esq.
Worsham, Forsythe & Wooldridge, L.L.P.
1601 Bryan Street, 30th Floor
Dallas, Texas 75201
or to such other person at such other address as Tenant may designate by notice
to Landlord.
Mailed notices shall be sent by United States certified or registered mail,
or by a reputable national overnight courier service, postage prepaid. Mailed
notices or notices sent by overnight courier shall be deemed to have been given
on the earlier of actual delivery or attempted delivery.
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23. QUIET POSSESSION. So long as Tenant shall perform all of its
obligations under this Lease, Tenant shall enjoy peaceful and quiet possession
of the Premises against any party claiming through the Landlord.
24. REAL ESTATE BROKER. Tenant represents to Landlord that Tenant has not
dealt with any real estate broker with respect to this Lease except for any
broker(s) listed in the Schedule, and no other broker is in any way entitled to
any broker's fee or other payment in connection with this Lease. Tenant shall
indemnify and defend Landlord against any claims by any other broker or third
party for any payment of any kind in connection with this Lease. Landlord shall
be responsible for all commissions owing to Landlord's Real Estate Broker and
Tenant's Real Estate Broker in connection with this Lease pursuant to separate
written agreements. Such separate agreement between Landlord and Tenant's Real
Estate Broker is dated September 4, 1997, and under certain circumstances may
obligate Landlord to pay commissions in connection with expansion or renewal
rights exercised by Tenant pursuant to this Lease. Tenant's Real Estate Broker
shall be a third-party beneficiary with respect to any obligations imposed upon
Landlord pursuant to the preceding two sentences.
25. MISCELLANEOUS.
A. Successors and Assigns. Subject to the limits on Tenant's assignment
contained in Section 17, the provisions of this Lease shall be binding upon and
inure to the benefit of all successors and assigns of Landlord and Tenant.
B. Date Payments Are Due. Except for payments to be made by Tenant under
this Lease which are due upon demand, Tenant shall pay to Landlord any amount
for which Landlord renders a statement of account for amounts validly due under
this Lease within twenty (20) days of Tenant's receipt of Landlord's statement.
C. Meaning of "Landlord", "Re-Entry, "including" and "Affiliate". The
term "Landlord" means only the owner of the Project and the lessor's interest in
this Lease from time to time. The words "re-entry" and "re-enter" are not
restricted to their technical legal meaning. The words "including" and similar
words shall mean "without limitation." The word "affiliate" shall mean a person
or entity controlling, controlled by or under common control with the applicable
entity. "Control" shall mean the power directly or indirectly, by contract or
otherwise, to direct the management and policies of the applicable entity.
D. Time of the Essence. Time is of the essence of each provision of this
Lease.
E. No Option. This document shall not be effective for any purpose until
it has been executed and delivered by both parties; execution and delivery by
one party shall not create any option or other right in the other party.
F. Severability. The unenforceability of any provision of this Lease
shall not affect any other provision.
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G. Governing Law. This Lease shall be governed in all respects by the
laws of the state in which the Project is located, without regard to the
principles of conflicts of laws.
H. Lease Modification. Tenant agrees to modify this Lease in any way
requested by a mortgagee which does not cause increased expense to Tenant or
otherwise materially adversely affect Tenant's interests under this Lease.
I. No Oral Modification. No modification of this Lease shall be
effective unless it is a written modification signed by both parties.
J. Landlord's Right to Cure. If Landlord breaches any of its obligations
under this Lease, Tenant shall notify Landlord in writing and shall take no
action respecting such breach so long as Landlord promptly begins to cure the
breach and diligently pursues such cure to its completion. Landlord may cure
any default by Tenant; any expenses incurred shall become Additional Rent due
from Tenant on demand by Landlord.
K. Captions. The captions used in this Lease shall have no effect on the
construction of this Lease.
L. Authority. Landlord and Tenant each represents to the other that it
has full power and authority to execute and perform this Lease.
M. Landlord's Enforcement of Remedies. Landlord may enforce any of its
remedies under this Lease either in its own name or through an agent.
N. Entire Agreement. This Lease, together with all Appendices,
constitutes the entire agreement between the parties. No representations or
agreements of any kind have been made by either party which are not contained in
this Lease.
O. Landlord's Title. Landlord's title shall always be paramount to the
interest of the Tenant, and nothing in this Lease shall empower Tenant to do
anything which might in any way impair Landlord's title.
P. Light and Air Rights. Landlord does not grant in this Lease any
rights to light and air in connection with the Building or the Project.
Landlord reserves to itself all land within the Project, the Building below the
improved floor of each floor of the Premises, the Building above the ceiling of
each floor of the Premises, the exterior of the Premises and the areas on the
same floor outside the Premises, along with the areas within the Premises
required for the installation and repair of utility lines and other items
required to serve other tenants of the Building.
Q. Singular and Plural. Wherever appropriate in this Lease, a singular
term shall be construed to mean the plural where necessary, and a plural term
the singular. For example, if at any time two parties shall constitute Landlord
or Tenant, then the relevant term shall refer to both parties together.
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R. No Recording by Tenant. Tenant shall not record in any public records
any memorandum or any portion of this Lease.
S. Exclusivity. Landlord does not grant to Tenant in this Lease any
exclusive right except the right to occupy its Premises.
T. No Construction Against Drafting Party. The rule of construction that
ambiguities are resolved against the drafting party shall not apply to this
Lease.
U. Survival. All obligations of Landlord and Tenant under this Lease
which by their nature are intended to survive the termination of this Lease
shall do so.
V. Rent Not Based on Income. No rent or other payment in respect of the
Premises shall be based in any way upon net income or profits from the Premises.
Tenant may not enter into or permit any sublease or license or other agreement
in connection with the Premises which provides for a rental or other payment
based on net income or profit.
W. Building Manager and Service Providers. Landlord may perform any of
its obligations under this Lease through its employees or third parties hired by
the Landlord.
X. Late Charge and Interest on Late Payments. Without limiting the
provisions of Section 12A, if Tenant fails to pay any installment of Rent or
other charge to be paid by Tenant pursuant to this Lease within five (5)
business days after the same becomes due and payable, then Tenant shall pay a
late charge equal to the greater of five percent (5%) of the amount of such
payment or $250. In addition, interest shall be paid by Tenant to Landlord on
any late payments of Rent from the date due until paid at the rate provided in
Section 2D(2). Such late charge and interest shall constitute Additional Rent
due and payable by Tenant to Landlord upon the date of payment of the delinquent
payment referenced above.
Y. Usury Savings. All agreements between Landlord and Tenant, whether
now existing or hereafter arising and whether written or oral, are hereby
expressly limited so that in no contingency or event whatsoever shall the amount
contracted for, charged or received by Landlord for the use, forbearance or
retention of money hereunder or otherwise exceed the maximum amount which
Landlord is legally entitled to contract for, charge or collect under the
applicable state or federal law. If, from any circumstance whatsoever,
fulfillment of any provision hereof at the time performance of such provision
shall be due shall involve transcending the limit of validity prescribed by law,
then the obligation to be fulfilled shall be automatically reduced to the limit
of such validity, and if from any such circumstance Landlord shall ever receive
as interest or otherwise an amount in excess of the maximum that can be legally
collected, then such amount which would be excessive interest shall be applied
to the reduction of rent hereunder, and if such amount which would be excessive
interest exceeds such rent, then such additional amount shall be refunded to
Tenant.
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Z. Waiver of Warranties. TENANT HEREBY WAIVES THE BENEFIT OF ALL
WARRANTIES, EXPRESSED OR IMPLIED, WITH RESPECT TO THE PREMISES INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED WARRANTY THAT THE PREMISES ARE SUITABLE FOR ANY
COMMERCIAL OR OTHER PARTICULAR PURPOSE.
AA. Effective Date. Any reference contained in this Lease to the
"Effective Date," "date hereof" or similar terms shall mean the last date on
which any party required to execute or initial this Lease does so, and such date
shall be set forth in the first paragraph of this Lease where indicated.
BB. Special Provisions. Certain special provisions of this Lease are
attached hereto as Appendix F and incorporated herein by this reference.
26. UNRELATED BUSINESS INCOME. If Landlord is advised by its counsel at
any time that any part of the payments by Tenant to Landlord under this Lease
may be characterized as unrelated business income under the United States
Internal Revenue Code and its regulations, then Tenant shall enter into any
amendment proposed by Landlord to avoid such income, so long as the amendment
does not require Tenant to make more payments or accept fewer services from
Landlord, than this Lease provides.
27. HAZARDOUS SUBSTANCES. Tenant shall not cause or permit any Hazardous
Substances to be brought upon, produced, stored, used, discharged or disposed of
in or near the Project unless Landlord has consented to such storage or use in
its sole discretion; provided, however, outdoor fuel storage for Tenant's
generator and indoor storage of batteries for Tenant's uninterrupted power
supply systems shall be permitted so long as such materials are used, stored,
handled and disposed of in compliance with Environmental Laws (as defined
below). "Hazardous Substances" include those hazardous substances described in
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. Section 9601 et seq., the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. Section 6901 et seq., any other applicable
federal, state or local law, and the regulations adopted under these laws
(collectively, "Environmental Laws"). If any lender or governmental agency
shall require testing for Hazardous Substances in the Premises, Tenant shall pay
for such testing. Tenant agrees to indemnify and hold Landlord harmless from
all claims, demands, actions, liabilities, costs, expenses, damages and
obligations of any nature arising from the contamination of the Project with
Hazardous Substances as a result of or arising out of the use or occupancy of
the Premises by Tenant. The foregoing indemnification shall survive the
termination or expiration of this Lease.
28. LANDLORD'S DEFAULT; EXCULPATION. In the event of any default by
Landlord, Tenant will give Landlord written notice specifying such default with
particularity, and Landlord shall there upon have thirty (30) days (or such
longer period as may be required in the exercise of due diligence) in which to
cure any such default. Unless and until Landlord fails to cure any default
after such notice and cure period, Tenant shall not have any remedy or cause of
action by reason thereof. In event of any default by Landlord continuing after
such notice and
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cure period, Tenant's exclusive remedy shall be an action for
damages. Landlord shall have no personal liability under this Lease; its
liability shall be limited to its interest in the Building, and shall not extend
to any other property or assets of the Landlord. In no event shall any officer,
director, employee, agent, shareholder, partner, member or beneficiary of
Landlord be personally liable for any of Landlord's obligations hereunder, and
in no event shall any officer, director, employee, agent, shareholder, partner,
member or beneficiary of Tenant be personally liable for any of Tenant's
obligations hereunder.
29. LANDLORD'S LIEN. LANDLORD SHALL HAVE AND TENANT HEREBY GRANTS TO
LANDLORD A CONTINUING SECURITY INTEREST FOR ALL RENT AND OTHER SUMS OF MONEY
BECOMING DUE HEREUNDER FROM TENANT, UPON ALL GOODS, WARES, EQUIPMENT, FIXTURES,
FURNITURE AND INVENTORY SITUATED ON THE PREMISES, WHICH IS LOCATED AT 12,331-A,
12,331-B OR 12,357-A, RIATA TRACE PARKWAY, AUSTIN, TEXAS, AND SUCH PROPERTY
SHALL NOT BE REMOVED THEREFROM OTHER THAN IN THE ORDINARY COURSE OF BUSINESS
WITHOUT THE CONSENT OF LANDLORD UNTIL ALL ARREARAGES IN RENT AS WELL AS ANY AND
ALL OTHER SUMS OF MONEY THEN DUE TO LANDLORD HEREUNDER SHALL FIRST HAVE BEEN
PAID AND DISCHARGED. PRODUCTS OF COLLATERAL ARE ALSO COVERED. IN THE EVENT OF
A DEFAULT UNDER THIS LEASE, LANDLORD SHALL HAVE, IN ADDITION TO ANY OTHER
REMEDIES PROVIDED HEREIN OR BY LAW, ALL RIGHTS AND REMEDIES UNDER THE UNIFORM
COMMERCIAL CODE, INCLUDING WITHOUT LIMITATION THE RIGHT TO SELL THE PROPERTY
DESCRIBED IN THIS PARAGRAPH AT PUBLIC OR PRIVATE SALE UPON FIVE (5) DAYS NOTICE
TO TENANT. TENANT HEREBY AGREES TO EXECUTE SUCH OTHER INSTRUMENTS REASONABLY
REQUIRED TO PERFECT THE SECURITY INTEREST HEREBY CREATED. ANY STATUTORY LIEN
FOR RENT IS NOT HEREBY WAIVED, THE EXPRESS CONTRACTUAL LIEN HEREIN GRANTED BEING
IN ADDITION AND SUPPLEMENTARY THERETO. LANDLORD AND TENANT AGREE THAT THIS
LEASE AND SECURITY AGREEMENT SERVES AS A FINANCING STATEMENT AND THAT A COPY OR
PHOTOGRAPHIC OR OTHER REPRODUCTION OF THIS PORTION OF THIS LEASE MAY BE FILED OF
RECORD BY LANDLORD AND HAVE THE SAME FORCE AND EFFECT AS THE ORIGINAL. THIS
SECURITY AGREEMENT AND FINANCING STATEMENT ALSO COVERS FIXTURES LOCATED AT THE
PREMISES, AND MAY BE FILED FOR RECORD IN THE REAL ESTATE RECORDS. TENANT
WARRANTS THAT THE COLLATERAL SUBJECT TO THE SECURITY INTEREST GRANTED HEREIN IS
NOT PURCHASED OR USED BY TENANT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES.
NOTWITHSTANDING THE FOREGOING, LANDLORD SHALL, UPON REQUEST BY TENANT,
SUBORDINATE ITS SECURITY INTEREST AS AFORESAID TO ANY LINE OF CREDIT LENDER
AND/OR ANY EQUIPMENT LESSOR DESIGNATED BY TENANT, PURSUANT TO A SUBORDINATION
AGREEMENT REASONABLY ACCEPTABLE TO LANDLORD.
IN WITNESS WHEREOF, the parties hereto have executed this Lease.
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LANDLORD:
CARRAMERICA REALTY, L.P., a Delaware limited
partnership, t/a Riata Corporate Park
Address: By: CarrAmerica Realty GP Holdings, Inc., a
Delaware corporation, General Partner
400 West 15th Street, Suite 1400
Austin, Texas 78701
Attn: Market Officer By: /s/ Robert E. Peterson
-------------------------------------------
Name: Robert E. Peterson
-----------------------------------------
Title: Vice President
----------------------------------------
TENANT:
Address: NETSOLVE, INCORPORATED, a Delaware corporation
9130 Jollyville Road, Suite 200
Austin, Texas 78759 By: /s/ Ken Kieley
Attn: Chief Financial Officer -------------------------------------------
Name: Ken Kieley
-----------------------------------------
Title: VP Finance & CFO
----------------------------------------
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APPENDIX A
LEGAL DESCRIPTION OF LAND AND PLAN OF THE PREMISES
Lots 4, 5, 6, 7 and 9, Amended Plat, Riata Section Two, Block B, recorded
in Book 98, Page 19, of the Plat Records of Travis County, Texas.
(see attached floor plan depicting the Premises)
A-1
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APPENDIX A-1
INITIAL PROJECT SITE PLAN
A-1
<PAGE>
APPENDIX B
RULES AND REGULATIONS
1. Tenant shall not place anything, or allow anything to be placed near
the glass of any window, door, partition or wall which may, in Landlord's
reasonable judgment, appear unsightly from outside of the Building.
2. The Building directory shall be available to Tenant solely to display
names and their location in the Building, which display shall be as directed by
Landlord.
3. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used by Tenant for any purposes
other than for ingress to and egress from the Premises. Tenant shall lend its
full cooperation to keep such areas free from all obstruction and in a clean and
sightly condition and shall move all supplies, furniture and equipment as soon
as received directly to the Premises and move all such items and waste being
taken from the Premises (other than waste customarily removed by employees of
the Building) directly to the shipping platform at or about the time arranged
for removal therefrom. The halls, passages, exits, entrances, elevators,
stairways, balconies and roof are not for the use of the general public and
Landlord shall, in all cases, retain the right to control and prevent access
thereto by all persons whose presence in the judgment of Landlord, reasonably
exercised, shall be prejudicial to the safety, character, reputation and
interests of the Building. Neither Tenant nor any employee or invitee of Tenant
shall go upon the roof of the Building.
4. The toilet rooms, urinals, wash bowls and other apparatuses shall not
be used for any purposes other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein, and to the
extent caused by Tenant or its employees or invitees, the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by Tenant.
5. Tenant shall not cause any unnecessary janitorial labor or services by
reason of Tenant's carelessness or indifference in the preservation of good
order and cleanliness.
6. Tenant shall not install or operate any refrigerating, heating or air
conditioning apparatus, or carry on any mechanical business without the prior
written consent of Landlord, which shall not be unreasonably withheld; use the
Premises for housing, lodging or sleeping purposes; or permit preparation or
warming of food in the Premises (warming of coffee and individual meals with
employees and guests excepted). Tenant shall not occupy or use the Premises or
permit the Premises to be occupied or used for any purpose, act or thing which
is in violation of any Governmental Requirement or which may be dangerous to
persons or property.
7. Tenant shall not bring upon, use or keep in the Premises or the
Building any kerosene, gasoline or inflammable or combustible fluid or material,
or any other articles deemed hazardous to persons or property, or use any method
of heating or air conditioning other than that supplied by Landlord, except as
permitted under the Lease.
B-1
<PAGE>
8. Landlord shall have sole power to direct electricians as to where and
how telephone and other wires are to be introduced. No boring or cutting for
wires is to be allowed without the consent of Landlord. The location of
telephones, call boxes and other office equipment affixed to the Premises shall
be subject to the reasonable approval of Landlord.
9. Without the prior written consent of Landlord, which shall not be
unreasonably withheld, no additional locks shall be placed upon any doors,
windows or transoms in or to the Premises, and Tenant shall not change existing
locks or the mechanism thereof. Upon termination of the lease, Tenant shall
deliver to Landlord all keys (including card keys) and passes for offices,
rooms, parking lot and toilet rooms which shall have been furnished Tenant.
In the event of the loss of keys so furnished, Tenant shall pay
Landlord therefor. Tenant shall not make, or cause to be made, any such keys,
shall order all such keys solely from Landlord and shall pay Landlord $10.00
each for any keys in addition to the two sets of keys originally furnished by
Landlord for each lock, which dollar amount shall be increased only to pass
through any increases from the supplier of such additional keys.
10. Tenant shall not install linoleum, tile, carpet or other floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord.
11. No furniture, packages, supplies, equipment or merchandise will be
received in the Project or carried up or down in any elevator, except in such
elevator as shall be designated by Landlord, and with such padding or other
precautions as may be required by Landlord. Tenant shall not take or permit to
be taken in or out of other entrances of the Building any item normally taken in
or out through any trucking concourse or service doors.
12. Tenant shall cause all doors to the Premises to be closed and securely
locked and shall turn off all utilities, lights and machines before leaving the
Building at the end of the day, provided that Landlord hereby acknowledges that
Tenant may be operating its business, including the operation of computers, 24
hours a day within the Premises.
13. Without the prior written consent of Landlord, which shall not be
unreasonably withheld, Tenant shall not use the name of the Building or the
Project in connection with, or in promoting or advertising the business of,
Tenant, except Tenant may use the address of the Building as the address of its
business.
14. Tenant shall cooperate fully with Landlord to assure the most
effective operation of the Premises' or the Building's heating and air
conditioning, and shall refrain from attempting to adjust any controls, other
than room thermostats installed for Tenant's use. Tenant shall keep corridor
doors closed.
15. Tenant assumes full responsibility for protecting the Premises from
theft, robbery and pilferage, which may arise from a cause other than Landlord's
negligence, which includes keeping doors locked and other means of entry to the
Premises closed and secured.
<PAGE>
16. Peddlers, solicitors and beggars shall be reported to the office of
the Project or as Landlord otherwise requests.
17. No bicycle or other vehicle and no animals or pets shall be allowed in
the Premises, halls, freight docks, or any other parts of the Building except
that blind persons may be accompanied by "seeing eye" dogs. Tenant shall not
make or permit any noise, vibration or odor to emanate from the Premises, or do
anything therein tending to create, or maintain, a nuisance, or do any act
tending to injure the reputation of the Building or the Project.
18. Tenant acknowledges that Building or Project security problems may
occur which may require the employment of extreme security measures in the day-
to-day operation of the Building or the Project.
Accordingly:
(a) Landlord may, at any time, or from time to time, or for regularly
scheduled time periods, as deemed advisable by Landlord and/or its agents, in
their reasonable discretion, require that persons entering or leaving the
Building or the Project identify themselves to watchmen or other employees
designated by Landlord, by registration, identification or otherwise.
(b) Tenant agrees that it and its employees will cooperate fully with
Building and Project employees in the implementation of any and all security
procedures.
(c) Such security measures shall be the sole responsibility of
Landlord, and Tenant shall have no liability for any action taken by Landlord in
connection therewith, it being understood that Landlord is not required to
provide any security procedures and shall have no liability for such security
procedures or the lack thereof.
19. Tenant shall not do or permit the manufacture, sale or purchase of any
fermented, intoxicating or alcoholic beverages without obtaining written consent
of Landlord.
20. Tenant shall not disturb the quiet enjoyment of any other tenant.
21. Tenant shall not provide any janitorial services or professional
cleaning without Landlord's written consent, not to be unreasonably withheld,
and then only subject to supervision of Landlord and at Tenant's sole
responsibility and by janitor or professional cleaning contractor or employees
at all times reasonably satisfactory to Landlord.
22. No equipment, mechanical ventilators, awnings, special shades or other
forms of window covering shall be permitted either inside or outside the
exterior windows of the Premises without the prior written consent of Landlord,
and then only at the expense and risk of Tenant, and they shall be of such
shape, color, material, quality, design and make as may be reasonably approved
by Landlord.
B-3
<PAGE>
23. Tenant shall not during the term of this Lease canvas or solicit other
tenants of the Building for any purpose.
24. Tenant shall not install or operate any phonograph, musical or sound-
producing instrument or device, radio receiver or transmitter, TV receiver or
transmitter, or similar device in the Building, nor install or operate any
antenna, aerial, wires or other equipment inside or outside the Building, nor
operate any electrical device from which may emanate electrical waves to the
extent any such items interfere with or impair radio or television broadcasting
or reception from or in the Building or elsewhere, without in each instance the
prior written approval of Landlord. The use thereof, if permitted, shall be
subject to control by Landlord to the end that others shall not be disturbed.
25. Tenant shall not exhibit, sell or offer for sale, rent or exchange in
the Premises or at the Project any article, thing or service, except those
ordinarily included within the use of the Premises specified in Section 6 of
this Lease, without the prior written consent of Landlord.
26. Tenant shall not overload any floors in the Premises or any public
corridors or elevators in the Building. Upon request by Tenant, Landlord shall
provide Tenant with information as to the load limits for such areas.
27. Tenant shall not do any painting in the Premises, or mark, paint, cut
or drill into, drive nails or screws into, or in any way deface any part of the
Premises or the Building, outside or inside (other than the hanging of ordinary
art work or decorations on the inside of the Premises), without the prior
written consent of Landlord, not to be unreasonably withheld.
28. Whenever Landlord's consent, approval or satisfaction is required
under these Rules, then unless otherwise stated, any such consent, approval or
satisfaction must be obtained in advance.
29. Tenant and its employees shall cooperate in all fire drills
conducted by Landlord in the Building. Unless required otherwise by applicable
law, Tenant shall be allowed to keep essential personnel in the Building during
fire drills.
B-4
<PAGE>
APPENDIX C
TENANT IMPROVEMENT AGREEMENT
1. INITIAL IMPROVEMENTS. Landlord shall cause to be performed the
improvements (the "Initial Improvements") in the Premises in accordance with
plans and specifications approved by Tenant and Landlord (the "Plans"), which
approvals shall not be unreasonably withheld. The Initial Improvements shall be
performed at the Tenant's cost, subject to the Landlord's Contribution
(hereinafter defined). The Initial Improvements shall include Tenant's building
and common area signage.
Landlord shall cause the Plans to be prepared, at Landlord's cost as part
of Landlord's Contribution, by a registered professional architect, and
mechanical and electrical engineer(s). Within forty-five (45) days after the
date of the Lease, Landlord shall furnish the initial draft of the Plans to
Tenant for Tenant's review and approval. Tenant shall within two (2) weeks
after receipt either provide comments to such Plans or approve the same. Tenant
shall be deemed to have approved such Plans if it does not provide comments on
such Plans within such 2-week period. If Tenant provides Landlord with comments
to the initial draft of the Plans, Landlord shall provide revised Plans to
Tenant incorporating Tenant's comments within one week after receipt of Tenant's
comments. Tenant shall within one week after receipt then either provide
comments to such revised Plans or approve such Plans. Tenant shall be deemed to
have approved such revised Plans if Tenant does not provide comments on such
Plans within such 1-week period. The process described above shall be repeated,
if necessary, until the Plans have been finally approved by Tenant.
Landlord, with consultation of Tenant, shall select a contractor to perform
the construction of the Initial Improvements. Landlord shall use commercially
reasonable efforts to cause the Initial Improvements to be substantially
completed, except for minor "Punch List" items, on or before the Commencement
Date specified in the Schedule to the Lease, subject to Tenant Delay (as defined
in Section 4 hereof) and Force Majeure.
Landlord, or an agent of Landlord, shall provide project management
services in connection with the construction of the Initial Improvements and the
Change Orders (hereinafter defined). Such project management services shall be
performed, at Tenant's cost, for a fee of two percent (2%) of all costs related
to the preparation of the Plans and the construction of the Initial Improvements
and the Change Orders.
2. CHANGE ORDERS. If, prior to the Commencement Date, Tenant shall
require improvements or changes (individually or collectively, "Change Orders")
to the Premises in addition to, revision of, or substitution for the Initial
Improvements, Tenant shall deliver to Landlord for its approval plans and
specifications for such Change Orders. If Landlord does not approve of the
plans for Change Orders, Landlord shall advise Tenant of the revisions required
within five (5) business days of Landlord's receipt of such plans. Tenant shall
revise and redeliver the plans and specifications to Landlord within five (5)
business days of Landlord's advice or Tenant shall be deemed to have abandoned
its request for such Change Orders. Tenant
<PAGE>
shall pay for all preparations and revisions of plans and specifications with
respect to Change Orders, and the construction of all Change Orders, subject to
Landlord's Contribution.
3. LANDLORD'S CONTRIBUTION. Landlord shall contribute an amount up to
$19.00 per square foot of Usable Area within the Premises ("Landlord's
Contribution") toward the costs incurred for the Initial Improvements and Change
Orders, including costs for architectural and engineering services and
permitting and construction fees. Landlord has no obligation to pay for costs
of the Initial Improvements or Change Orders in excess of Landlord's
Contribution. If the cost of the Initial Improvements and/or Change Orders
exceeds the Landlord's Contribution, Tenant shall pay such overage to Landlord
fifty percent (50%) upon commencement of construction of the Initial
Improvements and/or Change Orders and fifty percent (50%) upon the later of
receipt of documentation of the final costs and the Commencement Date.
4. COMMENCEMENT DATE DELAY. Commencement Date shall be delayed until the
Initial Improvements have been substantially completed (the "Completion Date"),
except to the extent that the delay shall be caused by any one or more of the
following (a "Tenant Delay"):
(a) Tenant's request for Change Orders whether or not any such Change
Orders are actually performed; or
(b) Contractor's performance of any Change Orders; or
(c) Tenant's request for materials, finishes or installations
requiring unusually long lead times; or
(d) Tenant's delay in reviewing, revising or approving plans and
specifications beyond the periods set forth herein; or
(e) Tenant's delay in providing information critical to the normal
progression of the project. Tenant shall provide such information as soon as
reasonably possible, but in no event longer than one week after receipt of such
request for information from the Landlord; or
(f) Tenant's delay in making payments to Landlord for costs of the
Initial Improvements and/or Change Orders in excess of the Landlord's
Contribution; or
(g) Any other act or omission by Tenant, its agents, contractors or
persons employed by any of such persons.
If the Commencement Date is delayed for any reason, then Landlord shall cause
Landlord's Architect to certify the date on which the Initial Improvements would
have been completed but for such Tenant Delay, or were in fact completed without
any Tenant Delay.
5. ACCESS BY TENANT PRIOR TO COMMENCEMENT OF TERM. Landlord shall permit
Tenant and its agents to enter the Premises not less than fifteen (15) days
prior to the
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Commencement Date to prepare the Premises for Tenant's use and occupancy. Such
permission shall constitute a license only, conditioned upon Tenant's:
(a) working in harmony with Landlord and Landlord's agents,
contractors, workmen, mechanics and suppliers and with other tenants and
occupants of the Building;
(b) obtaining in advance Landlord's approval of the contractors
proposed to be used by Tenant and depositing with Landlord in advance of any
work the contractor's affidavit for the proposed work and the waivers of lien
from the contractor and all subcontractors and suppliers of material; and
(c) furnishing Landlord with such insurance as Landlord may require
against liabilities which may arise out of such entry.
Landlord shall not be liable in any way for any injury, loss or damage
which may occur to any of Tenant's property or installations in the Premises
prior to the Commencement Date. Tenant shall protect, defend, indemnify and save
harmless Landlord from all liabilities, costs, damages, fees and expenses
arising out of the activities of Tenant or its agents, contractors, suppliers or
workmen in the Premises or the Building. Any entry and occupation permitted
under this Section shall be governed by Section 5 and all other terms of the
Lease.
6. LATE COMPLETION DATE. In the event the Completion Date has not
occurred by August 21, 1998 (subject to any Tenant Delays), Landlord shall
relocate Tenant to temporary space ("Temporary Space") elsewhere. Landlord
shall deliver the Temporary Space to Tenant on or before August 21, 1998. The
Temporary Space shall be located in no more than three (3) buildings within the
Austin, Texas metropolitan area, and shall contain no less than 45,000 rentable
square feet in the aggregate in occupiable condition, but otherwise "as is."
Tenant's gross rent for the Temporary Space shall be $14.50 per rentable square
foot per year from August 21, 1998 through and including November 30, 1998, and
$0.00 per rentable square foot thereafter, continuing until Landlord delivers
the substantially completed Premises to Tenant. Landlord shall reimburse Tenant
for Tenant's reasonable cost associated with such move (including, but not
limited to, the cost of installing equipment and telecommunications lines) from
Tenant's current office space location to the Temporary Space upon Tenant's
delivery to Landlord of paid invoices evidencing such costs.
7. MISCELLANEOUS. Terms used in this Appendix C shall have the meanings
assigned to them in the Lease. The terms of this Appendix C are subject to the
terms of the Lease. Notwithstanding anything to the contrary in this Appendix
C, the total amount payable by Tenant shall not exceed $1,422,263, less the
Landlord's Contribution, but increased by the cost of any changes to the Initial
Improvements from: (i) the "Schematic Test Fit" and/or the "Architectural
Pricing Criteria for the NetSolve Lease in the Riata Office Park Austin, Texas"
each of which as prepared by RTG/Partners, Inc. and dated August 4, 1997; and/or
(ii) the "Mechanical/Electrical Pricing Criteria for the NetSolve Lease in the
Riata Office Park, Austin, Texas" prepared by MEJ & Associates, Inc. on August
5, 1997.
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APPENDIX D
MORTGAGES CURRENTLY AFFECTING THE PROJECT
None.
D-1
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APPENDIX E
COMMENCEMENT DATE CONFIRMATION
Landlord: CarrAmerica Realty, L.P., a Delaware limited partnership
t/a Riata Corporate Park
Tenant: ____________________, a _____________
This Commencement Date Confirmation is made by Landlord and Tenant pursuant
to that certain Lease dated as of _________, 199__ (the "Lease") for certain
premises known as Suite ____ in the building commonly known as [PROPERTY NAME]
(the "Premises"). This Confirmation is made pursuant to Item 9 of the Schedule
to the Lease.
1. Lease Commencement Date, Termination Date. Landlord and Tenant hereby
agree that the Commencement Date of the Lease is _____________, 199__, and the
Termination Date of the Lease is _______________, _____.
2. Acceptance of Premises. Tenant has inspected the Premises and affirms
that the Premises is acceptable in all respects in its current "as is"
condition.
3. Incorporation. This Confirmation is incorporated into the Lease, and
forms an integral part thereof. This Confirmation shall be construed and
interpreted in accordance with the terms of the Lease for all purposes.
TENANT:
NETSOLVE, INCORPORATED, a Delaware
corporation
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
LANDLORD:
CARRAMERICA REALTY, L.P., a Delaware
limited partnership
By: CarrAmerica Realty GP Holdings, Inc.,
a Delaware corporation, General Partner
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
E-1
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APPENDIX F
SPECIAL PROVISIONS
1. EXTENSION OPTION. Subject to Subsections B and C below, Tenant may at
its option extend the Term of this Lease for the entire Premises for one period
of five (5) years (the "Renewal Term") upon the same terms contained in this
Lease, excluding the provisions of Appendix C of the Lease and except for the
amount of Base Rent payable during the Renewal Term. Tenant shall have no
additional extension option.
A. The Base Rent during the Renewal Term shall be the greater of (i) the
Base Rent applicable to the last day of the final Lease Year prior to the
applicable Renewal Term, or (ii) the then prevailing market rate for a
comparable term commencing on the first day of the Renewal Term for tenants of
comparable size and creditworthiness for comparable space (including the extent
of tenant improvements) in the Project and other first class office buildings in
the vicinity of the Project as reasonably determined by Landlord.
B. To exercise its option, Tenant must deliver an initial non-binding
notice to Landlord not more than twelve (12) months, nor less than nine (9)
months, prior to the proposed commencement of the Renewal Term. Within ninety
(90) days of Landlord's receipt of Tenant's initial non-binding notice, Landlord
shall calculate and inform Tenant of the Base Rent for the Premises during the
Renewal Term. Such calculation shall be final and shall not be recalculated at
the actual commencement of the Renewal Term if any. Tenant shall give Landlord
final binding notice of intent to exercise its option to extend within fifteen
(15) days after receiving Landlord's calculation of Base Rent. If Tenant fails
to give either its initial nonbinding notice or its final binding notice timely,
Tenant will be deemed to have waived its option to extend.
C. Tenant's option to extend this Lease is subject to the conditions
that: (i) that on the date that Tenant delivers its final binding notice
exercising its option to extend, Tenant is not in default under this Lease after
the expiration of any applicable notice and cure periods, and (ii) Tenant shall
not have assigned this Lease, or sublet any portion of the Premises under a
sublease which is in effect at any time during the final 12 months of the Term.
D. Tenant agrees to accept the Premises at the commencement of the
Renewal Term in its then-present condition, "AS IS" and "WITH ALL FAULTS."
2. RIGHT OF FIRST REFUSAL. Subject to Subsection B below, Landlord
hereby grants to Tenant for the term of the Lease a right of first refusal for
the balance of the first (1st) floor of the Building, comprising approximately
21,455 Rental Square Feet (subject to adjustment pursuant to Section 1C of the
Lease) (the "Expansion Space"), to be exercised in accordance with Subsection A
below.
A. In the event Landlord receives a bona fide offer from a third party to
lease all or a portion of the Expansion Space, or Landlord makes such an offer
to a third party with respect
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to all or a portion of the Expansion Space, Landlord shall so notify Tenant
("Landlord's RFR Notice"), identifying the available Expansion Space (the "RFR
Space"). Landlord's RFR Notice shall contain the terms upon which Landlord is
willing to lease the RFR Space, including base rent at the then prevailing
market rate for a comparable term for tenants of comparable size and
creditworthiness for comparable space in the Project and other first class
office buildings in the vicinity of the Project as reasonably determined by
Landlord. Tenant shall notify Landlord within ten (10) business days of receipt
of Landlord's RFR Notice whether it desires to lease the RFR Space on the terms
set forth in Landlord's RFR Notice. If Tenant does not notify Landlord within
said 10-business day period that it will lease the RFR Space, Tenant shall be
deemed to have refused the RFR Space. After any refusal, Tenant shall have no
further right of first refusal for such RFR Space and Landlord shall be free to
lease such space to any party for any term. If Tenant exercises its right of
first refusal with respect to the RFR Space, such space shall be added to the
Premises for all purposes of this lease for the remaining Term of the Lease on
(a) the terms specified in Landlord's RFR Notice, and (b) the terms of this
Lease to the extent that they do not conflict with the terms specified in
Landlord's RFR Notice, except that the terms of Landlord's RFR Notice shall not
apply during any Renewal Term, and instead, the terms of the Lease applying to
the remainder of the Premises during the Renewal Term shall also apply to the
RFR Space.
B. Tenant's right of first refusal is subject to the conditions that:
(i) on the date that Tenant delivers its notice exercising its right of first
refusal, Tenant is not in default under this Lease after the expiration of any
applicable notice and cure periods, (ii) Tenant shall not have assigned the
Lease, or sublet any portion of the Premises under a sublease which is in effect
at any time during the period commencing with Tenant's delivery of its notice
and ending on the date the RFR Space is added to the Premises, and (iii) Tenant
failed to exercise its option under Paragraph 2 of this Appendix F to lease the
Expansion Space.
C. Promptly after Tenant's exercise of its right of first refusal under
this Paragraph 3, Landlord shall execute and deliver to Tenant an amendment to
the Lease to reflect changes in the Premises, Base Rent, Tenant's Proportionate
Share and any other appropriate terms changed by the addition of the RFR Space.
Within fifteen (15) days after Tenant's receipt of an accurate amendment from
Landlord, Tenant shall execute and return the amendment.
F-2
<PAGE>
EXHIBIT 10.3
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT (THE "LEASE") IS MADE THE 30TH DAY OF OCTOBER, 1995
BETWEEN LEASING TECHNOLOGIES INTERNATIONAL, INC., WITH ITS PRINCIPAL OFFICE AT
SOUNDVIEW PLAZA, 1266 MAIN STREET, STAMFORD, CT 06902 (THE "LESSOR"), AND
NETSOLVE, INCORPORATED, WITH ITS PRINCIPAL OFFICE AT 9130 JOLLYVILLE ROAD, SUITE
200, AUSTIN, TX 78759-7475 (THE "LESSEE"). THE PARTIES HERETO AGREE AS
FOLLOWS:
1. LEASE:
This Lease establishes the general terms and conditions by which Lessor may
lease to Lessee the Equipment (the "Equipment") listed on each Equipment
Schedule executed periodically pursuant to this Lease. Each such Equipment
Schedule shall incorporate by reference the terms of this Lease, and shall be a
separate lease agreement as to the Equipment listed thereon for all purposes,
including default. If the provisions of an Equipment Schedule conflict with the
provisions of this Lease, the provisions of such Equipment Schedule shall
prevail.
2. DEFINITIONS:
(a) The "Installation Date" means the date determined in accordance with
the applicable Equipment Schedule.
(b) The "Commencement Date" means, as to any item of the Equipment
designated on any Equipment Schedule where the Installation Date for such item
of Equipment falls on the first day of the month, that date, or, in any other
case, the first day of the month following the month in which such Installation
Date falls.
(c) The "Daily Rental" means 1/30th of the amount set forth as the monthly
rental in the applicable Equipment Schedule.
3. TERM OF LEASE:
The term of this Lease, as to all Equipment designated on any Equipment
Schedule, shall commence on the Installation Date for such Equipment, and shall
continue for an initial period ending that number of months as is specified on
the applicable Equipment Schedule from the Commencement Date for the last item
of Equipment to be installed (the "Initial Term"). The term of this Lease for
all such Equipment shall be automatically extended for successive monthly
periods until terminated in accordance with this Lease. Any termination shall
be effective only on the last day of the Initial Term or the last day of any
such successive period.
4. RENTAL:
The monthly rental payable hereunder is as set forth in the Equipment
Schedule(s). Rental shall begin to accrue on the Installation Date for each
item of Equipment and shall be due and payable by Lessee in advance on the first
day of each month. If the Installation Date does not fall
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on the first day of a month, the rental for that period of time from the
Installation Date until the Commencement Date shall be an amount equal to the
Daily Rental multiplied by the number of days from (and including) the
Installation Date to (but not including) the Commencement Date and shall be due
and payable on the Installation Date. In addition to the monthly rental set
forth in the Equipment Schedule(s), Lessee shall pay to Lessor an amount equal
to all taxes paid, payable or required to be collected by Lessor, however
designated, which are levied or based on the rental, on the Lease or on the
Equipment or on its purchase for lease hereunder, or on its use, lease,
operation, control or value (including, without limitation, state and local
privilege or excise taxes based on gross revenue), any penalties or interest in
connection therewith which are attributable to Lessee's negligence or taxes or
amounts in lieu thereof paid or payable by Lessor in respect of the foregoing,
but excluding taxes based on Lessor's net income. Personal property taxes
assessed on the Equipment during the term hereof shall be paid by Lessee. Lessee
agrees to file, on behalf of Lessor, all required property tax returns and
reports concerning the Equipment with all appropriate governmental agencies,
and, within not more than thirty (30) days after the due date of such filing to
send Lessor confirmation of such filing.
Interest on any past due payments, including but not limited to
administrative charges and any other charges or fees arising out of or related
to this Lease, shall accrue at the rate of 1 1/2% per month, or if such rate
shall exceed the maximum rate allowed by law, then at such maximum rate, and
shall be payable on demand. Charges for taxes, penalties and interest shall be
promptly paid by Lessee when invoiced by Lessor.
As security for the full performance of all of the Lessee's obligations
under each Equipment Schedule, Lessee shall, simultaneously with the execution
and delivery of each Equipment Schedule, deposit with Lessor the amount set
forth on such Equipment Schedule. The security deposit shall be promptly
returned to the Lessee by the Lessor upon the expiration of such Equipment
Schedule and return of all Equipment, provided that all Lessee obligations under
such Equipment Schedule have been fulfilled.
5. INSTALLATION, USE AND QUIET POSSESSION OF EQUIPMENT:
(a) Lessee, at its own expense, will provide the required suitable electric
current to operate the Equipment and appropriate installation facilities as
specified by the manufacturer.
(b) Any equipment, cards, disks, tapes or other items not specified in the
Equipment Schedule(s) which are used on or in connection with the Equipment must
meet the specifications of the manufacturer and shall be acquired by Lessee at
its own expense.
(c) Lessee shall use the Equipment solely in connection with Lessee's
business and for no other purpose. Subject to the preceding sentence, Lessee
shall be entitled to unlimited usage of the Equipment without extra charge by
Lessor.
(d) Unless otherwise set forth in the applicable Equipment Schedule, Lessee
will at all times keep the Equipment in its sole possession and control. The
Equipment shall not be moved from the location stated in the applicable
Equipment Schedule without the prior written consent of Lessor.
2
<PAGE>
(e) After prior notice to Lessor, Lessee may, at its own expense, make
alterations in or add attachments to the Equipment, provided such alterations or
attachments do not interfere with the normal and satisfactory operation or
maintenance of the Equipment or with Lessee's ability to obtain and maintain the
maintenance contract required by Section 5(h) hereof. The manufacturer or other
organization selected by Lessee and approved in writing by Lessor to maintain
the Equipment ("Maintenance Organization") may incorporate engineering changes
or make temporary alterations to the Equipment upon request of Lessee. All such
alterations and attachments shall be and become the property of Lessor or, at
the option of Lessee, shall be removed by Lessee and the Equipment restored, at
Lessee's expense, to its original condition as of the Installation Date thereof,
reasonable wear and tear only excepted, and upon the removal and restoration,
the alteration and/or attachment which was made by Lessee shall become the
property of Lessee.
(f) So long as Lessee is not in default hereunder, neither Lessor nor any
party claiming through or under Lessor shall interfere with Lessee's use or
possession of any Equipment during the term of this Lease.
(g) Lessee shall, during the term of this Lease, at its expense, keep the
Equipment in good working order and condition and make all necessary
adjustments, repairs and replacements and shall not use or permit the Equipment
to be used in any manner or for any purpose for which, in the opinion of the
manufacturer, the Equipment is not designed or reasonably suitable.
(h) Unless otherwise set forth in the applicable Equipment Schedule, Lessee
shall, during the term of this Lease, at its own expense, enter into and
maintain in force a contract with the manufacturer or the Maintenance
Organization covering at least prime shift maintenance of each item of
Equipment. Such contract shall commence upon expiration of the manufacturer's
warranty period, if any, relating to such item. Lessee shall furnish Lessor
with a copy of such contract(s).
(i) At the termination of the applicable Equipment Schedule, Lessee shall,
at its expense, return not less than all the Equipment subject thereto to Lessor
(at the location designated by Lessor within the Continental United States) in
the same operating order, repair, condition and appearance as on the
Installation Date, reasonable wear and tear only excepted, with all engineering
and safety changes prescribed by the manufacturer or Maintenance Organization
incorporated therein. Lessee shall, prior to such termination, arrange and pay
for any repairs, changes and manufacturer's certifications as are necessary for
the manufacturer or Maintenance Organization to accept the Equipment under
contract maintenance at its then standard rates. Lessee shall return all
accessories supplied with the Equipment, including but not limited to all
manuals, cables and software diskettes. Lessee shall promptly pay, after receipt
of an invoice therefore, all costs and expenses pertaining to the replacement of
any missing items and for the repair of any Equipment, together with any audit,
inspection or certification charges reasonably incurred by Lessor.
6. LEASEHOLD RIGHTS AND INSPECTION:
(a) Lessee shall have no interest in the Equipment other than the rights
acquired as a lessee hereunder and the Equipment shall remain personalty
regardless of the manner in which it may be installed or attached. Lessee
shall, at Lessor's request, affix to the Equipment, tags, decals or plates
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furnished by Lessor, indicating Lessor's ownership and Lessee shall not permit
their removal or concealment. Lessee shall replace any such tag, decal or plate
which may be removed or destroyed or become illegible. Lessee shall keep all
Equipment free from any marking or labeling which might be interpreted as a
claim of ownership thereof by Lessee or any party other than Lessor or anyone
claiming through Lessor.
(b) Lessee shall keep the Equipment free and clear of all liens and
encumbrances except liens or encumbrances arising through the actions or
omissions of Lessor. Lessee shall not assign or otherwise encumber this Lease
or any of its rights hereunder or sublease the equipment without the prior
written consent of Lessor except that Lessee may assign this Lease or sublease
the Equipment to its parent or any subsidiary corporation, or to a corporation
which shall have acquired all or substantially all of the property of Lessee by
merger, consolidation or purchase. No permitted assignment or sublease shall
relieve Lessee of any of its obligations hereunder.
(c) Lessor or its agents shall have free access to the Equipment at all
reasonable times for the purpose of inspection and for any other purpose
contemplated by this Lease.
(d) Lessee shall immediately notify Lessor of all details concerning any
damage to, or loss of, the Equipment arising out of any event or occurrence
whatsoever, including but not limited to, the alleged or apparent improper
manufacture, functioning or operation of the Equipment.
7. NO WARRANTIES BY LESSOR:
Lessee represents that, at the Installation Date thereof, it shall have (a)
thoroughly inspected the Equipment; (b) determined for itself that all items of
Equipment are of a size, design, capacity and manufacture selected by it; and
(c) satisfied itself that the Equipment is suitable for Lessee's purposes.
LESSOR SUPPLIES THE EQUIPMENT AS IS AND NOT BEING THE MANUFACTURER OF THE
EQUIPMENT, THE MANUFACTURER'S AGENT OR THE SELLER'S AGENT, MAKES NO WARRANTY OR
REPRESENTATION, EITHER EXPRESS OR IMPLIED AS TO THE EQUIPMENT'S MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, DESIGN, CONDITION, QUALITY, CAPACITY, MATERIAL
OR WORKMANSHIP OR AS TO PATENT INFRINGEMENT OR THE LIKE, it being agreed that
all such risks, as between Lessor and Lessee, are to be borne by Lessee. Lessee
agrees to look solely to the manufacturer or to suppliers of the Equipment for
any and all warranty claims and any and all warranties made by the manufacturer
or the supplier of Lessor are, to the extent to which the same may be
assignable, hereby assigned to Lessee for the term of the applicable Equipment
Schedule. Lessee agrees that Lessor shall not be responsible for the delivery,
installation, maintenance, operation or service of the Equipment or for delay or
inadequacy of any or all of the foregoing. Lessor shall not be responsible for
any direct or consequential loss or damage resulting from the installation,
operation or use of the Equipment or otherwise. Lessee will defend, indemnify
and hold Lessor harmless against any and all claims, demands and liabilities
arising out of or in connection with the design, manufacture, possession or
operation of the Equipment.
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8. RISK OF LOSS ON LESSEE:
(a) Beginning on the Installation Date thereof and continuing until the
Equipment is returned to Lessor as provided in this Lease, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment, howsoever caused. During the term of this Lease
as to any Equipment Schedule, Lessee shall, at its own expense, keep in effect
"all risk" property insurance and public liability insurance policies covering
the Equipment designated in each Equipment Schedule. The public liability
insurance policy shall be in such amount as is reasonably acceptable to Lessor.
The "all risk" property insurance policy shall be for an amount not less than
the replacement cost of the Equipment. Lessor, its successors and assigns
and/or such other party (to the extent such party has an insurable interest in
the Equipment) as may be designated by any thereof to Lessee, in writing, shall
be named as additional insureds and loss payees on such policies, which shall be
written by an insurance company of recognized responsibility which is reasonably
acceptable to Lessor. Evidence of such insurance coverage shall be furnished to
Lessor no later than the Installation Date set forth in the Equipment
Schedule(s) and, from time to time, thereafter as Lessor may request. Such
policies shall provide that no less than ten days written notice shall be given
Lessor and any other party named as loss payee prior to cancellation of such
policies for any reason. To the extent of Lessor's interest therein, Lessee
hereby irrevocably appoints Lessor or any other party named as loss payee as
Lessee's attorney-in-fact coupled with an interest to make claim for, receive
payment of, and execute any and all documents that may be required to be
provided to the insurance carrier in substantiation of any such claim for loss
or damage under said insurance policies, and to endorse Lessee's name to any and
all drafts or checks in payment of the loss proceeds, provided however, that
Lessor shall not execute documents on behalf of Lessee unless Lessee, after
three days prior notice from Lessor, has failed to execute such documents.
(b) If any item of Equipment is rendered unusable as a result of any
physical damage to, or destruction of, the Equipment, Lessee shall give to
Lessor immediate notice thereof and this Lease shall continue in full force and
effect without any abatement of rental. Lessee shall determine, within fifteen
(15) days after the date of occurrence of such damage or destruction, whether
such item of Equipment can be repaired. In the event Lessee determines that the
item of Equipment cannot be repaired, Lessee shall either, at its expense,
promptly replace such item of Equipment and convey title to such replacement to
Lessor free and clear of all liens and encumbrances, and this Lease shall
continue in full force and effect as though such damage or destruction had not
occurred, or pay Lessor therefor in cash the Stipulated Loss Value (defined
below) within thirty (30) days of such loss or damage. "Stipulated Loss Value,"
as used herein, shall be an amount as shown on Exhibit A to the applicable
Equipment Schedule. In the event Lessee determines that such item of Equipment
can be repaired, Lessee shall cause such item of Equipment to be promptly
repaired. All proceeds of insurance received by Lessor, the designated loss
payee, or Lessee under the policy referred to in the preceding paragraph of this
Section shall be applied toward the cost of any such repair or replacement so
long as Lessee shall not be in default of its obligations hereunder.
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9. EVENTS OF DEFAULT AND REMEDIES:
The occurrence of any one of the following shall constitute an Event of
Default hereunder:
(a) Lessee fails to pay an installment of rent on or before the date when
the same becomes due and payable and such failure continues for a period of five
days;
(b) Lessee attempts to remove, sell, transfer, encumber, sublet or part
with possession of the Equipment or any items thereof, except as expressly
permitted herein.
(c) Lessee shall fail to observe or perform any of the other obligations
required to be observed or performed by Lessee hereunder and such failure shall
continue uncured for ten (10) days after written notice thereof to Lessee by
Lessor or the then assignee hereof.
(d) Lessee ceases doing business as a going concern, makes an assignment
for the benefit of creditors, admits in writing its inability to pay its debts
as they become due, files a voluntary petition of bankruptcy, is adjudicated a
bankrupt or an insolvent, files a petition seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar arrangement under any present or future statute, law or regulation or
files an answer admitting the material allegations of the petition filed against
it in any such proceeding, consents to or acquiesces in the appointment of a
trustee, receiver, or liquidator of it or of all or any substantial part of its
assets or properties, or if it or its shareholders shall take any action looking
to its dissolution or liquidation.
(e) Within forty-five (45) days after the commencement of any proceedings
against Lessee seeking reorganization, arrangement, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, such proceedings shall not have been dismissed, or if within forty-
five (45) days after the appointment without Lessee's consent or acquiescence of
any trustee, receiver or liquidator of it or of all or any substantial part of
its assets and properties, such appointment shall not be vacated.
(f) Lessee defaults in the performance or observation of any term,
condition or covenant of any loan agreement, indenture, trust agreement, lease
or similar agreement to which Lessee is a party or by which Lessee is bound and
such default continues beyond any applicable cure period;
(g) Lessee enters into any transaction which adversely affects a
significant portion of the business value of Lessee and which affects the
ability of the Lessee to repay the Lessee's obligations under the Lease.
Upon the occurrence of an Event of Default, Lessor may at its option do any
one or more of the following: (i) by notice to Lessee terminate this Lease as
to any or all Equipment Schedules; (ii) whether or not this Lease is terminated
as to any or all Equipment Schedules, take possession on not less than three (3)
days' notice of any or all of the Equipment listed on any or all Equipment
Schedules, wherever situated, and for such purpose, enter upon any premises
without liability for
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so doing or Lessor may cause Lessee and Lessee hereby agrees, to return said
Equipment to Lessor as provided in this Lease; (iii) recover from Lessee, as
liquidated damages for loss of a bargain and not as a penalty, all past due
amounts as well as an amount equal to the present value of all monies to be paid
by Lessee during the remaining Initial Term or any successive period then in
effect, calculated by discounting at the rate of six percent (6%) per annum
compounded monthly, which payment shall become immediately due and payable; and
(iv) sell, dispose of, hold, use or lease any Equipment as Lessor in its sole
discretion may determine (and Lessor shall not be obligated to give preference
to the sale, lease or other disposition of the Equipment over the sale, lease or
other disposition of similar equipment owned or leased by Lessor).
In the event that Lessee shall have first paid to Lessor or its assigns the
liquidated damages referred to in (iii) above, Lessee shall thereafter be
entitled to receive all rentals or proceeds received from any reletting of the
Equipment during the balance of the Initial Term (after deduction of Lessor's
expected residual value of the Equipment at the expiration of the Initial Term
or any extension thereof and of all expenses incurred in connection therewith)
said amount never to exceed the amount of the liquidated damages paid by Lessee.
Lessee agrees that Lessor shall have no obligation to sell the Equipment.
Lessee shall in any event remain fully liable for reasonable damages as provided
by law and for all costs and expenses incurred by Lessor or its assigns on
account of such default including but not limited to all court costs and
reasonable attorney's fees. Lessee hereby agrees that, in any event, it will be
liable for any deficiency after any lease or other disposition of the Equipment.
The rights afforded Lessor hereunder shall not be deemed to be exclusive, but
shall be in addition to any rights or remedies provided by law.
10. NET LEASE:
Except as otherwise specifically provided in this Lease, it is understood
and agreed that this is a net lease, and that, as between Lessor and Lessee,
Lessee shall be responsible for all costs and expenses of every nature
whatsoever arising out of or in connection with or related to this Lease or the
Equipment (including, but not limited to, transportation in and out, rigging,
manufacturer's approved packing, installation, certification costs and
disconnect charges). Lessee hereby agrees that in the event that Lessee fails
to pay or perform any obligation under this Lease, Lessor may, at its option,
pay or perform said obligation and any payment made or expense incurred by
Lessor in connection therewith shall become additional rent which shall be due
and payable by Lessee upon demand. Lessee acknowledges that Lessor may, from
time to time, and at Lessee's request, execute and deliver purchase orders
pertaining to the purchase of equipment to be leased pursuant to this Lease.
Lessee agrees that it will indemnify and hold Lessor harmless from and against
any and all loss, cost, liability and expense that Lessor may incur as a result
of the execution and delivery of such purchase orders.
11. ASSIGNMENT:
Lessee agrees that Lessor may transfer or assign all or any part of
Lessor's right, title, and interest in, under or to the Equipment and this Lease
and any or all sums due or to become due pursuant to any of the above, to any
third party (the "Assignee") for any reason and that the Assignee may so re-
assign and transfer; provided that no such assignment or transfer shall relieve
Lessor of
7
<PAGE>
any obligations hereunder. Lessee agrees that upon receipt of written notice
from Lessor or Assignee of such assignment, Lessee shall perform all of its
obligations hereunder for the benefit of Assignee and any successor assignee
and, if so directed, shall pay all sums due or to become due thereunder directly
to the Assignee or to any other party designated by the Assignee. Lessee hereby
covenants, represents and warrants as follows and agrees that the Assignee and
any successor assignee shall be entitled to rely on and shall be considered a
third party beneficiary of the following covenants, representations and
warranties: (i) Lessee's obligations hereunder are absolute and unconditional
and are not subject to any abatement, reduction, recoupment, defense, offset or
counterclaim available to Lessee for any reason whatsoever including operation
of law, defect in the Equipment, failure of Lessor or Assignee to perform any of
its obligations hereunder or for any other cause or reason whatsoever, whether
similar or dissimilar to the foregoing; (ii) Lessee shall not look to Assignee
or any successor assignee to perform any of Lessor's obligations hereunder;
(iii) Lessee will not amend or modify this Agreement without the prior written
consent of the Assignee and any successor assignee; and (iv) Lessee will send a
copy to Assignee and any successor assignee of each notice which Lessee sends to
Lessor.
12. REPRESENTATIONS AND WARRANTIES OF LESSEE:
Lessee represents and warrants to Lessor and its assigns, as follows:
1. The execution, delivery and performance of this Lease has been duly
authorized and, upon execution by Lessor and Lessee, will constitute a valid
obligation binding upon and enforceable against Lessee in accordance with its
terms, subject to laws governing creditors' rights;
2. The performance by Lessee will not result in any breach, default or
violation of, Lessee's certificate of incorporation or by-laws or any agreement
to which Lessee is a party;
3. Lessee is in good standing in its jurisdiction of incorporation and in
any jurisdiction in which any of the Equipment is to be located; and
4. Any and all financial statements or other information with respect to
Lessee heretofore furnished by Lessee to Lessor was, when furnished, and remains
at the time of execution of this Lease, true and complete.
Lessor represents and warrants to Lessee as follows:
1. The execution, delivery and performance of this Lease has been duly
authorized and, upon execution by Lessor and Lessee, will constitute a valid
obligation binding upon and enforceable against Lessor in accordance with its
terms, subject to laws governing creditors' rights; and
2. The performance by Lessor will not result in any breach, default or
violation of, Lessor's certificate of incorporation or by-laws or any agreement
to which Lessor is a party;
8
<PAGE>
The foregoing representations and warranties shall survive the expiration
or termination of this Lease.
13. END OF LEASE:
Provided (i) no Event of Default has occurred and is continuing and (ii)
Lessee has made all payments in accordance with the Lease, upon written notice
furnished by Lessee no later than four (4) months prior to the expiration of the
Initial Term, Lessee may, with respect to each Equipment Schedule (if set forth
in such Equipment Schedule) either:
(a) Extend the Initial Term for not less than all the Equipment (i) for the
additional period set forth on the applicable Equipment Schedule, and (ii) at
the Monthly Rental set forth on the Equipment Schedule. Provided all payments
have been made in accordance with the Lease and there shall be no default under
the Lease by Lessee, title to the Equipment shall pass to Lessee at the
expiration of the 12 month extension and upon payment of $1.00.;
(b) Extend the Initial Term for not less than all the Equipment for an
additional 12 months at Fair Market Value rental;
(c) Purchase not less than all the Equipment at Fair Market Value for a
purchase price equal to the Fair Market Value thereof as of the end of the
Initial Term, plus any taxes applicable at the time of purchase. The purchase
price shall be paid by Lessee to Lessor at least thirty (30) days before the
expiration of the Initial Term;
(d) Terminate the applicable Equipment Schedule and return not less than
all the Equipment, subject to a remarketing charge equal to the percentage set
forth in the applicable Equipment Schedule of Lessor's original Purchase Price
for the Equipment; or
(e) Such other alternatives as may be set forth on the Equipment Schedule.
If, on or before a date which is sixty (60) days prior to the expiration of the
Initial Term, Lessor and Lessee are unable to agree upon a determination of the
Fair Market Value of the Equipment, the Fair Market Value (to be determined in
accordance with the definition set forth in this Section) shall be conclusively
established not less than thirty (30) days prior to the expiration of the
Initial Term by an independent appraiser selected by Lessor. Lessor shall
notify Lessee of the name and address of said appraiser. The costs of such
appraiser shall be paid by Lessee within ten (10) days after receipt of an
invoice therefor.
For purposes hereof, Fair Market Value shall mean the amount that would obtain
in a retail arm's length transaction between an informed and willing lessee-
buyer in possession and an informed and willing lessor-seller. Rental charges
previously paid pursuant to the applicable Equipment Schedule shall have no
effect on the determination of Fair Market Value. Unless otherwise stated in
the Equipment Schedule: the Fair Market Value for items set forth on the
Equipment Schedule which do not have a readily ascertainable market value,
(including but not limited to software, cabling and certain equipment) shall be
determined by multiplying the Lessor's acquisition cost of such items
9
<PAGE>
by a fraction, the numerator of which shall be the Fair Market Value of the
other items and the denominator of which shall be the Lessor's acquisition cost
of such other items; and the determination of Fair Market Value shall be based
upon the assumption that all items set forth on the Equipment Schedule or
included with the Equipment may be transferred to, and used by, a third party
user. In such determination, all alternative uses in the hands of each buyer or
lessee, including, without limitation, the further leasing of the Equipment
shall be taken into account in making such determination.
If, for any reason, the parties are unable to agree on the Fair Market Value
with respect to said purchase or rental, then the Lease with respect to the
Equipment shall remain in full force and effect.
14. MISCELLANEOUS:
(a) During the term of this Lease, Lessee hereby agrees to deliver to
Lessor or Assignee and any successor assignee a copy of Lessee's monthly
unaudited financial statements, and the annual financial budget for the upcoming
year as soon as available and as it may be adjusted during the year. Lessee
shall also furnish, as soon as available and in any event within ninety (90)
days after the last day of Lessee's fiscal year, a copy of Lessee's annual
audited statements and consolidating and consolidated balance sheet, if any, as
of the end of such fiscal year, accompanied by the opinion of an independent
certified public accounting firm of recognized standing. The Lessee shall
furnish such other financial information as may be reasonably requested by
Lessor, including but not limited to any material changes in budgets or
financial reports furnished to the Lessee's Board of Directors or Shareholders.
(b) This Lease constitutes the entire agreement between Lessee and Lessor
with respect to the Equipment, and except as agreed upon in writing no covenant,
condition or other term or provision hereof may be waived or modified orally.
(c) All notices hereunder shall be in writing and shall be delivered in
person or sent by registered or certified mail, postage prepaid, or by facsimile
transmission (confirmed by registered mail as set forth in this section) to the
address of the other party as set forth herein or to such other address as such
party shall have designated by proper notice.
(d) This Lease shall be binding upon and inure to the benefit of Lessor and
Lessee and their respective successors and assigns (including any subsequent
assignee of Assignee).
(e) If any term or provision of this Lease or the application thereof to
any person is, to any extent, invalid or unenforceable, the remainder of this
Lease, or the application of such provision to the person other than those to
which it is invalid or unenforceable, shall not be affected thereby, and each
provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
(f) No waiver of any of the terms and conditions hereof shall be effective
unless in writing and signed by the party against whom such waiver is sought to
be enforced. Any waiver of the terms hereof shall be effective only in the
specific instance and for the specific purpose given. The subsequent acceptance
of rental payments hereunder by Lessor shall not be deemed a waiver of any
10
<PAGE>
prior existing breach by Lessee regardless of Lessor's knowledge of such prior
existing breach at the time of acceptance of such rental payments. Where
permitted by law, Lessee authorizes any attorney of record, Clerk of Court or
Prothonotary of any state to appear for and confess judgment (a) against Lessee
for all amounts as to which Lessee is in default under this Agreement and (b)
against Lessee in any action for writ of replevin or possession of the Equipment
but only after providing Lessee three (3) days notice to contest Lessor's claim.
No bond shall be required.
(g) Lessor is hereby authorized by Lessee to cause this Lease or other
instruments, including Uniform Commercial Code Financing Statements to be filed
or recorded for the purpose of showing Lessor's interest in the Equipment and
Lessee agrees that Lessor may execute such instruments for and on behalf of
Lessee. In the event Lessor files a Uniform Commercial Code Financing Statement
without the signature of Lessee, Lessor shall promptly furnish a copy of such
Uniform Commercial Code Financing Statement to Lessee. All filing fees
reasonably incurred by Lessor in connection therewith and filing fees incurred
by Lessor's assignees in perfecting security interests shall be paid by Lessee
or reimbursed to Lessor by Lessee.
(h) In the event of any conflict between the terms and conditions of this
Lease and the terms and conditions of any Equipment Schedule(s) or Rider(s)
thereto, the terms and conditions of such Equipment Schedule(s) or Rider(s)
shall prevail.
(i) No consent or approval provided for herein shall be binding upon Lessor
unless signed on its behalf by an officer of Lessor. THIS LEASE SHALL BE DEEMED
TO HAVE BEEN MADE IN THE STATE OF CONNECTICUT AND SHALL BE GOVERNED IN ALL
RESPECTS BY THE LAWS OF SUCH STATE. The Lessee accepts for itself the non-
exclusive jurisdiction of any Federal or State court of competent jurisdiction
in the State of Connecticut in any action, suit or proceeding of any kind
against it which arises out of or by reason of this Lease or any Equipment
Schedule.
(j) Lessee acknowledges that the late payment by Lessee to Lessor of
monthly rental and other sums due hereunder will cause Lessor harm and to incur
costs not contemplated by this Lease, the precise amount and severity of which
will be difficult to ascertain. Such costs include, but are not limited to,
administrative, accounting and legal charges which Lessor may incur due to such
late payment. Accordingly, if any monthly rent or any other sum due from Lessee
shall not be received by Lessor or Lessor's assignee within twenty (20) days
after the same is due, Lessee shall pay to Lessor or Lessor's assignee a late
charge equal to five per cent (5%) of such overdue amount monthly until such
overdue amount is paid. Lessee acknowledges that such late charge represents a
fair and reasonable estimate of the cost Lessor will incur by reason of a late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's default, if any, with respect to such overdue
amounts, nor prevent Lessor from exercising any of the other rights and remedies
which Lessor may have pursuant to this Lease.
(k) The obligations which Lessee is required to perform during the term of
this Lease shall survive the expiration or other termination of this Lease.
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<PAGE>
(l) Lessee will promptly execute and deliver to Lessor such further
documents and assurances and take such further action as Lessor may reasonably
request in order to effectuate the intent and purpose of this Lease and to
establish and protect the rights, interests and remedies intended to be created
in favor of Lessor hereunder, including without limitation, the execution and
filing of financing statements and continuation statements with respect to this
Lease, the Equipment and any Equipment Schedule. Lessee authorizes Lessor to
effect any such filing and Lessor's reasonable expenses (together with the
reasonable expenses of Lessor's assignees in this regard) shall be payable by
Lessee on demand.
LESSOR: LESSEE:
LEASING TECHNOLOGIES INTERNATIONAL, NETSOLVE, INCORPORATED
INC.
BY: /s/ F. Jared Sprole BY: /s/ Craig S. Tysdal
- -------------------------------- --------------------------------
NAME: F. Jared Sprole NAME: Craig S. Tysdal
------------------------------ ------------------------------
TITLE: President TITLE: President & CEO
----------------------------- -----------------------------
DATE: 3/21/96 DATE: 2/5/96
------------------------------ ------------------------------
12
<PAGE>
EXHIBIT 10.4
TRIMARC
FINANCIAL Master Lease No. MLA-1014
-----------------------------------
302 NORTH EL CAMINO REAL SUITE 102
SAN CLEMENTE CA 92672
TELEPHONE (714) 498-5500
FACSIMILE (714) 498-7889
M A S T E R L E A S E
Master lease dated as of January 30, 1998, by and between TRIMARC FINANCIAL
("Lessor"), with its principal office stated above, and NETSOLVE, INCORPORATED
("Lessee") having its principal office at 9130 JOLLYVILLE ROAD SUITE 200,
AUSTIN, TEXAS 78759-7475.
1. MASTER LEASE: This is a Master Lease Agreement (hereafter "Lease"). The
terms of each Lease Schedule(s) (hereafter "Schedule(s)") hereto and/or
hereafter annexed are subject to any and all terms and conditions set forth
herein. Subject to the following terms and conditions, Lessor hereby leases to
and/or grants to Lessee the right to use certain items of property (regardless
of the nature of which and without distinction, collectively hereafter referred
to as "Equipment", and individually hereafter referred to as an "Item of
Equipment") as described on the attached Schedule(s). Equipment shall also
include all updates, upgrades, modifications, revisions, new versions,
substitutions, enhancements, maintenance fixes, and any portions or parts
thereof. Lessee agrees to hire and take and agrees to accept the right to use
that certain Equipment, and such other Equipment described on supplemental
Schedule(s) that the parties from time to time may annex to this Lease. This
Lease shall give Lessee the right to use the Equipment at the specific location
delineated on the Schedule(s) during the term of this Lease in accordance with
the terms and conditions herein. Lessee shall not move the Equipment without
Lessor's prior written approval which shall be subject to such terms and
conditions as Lessor may then reasonably require. Lessor, at its sole option,
may supply Items of Equipment, either new or used, that meet the specifications
of Items of Equipment delineated on the Schedule(s).
2. QUIET ENJOYMENT: Provided that no Event of Default has occurred or is
continuing hereunder, Lessor and/or its' Assignees shall not interfere with
Lessee's quiet enjoyment and use of the Equipment.
3. TERM: The term of this Lease shall commence upon acceptance of this Lease
by Lessor and shall continue thereafter so long as any Schedule(s) entered into
pursuant to this Lease remains in effect. As to each Schedule attached to this
Lease, this Lease shall be effective upon acceptance of such Schedule(s) by
Lessor. The term for any Schedule(s) shall commence on the day that the
Manufacturer/Vendor/Licensor or Lessee certifies that the Equipment has been
delivered to and is usable by Lessee ("Commencement Date"). The Base Term of
the Lease with respect to any Schedule(s) shall be indicated on the respective
Schedule(s) and shall be calculated from the first day of the calendar quarter
following the Commencement Date ("Base Lease Term"). A calendar quarter means a
three-month period commencing on January 1, April 1, July 1 or October 1 of any
calendar year. The Base Lease Term shall be extended for an additional one-year
period at the final rental
<PAGE>
rate in effect as of the last billing period of the Base Lease Term unless
Lessee provides to Lessor written notice of Lessee's election not to extend the
Base Lease Term at least one hundred eighty (180) days' prior to its expiration.
At the expiration of the Base Lease Term (or, if extended, at the expiration of
the "Extended Base Lease Term"), Lessee shall do one of the following: (A)
purchase all of the Equipment under each Schedule for a mutually agreeable
purchase price; (B) extend the Schedule(s) for a period of one (1) additional
year at the final rental rate in effect as of the last billing period of the
Base Lease Term of the respective Schedule(s); or (C) enter into a new lease
with Lessor to lease property which replaces the Equipment under each Schedule
and which has a cost greater than or equal to the original cost of the
Equipment. With respect to options (A) and (C), Lessor and Lessee shall each
have absolute discretion regarding their agreement or lack of agreement to the
terms of either such arrangement. If the parties have not agreed to either
option (A) or option (C) by the expiration of the Base Lease Term or Extended
Base Lease Term, then option (B) shall prevail. At the end of the extension
period under option (B), this Lease shall continue subject to termination by
either Lessor or Lessee at the end of any calendar month, provided at least one
hundred twenty (120) days' prior written notice of such termination is delivered
to the other.
4. RENTALS: The quarterly rent payable for each Schedule shall be the amount
shown on such Schedule. Lessee shall pay to Lessor the quarterly rent in
advance for each quarter or any part thereof following the Commencement Date.
The first Base Lease Term rental payment shall be made on the first day of the
calendar quarter following the Commencement Date. A prorata portion of the
quarterly rental charges, based on a daily rental of one-ninetieth (1/90th) of
the quarterly rental calculated from the Commencement Date to the end of the
calendar quarter, shall be due and payable at the Commencement Date.
Installments of rent (or any portion thereof) which are not paid within ten (10)
days after their due date shall be subject to a delinquency payment equal to
five percent (5%) of the late installment. For delinquent installments of rent
which remain unpaid at the end of each month, Lessee shall also pay to Lessor an
administrative fee equal to two percent (2%) of the aggregate unpaid amount.
All rent shall be paid at the place of business of Lessor shown above or another
place as Lessor may designate by written notice to Lessee. Except as otherwise
provided in this Lease, Lessee's obligation to pay rent shall be absolute and
unconditional under all circumstances, notwithstanding: (i) any setoff,
counterclaim, recoupment, defense or other right which Lessee may have against
Lessor for any reason whatsoever; (ii) any defect in the title, right to use,
condition, operation, fitness for use, damage or destruction of or to the
Equipment or any interruptions or cessations in use or possession for any reason
whatsoever; (iii) any insolvency, bankruptcy, reorganization or similar
proceedings instituted by or against Lessee. Any Deposit shall be returned to
Lessee (without interest) if Lessor does not accept this Lease. Otherwise, upon
acceptance of this Lease by Lessor, any Deposit shall be applied by Lessor (as
specified on the Schedule) to rental or other payments or costs of Lessor due
and owing under the Lease. Lessee hereby waives, to the extent permitted by
applicable law, any and all right which it may now or at any time hereafter have
to cancel, terminate, or surrender this Lease except in accordance with the
express terms hereof.
5. ADDITIONS AND MODIFICATIONS: Without the prior written consent of Lessor,
and completion of documentation of a form and substance required by Lessor,
Lessee shall make no addition, upgrade, modification, alteration, improvement,
or attachment to any of the Equipment. Lessor, at its sole option, may provide
lease financing for any additions and modifications to
<PAGE>
Equipment required by Lessee during the Lease term, subject to the then
prevailing rates and subject to acceptance by Lessor's Finance Committee.
6. NO WARRANTIES: LESSOR NOT BEING THE MANUFACTURER, DEVELOPER, PUBLISHER,
DISTRIBUTOR, OR LICENSOR OF THE EQUIPMENT, MAKES NO WARRANTY OR REPRESENTATION,
EXPRESS OR IMPLIED, AS TO THE FITNESS, QUALITY, DESIGN, CONDITION, CAPACITY,
SUITABILITY, MERCHANTABILITY OR PERFORMANCE OF THE EQUIPMENT OR OF THE MATERIAL
OR WORKMANSHIP THEREOF. LESSEE AGREES THAT THE EQUIPMENT IS LEASED "AS IS".
LESSEE REPRESENTS THAT ALL OF THE EQUIPMENT IS OF A SIZE, DESIGN AND CAPACITY
SELECTED BY IT, AND THAT IT IS SATISFIED THAT THE SAME IS SUITABLE FOR LESSEE'S
PURPOSES. NO DEFECT, DAMAGE OR UNFITNESS FOR ANY PURPOSE OF THE EQUIPMENT SHALL
RELIEVE LESSEE OF ANY OBLIGATION UNDER THE LEASE. LESSOR HEREBY ASSIGNS TO
LESSEE ANY AND ALL VENDOR'S WARRANTIES TO THE EXTENT ASSIGNABLE BY LESSOR.
LESSEE AGREES THAT ITS REMEDIES, SHOULD IT FIND FAULT WITH ANY OF THE EQUIPMENT,
SHALL BE AND ARE SOLELY TO THE MANUFACTURER/VENDOR/LICENSOR. THE FOREGOING
SHALL SURVIVE TERMINATION OF THE RESPECTIVE LEASE TERM AND OF THIS LEASE.
7. USE, OPERATION AND MAINTENANCE: Lessee will provide a suitable place for
the installation, operation and maintenance of all Equipment. Lessee, without
expense to Lessor, shall enter into and keep in force during the entire term of
this Lease the best Manufacturer's/Vendor's/Licensor's Maintenance Agreement and
will ensure that Manufacturer(s)/Vendor(s)/Licensor(s) make all necessary
repairs, adjustments, enhancements, updates, changes and replacements in
accordance with the Maintenance Agreement. Lessee shall not do anything, or
fail to do anything, to impair the Manufacturer's/Vendor's/Licensor's warranty
with respect to any Equipment. Lessee shall comply with all laws, rules,
regulations or order of any governmental agency with respect to the Equipment or
to its use, operation, maintenance or storage. Lessor may from time to time
during reasonable business hours enter upon any premises where any of the
Equipment may be located for the purpose of confirming the condition and proper
maintenance of the Equipment.
8. RISK OF LOSS: During any period in which the Equipment is in transit to or
from, or in the possession of Lessee, Lessee shall assume all responsibility for
loss, damage, any or all of the Equipment being confiscated, requisitioned,
lost, stolen, destroyed, irreparably damaged from any cause whatsoever, or
relinquished from Lessee's possession for any reason whatsoever, including, but
not limited to, an unauthorized sale or trade-in (collectively, "Event of
Casualty"), and shall indemnify and hold Lessor harmless against the same.
Lessee shall immediately and fully inform Lessor in writing of any Event of
Casualty. Following an Event of Casualty, Lessee, at its option, provided that
no Event of Default has occurred or is continuing, otherwise at Lessor's option,
shall do one of the following: 1) On the next succeeding rental payment date,
pay to Lessor an amount equal to the Casualty Value as determined by the
Casualty Schedule (for each respective Schedule) as of said rental payment date,
in addition to all past due rentals and other amounts then due and owing, or 2)
Replace the Equipment with identical Equipment of equal or greater value in a
commercially expedient manner, completing documentation required by Lessor to
perfect Lessor's security interest in the replacement Equipment, and provided no
interruption in rental payments. The
<PAGE>
Casualty Value shall be calculated by multiplying the Equipment's original cost
(entire amount paid by Lessor to Manufacturer/Vendor/Licensor) by the percentage
factor agreed to by Lessee and Lessor as set forth in the Casualty Schedule.
Upon Lessee's payment to Lessor of the Casualty Value, the rental for such
Schedule(s) shall cease to accrue as of the date the payment is tendered by
Lessee to Lessor, and the term of the Lease as to the Schedule(s) shall
terminate. Insurance proceeds received by Lessor as a result of an Event of
Casualty with respect to any Schedule(s) shall be applied to reduce Lessee's
obligation to pay the Casualty Value.
9. INDEMNITY: Lessee assumes liability for, and hereby agrees, at its own cost
and expense, to indemnify, defend, and hold harmless Lessor, its agents,
employees, officers, directors, successors and assigns, from and against any and
all liabilities, losses, damages, injuries, claims (including, without
limitation, claims based upon strict liability), demands, penalties, actions,
costs and expenses, including legal expenses, of any kind or nature arising out
of the use, condition (including, without limitation, latent and other defects,
whether or not discoverable), operation, ownership, selection, delivery, leasing
or return of any items of Equipment (including, without limitation, any claim
for patent, trademark or copyright infringement), regardless of where, how and
by whom operated, or for any interruptions of service, loss of business or
consequential damages. These provisions shall survive the expiration or
termination of this Lease.
10. INSURANCE: Lessee, at its expense, shall procure and maintain at all times
that this Lease is in effect comprehensive public liability insurance for bodily
injury and property damage resulting from the maintenance, use or transport of
the Equipment; and property and casualty insurance covering all risks of loss or
damage to the Equipment from every cause whatsoever including, without
limitation, fire and theft. All such insurance shall be in such form and amounts
and with such companies as shall be reasonably satisfactory to Lessor. Lessor,
its successor or assigns, shall be named the loss payee with respect to
insurance for damage to or loss of the Equipment and shall be named as an
additional insured on the public liability insurance. All policies shall provide
that no cancellation or material modification of such insurance shall be
effective without thirty (30) days' prior written notice to Lessor, and shall
not be invalidated as to Lessor by any act, omission or neglect of Lessee.
11. TAXES: Lessee shall pay directly, all License fees, registration fees,
assessments and taxes (federal, state and local), which may now or hereafter be
imposed upon the ownership, possession or use of the Equipment, excepting only
those based on Lessor's income, and Lessee shall keep the Equipment free and
clear of all levies, liens or encumbrances arising therefrom. ALL REQUIRED
PERSONAL PROPERTY TAX RETURNS RELATING TO THE EQUIPMENT SHALL BE FILED BY
LESSEE. Lessee covenants and agrees that Lessor shall be entitled to receive any
and all federal and state tax credits and benefits, if any, applicable to the
Equipment.
12. OWNERSHIP: Lessee shall at all times acknowledge, protect and defend, at
its own cost and expense, the title and/or rights of Lessor from and against all
claims, liens and legal processes, and keep all Equipment free and clear from
all such claims, liens, and processes. The Equipment is and shall remain
personal property of Lessor. Upon the expiration or termination of this Lease
with respect to any Schedule(s), Lessee at its expense shall return all
Equipment, free of liens or encumbrances, to Lessor. Title to all Equipment
shall at all times remain in Lessor. In the event that
<PAGE>
any of the Equipment is Software, as reflected on any Schedule(s), regardless of
the manner in which Lessee obtained the right to possess and use such Software,
and any underlying agreement(s) between Lessee and Licensor, Lessee and Lessor
hereby agree that, for purposes of this Lease, Lessor shall be deemed the
Licensor, with all Licensor rights, but not any of the obligations, legal and
otherwise. Lessee acknowledges that Lessor has paid Licensor for a perpetual
license on any Software included in this Lease, and that Lessee's use of the
Software during the term of this Lease constitutes full and adequate
consideration from Lessor. Lessee hereby agrees that it will not surrender,
transfer, substitute or modify any license agreement pertaining to any Software
that is the subject of any Schedule(s) without first obtaining the written
consent of Lessor.
13. EFFECTS OF TERMINATION OR EXPIRATION OF LEASE TERM: Immediately upon
expiration or termination of the last applicable Lease Term ("Lease
Termination") as defined under this Lease, Lessee shall fully discontinue its
use of and return to Lessor all of the Equipment. In addition to Lessee's
completing any documentation requested by Lessor to ensure that Lessee is
returning to Lessor all of the Equipment in a manner consistent with the terms
of this Lease, upon Lessor's written request, an authorized officer of Lessee
shall, within ten (10) days thereafter, provide Lessor with a certified written
statement, that: (i) all such tangible Equipment, and/or Software has been
delivered to Lessor; (ii) all intangible records thereof have been destroyed;
(iii) Lessee has not retained such Equipment and/or Software in any form; (iv)
Lessee will not use any Software after termination; and (v) Lessee has not
received from Licensor(s) anything of value relating to or in exchange for
Lessee's use, lease or possession of the Software (including, without
limitation, a trade-in, substitution or upgrade allowance, the right to use the
Software for additional periods or on additional hardware or at additional
locations) other than Lessee's rights to use the Software during the term(s) of
this Lease. Lessee hereby grants Lessor the right (which shall survive
termination of this Lease) to inspect all of Lessee's locations during
reasonable business hours to insure compliance with the provisions of this
paragraph. If for any reason whatsoever Lessee does not immediately return all
of the Equipment upon any Schedule's effective expiration date, the Lease will
continue in full force and effect as to the Equipment not being returned
(hereafter the "Holdover Equipment"), on a month-to-month rental subject to one
hundred twenty (120) days' prior written notice of termination by either party.
The monthly rental for the Holdover Equipment shall be the original cost of the
Equipment multiplied by a monthly lease rental factor of eight percent (8%). The
resulting monthly rental shall become due from and payable by Lessee to Lessor,
pursuant to all the terms and conditions of the Lease.
14. PERFORMANCE OF LESSEE'S OBLIGATIONS BY LESSOR: If Lessee fails to perform
any of its obligations under this Lease, Lessor may, at its option, perform the
same for the account of Lessee without thereby waiving Lessee's default, and any
amount paid, expense (including reasonable attorneys' fees), penalty or other
liability incurred by Lessor in such performance shall be payable by Lessee to
Lessor upon demand.
15. DEFAULT: An Event of Default shall occur if: (a) Lessee fails to pay any
installment of rent, or other payment when due, and such failure is not cured
within ten (10) days after written notice thereof; (b) Lessee fails to perform
or observe any of its covenants or obligations set forth in this Lease, and such
failure is not cured for fifteen (15) days after written notice thereof; (c) Any
representation or warranty made by Lessee in this Lease or in any documents in
connection with this
<PAGE>
Lease shall be untrue in any material respect; (d) Lessee ceases doing business
as a going concern, makes an assignment for the benefit of creditors, admits in
writing its insolvency, files a voluntary petition in bankruptcy, is adjudicated
bankrupt or insolvent, files a petition, or takes any action seeking any
reorganization, liquidation, dissolution or similar arrangement, or files an
answer admitting the material allegations of a petition filed against it in any
such proceeding, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator of it or of all or a substantial part of its assets; (e)
within sixty (60) days after the commencement of proceedings against Lessee or
its assets seeking reorganization, liquidation, dissolution, attachment or
execution or similar relief, such proceeding shall not have been dismissed, or
if within sixty (60) days after the appointment, without Lessee's consent, of
any trustee, receiver of liquidator of it or all or any substantial part of its
assets, such appointment shall not be vacated; (f) Lessee attempts to remove,
transfer, sell, sublicense, encumber, part with possession, or sublet the
Equipment without Lessor's prior written consent; (g) Lessee attempts to assign
or transfer this Lease or its interest hereunder without Lessor's prior written
consent, or (h) through sale, assignment, buyout, bankruptcy, merger, or any
change of ownership of any type, form or manner, Lessee's credit worthiness
materially deteriorates as judged solely by Lessor.
16. REMEDIES: If an Event of Default shall occur, Lessor may exercise at its
sole option, but not specifically limited thereto, any one or more of the
following remedies: (a) terminate this Lease and any and/or all of the Schedules
annexed hereto and Lessee's rights hereunder, (b) by court action or other legal
proceeding, enforce performance by Lessee of the applicable covenants of this
Lease or recover damages for the breach, (c) by notice in writing to Lessee,
recover all amounts due on or before the date Lessor declared this Lease to be
in default, plus, as liquidated damages for loss of a bargain and not as a
penalty, accelerate, and declare to be immediately due and payable the present
value of all rentals and other sums payable hereunder discounted at six percent
(6%) without any presentment, demand, protest or further notice (all of which
hereby are expressly waived by Lessee), whereupon the same shall be immediately
due and payable, and (d) enter upon Lessee's premises where any of the Equipment
is located with or without notice or process of law and free from all claims by
Lessee and take immediate possession of the Equipment. The exercise of any of
the foregoing remedies by Lessor shall not constitute a termination of this
Lease unless Lessor so notifies Lessee in writing. At Lessor's sole option,
Lessor may sell, lease or otherwise dispose of the Equipment in any form or
manner determined by Lessor. In the event that Lessor releases the Equipment,
any rental received therefrom by Lessor for the remaining Lease Term (as defined
in this Lease) shall be applied to the payment of: (i) all costs and expenses
(including reasonable attorneys' fees) incurred by Lessor, and (ii) the rentals
for the remainder of the Lease Term and all other sums then remaining unpaid
under this Lease. All rentals received by Lessor for the period commencing after
the remaining Lease Term shall be retained by Lessor. In the event that Lessor
shall sell the Equipment, the proceeds thereof shall be applied to the sum of:
(i) all costs and expenses (including reasonable attorneys' fees) incurred by
Lessor in repossessing and disposing of such Equipment, (ii) rentals accrued
under this Lease, but unpaid up to the time of such disposition, (iii) any and
all other sums other than rentals then owing to Lessor by Lessee hereunder, and
(iv) the Casualty Value of such Equipment determined as of the date of such
disposition in accordance with Section 8 herein. The remaining balance of such
proceeds, if any, shall be applied first to reimburse Lessee for any sums
previously paid by Lessee as liquidated damages, and any remaining amounts shall
be retained by Lessor. Lessee shall remain liable to Lessor to the extent that
the aggregate amount of the sums
<PAGE>
referred to in clauses (i) and (ii) above in the event of a release, and clauses
(i), (ii), (iii) and (iv) in a sale and/or disposition exceed the aggregate
rentals received by Lessor under such Schedule(s) for the respective remaining
Lease Term and/or aggregate proceeds received by Lessor in connection with the
disposition of the Equipment covered by such Schedule(s). Lessor's remedies
under this Lease shall not be deemed exclusive. Waiver of any default or breach
of this Lease shall not be construed as a waiver of subsequent or continuing
defaults or breaches.
17. APPLICABLE LAW: THIS LEASE SHALL BE CONSTRUED IN ACCORDANCE WITH AND ALL
ACTIONS ARISING THEREUNDER, WHETHER BASED IN TORT AND/OR ON CONTRACT, OR
OTHERWISE, SHALL BE GOVERNED BY THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF
CALIFORNIA (EXCLUSIVE OF PRINCIPLES OF CONFLICT OF LAWS). If any party to this
Lease brings any action to enforce any of the terms, or to recover for any
breach, then the prevailing party shall be entitled to recover reasonable
attorneys' fees, costs of suit and collection from the other party. Lessee
agrees that any causes of action, disputes or demands whatsoever which relate to
or arise from this Lease shall, at the election of Lessor or its assignee, be
filed and conducted exclusively in the Courts of the State of California, County
of Orange, including but not limited to Superior or Municipal Court. Lessee
hereby voluntarily and irrevocably consents, and agrees to submit to the
personal jurisdiction of the Courts of the State of California, County of
Orange, and Lessee hereby waives its rights to a jury trial in any litigation
arising out of this Lease or Equipment.
18. TRANSPORTATION; INSTALLATION/DEINSTALLATION; RETURN: All installation,
deinstallation, including packing materials and maintenance
certification/recertification by the Manufacturer/Vendor/Licensor,
transportation, rigging and drayage charges on delivery or redelivery of the
Equipment to and from Lessee shall be paid by Lessee. Upon expiration or
termination of the Lease for any item of Equipment, Lessee shall promptly return
the Equipment, freight prepaid, to a location in the continental United States
specified by Lessor, and shall pay to Lessor an amount equal to three percent
(3%) of the Equipment's original cost as an inspection, refurbishment and
restocking fee.
19. FURTHER ASSURANCES: Lessee's signing of this Lease and each Schedule
attached thereto, or any Schedule later signed by Lessee that is to be attached
to this executed Lease, shall constitute an offer to Lessor to enter into the
Lease. In consideration of Lessor's time and efforts in reviewing and acting on
the offer, Lessee agrees that its offer shall be irrevocable unless and until
revoked by Lessee by providing twenty (20) business days' prior written notice
of such revocation to Lessor. Lessor's signing of this Lease and each Schedule
attached thereto, or any Schedule later signed by Lessee that is to be attached
to this executed Lease, shall constitute acceptance of Lessee's offer to enter
into the Lease. Upon acceptance of the Lease by Lessor and/or Lessor's
assignment of the Lease, Lessee shall execute such instruments and other
documents as Lessor deems necessary or desirable for confirmation, assignment
and assurance of performance by Lessee of its obligations hereunder or for
perfection of the Lease including, but not limited to, the filing of the Lease
or the filing of Uniform Commercial Code Financing Statements (which Lessee
agrees may be executed by Lessor on Lessee's behalf). Lessee will promptly
reimburse Lessor for any filing or recordation fees or expenses (including lien
search fees, legal fees and costs) incurred by Lessor in perfecting or
protecting its interests in the Equipment and under the Lease. Lessee further
authorizes Lessor
<PAGE>
to insert applicable dates as necessary to complete such supplemental
documentation. Prior to Lessor's acceptance of the Lease and during the Base
Lease Term or any extension period, Lessee shall also provide Lessor with all
credit information reasonably requested by Lessor, including but not limited to
comparative audited financial statements for the most current year and interim
reporting period. Lessee's failure to provide such information to Lessor shall
be an event of default under Section 15 herein. With respect to each Schedule
attached to this Lease, Lessor, in its sole and absolute discretion, may
require, as a condition of its approval, Lessee to provide Lessor with a lease
guarantee(s) in form and substance acceptable to Lessor (the "Lease
Guarantee(s)") from such individual(s), partner(s) and/or affiliated
corporation(s) who have substantial control over Lessee's operations. Lessee
agrees to procure such Lease Guarantee(s) promptly upon Lessor's written
request.
20. REPRESENTATIONS AND WARRANTIES OF LESSEE: Lessee hereby represents,
warrants and covenants that with respect to this Lease or any attachment
executed thereunder, that: a) the execution, delivery and performance thereof by
Lessee has been duly authorized by Lessee; b) the individual(s) signing on
behalf of Lessee has authority to do so; c) any and all financial statements or
other information supplied to Lessor are accurate and complete and d) the
execution and/or performance thereof will not result in any default under or
breach of any judgment, order, law or regulation applicable to Lessee, or of any
provision of Lessee's articles of incorporation, bylaws, or any agreement to
which Lessee is a party.
21. NOTICES: All notices to Lessor must be delivered in person to an officer of
Lessor or sent certified mail return receipt requested to Lessor at its address
shown above or at any later address last known to sender. All notices to Lessee
shall be in writing and shall be delivered by mail at its address shown herein
or at any later address last known to the sender.
22. AGREEMENTS: All agreements and representations contained in this Lease, or
in any document or certificate in connection herewith, shall survive the
expiration or other termination of this Lease. Any provision of this Lease which
may be determined by competent authority to be unenforceable in any jurisdiction
shall be ineffective, as to such jurisdiction, to the extent of such
unenforceability without invalidating the remaining provisions hereof. To the
extent permitted by applicable law, Lessee hereby waives any provision of law
which renders any provision hereof prohibited or unenforceable. Time is of the
essence for this Lease.
23. ASSIGNMENT: WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, LESSEE SHALL NOT
ASSIGN THIS LEASE OR ITS INTEREST HEREUNDER IN ANY FORM OR MANNER. LESSOR MAY
WITHOUT NOTICE TO LESSEE ASSIGN ALL OR ANY PORTION OF ITS RIGHT, TITLE,
INTEREST, OR ANY OTHER RIGHTS IT MAY HAVE AS AN OWNER AND LESSOR OF THE
EQUIPMENT TO ANY ASSIGNEE ("ASSIGNEE"). LESSEE HEREBY CONSENTS TO SUCH
ASSIGNMENT AND FURTHER ACKNOWLEDGES AND AGREES THAT ASSIGNEE DOES NOT ASSUME ANY
OF THE OBLIGATIONS OF LESSOR HEREUNDER, AND, IF SO DIRECTED BY LESSOR, TO PAY
ALL ASSIGNED RENTALS DUE UNDER THE LEASE DIRECTLY TO ASSIGNEE UNCONDITIONALLY
WITHOUT OFFSET AND THAT SUCH RENTALS SHALL BE PAYABLE NOTWITHSTANDING ANY
DEFENSE OR COUNTERCLAIM,
<PAGE>
WHATSOEVER WHETHER BY REASON OF BREACH OF THE LEASE, THE EXERCISE OF ANY RIGHT
HEREUNDER, OR OTHERWISE, WHICH IT MAY OR MIGHT NOW OR HEREAFTER HAVE AS AGAINST
LESSOR (LESSEE RESERVING ITS RIGHT TO HAVE RECOURSE DIRECTLY AGAINST LESSOR ON
ACCOUNT OF ANY SUCH DEFENSE OR COUNTERCLAIM), AND THAT SUBJECT TO AND WITHOUT
IMPAIRMENT OF LESSEE'S LEASEHOLD RIGHTS IN AND TO THE EQUIPMENT, LESSEE SHALL
HOLD THE EQUIPMENT AND THE POSSESSION THEREOF FOR THE ASSIGNEE TO THE EXTENT OF
THE ASSIGNEE'S RIGHTS THEREIN, AND THAT ANY ASSIGNMENT BY LESSOR WOULD NOT
MATERIALLY ALTER THE DUTIES OF, NOR THE BURDEN OF RISK IMPOSED ON THE LESSEE.
24. UNIFORM COMMERCIAL CODE ACKNOWLEDGMENT: This Lease is a "Finance Lease" as
defined in, and for the purpose only of Division 10 of the California Commercial
Code and not necessarily for any accounting purpose or otherwise. Lessee
acknowledges that Lessor has informed or advised Lessee, either previously or by
this Lease, of the following: (i) the identity of the Supplier, (ii) that Lessee
may have rights under the Supply Contract, and (iii) that Lessee may contact the
Supplier for a description of any such rights. The terms "Finance Lease",
"Supply Contract" and "Supplier" as used herein have the meanings ascribed to
them under Division 10 of the California Commercial Code.
THIS LEASE CAN BE MODIFIED BY WRITTEN ADDENDUM DULY SIGNED BY PERSONS AUTHORIZED
TO SIGN AGREEMENTS ON BEHALF OF LESSEE AND BY A DULY AUTHORIZED OFFICER OF
TRIMARC FINANCIAL. LESSEE UNDERSTANDS AND ACKNOWLEDGES THAT LESSOR DOES NOT AND
HAS NOT ENGAGED ANYONE TO REPRESENT LESSOR IN ANY CONNECTION WHATSOEVER WITH
THIS LEASE. NO WRITTEN AND/OR ORAL REPRESENTATION BY ANY THIRD PARTY OR ANYONE
EMPLOYED BY LESSOR (OTHER THAN WRITTEN REPRESENTATIONS DULY EXECUTED BY
AUTHORIZED OFFICERS OF LESSOR) IS BINDING UPON LESSOR. LESSOR AND LESSEE
ACKNOWLEDGE THAT THERE ARE NO AGREEMENTS OR UNDERSTANDINGS, WRITTEN OR ORAL,
BETWEEN THEM WITH RESPECT TO THE EQUIPMENT OTHER THAN THE TERMS AND CONDITIONS
OF THIS LEASE, AND THE SCHEDULE(S) HERETO, AND ADDENDA A. B. AND C.
Lessee:x Lessor: [Signature of David E. Brill]
- -------------------------------------- ----------------------------------------
Authorized Signature Authorized Signature
THIS LEASE IS SUBJECT TO APPROVAL AND ACCEPTANCE BY TRIMARC FINANCIAL'S FINANCE
COMMITTEE.
By execution hereof, the signer hereby certifies that he has read this Lease,
and all Schedule(s) attached hereto. Until this Lease (or an identical
counterpart thereof) has been signed by a duly authorized officer of Trimarc
Financial it shall constitute an offer by Lessee to enter into this Lease
Agreement with Lessor on the terms stated herein.
Lessee: NETSOLVE, INCORPORATED LESSOR: T r i m a r c F i n a n c i a l
- ---------------------------------
<PAGE>
Signature: Signature:
[Signature of Craig S. Tysdal] [Signature of David E. Brill]
- -------------------------------------- ----------------------------------------
Name: CRAIG S. TYSDAL Name: DAVID E. BRILL
- -------------------------------------- ----------------------------------------
Title: PRESIDENT & CEO Title: VICE PRESIDENT
- -------------------------------------- ----------------------------------------
Date Offered:x JANUARY 30, 1998 Date Accepted: JANUARY 30, 1998
- -------------------------------------- ----------------------------------------
<PAGE>
EXHIBIT 10.5
ASSET ACQUISITION AGREEMENT
---------------------------
ASSET ACQUISITION AGREEMENT (this "Agreement") dated as of December
30, 1996, between NETSOLVE, INCORPORATED, a Delaware corporation having an
office at 9130 Jollyville Road, Suite 200, Austin, Texas 78759 ("Seller"), and
INTERMEDIA COMMUNICATIONS INC., a Delaware corporation having an office at 3625
Queen Palm Drive, Tampa, Florida 33619 ("Buyer").
RECITALS:
Seller is engaged, among other things, in the provision of data
transport services through the use of both traditional private line circuits and
frame relay (but excluding the resale of AT&T Interspan frame relay services and
any related access lines or "tail circuits") (collectively, the "Transport
Business"), and including (where the same is provided to customers of the
Transport Business) the monitoring and troubleshooting of data communications
customer premise equipment such as channel banks, multiplexers, DSUs, CSUs, and
similar equipment attached to the data transport services (but excluding routers
or other equipment managed by Seller in its network management out-tasking
services), all of the above as set forth in Schedule 1.1(a) and collectively
referred to herein as the "Business".
Seller desires to retain all of its assets and properties used in
connection with the portion of its business identified above as being excluded
from the definition of the Business, as well as any other service or other
portion of the Seller's business not included in the definition of the Business
(the "Retained Business") and to sell to Buyer and Buyer desires to acquire from
Seller, all right, title and interest of Seller in and to certain of the assets
and properties owned by Seller or used by Seller to conduct the Business, all
upon the terms and subject to conditions contained herein.
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the parties hereto hereby agree as follows:
1. ACQUISITION
<PAGE>
1.1. ACQUIRED ASSETS.
(a) In consideration of the payment by Buyer of the relevant portion
of the Acquisition Price (as defined in Section 3.1 below), Seller hereby sells,
assigns, transfers, conveys and delivers to Buyer, and Buyer hereby purchases,
acquires and takes assignment and delivery of, all the right, title and interest
of Seller in and to the assets and properties of Seller listed on Schedule
1.1(a) (such assets and properties being referred to herein as the "Acquired
Assets").
(b) Except as set forth on Schedule 1.1(b), all of the Acquired
Assets are being sold, assigned, transferred, conveyed and delivered to Buyer
free and clear of all claims, encumbrances, security interests, mortgages,
pledges, restrictions, charges, or liens of any kind, including, without
limitation, tax liens ("Liens").
1.2. EXCLUDED ASSETS. Notwithstanding the foregoing, Seller is not
selling, assigning, transferring, conveying or delivering, and Buyer is not
purchasing pursuant to this Agreement, and the term "Acquired Assets" does not
include, any assets or properties of Seller not expressly and specifically
included in the list of Acquired Assets (the "Excluded Assets").
2. LIMITED ASSUMPTION OF LIABILITIES
2.1. ASSUMPTION OF LIABILITIES. Except as expressly provided
herein, Buyer does not assume or agree to pay, perform or discharge, any debts,
liabilities, obligations, claims, expenses, taxes, contracts, accounts payable,
or commitments of any kind, character or description, whether accrued or fixed,
absolute or contingent, matured or unmatured or determined or undetermined
(collectively, "Liabilities") of Seller. Subject to the terms, conditions,
representations and warranties contained herein, Buyer hereby assumes and agrees
to fully and completely pay, perform and discharge when due all Liabilities
incurred and arising after the date hereof with respect to the Acquired Assets
and its provision, following the date hereof, of the Business (the "Assumed
Liabilities") and no other Liabilities of Seller.
2.2. EXCLUDED LIABILITIES. Except for the Assumed Liabilities, and
regardless of whether any of the following may
2
<PAGE>
be disclosed to Buyer pursuant to Section 4 hereof or otherwise, or whether
Buyer has knowledge of same, Buyer does not assume, and shall have no liability
for any Liabilities arising out of any act or omission occurring prior to the
date hereof (the "Excluded Liabilities") including, without limitation, any
Liability of Seller relating to or arising from: (i) the breach of Seller's
obligations under the leases, contracts and agreements assigned to Buyer; (ii)
any infringement by Seller on the rights of others in connection with the
Business; (iii) taxes, including, without limitation, any social security taxes
or any other taxes relating to Seller's current or former employees, any
employment or withholding taxes upon employees collected by Seller, any income,
capital gains, sales, use or transfer tax arising from the operations of Seller,
including any thereof that may be due in connection with the transactions
contemplated hereby; (iv) any accrued but unpaid payroll, severance, bonus,
holiday and/or vacation obligations to employees of Seller; (v) any damages,
fines, interest or penalties assessed by any federal, state, county, city or
municipal government or governmental agency or authority; or (vi) any current or
long-term debts, payables or amounts owing to any of Seller's officers,
directors, shareholders or any of their affiliates or any other third party.
Seller retains, and shall fully and completely pay, perform and discharge when
due all Excluded Liabilities.
3. ACQUISITION PRICE
3.1. ACQUISITION PRICE; ALLOCATION OF ACQUISITION PRICE. (a)
Subject to the adjustments set forth in Section 3.2, the acquisition price for
the Acquired Assets shall be $9,280,000 and the acquisition price for the
covenants contained in Section 7.2 shall be $3,000,000 (together, the
"Acquisition Price"). The Acquisition Price is hereby being paid by delivery of
cash in the amount of $10,280,000 to Seller and cash in the amount of $2,000,000
to Kronish, Lieb, Weiner & Hellman LLP (the "Escrow Agent") to be held in escrow
by the Escrow Agent in accordance with the terms and provisions of the Escrow
Agreement (the "Escrow Agreement") being executed on the date hereof among
Buyer, Seller and the Escrow Agent. The funds being held in such escrow are
hereafter referred to as the "Escrow Fund".
3
<PAGE>
(b) Not later than 30 business days after the date hereof, Buyer
shall deliver to Seller a statement setting forth an allocation of the sum of
the Acquisition Price and the Assumed Liabilities among the Acquired Assets in
accordance with Exhibit A. Any subsequent adjustments to the sum of the
Acquisition Price and Assumed Liabilities shall be reflected in the allocation
hereunder in a manner consistent with Treasury Regulation (S) 1.1060-1T(f). For
all tax purposes, Buyer and Seller agree to report the transactions contemplated
in this Agreement in a manner consistent with the terms of this Agreement,
including the allocation under Exhibit A, and that none of them will take any
position inconsistent therewith in any tax return, in any refund claim, in any
litigation, or otherwise.
3.2. ADJUSTMENT TO THE ACQUISITION PRICE. The Acquisition Price
shall be subject to the following adjustment for loss of customers:
(a) Set forth on Exhibit B are the customers of the Business for the
month November 1996 (the "Base Month") and the aggregate amount billed to those
customers in the Base Month. The parties agree that the aggregate amount billed
to the customers listed on Exhibit B in the Base Month is equal to $753,743 (the
"Base Month Billings"). As promptly as practicable after November 30, 1997, but
in no event later than January 15, 1998, Buyer shall deliver to Seller a written
statement (the "Buyer's Statement") setting forth the average monthly amount
billed to the customers listed on Exhibit B over the 12 full months commencing
December 1, 1996 and ending November 30, 1997 (the "Average Monthly Billings")
and the amount billed to each customer for each month upon which the Average
Monthly Billings were calculated. The accuracy of the information contained
therein shall be certified to by the Chief Financial Officer (or other
appropriate officer) of Buyer. In the event Buyer shall fail to deliver to
Seller the Buyer's Statement by January 15, 1998, Seller shall be entitled to
have all amounts held in the Escrow Fund released to Seller.
(b) Seller may verify any amounts set forth on the Buyer's Statement;
provided, however, that Seller shall have notified Buyer in writing of its
intent to do so within 30 days after delivery of the Buyer's Statement to
Seller. Buyer shall provide Seller reasonable access to Buyer's books and
records
4
<PAGE>
during the 30-day period following any such notice by Seller as is necessary for
Seller to determine the accuracy of the Buyer's Statement. In the event of such
a dispute, Buyer and Seller shall attempt to reconcile their differences, and
any resolution by them as to any disputed amounts shall be final, binding and
conclusive on the parties hereto. If Buyer and Seller are unable to reach a
resolution within 30 days after receipt by Buyer of Seller's written notice of
its intent to verify the Buyer's Statement, Buyer and Seller shall submit the
items in dispute for resolution to an internationally recognized independent
accounting firm that is independent of Buyer and Seller (such accounting firm
being referred to herein as the "Independent Accounting Firm"), which shall,
within 30 business days after such submission, determine and report to Seller
and Buyer upon such remaining disputed items, and such report shall be final,
binding and conclusive on the parties hereto. The fees and disbursements of the
Independent Accounting Firm shall be allocated between Seller and Buyer in the
same proportion that the aggregate amount of such disputed items so
unsuccessfully disputed by each such party (as finally determined by the
Independent Accounting Firm) bears to the total amount of disputed items so
submitted.
(c) The Buyer's Statement shall be deemed final for the purposes of
this Section 3.2 upon the earliest of (i) Seller's notification to Buyer that it
does not intend to verify the Buyer's Statement, (ii) the failure of Seller to
notify Buyer of its intent to verify the Buyer's Statement within 30 days after
receipt by Seller of the Buyer's Statement, (iii) the resolution of all
disputes, pursuant to Section 3.2(b), by Seller and Buyer and (iv) the
resolution of all disputes, pursuant to Section 3.2(b), by the Independent
Accounting Firm. Promptly after the Buyer's Statement is deemed final, an
adjustment payment shall be made as follows: in the event the Average Monthly
Billings (as specified in the final Buyer's Statement) shall be less than 80% of
Base Month Billings, then the Escrow Agent shall promptly and in accordance with
the terms of the Escrow Agreement deliver to Buyer from the Escrow Fund an
amount equal to the product of the amount of such deficiency multiplied by 8.4.
Buyer's recourse against Seller under this Section 3.2(c) shall be limited to
the Escrow Fund, even if cash in such Escrow Fund shall be insufficient to cover
the amount of such deficiency.
5
<PAGE>
(d) Notwithstanding anything in this Section 3.2 to the contrary, in
the event any customer listed on Exhibit B becomes a frame relay customer of
Buyer during the 12 month period ending November 30, 1997, Seller shall have the
option to delete that customer and its billings (or the portion of such
customer's network as shall have been converted to frame relay if less than all
of such customer's network shall have been converted) from Exhibit B and, if
Seller exercises such option, the Base Month Billings and the Average Monthly
Billings shall be recomputed without regard to such customer or its affected
billings (it being understood that if Seller shall not exercise such option the
billings to such customer as a frame relay customer shall be included in
determining the Average Monthly Billings). In addition, the parties expressly
agree that billings for local exchange carrier tail circuits are not included in
Base Month Billings and shall not be included in Average Monthly Billings.
3.3. APPORTIONMENT. All income and expenses pertaining to the
Business, including, without limitation, all prepaid sums and fees, service
charges, advertising, rental charges, utility charges, payments under assigned
agreements, and accrued and prepaid expenses, shall be prorated between Buyer
and Seller as of December 1, 1996 so that the Seller shall receive all revenues
and shall be responsible for all expenses and liabilities allocable to the
period prior to December 1, 1996 and Buyer shall receive all revenues and shall
be responsible for all expenses and liabilities allocable to the period
beginning on and continuing after December 1, 1996. Buyer and Seller shall
cooperate with each other in calculating all such prorated items and shall make
a payment one to the other, as appropriate, within sixty (60) days of the
Closing of the net amount of such prorated items.
4. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller hereby represents and warrants to Buyer as follows (all
representations and warranties contained in this Section 4 are made only as of
the date hereof):
4.1. ORGANIZATION OF SELLER. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Seller has all requisite power
6
<PAGE>
and authority to own and hold the Acquired Assets, to conduct the Business as
currently conducted by Seller and is duly licensed, permitted or qualified to do
business in each jurisdiction listed on Schedule 4.1.
4.2. AUTHORITY. Seller has all requisite power and authority to
execute and deliver this Agreement, the Escrow Agreement and the Management
Agreement (as defined in Section 7.6), to carry out its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby. Seller has obtained all necessary approvals for the execution and
delivery of this Agreement, the Escrow Agreement and the Management Agreement,
the performance of its obligations hereunder and thereunder, and the
consummation of the transactions contemplated hereby and thereby. Each of this
Agreement, the Escrow Agreement and the Management Agreement has been duly
executed and delivered by Seller and (assuming due authorization, execution and
delivery by the other parties hereto and thereto) constitutes Seller's legal,
valid and binding obligation, enforceable against Seller in accordance with its
terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally and general equitable principles (whether considered
in a proceeding in equity or at law).
4.3. NON-CONTRAVENTION. Except as set forth on Schedule 4.3, none
of the execution and delivery of this Agreement, the Escrow Agreement and the
Management Agreement by Seller, the performance of Seller's obligations
hereunder and thereunder or the consummation by Seller of the transactions
contemplated hereby and thereby will conflict with Seller's Certificate of
Incorporation or By-laws or will, with or without notice, the passage of time or
both, constitute a material breach or violation of, be in conflict with,
constitute or create a material default under, or result in the creation or
imposition of any Liens under (a) any contract, indenture, agreement,
instrument, mortgage, lease or commitment to which Seller is a party or by which
Seller is or any of Seller's properties are bound, or to which Seller is subject
or (b) any law or statute or any judgment, decree, order, regulation or rule of
any court or governmental or regulatory authority relating to Seller or the
Business.
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4.4. SOLVENCY. Seller is not currently insolvent, as such term is
defined in Title 11 of the United States Bankruptcy Code or any state statute
relating to insolvency, and none of the execution and delivery of this Agreement
by Seller, the performance of its obligations hereunder or the consummation by
Seller of the transactions contemplated hereby will render Seller insolvent or
result in Seller being unable to pay its debts as they become due.
4.5. FINANCIAL STATEMENTS.
(a) Seller has delivered to Buyer (i) audited balance sheets for
Seller as of December 31 in each of the years 1993 through 1995, and audited
statements of income and cash flow for each of the fiscal years then ended,
together with the report thereon of Ernst & Young and (ii) an unaudited balance
sheet for Seller as of October 31, 1996 (the "October Balance Sheet") and
unaudited statements of income and cash flow for the period ended October 31,
1996 (collectively, the "Financial Statements"). The Financial Statements and
notes thereto are true, complete and accurate in all material respects and
fairly present the assets, Liabilities, financial condition and results of
operations of the Seller as of the respective dates thereof and for the periods
therein referred to, all in accordance with generally accepted accounting
principles, consistently applied (subject in the case of interim statements, to
normal year end adjustments).
(b) There are no material Liabilities of Seller other than
Liabilities (i) reflected or reserved against on the October Balance Sheet or
(ii) disclosed in Schedule 4.5.
(c) Exhibit B contains a true, complete and accurate list of all of
the customers of the Business for the Base Months and the aggregate amount
billed to those customers in each of the Base Month.
4.6. GOVERNMENTAL CONSENTS. There are no consents, approvals or
authorizations of, or registrations, qualifications or filings with,
governmental or regulatory agencies or authorities necessary in connection with
the execution and delivery of this Agreement by Seller, the performance of
Seller's obligations hereunder or the consummation of the transactions
contemplated hereby.
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4.7. COMPLIANCE WITH LAWS. Seller has conducted the Business, in
all material respects, in accordance with all laws and statutes and rules,
regulations, judgments, orders or decrees of any court or governmental or
regulatory authority applicable to Seller, the Business or the Acquired Assets,
and Seller is not in violation of any such laws, statutes, rules, regulations,
judgments, orders or decrees.
4.8. COMPLIANCE WITH ENVIRONMENTAL LAWS. Seller has conducted the
Business, in all material respects, in accordance with all federal, state,
county, city, municipal or other laws, statutes, rules, regulations, orders,
consent decrees, permits or licenses, relating to the prevention, remediation,
reduction or control of pollution or to the protection of the environment,
natural resources and/or human health and safety.
4.9. PERMITS. Schedule 4.9 sets forth a true, complete and correct
list of all permits, licenses, franchises, orders, certificates and approvals
(collectively, the "Permits") of any federal, state or local regulatory or
administrative agency or court relating to the Acquired Assets or the Business.
The Permits constitute all permits, licenses, franchises, orders, certificates
and approvals required for the lawful operation of the Business and the Acquired
Assets. No default or violation has occurred in Seller's compliance with the
requirements of the Permits which has had or could have a material adverse
affect on Seller's ownership of the Acquired Assets, Seller's ability to conduct
the Business or Seller's ability to transfer the Acquired Assets to Buyer.
4.10. LITIGATION, ETC. Except as set forth on Schedule 4.10, there
are no judicial or administrative actions, suits, proceedings or investigations
pending or threatened, directly relating to or affecting Seller, the Acquired
Assets, or the Business involving claims in excess of $100,000, or which
question the validity of this Agreement or challenge any of the transactions
contemplated hereby or the use of the Acquired Assets or the conduct of the
Business after the date hereof by Buyer. To the best knowledge of Seller, there
are no facts or circumstances that are reasonably likely to give rise to any of
the foregoing.
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4.11. EMPLOYEES. Set forth on Schedule 4.11 is a true and complete
list of all of the employees of Seller engaged in the Business and, with respect
to those employees covered by the first sentence of Section 7.3, their
respective current compensation rates and accrued vacation as of the date
hereof. None of the employees of Seller is covered by any collective bargaining
agreement, no collective bargaining agreement is currently being negotiated and
Seller has no knowledge of any attempt currently being made or that has been
made during the past three years to organize any employees of Seller to form or
enter into a labor union or similar organization. There is currently no labor
strike or work stoppage pending, threatened against or involving Seller and
relating to the Business or the Acquired Assets.
4.12. OWNERSHIP AND TRANSFER OF ACQUIRED ASSETS. Except as disclosed
in Schedule 4.12, Seller has good and marketable title to, or in the case of
leased or subleased Acquired Assets, valid and subsisting leasehold interests
in, all of the Acquired Assets, free and clear of all Liens (other than
permitted Liens set forth on Schedule 1.1(b)). Subject to those permitted Liens
set forth on Schedule 1.1(b), except as disclosed in Schedule 4.12, Seller has
the unrestricted right to sell, transfer, assign, convey and deliver to Buyer
all right, title and interest in and to the Acquired Assets without penalty.
4.13. ASSETS USED IN THE BUSINESS. Except as set forth on Schedule
4.13, the Acquired Assets are the only material assets used by Seller to conduct
the Business. Seller has caused the Acquired Assets to be maintained in
accordance with normal business practice and all the Acquired Assets are in good
operating condition and repair (ordinary wear and tear excepted) and are
suitable for the purposes for which they have been used.
4.14. STATUS OF AGREEMENTS. Set forth on Schedule 4.14 is a true and
complete list of all contracts, leases, subleases, licenses, sublicenses,
agreements and commitments included in the Acquired Assets (the "Material
Contracts"). Except as disclosed on Schedule 4.14, the Material Contracts are
valid, legally binding and enforceable in accordance with their terms and are in
full force and effect, and there are no existing material defaults (or events
that, with notice or lapse of time
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or both, would constitute a material default) with respect to any such Material
Contract. Seller has delivered to Buyer true and complete copies of all Material
Contracts.
4.15. EQUIPMENT. Set forth on Schedule 4.15 is a true and complete
list in all material respects of all field and office equipment included in the
Acquired Assets and the net book value (calculated in accordance with generally
accepted accounting principles) and the balance owed with respect to such
equipment as of the date hereof. Schedule 4.15 also sets forth all leases of
equipment included in the Acquired Assets.
4.16. FACILITIES. Set forth on Schedule 4.16 is a true and complete
list of all facilities included in the Acquired Assets and the monthly lease
payment and remaining lease term with respect to each such facility.
4.17. INTELLECTUAL PROPERTY. Set forth on Schedule 4.17 is a true
and complete list of all intellectual property included in the Acquired Assets
(the "Intellectual Property"). Seller owns or possesses adequate licenses or
other valid rights to use all of the Intellectual Property. Except as set forth
on Schedule 4.17, Seller is unaware of any assertion or claim challenging the
validity of any Intellectual Property. To the best knowledge of Seller, the
rights of Seller in or to such Intellectual Property do not conflict with or
infringe on the rights of any other person or entity, and Seller has not
received any claim or written notice from any person or entity to such effect.
To the best knowledge of Seller, the consummation of the transactions
contemplated by this Agreement will not result in the termination or impairment
of any of the Intellectual Property. To the best knowledge of Seller, after the
consummation of the transactions contemplated hereby, Buyer's operation of the
Business in the same manner as the Business is currently being operated will not
infringe on the Intellectual Property rights of any other person or entity,
including, without limitation, Seller.
4.18. BROKERS, FINDERS, ETC. All negotiations relating to this
Agreement and the transactions contemplated hereby have been carried on without
the participation of any person or entity acting on behalf of Seller in such
manner as to
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give rise to any valid claim for any brokerage or finder's fee, commission or
similar compensation.
4.19. NO MATERIAL MISSTATEMENTS OR OMISSIONS. No representation or
warranty made in this Agreement by Seller is false or misleading as to any
material fact, or omits to state a material fact required to make any of the
statements made herein not misleading in any material respect.
5. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Seller as follows (all
representations and warranties contained in this Section 5 are made only as of
the date hereof):
5.1. ORGANIZATION OF BUYER. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Buyer has all requisite power and authority under its charter and governance
documents and under applicable laws to execute and deliver this Agreement, the
Escrow Agreement and the Management Agreement, to carry out its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby.
5.2. AUTHORITY. Buyer has obtained all necessary approvals for the
execution and delivery of this Agreement, the Escrow Agreement and the
Management Agreement, the performance of its obligations hereunder and
thereunder, and the consummation of the transactions contemplated hereby and
thereby. Each of this Agreement, the Escrow Agreement and the Management
Agreement has been duly executed and delivered by Buyer and (assuming due
authorization, execution and delivery by the other parties hereto and thereto)
constitutes Buyer's legal, valid and binding obligation, enforceable against
Buyer in accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally and general equitable
principles (whether considered in a proceeding in equity or at law).
5.3. NON-CONTRAVENTION. None of the execution and delivery of this
Agreement, the Escrow Agreement and the
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Management Agreement by Buyer, the performance of its obligations hereunder and
thereunder, or the consummation by Buyer of the transactions contemplated hereby
and thereby will constitute a violation of, or be in conflict with, Buyer's
Certificate of Incorporation and By-laws or will, with or without notice, the
passage of time or both, constitute a material breach or violation of, be in
conflict with, constitute or create a material default under or result in the
creation or imposition of any Liens upon any property of Buyer pursuant to (a)
any contract, indenture, agreement, instrument, mortgage, lease or commitment to
which Buyer is a party or by which any of its properties are bound, or to which
Buyer is subject or (b) any law or statute or any judgment, decree, order,
regulation or rule of any court or governmental or regulatory authority relating
to Buyer.
5.4. LITIGATION, ETC. There are no actions, suits, proceedings or
investigations pending or threatened against Buyer which question the validity
of this Agreement or challenge any of the transactions contemplated hereby and,
to the best knowledge of Buyer, there are no facts or circumstances that are
reasonably likely to give rise to any of the foregoing.
5.5. BROKERS, FINDERS, ETC. Other than for Bear, Stearn's & Co.,
Inc. ("Bear"), all negotiations relating to this Agreement and the transactions
contemplated hereby have been carried on without the participation of any person
or entity acting on behalf of Buyer in such manner as to give rise to any valid
claim for any brokerage or finder's fee, commission or similar compensation.
Buyer shall solely be responsible for the fees and expenses of Bear.
5.6. GOVERNMENTAL CONSENTS. There are no consents, approvals or
authorizations of, or registrations, qualifications or filings with,
governmental or regulatory agencies or authorities necessary in connection with
the execution and delivery of this Agreement by Buyer, the performance of
Buyer's obligations hereunder or the consummation of the transactions
contemplated hereby.
6. INDEMNIFICATION
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6.1. INDEMNIFICATION. (a) Seller agrees to defend, indemnify and
hold harmless Buyer, any subsidiary or affiliate thereof and its officers,
directors, shareholders and controlling persons, employees, agents, successors
and assigns (the "Indemnified Buyer Group") from and against any and all
Liabilities (other than the Assumed Liabilities), losses, damages, claims,
costs, expenses, judgments, interest and penalties (including, without
limitation, attorneys' and accountants' reasonable fees and disbursements
incurred by the Indemnified Buyer Group in any action or proceeding between
Seller and the Indemnified Buyer Group or between the Indemnified Buyer Group
and any third party or otherwise) (collectively, "Losses") incurred as a result
of, arising out of or resulting from:
(i) the breach of any representation, warranty, covenant or
agreement made by Seller contained in this Agreement, the Escrow Agreement or
the Management Agreement; or
(ii) any claim or cause of action of any third party (including,
without limitation, any federal or state government entity), whether commenced
before or after the date of this Agreement, to the extent arising out of any
action, inaction, event, condition, Liability or obligation of Seller occurring
or existing prior to the date hereof (regardless of whether or not referred to
on a Schedule to this Agreement or otherwise disclosed or known to Buyer as of
the date hereof); or
(iii) any fines or penalties assessed by any federal, state, county,
city or municipal government or any governmental agency or authority to the
extent arising out of any action, inaction, event, condition, Liability or
obligation of Seller occurring or existing prior to the date hereof (regardless
of whether or not referred to on a Schedule to this Agreement or otherwise
disclosed or known to Buyer as of the date hereof); or
(iv) failure to pay, perform or discharge when due any Excluded
Liability; or
(v) the operation or conduct of Seller's businesses, including,
without limitation, the operation or conduct of the Business through the date
hereof.
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(b) Buyer agrees to defend, indemnify and hold harmless Seller, any
subsidiary or affiliate thereof and any of their officers, directors,
controlling persons, employees, agents, successors and assigns (the "Indemnified
Seller Group") from and against any and all Liabilities (other than the Excluded
Liabilities), losses, damages, claims, costs, expenses, judgments, interest and
penalties (including, without limitation, attorneys' and accountants' reasonable
fees and disbursements incurred by the Indemnified Seller Group in any action or
proceeding between Buyer and the Indemnified Seller Group or between the
Indemnified Seller Group and any third party or otherwise) incurred as a result
of, arising out of or resulting from:
(i) the breach of any representation, warranty, covenant or
agreement made by Buyer contained in this Agreement, the Escrow Agreement or the
Management Agreement; or
(ii) the failure on the part of Buyer to pay, perform and discharge
when due the Assumed Liabilities; or
(iii) the operation or conduct of the Business by Buyer from and
after the date hereof.
6.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by Buyer and Seller are made as of the date
hereof and not on a continuous basis. However, for a period of 18 months after
the date hereof, claims, actions, or causes of action may be made with respect
to the breach, untruth or inaccuracy thereof. All representations and
warranties made by or on behalf of Seller in this Agreement shall be deemed to
have been relied upon by Buyer (notwithstanding any investigation by Buyer).
6.3. NOTICE OF CLAIMS. An indemnified party shall give prompt
written notice to the indemnifying party of any claim against the indemnified
party which might give rise to a claim by the indemnified party against the
indemnifying party under the indemnification provisions contained herein,
stating the nature and basis of the claim and the actual or estimated amount
thereof, provided, however, that failure to give such notice will not effect the
obligation of the indemnifying party to provide indemnification in accordance
with the terms of Section 6.1
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unless, and only to the extent that, the indemnifying party is actually
prejudiced thereby. In the event that any action, suit or proceeding is brought
against any indemnified party with respect to which the indemnifying party may
have liability under the indemnification provisions contained herein, the
indemnifying party shall, upon written acknowledgement by the indemnifying party
that such action, suit or proceeding is an indemnifiable loss pursuant to
Section 6.1, have the right, at the cost and expense of the indemnifying party,
to defend such action in the name and on behalf of the indemnified party (using
counsel reasonably satisfactory to the indemnified party), and, in connection
with any such action, the indemnified party and the indemnifying party agree to
render to each other such assistance as may reasonably be required in order to
ensure proper and adequate defense of such action, provided, however, that an
indemnified party shall have the right to retain its own counsel, with fees and
expenses paid by the indemnifying party, if representation of such indemnified
party by counsel retained by the indemnifying party would be inappropriate
because of an actual conflict of interest between such indemnified party and the
indemnifying party in the particular matter at hand. If the indemnifying party
shall fail to defend such action, suit or proceeding, then the indemnified party
shall have the right to defend such action without prejudice to its rights to
indemnification under Section 6.1 and, in connection therewith, the indemnified
party and the indemnifying party agree to render to each other such assistance
as may reasonably be required in an effort to provide for the appropriate
defense of such action. Neither the indemnified party nor the indemnifying party
shall make any settlement of any claim which might give rise to liability of the
indemnifying party under the indemnification provisions contained herein without
the written consent of each party, which consent shall not be unreasonably
withheld, delayed or conditioned.
7. ADDITIONAL AGREEMENTS
7.1. CONFIDENTIALITY. Except as may be necessary in connection with
Seller's performance of the Management Agreement, for a period of three years
from the date hereof, Seller shall, and shall cause its employees, agents,
representatives, affiliates, officers and directors to:
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(a) treat and hold as confidential all confidential information
relating to the Business, including, without limitation, any information
relating to trade secrets, customer and supplier lists, pricing and marketing
plans and details of customer contracts, provided, however, that the provisions
of this Section 7.1 shall not apply to any information that is or becomes
generally available to the public other than as a result of an impermissible
disclosure by Seller or its employees, agents, representatives, affiliates,
officers and directors; and
(b) promptly furnish to Buyer any and all copies (in whatever form or
medium) of such confidential information in its possession.
7.2. NON-COMPETE. In consideration of the relevant portion of the
Acquisition Price, Seller agrees that for a period of five years from the date
hereof, Seller shall not directly or through any affiliate conduct any Transport
Business that is or may become competitive with Buyer in the Business anywhere
in the United States; provided, that the foregoing shall not prohibit Seller
from carrying on its Retained Business or any other business (other than the
Transport Business) and providing all of its services (other than the Transport
Business), even if such services and business is provided to actual or potential
competitors of Buyer. Notwithstanding the foregoing, if, within five years from
the date hereof, Seller receives an offer to purchase all or a substantial part
of the Retained Business (the "Offered Business") from a third party, Seller
shall promptly notify Buyer of such offer (the "Offer Notice"), which Offer
Notice shall include a reasonable description of the material terms of the offer
from such third party. Buyer and Seller shall mutually determine whether such
third party is a direct competitor of Buyer in the Transport Business. In the
event Buyer and Seller shall agree that such third party is a direct competitor
of Buyer in the Transport Business, Buyer may submit an offer for the purchase
of the Offered Business within 10 business days after reaching such agreement.
Seller agrees that it will consider, in good faith, any such offer of Buyer;
however, Seller shall in no way be required to accept Buyer's offer, or be
prohibited or limited in any way from consummating a transaction for the sale of
the Offered Business with any third party if, for any reason, Seller deems it to
be in its best interest to do so. Seller shall not enter into any agreement or
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arrangement with any such third party which would preclude Seller from providing
the Offer Notice to Buyer or accepting Buyer's offer prior to Seller's good
faith determination that Seller does not wish to accept Buyer's offer. Buyer
shall keep confidential the fact that it has received an Offer Notice and the
terms of the Offer Notice.
7.3. EMPLOYEES. Buyer shall be permitted to discuss potential
employment arrangements, on terms at least as favorable as their current
employment terms with Seller, with those employees identified with an asterisk
on Schedule 4.11; provided, that prior to Buyer offering employment to any of
the employees identified with an asterisk on Schedule 4.11 Seller and Buyer
shall negotiate and agree upon the impact the hiring of such employee by Buyer
may have on the ability of Seller to perform its obligations, appropriate relief
for Seller and any corresponding reduction for the fees paid to Seller under the
Management Agreement. Buyer shall not, for a period of one year after the date
hereof, directly or indirectly through an affiliate, (i) offer employment to any
other employee of Seller (whether listed on Schedule 4.11 or subsequently hired
by Seller), (ii) induce or seek to influence any other employee of Seller to
leave his or her employ or terminate his or her consultancy with Seller or (iii)
aid any party in any attempt to hire any other employee of Seller; provided,
that Buyer shall have the right to demonstrate to Seller certain areas of need
and, with the prior written consent of Seller (which consent may be granted or
withheld in the sole discretion of Seller for any reason), to hire other
employees of Seller to fill positions in those areas of need (it being
understood that in granting such consent Seller and Buyer may negotiate and
agree upon the impact the hiring of such employee by Buyer may have on the
ability of Seller to perform its obligations, appropriate relief for Seller and
any corresponding reduction for the fees paid to Seller under the Management
Agreement).
7.4. SUBCONTRACTS. Seller hereby agrees to use all reasonable
efforts to obtain any consents necessary to assign or otherwise transfer the
Material Contracts to Buyer. In the event that any consent required with respect
to any Material Contract cannot be obtained, upon the request of Buyer, Seller
hereby agrees to subcontract or sublease all of its obligations to perform under
such contract to Buyer. Buyer shall fully and
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completely indemnify and hold Seller harmless from and against any and all
claims arising our of Buyer's performance or failure to perform thereunder. The
cost of performing each such subcontract or sublease shall be borne by Buyer.
Seller will deliver to Buyer all revenues earned under each such Material
Contract. Buyer shall cooperate with Seller so as to permit Seller to be
relieved of all Assumed Liabilities under such Material Contracts. Buyer shall
lease to Seller all equipment included in the Acquired Assets required by Seller
to perform its obligations under this Section 7.4 for one dollar per month.
7.5. TAX RECORDS. For income tax purposes, Seller shall, upon
reasonable request of Buyer, allow Buyer access for six years from the date
hereof to existing records relating to the Business that are in Seller's
possession and Seller shall use all reasonable efforts to maintain such records
for six years unless specifically authorized by Buyer to the contrary. In the
event Buyer shall obtain access to any records, documents or information of any
kind of Seller which are not related to the Business, Buyer shall, and shall
cause its employees, agents, representatives, affiliates, officers and directors
to, maintain all such records, documents and information in strict confidence
and shall not disclose the same to any third party or use any of such records,
documents or information for any purpose which would be reasonably likely to
adversely affect Seller. Notwithstanding the foregoing, the confidentiality
provisions of this paragraph shall not apply to records, documents or
information which (i) is or becomes generally available to the public other than
as a result of a disclosure by Buyer or its employees, agents, representatives,
affiliates, officers and directors, (ii) was available to Buyer on a
nonconfidential basis prior to its disclosure by Seller (except that any such
documents marked to indicate their confidential nature are covered herein) or
(iii) becomes available to Buyer on a nonconfidential basis from a person other
than Seller or any of its employees, agents, representatives, affiliates,
officers and directors who, to Buyer's knowledge, is not bound by a
confidentiality agreement with Seller or otherwise prohibited from transmitting
the information to Buyer.
7.6. MANAGEMENT AGREEMENT. Buyer and Seller shall enter into a
management agreement (the "Management Agreement"), substantially in the form
attached hereto as Exhibit C, whereby
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Seller will manage the Acquired Assets and the customers of the Business for a
period of 12 months from the date hereof.
7.7. INTRASTATE SERVICES. Buyer and Seller agree that Seller shall
continue after the date hereof to provide those services necessary for the
origination and termination of private line services in California using the
tariffed services of local exchange carriers for the Seller's existing customers
and for any new customers directed to it by Buyer (except that Buyer shall agree
to pay Seller's standard coordination fees for such services provided to new
customers). The provision of such services shall be for Seller's account and
the Seller shall collect the proceeds from these services provided by Seller and
pay any expenses incurred to provide such services. Seller further agrees that
any invoice or statement sent to any customer of the Business relating to
services provided by Seller shall refer to Seller as the provider of such
services and shall refer to Buyer where and as appropriate and when requested by
Buyer (but subject to Buyer's prior approval). Buyer hereby agrees to provide
to Seller, on a non-exclusive basis, the use of those Acquired Assets as are
necessary to enable Seller to perform Seller's obligations hereunder for a
monthly charge equal to one dollar. The provision of such services and the use
of the Acquired Assets pursuant to this Section 7.7 may be terminated by Buyer
at any time by written notice to Seller, and by Seller on the earlier of the
date of twelve months from the date hereof or the approval of the transfer by
the California Public Utility Commission.
7.8. PRE-CLOSING OBLIGATIONS. Except for revenues and expenses
relating to the origination and termination of private line services in the
State of California pursuant to the arrangements set forth in Section 7.7 (the
"Excluded Revenues and Expenses"), Buyer and Seller agree that during the period
from December 1, 1996 through the date hereof ("Pre-Closing Period") Seller
conducted the Business for the account of Buyer and pursuant to the control and
discretion of Buyer. In the event that the aggregate gross revenues earned by
the Business during the Pre-Closing Period ("Revenues") exceed aggregate
expenses incurred by the Business during the Pre-Closing Period ("Expenses"),
Seller shall pay the difference to Buyer. In the event that Expenses exceed
Revenues, Buyer shall pay the difference to Seller. Notwithstanding the
preceding two
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sentences, if the difference to be paid pursuant to this Section 7.8 shall be
less than $1,000, Buyer and Seller agree that such difference shall not be paid.
Revenues and Expenses shall be calculated without regard to the Excluded
Revenues and Expenses and in accordance with Seller's normal accounting
practices. All payments due pursuant to this Section 7.8 shall be paid by wire
transfer in immediately available funds not later than five business days after
the amount of Revenues and Expenses shall have been agreed to in writing by
Buyer and Seller. Buyer and Seller shall cooperate with each other and shall use
all reasonable good faith efforts to reach such agreement.
7.9. BANDWIDTH AVAILABILITY AND EQUIPMENT PLACEMENT. Buyer shall
make available to Seller throughout the term of the Management Agreement,
without charge to Seller, adequate bandwidth over the network purchased pursuant
to this Agreement for use as management channels for provision by Seller of
Seller's network management services to Seller's current customers serviced over
the network purchased pursuant to this Agreement. Buyer shall also permit Seller
to locate Seller's currently existing equipment used in connection with its
network management services at the facilities purchased by Buyer pursuant to
this Agreement throughout the term of the Management Agreement, without charge
to Seller.
7.10. COMPLIANCE WITH LAWS AND PERMITS. From and after the date
hereof, Buyer shall conduct the Business, in all material respects, in
accordance with all laws and statutes and rules, regulations, judgments, orders
or decrees of any court or governmental or regulatory authority applicable to
Buyer or the Business. In addition, from and after the date hereof, Buyer shall
comply, in all material respects, with all permits, licenses, franchises,
orders, certificates and approvals of any federal, state or local regulatory or
administrative agency or court relating to the Business.
8. GENERAL
8.1. EXPENSES. All expenses of the preparation, execution and
consummation of this Agreement and of the transactions contemplated hereby
including, without limitation, attorneys', accountants' and outside advisors'
fees and
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disbursements, shall be borne by the party incurring such expenses.
8.2. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, including, without
limitation, the letter of intent dated December 5, 1996 among the parties
hereto, and shall not be amended or terminated except by a written instrument
hereafter signed by all of the parties hereto. The Schedules and Exhibits to
this Agreement are to be considered a part of this Agreement for all purposes.
8.3. ASSIGNMENT. None of the parties hereto may assign its rights
or delegate its obligations under this Agreement without the written consent of
the other parties hereto, except Buyer may assign this Agreement in the event of
a sale of all or substantially all of the assets of Buyer. In the event of an
assignment by Buyer as permitted by this Section 8.3, the adjustment for loss of
customers as set forth in Section 3.2 shall automatically be deleted from this
Agreement. This Agreement and all of the provisions hereof shall be binding upon
and inure only to the benefit of the parties hereto and their respective heirs,
executors, personal representatives and successors.
8.4. FURTHER ACTION. Each of the parties hereto shall use all
reasonable efforts to do, or cause to be done, all things necessary, proper or
advisable under applicable law to carry out the provisions of this Agreement and
shall execute and deliver such documents and other papers as may be required to
carry out the provisions of this Agreement.
8.5. NOTICES. All notices, demands, requests and other
communications hereunder shall be in writing and shall be deemed to have been
duly given and shall be effective upon receipt, if delivered by hand, or sent by
certified or registered United States mail, postage prepaid and return receipt
requested or by prepaid overnight express service. Notices shall be sent to the
parties at their respective addresses as set forth on the first page of this
Agreement or to such other address as shall be specified by like notice.
22
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8.6. SPECIFIC PERFORMANCE. The parties agree that due to the unique
subject matter of this transaction, monetary damages will be insufficient to
compensate the non-breaching party in the event of a breach of any part of this
Agreement. Accordingly, the parties agree that the non-breaching party shall be
entitled (without prejudice to any other right or remedy to which it may be
entitled) to an appropriate decree of specific performance, or an injunction
restraining any violation of this Agreement or other equitable remedies to
enforce this Agreement (without establishing the likelihood of irreparable
injury or posting bond or other security), and the breaching party waives in any
action or proceeding brought to enforce this Agreement the defense that there
exists an adequate remedy at law.
8.7. SEVERABILITY. If any one or more of the provisions contained
in this Agreement or any document executed in connection herewith shall be
invalid, illegal or unenforceable in any respect under any applicable law, the
validity, legality and enforceability of the remaining provisions contained
herein shall not (to the full extent permitted by law) in any way be affected or
impaired.
8.8. ATTORNEY'S FEES. In any action, proceeding or counterclaim
arising out of or in any way connected with this Agreement, the prevailing
parties shall be entitled to recover reasonable attorneys' fees and
disbursements incurred in connection therewith.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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8.9. HEADINGS. All headings in this Agreement are intended solely
for convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
8.10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same instrument.
8.11. GOVERNING LAW. THE VALIDITY AND CONSTRUCTION OF THIS AGREEMENT
SHALL BE GOVERNED BY THE INTERNAL LAWS (AND NOT THE PRINCIPLES OF CONFLICT OF
LAWS) OF THE STATE OF DELAWARE.
8.12. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY OR AGAINST IT
ON ANY MATTERS WHATSOEVER, IN CONTRACT OR IN TORT, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT.
IN WITNESS WHEREOF, and intending to be legally bound thereby, Buyer
and Seller have caused this Agreement to be duly
24
<PAGE>
executed and delivered by their respective duly authorized officers as of the
date first set forth above.
NETSOLVE, INCORPORATED
By: /s/ Ken Kieley
-----------------------------------
Name: Ken Kieley
Title: VP Finance, CFO & Secretary
INTERMEDIA COMMUNICATIONS INC.
By: /s/ Robert Manning
-----------------------------------
Name: Robert Manning
Title: CFO
25
<PAGE>
EXHIBIT 10.6
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT is made as of the 19th day
of October, 1992, by and among SOUTHWEST NETWORK SERVICES, INC., a Delaware
corporation (the "Company"), certain persons and entities among those listed on
Schedule A hereto, each of whom is herein referred to individually as a "Prior
Investor" and collectively as the "Prior Investors" and each of whom is a party
to that certain Series A Preferred Stock Purchase Agreement of the Company dated
as of April 10, 1991 (the "Prior Agreement") who, in the aggregate hold the
number of shares of capital stock of the Company required to amend the various
provisions of the Prior Agreement, in accordance with Section 10.10 thereof and
the persons and entities listed on Schedule B hereto, each of whom is herein
referred to individually as a "New Investor" and collectively as the "New
Investors" (the Prior Investors and the New Investors are sometimes referred to
herein individually as an "Investor" and collectively as the "Investors").
WITNESSETH:
The Company and certain of the Prior Investors previously entered into the
Prior Agreement pursuant to which, among other things, the Company sold to such
Prior Investors and the Prior Investors purchased from the Company shares of the
Company's Series A Preferred Stock.
Pursuant to that certain Secured Demand Note Agreement of the Company dated
as of March 31, 1992, as amended and restated (the "Note Agreement"), the
Company borrowed from the Lenders under the Note Agreement (some of whom are
also Prior Investors) an aggregate principal amount of $3,095,686.63 and, as
evidence of the Company's indebtedness to each of such Lenders, executed and
delivered to each of such Lenders the Company's Secured Demand Promissory Notes
(the "Notes").
The Company now desires to exchange the Notes previously issued to the
Lenders pursuant to the Note Agreement for shares of Series B Preferred Stock,
and to sell additional shares of Series B Preferred Stock to the New Investors,
together with warrants (the "Warrants") covering one (1) share of the Company's
Common Stock, $.01 par value per share, for each share of Series B Preferred
Stock exchanged for cancellation of the Notes and/or purchased hereunder, and to
amend and restate certain provisions of the Prior Agreement, all as provided for
herein.
NOW, THEREFORE, the Company and the undersigned Investors hereby agree as
follows:
1. Purchase and Sale of Stock and Issuance of Warrants.
1.1 Sale and Issuance of Series B Preferred Stock and Warrants.
(a) The Company shall adopt and file with the Secretary of State of
Delaware a Certificate of Designation, Voting Powers, Preferences and
Rights of the Series B
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Preferred Stock of the Company (the "Series B Designation") such
Series B Designation to be substantially in the form attached hereto
as Exhibit "A".
(b) The Company shall authorize the issuance of the Warrants covering an
aggregate of up to 3,250,000 shares of the Company's Common Stock, at
an exercise price of $.01 per share, each such Warrant to be subject
to the terms and conditions as set forth in the form of the Warrant
attached hereto as Exhibit "B".
(c) Subject to the terms and conditions of this Agreement: (i) the
Company agrees to sell and issue at the Closing (as defined
hereinafter) to each New Investor, in consideration of the
cancellation of the Notes, including the accrued interest thereon,
previously issued to such New Investor under the Note Agreement (the
total principal amount, together with the accrued interest on such
Notes is set forth opposite each New Investor's name under the heading
"Principal of and Interest on Notes" on Schedule B attached hereto),
that number of shares of the Company's Series B Preferred Stock set
forth opposite each New Investor's name under the heading "Series B
Stock to be Issued in Exchange for Notes" on Schedule B attached
hereto, and each New Investor agrees, severally, to deliver to the
Company at the Closing the original Notes previously issued to such
New Investor under the Note Agreement in consideration for the
purchase of such shares of Series B Preferred Stock; (ii) each New
Investor agrees, severally, to purchase at the Closing and the Company
agrees to sell and issue to each New Investor at the Closing that
number of additional shares of the Company's Series B Preferred Stock
set forth opposite each New Investor's name under the heading
"Additional Series B Stock to be Purchased" on Schedule B attached
hereto for the purchase price set forth under the heading "Purchase
Price of Additional Series B Stock to be Purchased" on said Schedule
B; and (iii) the Company agrees to issue to each New Investor a
Warrant to purchase the number of shares (subject to adjustment as
therein described) of the Company's Common Stock set forth opposite
such New Investor's name under the heading "Shares of Common Stock
Covered by Warrant" on Schedule B attached hereto.
1.2 Closing. The Closing shall take place at the offices of Worsham,
Forsythe, Sampels & Wooldridge, 32nd Floor, 2001 Bryan Tower, Dallas, Texas, at
11:00 a.m., on October 19, 1992, or at such other time and place as the Company
and New Investors acquiring in the aggregate more than half of the shares of
Series B Preferred Stock to be issued and sold at such time may mutually agree
upon in writing (which time and place are designated as the "Closing"). At the
Closing, the Company shall deliver to each New Investor a certificate or
certificates representing the aggregate number of shares of Series B Preferred
Stock which such New Investor is purchasing, together with a Warrant covering
the number of shares (subject to adjustment as therein described) of the
Company's Common Stock set forth opposite such New Investor's name on Schedule B
attached hereto, against delivery to the Company by such New Investor of the
original Notes previously issued to such New Investor under the Note Agreement
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and a check payable to the Company's order, a wire transfer to the Company's
account or other consideration acceptable to the Company, in the amount of the
purchase price for the additional shares of Series B Preferred Stock being
purchased by such New Investor.
1.3 Subsequent Closings. The Company may, if it so elects, issue and sell
to the New Investors, as well as other persons and entities, up to such number
of shares of Series B Preferred Stock as when added to the number of shares
issued and sold at the Closing will not exceed 3,250,000 shares, together with
Warrants covering the same number of shares of Common Stock at a purchase price
of not less than $4.00 per share, each such closing or closings to occur on or
before March 31, 1993. Such subsequent sale or sales shall be upon
substantially the same terms and conditions as provided herein and such
subsequent purchasers shall deliver at the time of each such subsequent closing
a counterpart signature page of this Agreement. Upon the closing or closings of
such sale or sales and delivery by such persons of a counterpart signature page
hereof, the person(s) purchasing such shares and Warrants shall be deemed to be
New Investors hereunder, with all of the same rights and subject to all of the
obligations as herein provided. The issuance of shares of Series B Preferred
Stock and Warrants pursuant to this Section 1.3 shall be conducted in a manner
not inconsistent with any exemption from applicable state and federal securities
laws the Company may claim with respect to the issuance of such shares and
Warrants at the Closing.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Investor that:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted. The Company is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a materially adverse effect on its business or
properties, taken as a whole.
2.2 Capitalization. The authorized capital of the Company consists, or
will consist prior to the Closing, of:
(i) Convertible Preferred Stock. 7,500,000 shares of preferred stock,
$.10 par value per share ("Preferred Stock"), of which 4,150,000
shares have been designated as Series A Preferred Stock and 3,250,000
shares of preferred stock will have been designated Series B Preferred
Stock and may be issued and sold in accordance with the terms of this
Agreement. The rights, privileges and preferences of the Series B
Preferred Stock will be as stated in the Company's Series B
Designation attached hereto as Exhibit "A". 3,944,184 shares of the
Series A Preferred Stock are issued and outstanding. The issued and
outstanding shares of Series A Preferred Stock, together with the
shares of Series B Preferred Stock to be issued in connection with
this Agreement are sometimes collectively referred to herein as the
"Preferred Stock".
(ii) Common Stock. 13,000,000 shares of Common Stock, $.01 par value per
share ("Common Stock"), of which 201,611 shares are issued and
outstanding.
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(iii) Except as set forth on Schedule 2.2 hereof, there are no outstanding
options, warrants, rights (including conversion or preemptive rights)
or agreement for the purchase or acquisition from the Company of any
shares of its capital stock.
2.3 Subsidiaries. Except as set forth on Schedule 2.3 hereof, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, association, or other business entity.
2.4 Authorization. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the performance of all obligations of the
Company hereunder, the authorization, issuance (or reservation for issuance) and
delivery of the Series B Preferred Stock being sold hereunder and the Common
Stock issuable upon conversion of the Series B Preferred Stock and the
authorization, issuance (or reservation for issuance) and delivery of the
Warrants and the Common Stock issuable upon exercise thereof, have been taken or
will be taken prior to the Closing, and this Agreement constitutes a valid and
legally binding obligation of the Company, enforceable in accordance with its
terms.
2.5 Valid Issuance of Preferred and Common Stock.
(a) The Series B Preferred Stock which is being purchased by the New
Investors hereunder, when issued, sold and delivered in accordance
with the terms hereof for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable and, based in
part upon the representations of the New Investors in this Agreement,
will be issued in compliance with all applicable federal and state
securities laws. The Common Stock issuable upon exercise of the
Warrants and conversion of the Series B Preferred Stock has been duly
and validly reserved for issuance and, upon issuance in accordance
with the terms of the Warrants or the Series B Designation, as the
case may be, shall be duly and validly issued, fully paid and
nonassessable.
(b) The outstanding shares of Preferred Stock and Common Stock are all
duly and validly authorized and issued, fully paid and nonassessable,
and were issued in compliance with all applicable federal and state
securities laws.
2.6 Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority on the part of the
Company is required: (i) in connection with the consummation of the
transactions contemplated by this Agreement, except for compliance with any
applicable state securities or Blue Sky laws which have been, or prior to the
Closing shall have been, fully complied with by the Company; or (ii) in order
for the Company to conduct its business in the manner presently conducted and as
presently contemplated by the Company, except as set forth on Schedule 2.6
hereof.
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2.7 Litigation. Except as set forth on Schedule 2.7 hereof, there is no
action, suit, proceeding or investigation pending or currently threatened
against the Company which questions the validity of this Agreement or the right
of the Company to enter into it, or to consummate the transactions contemplated
hereby, or which might result, either individually or in the aggregate, in any
materially adverse change in the assets, condition, affairs or prospects of the
Company, financially or otherwise, or any change in the current equity ownership
of the Company, nor is the Company aware that there is any basis for the
foregoing. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers. Except as set forth on Schedule 2.7 hereof, the Company is not a
party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or governmental agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company currently pending or
which the Company intends to initiate.
2.8 Proprietary Agreement. The Company, after reasonable investigation,
is not aware that any of its officers or employees who have signed Proprietary
Information and Inventions Agreements with the Company is in violation thereof,
and the Company will use its best efforts to prevent any such violation.
2.9 Patents and Trademarks. Except as set forth on Schedule 2.9 hereof,
the Company has sufficient title and ownership of all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes necessary for its business as now conducted without any
known material conflict with or infringement of the rights of others. Except as
set forth on Schedule 2.9 hereof, there are no outstanding options, licenses, or
agreements of any kind relating to the foregoing, and the Company is not a party
to nor bound by any options, licenses or agreements with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets or other
proprietary rights of any other person or entity. The Company has not received
any communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity. The Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would conflict with his obligation to
use his best efforts to promote the interests of the Company or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business as proposed, will, to the Company's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such employees is
now obligated. The Company does not believe it is or will be necessary to
utilize any inventions of any of its employees (or people it currently intends
to hire) made prior to their employment by the Company.
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<PAGE>
2.10 Compliance with Other Instruments. The Company is not in violation
or default of any provisions of its Restated Certificate of Incorporation, as
amended, or Bylaws, as amended, or of any material instrument or contract to
which it is a party or by which it is bound or, to its knowledge, of any
provision of any federal or state judgment, writ, decree, order, statute, rule
or governmental regulation applicable to the Company's business or properties,
taken as a whole. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not result in any
such violation or be in conflict with or constitute, with or without the passage
of time and giving of notice, either a default under any such provision,
instrument or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company.
2.11 Agreements; Action.
(a) Except as set forth on Schedule 2.11 hereof and except for agreements
explicitly contemplated hereby, there are no agreements,
understandings or proposed transactions between the Company, any of
its officers, directors, affiliates, employees, or any affiliate
thereof.
(b) The Company is not a party to or is not bound by any contract,
agreement or instrument, or subject to any restriction under its
Restated Certificate of Incorporation, as amended, or Bylaws, as
amended, which materially and adversely affects its business as now
conducted, its properties or its financial condition.
2.12 Disclosure. The Company has fully provided each New Investor with
all the information which such New Investor has requested for deciding whether
to make the investment contemplated by this Agreement and all information which
the Company believes is reasonably necessary to enable such New Investor to make
such decision. Neither this Agreement nor any other statements or certificates
made or delivered in connection herewith contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
herein or therein, in light of the circumstances under which they were made, not
misleading.
2.13 Registration Rights. Except as set forth on Schedule 2.13 hereof,
and as provided in Section 7 of this Agreement (and in Section 7 of the Prior
Agreement herein replaced and superseded by Section 7 of this Agreement), the
Company has not granted or agreed to grant any registration rights, including
piggy-back rights, to any person or entity.
2.14 Corporate Documents. Except for amendments necessary to satisfy
representations and warranties or conditions contained herein (which amendments
have been, or shall be, approved by the requisite procedures under Delaware
law), the Restated Certificate of Incorporation and Bylaws of the Company are in
the form attached hereto as Exhibit "A".
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2.15 Financial Statements; Absence of Liabilities and Changes.
(a) The Company has furnished the New Investors with financial statements
as of, and for the periods ended, March 31, 1992 and August 31, 1992
(collectively, the "Financial Statements") attached hereto as Exhibit
"C". The Financial Statements have been prepared in accordance with
generally accepted accounting principles, consistently applied
throughout the period involved and fairly present the financial
position of the Company as of said date and the results of operations
of the Company for the period indicated, except for normal year end
audit adjustments. The Company has no material liabilities, debts or
obligations, whether accrued, contingent or absolute, other than (i)
liabilities reflected on or reserved against the balance sheet of the
Financial Statements, and (ii) liabilities reflected on Schedule 2.15
or incurred since August 31, 1992 in the ordinary and usual course of
business. Since August 31, 1992, the Company has been operated in the
ordinary and usual course of business, and except as set forth on
Schedule 2.15 there has not been:
(i) any material change in the assets, liabilities, financial
condition or operating results of the Company from that
reflected in the Financial Statements, except changes in the
ordinary course of business which have not been, individually
or in the aggregate, materially adverse;
(ii) any material damage, destruction or loss of, or to, assets of
the Company, whether or not covered by insurance;
(iii) any waiver by the Company of a valuable right or of a material
debt owed to it;
(iv) any declaration, authorization or payment of any dividend or
other distribution of the assets of the Company, or any
agreement to declare, authorize or pay any said dividend or
distribution; or
(v) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or
properties is bound or subject.
(b) To the Company's knowledge, there has not been since August 31, 1992
any event or condition of any character which would materially and
adversely affect the assets, properties, financial condition,
operating results or business of the Company.
2.16 Employee Benefits Plans. Except for the Profit Sharing 401(k) Plan
and the Section 125 Cafeteria Plan of the Company (collectively, the "Plans")
described in the summaries of such Plans attached hereto as Exhibits "D-1" and
"D-2", respectively, the Company does not
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have any employee benefit plan as defined in the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). The Company has fulfilled its
obligations, if any, under the minimum funding standards of ERISA and the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code"), with respect to the Plans and is in
compliance in all material respects with the presently applicable provisions of
ERISA and the Code, and has not incurred any liability to the Pension Benefit
Guaranty Corporation or the Plan under Title IV of ERISA which is material to
the Company.
2.17 Minute Book. The minute book of the Company contains a complete
summary of all meetings of directors and stockholders since the time of
incorporation and reflects all transactions referred to in such minutes
accurately in all material respects.
2.18 Real Property Holding Corporation. The Company is not a "United
States real property holding corporation," as that term is defined in Section
897(c)(2) of the Code and Treasury Regulation Section 1.897-2(b). If at any
time in the future the Company shall become a "United States real property
holding corporation", the Company shall notify each foreign investor of such
event as promptly as practicable. Within thirty (30) days after receipt of a
request from a foreign investor, the Company shall prepare and deliver to such
foreign investor the statement required under Treasury Regulation Section 1.897-
2(h) and, subject to the succeeding sentence, either or both of the following
documents: (i) an affidavit in conformance with the requirements of Section
1445(b)(3) of the Code, or (ii) a notarized statement, executed by an officer
having actual knowledge of the facts, that the shares of Company stock held by
such foreign investor are of a class that is regularly traded on an established
securities market, within the meaning of Section 1445(b)(6) of the Code. If the
Company is unable to provide either of the documents described in (i) or (ii)
above upon request, it shall promptly, and in any event within thirty (30) days,
notify such foreign investor in writing of the reason for such inability.
Finally, upon the request of a foreign investor and without regard to whether
either document described in (i) or (ii) above has been requested, the Company
shall reasonably cooperate with the efforts of such foreign investor to obtain a
"qualifying statement" within the meaning of Section 1445(b)(4) of the Code or
such other documents as would exclude a transferee of a foreign investor's
interest from withholding of income tax imposed pursuant to Section 897(a) of
the Code.
3. Additional Representations, Warranties and Covenants of the Company.
The Company represents and warrants to, and covenants with, the Investors, and
each of them, as follows:
3.1 Claims Re: Employment. Except as set forth on Schedule 2.7 hereof,
no person or entity is known to have any claim against the Company or any
current employee with respect to the continued employment by the Company of any
current employee under the terms of any employment contract, covenant not to
compete, patent disclosure agreement or otherwise. Except as set forth on
Schedule 2.7 hereof, no litigation is pending or threatened against any current
employee or the Company relating to the employee's relationship with any former
employer. Except as set forth on Schedule 2.7 hereof, no former or existing
employee of the Company has
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asserted any claim against the Company arising out of any actual or alleged
breach of any actual or alleged employment contract with the Company.
3.2 Claims Re: Information. Except as set forth on Schedule 2.7 hereof,
no person or entity is known to have any claim against the Company or any
current employee with respect to the use of any proprietary information, trade
secrets, patents, formulae or other intangible property rights by the Company or
any current employee under the terms of any agreement, instrument or law.
3.3 Employee Shareholder Agreements. All employee stockholders of the
Company have entered into, and until such time as the Company may complete its
initial sale of its Common Stock pursuant to a Registration Statement on Form S-
1, or its equivalent, under the Securities Act of 1933, as amended (the "Act"),
which results in aggregate cash proceeds to the Company of in excess of
$10,000,000 and the public offering price of which is not less than $6.00 per
share (adjusted to reflect subsequent changes in the capitalization of the
Company) ("Qualified IPO"), each person who is or who shall become an employee-
stockholder of the Company shall enter into, a Shareholder's Agreement with the
Company in the form attached hereto as Exhibit "E" or such other form as the
board of directors of the Company may approve from time to time.
3.4 Proprietary Information and Inventions Agreement. All present
employees have, and at least until such time as the Company may complete its
Qualified IPO, all future employees shall, as a condition to the commencement
and continuation of their employment with the Company, enter into a Proprietary
Information and Inventions Agreement with the Company, substantially in the form
attached hereto as Exhibit "F" or such other form as the board of directors of
the Company may approve from time to time.
3.5 Claims Re: Prior Employers. To the Company's knowledge, and except
as set forth on Schedule 2.7 hereof, no employee of the Company has any duty or
obligation to perform any service for any prior employer of such employee, other
than in connection with the application for, or renewal or prosecution of,
patents or other proprietary information rights.
4. Representations and Warranties of the New Investors. Each New
Investor hereby represents and warrants that:
4.1 Authorization. This Agreement constitutes its valid and legally
binding obligation, enforceable in accordance with its terms.
4.2 Purchase Entirely for Own Account. It is acquiring the Series B
Preferred Stock and the Warrants solely for investment purposes and not for sale
or with a view to distribution of all or any part of such Series B Preferred
Stock or Warrants or the Common Stock issuable upon the conversion or exercise
thereof.
4.3 Disclosure of Information. It believes it has received all the
information it considers necessary or appropriate for deciding whether to
purchase the Series B Preferred Stock and the Warrants. Each New Investor
further represents that it has had an opportunity to ask
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questions and receive answers from the Company regarding the terms and
conditions of the investment contemplated hereby. The foregoing, however, does
not limit or modify the representations and warranties of the Company in
Sections 2 and 3 of this Agreement.
4.4 Investment Experience. Each New Investor is an accredited investor
within the meaning of Regulation D under the Act and an investor in securities
of companies in the development stage and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment for an indefinite
period of time and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
contemplated hereby and to protect itself in connection with such investment.
If other than an individual, each New Investor also represents that it has not
been organized or reorganized for the specific purpose of making the investment
contemplated hereby.
4.5 Restricted Securities. It understands that the Series B Preferred
Stock and the Warrants, as well as the Common Stock issuable upon conversion or
exercise thereof are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act only in certain limited circumstances. In this connection, each New
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
4.6 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, each New Investor further agrees not to make
any disposition of all or any portion of the Series B Preferred Stock or
Warrants (or the Common Stock issuable upon the conversion or exercise thereof)
unless and until:
(a) There is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such New Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition,
and (ii) if reasonably requested by the Company, such New Investor
shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will
not require registration of such shares under the Act. It is agreed
that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual
circumstances.
(c) Notwithstanding the provisions of paragraphs (a) and (b) above, no
such registration statement or opinion of counsel shall be necessary
for a transfer: (i) by a New Investor which is a partnership to a
partner of such partnership or a retired partner of such partnership
who retires after the date hereof, or to the
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estate of any such partner or retired partner, where no consideration
is paid by the partner or retired partner, if the transferee agrees
in writing to be subject to the terms hereof to the same extent as if
he were an original New Investor hereunder; or (ii) by a New Investor
which is a corporation to an affiliate thereof which is directly or
indirectly owned by the same corporate parent as such New Investor.
4.7 Legend. It is understood that the certificates evidencing the Series
B Preferred Stock and the Warrants (and the Common Stock issuable upon
conversion or exercise thereof) may, in addition to any legends required by any
state securities laws, bear the following legend:
"These securities have not been registered under the Securities Act
of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of
counsel reasonably satisfactory to the Corporation that such
registration is not required or unless sold pursuant to Rule 144
under such Act or otherwise pursuant to the terms of that certain
Series B Preferred Stock Purchase Agreement dated as of October 19,
1992. These securities must also be voted in accordance with such
Agreement. Copies of such Agreement may be obtained upon written
request to the Secretary of the Corporation."
5. Conditions of Investors' Obligations at Closing. The obligations of
each New Investor under subsection 1.1(c) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
5.1 Representations and Warranties. The representations and warranties
of the Company contained in Sections 2 and 3 shall be true, in all material
respects, on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of such
Closing.
5.2 Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing,
including, but not limited to, the due adoption and filing with the Secretary of
State of Delaware of the Series B Designation and compliance with all applicable
state securities or blue sky laws.
5.3 Compliance Certificate. An executive officer of the Company shall
deliver to the New Investors at the Closing a certificate certifying that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating
that there shall have been no material adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since
August 31, 1992 other than as disclosed herein.
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5.4 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to New
Investors purchasing at least a majority of the Series B Preferred Stock and
they shall have received all such counterpart original and certified or other
copies of such documents as they may reasonably request.
5.5 Opinion of Counsel. Each New Investor shall have received from
Worsham, Forsythe, Sampels & Wooldridge an opinion, dated as of the Closing, in
form and substance satisfactory to the Investors, to the effect that:
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and the
Company has the requisite corporate power and authority to own its
properties and to conduct its business. The Company has no
subsidiaries other than Specialized Network Services, Inc. of which
the Company owns all of the issued and outstanding capital stock.
(b) The Company is qualified to do business as a foreign corporation in
the States of Texas, California, Louisiana, Oklahoma, Georgia and
Tennessee.
(c) The Company has the requisite corporate power and authority to
execute, deliver and perform this Agreement. The Agreement has been
duly and validly authorized by the Company, duly executed and
delivered by an authorized officer of the Company and constitutes a
legal, valid and binding obligation of the Company. Subject to the
exercise of judicial discretion, equitable principles and bankruptcy
and other laws of general application affecting the rights and
remedies of its creditors, the Agreement is enforceable according to
its terms, except insofar as public policy may limit the
enforceability of the indemnification provisions of Section 7.10 of
the Agreement and except that no opinion need be given as to the
availability of equitable remedies.
(d) The capitalization of the Company is as follows:
(i) Preferred Stock. 7,500,000 shares of preferred stock, $.10 par
value per share, of which 4,150,000 shares have been designated
as Series A Preferred Stock and 3,250,000 shares have been
designated as Series B Preferred Stock. 3,944,184 shares of the
Series A Preferred Stock have been duly authorized, issued and
delivered, are validly outstanding, fully paid and
nonassessable, and were offered and sold in compliance with
exemptions from the registration provisions of all applicable
federal and Texas securities laws. The shares of Series B
Preferred Stock being purchased pursuant to this Agreement have
been duly authorized, issued and delivered, are validly
outstanding, fully paid and nonassessable, and have been
approved by all requisite stockholder action. The respective
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rights, privileges and preferences of the Series B Preferred
Stock are as stated in the Series B Designation attached as
Exhibit "A" to this Agreement. The Common Stock issuable upon
the exercise of the Warrants and the conversion of the Series B
Preferred Stock purchased under this Agreement has been duly
and validly reserved for issuance and, when issued in
accordance with the Warrants or the Series B Designation, as
the case may be, will be validly issued, fully paid and
nonassessable.
(ii) Common Stock. 13,000,000 shares of Common Stock, $.01 par
value per share, of which 201,611 have been duly authorized,
issued and delivered and are validly outstanding, fully paid
and nonassessable and were offered and sold in compliance with
exemptions from the registration provisions of all applicable
federal and Texas securities laws.
(iii) Except for the items on Schedule 2.2 of this Agreement, there
are no preemptive rights or, to the best of such counsel's
knowledge, options, warrants, conversion privileges or other
rights (or agreements for any such rights) outstanding to
purchase or otherwise obtain any of the Company's securities.
(e) The certificates representing shares of the Series B Preferred Stock
and shares of Common Stock are in due and proper form. The form of
Warrant complies with the requirements of the General Corporation Law
of the State of Delaware applicable thereto. The documents attached
to the Agreement as Exhibit "A" are true, complete and accurate
copies of the Restated Certificate of Incorporation of the Company,
as amended (including the Series B Designation) and the Bylaws of the
Company, as amended.
(f) The execution, delivery, performance and compliance by the Company
with the terms of this Agreement do not violate any provision of any
applicable federal, state or local law, rule or regulation or of any
judgment, writ, decree or order binding upon the Company or any
provision of the Company's Restated Certificate of Incorporation, as
amended, or Bylaws, as amended, and, to the best of such counsel's
knowledge, do not conflict with or constitute a default under the
provisions of any agreement to which the Company is a party or by
which it is bound.
(g) All consents, approvals, orders or authorizations of, and all
qualifications, registrations, designations, declarations or filings
with, any federal or state governmental authority on the part of the
Company required in connection with the consummation of the
transactions contemplated by this Agreement have been obtained, or
will be timely filed, and, to the extent necessary, are effective, as
of
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<PAGE>
the Closing and such counsel is not aware of any proceedings, or
threat thereof, which question the validity thereof.
(h) Based in part upon the representations of the New Investors, the
offer and sale of the Series B Preferred Stock and Warrants pursuant
to the terms of this Agreement are exempt from the registration
requirements of Section 5 of the Securities Act of 1933, as amended,
by virtue of Sections 3(b) or 4(2) thereof and from the registration
or qualification requirements of any securities laws or regulations
of the State of Texas.
(i) Such counsel is not aware that there is any action, proceeding or
investigation pending against the Company or any of its officers,
directors or employees, or that any of the foregoing has received any
threat thereof, which questions the validity of this Agreement, or
the right of the Company to enter into this Agreement or, which might
result, either individually or in the aggregate, in any materially
adverse change in the assets, condition, affairs or prospects of the
Company.
(j) Such counsel is not aware that the Company is in violation of any
provision of its Certificate of Incorporation, as amended, or Bylaws,
as amended, nor that either of such documents is in violation of the
General Corporation Law of the State of Delaware, which violation
might result, either individually or in the aggregate, in any
material adverse change in the assets, condition, affairs or
prospects of the Company.
6. Conditions of the Company's Obligations at Closing. The obligations
of the Company to each New Investor under this Agreement are subject to the
fulfillment on or before the Closing of the following conditions:
6.1 Representations and Warranties. The representations and warranties
of the New Investor contained in Section 4 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
6.2 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Company and its legal counsel, and they shall have received all such counterpart
original and certified or other copies of such documents as they may reasonably
request.
6.3 Filing of Series B Designation. The Series B Designation shall have
been duly adopted and filed with the Secretary of State of Delaware.
6.4 Compliance with State Securities Laws. All applicable state
securities and blue sky laws shall have been complied with.
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6.5 Payment of Purchase Price. The New Investor shall have delivered the
original Notes issued to such New Investor under the Note Agreement and the
purchase price specified on Schedule B hereto.
7. Registration Rights. The Company covenants and agrees as follows:
7.1 Definitions. For purposes of this Section 7:
(a) 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 Act, and the
declaration or ordering of effectiveness of such registration
statement or document;
(b) The term "Registerable Securities" means (1) the Common Stock
issuable or issued upon conversion of Preferred Stock (including the
issued and outstanding shares of Series A Preferred Stock, the Series
A Preferred Stock which may be purchased pursuant to the exercise of
those certain warrants issued by the Company to certain equipment
lessors as described on Schedule 2.13 hereof, and the Series B
Preferred Stock issued to the New Investors pursuant to this
Agreement); (2) Common Stock issued upon the exercise of the
Warrants; (3) Common Stock 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, Preferred Stock or Common Stock; (4) Common
Stock otherwise issued (or issuable upon the conversion or exercise
of any warrant, right or other security) to an Investor; and (5) for
the purposes of the rights and obligations provided under Section 7.3
only and only while he is in the employ of the Company, shares of the
Company's capital stock owned of record by John W. Merritt (the
"Founder"); excluding in all cases, however, any Registerable
Securities sold by a person in a transaction in which his rights
under this Section 7 are not assigned.
(c) The number of shares of "Registerable Securities then outstanding"
shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock
issuable pursuant to Preferred Stock and Warrants and then
exercisable or convertible into securities which are, Registerable
Securities.
(d) The term "Holder" means any person owning or having the right to
acquire Registerable Securities or any assignee thereof in accordance
with Section 7.13 hereof.
(e) The term "Form S-3" means such form under the Act as in effect on the
date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission ("SEC") which
permits inclusion or
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incorporation of substantial information by reference to other
documents filed by the registrant with the SEC.
7.2 Request for Registration.
(a) At any time after October 31, 1993, any Holder, or Holders, holding
an aggregate of not less than thirty percent (30%) of the
Registerable Securities then outstanding (the "Initiating Holder(s)")
may request by written notice, specifying the number of shares
desired to be sold, that the Company file a registration statement
covering a public offer and sale of Registerable Securities. Upon
such request, the Company shall promptly give written notice of the
proposed registration to all other Holders. All such other Holders
who notify the Company in writing within fifteen (15) days of the
date of the notice given them by the Company, of their desire to join
in the request and the number of shares they desire to sell shall be
deemed to be Initiating Holders. Thereupon, the Company shall use its
best efforts to effect, as soon as reasonably practicable, the
registration under the Act of all Registerable Securities which the
Holders request to be registered (subject to the limitations of
Section 7.4 hereof).
(b) The Company is obligated to effect only two (2) such registrations
pursuant to this Section 7.2.
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section
7.2, 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 detrimental to the Company and
its stockholders for such registration statement to be filed and it
is, therefore, necessary or appropriate to defer the filing of such
registration statement, the Company shall have the right to defer
such filing for a period of not more than ninety (90) days after
receipt of the request of the Initiating Holders; provided, however,
that the Company may not utilize this right more than once in any 12-
month period.
7.3 Company Registration. At any time that the Company intends to make a
public offering of its securities under any form of registration statement
selected by it and available for secondary offerings (other than a registration
relating solely to (i) the Company's initial public offering, (ii) the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or (iii) an SEC Rule 145 transaction), the Company
shall notify in writing all Holders no less than fifteen (15) days before the
intended filing of such registration statement and shall permit any such Holder
who so notifies the Company in writing of his desire to include any or all of
his Registerable Securities (limited only by the provisions of Section 7.4
hereof) in such offering within fifteen (15) days of receipt of the notice given
such Holders by the Company to be included in such offering. The Company may
not commence a public offering of its securities during any registration being
made or proposed to be made pursuant to any request
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therefor in accordance with Section 7.2 hereof (other than a registration
relating either to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan or an SEC Rule 145
transaction).
7.4 Underwriting Requirements. If any registration is intended to be an
underwritten public offering, the Company shall so advise the Holders as a part
of the written notice given pursuant to Sections 7.2 and 7.3 hereof. In such
event the right of any Holder to registration pursuant to Sections 7.2 and 7.3
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's securities in the underwriting to the extent
provided herein. Any and all Holders proposing to distribute their securities
through such underwriting shall (together with the Company and any other persons
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter, or underwriters,
or representatives thereof, selected for such underwriting by the Company
(hereinafter the "Underwriter"), provided that such underwriting agreement shall
not provide for indemnification or contribution obligations on the part of
Holders greater than the obligations of the Holders pursuant to Section 7.10(b)
hereof. Notwithstanding any other provision of Sections 7.2 and 7.3 to the
contrary, if the Underwriter, acting in good faith, determines that marketing
factors require a limitation of the number of shares to be underwritten, the
Underwriter may exclude some of the Holders' shares of stock from such
registration and underwriting, provided that shares of stock proposed to be sold
by stockholders other than the Holders (but not including (i) stockholders who
have been employed by the Company for more than three (3) years and (ii) other
holders to whom rights have been granted in accordance with Section 7.14 hereof)
are first excluded and provided further that in any registration pursuant to
Section 7.3 no less than twenty percent (20%) of the aggregate number of shares
offered thereby are offered by the Holders (or such lesser fraction as will
include all of the Registerable Securities which the Holders then desire to so
offer). The number of shares of stock that may be included in accordance with
the foregoing sentence, shall be in proportion, as nearly as practicable, to the
respective amounts of capital stock of the Company held by all such Holders, and
all such Holders and stockholders, participating in the registration at the time
of filing of the registration statement. If any such Holder disapproves of the
terms of any such underwriting, he may elect to withdraw therefrom by written
notice to the Company and the Underwriter. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.
7.5 Obligation of the Company. Whenever required under this Section 7 to
effect the registration of any Registerable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect
to such Registerable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registerable Securities
registered thereunder, keep such registration statement effective for
up to ninety (90) days.
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(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of the prospectus,
including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may
reasonably request in order to facilitate the disposition of
Registerable Securities owned by them.
(d) Use its best efforts to obtain NASD clearance and register and
qualify the securities covered by such registration statement under
such other securities or Blue Sky laws of such jurisdictions as shall
be reasonably requested by the Holders, provided that the Company
shall not be required in connection therewith or as a condition
thereto to qualify to do business, to file a general consent to
service of process or to meet any other requirements deemed by the
Company to be unduly burdensome in any such states or jurisdictions.
(e) Notify each Holder of Registerable Securities covered by such
registration statement, or the Holder's designated attorney-in-fact,
at any time when a prospectus relating thereto covered by such
registration statement is required to be delivered under the Act, of
the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
then existing.
(f) Furnish, at the request of any Holder requesting registration of
Registerable Securities pursuant to this Section 7, on the date that
such Registerable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 7, if
such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that
the registration statement with respect to such securities becomes
effective (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an
underwritten public offering, addressed to the underwriters, if any,
and to the Holders requesting registration of Registerable Securities
and (ii) a letter dated such date, from the independent certified
public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of
Registerable Securities.
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7.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to effect any registration pursuant to this Section 7
as to each selling Holder that such selling Holder shall furnish to the Company
such information regarding itself, the Registerable Securities held by it, and
the intended method of disposition of such securities as shall be required to
effect the registration of its Registerable Securities.
7.7 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 7.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, and fees and disbursements of counsel for the Company and
one counsel for the selling shareholders 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 7.2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registerable Securities to be registered (in which case all
participating Holders shall bear such expenses), unless the Holders of a
majority of the Registerable Securities agree to forfeit their right to one
demand registration pursuant to Section 7.2; provided, further, however, that if
immediately prior to the time of such withdrawal, the Holders have learned of a
materially adverse change in the condition, business or prospects of the Company
from that known to the Holders at the time of their request, then the Holders
shall not be required to pay any of such expenses and shall retain their rights
pursuant to Section 7.2.
7.8 Expenses of Company Registration. The Company shall bear and pay all
expenses, other than underwriting discounts and commissions relating to the
shares of any Holder(s) being offered thereby, incurred in connection with any
registration, filing or qualification of Registerable Securities with respect to
the registrations pursuant to Section 7.3 for each Holder (which right may be
assigned as provided in Section 7.13), including (without limitation) all
registration, filing, and qualification fees, printing, legal and accounting
fees relating or apportionable thereto; provided, however, that the Company
shall pay the fees and disbursements of only one counsel for the selling
shareholders selected by them.
7.9 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 7.
7.10 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 7:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the officers, directors, partners and agents of
each Holder, any underwriter (as defined in the Act) for such Holder
and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the Securities Exchange Act of 1934,
as amended (the "1934 Act"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under
the Act, the 1934 Act or other federal or state laws, insofar as such
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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 Act, the 1934 Act or any
state securities law; and the Company will reimburse each such
Holder, officer, director, partner, agent, underwriter or controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 7.10(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability
or action 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 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 any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if
any, who controls the Company within the meaning of the Act, any
underwriter and any other Holder selling securities in such
registration statement or any of its directors, officers, partners or
agents, or any person who controls such Holder, against any losses,
claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, or
underwriter may become subject, under the 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 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 in each case in an amount
which shall not exceed the gross proceeds of the offering received by
such Holder; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director,
officer, controlling person or underwriter, any other Holder, or any
of its officers, directors, partners or agents, or any controlling
person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 7.10(b) shall not
apply to amounts paid in settlement of any such loss, claim,
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damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably
withheld.
(c) Promptly after receipt by an indemnified party under this Section
7.10 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 7.10, 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 shall have the right to retain its own 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 7.10,
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 7.10.
7.11 Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration or pursuant to
a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety
(90) days after the effective date of the first registration
statement filed by the Company for the offering of its securities to
the general public;
(b) take such action, including the voluntary registration of its Common
Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registerable
Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the first registration statement
filed by the Company for the offering of its securities to the
general public is declared effective;
(c) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the 1934 Act; and
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(d) furnish to any Holder, so long as the Holder owns any Registerable
Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC
Rule 144 (at any time after ninety (90) days after the effective date
of the first registration statement filed by the Company), the Act
and the 1934 Act (at any time after it has become subject to such
reporting requirements), or that it qualifies as a registrant whose
securities may be resold pursuant to Form S-3 (at any time after it
so qualifies), (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 any Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration
or pursuant to such form.
7.12 Form S-3 Registration. In case the Company shall receive from any
Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registerable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion
of such Holder's or Holders' Registerable Securities as are specified
in such request, together with all or such portion of the
Registerable Securities of any other Holder or Holders joining in
such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated
to effect any such registration, qualification or compliance,
pursuant to this Section 7.12: (1) if Form S-3 is not available for
such offering by the Holders; (2) if the Holders, together with the
holders of any other securities of the Company entitled to inclusion
in such registration, propose to sell Registerable Securities and
such other securities (if any) at an aggregate price to the public
(net of any underwriters' discounts or commissions) of less than
$1,000,000; (3) if the Company shall furnish to the Holders 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 Form S-3 registration to be effected at such
time, in which event the Company shall have the right to defer the
filing of the Form S-3 registration statement for a period of not
more than ninety (90) days after receipt of the request of the Holder
or Holders under this Section 7.12, provided, however, that the
Company shall not utilize this right more than once in any 12-month
period; (4) if the Company has, within the 12-month period preceding
the date of such request, already effected one registration
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on Form S-3 for the Holders pursuant to this Section 7.12; or (5) in
any particular jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registerable Securities and other securities
so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. All expenses incurred in
connection with a registration requested pursuant to the provisions
of Section 7.12, including (without limitation) all registration,
filing qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder
or Holders and counsel for the Company shall be borne pro rata by the
Holder or Holders participating in the Form S-3 Registration.
Registrations effected pursuant to this Section 7.12 shall not be
counted as demands for registration or registrations effected
pursuant to Sections 7.2 or 7.3, respectively.
7.13 Assignment of Registration Rights. The rights to cause the Company
to register Registerable Securities pursuant to this Section 7 may be assigned
by a Holder to a transferee or assignee of such securities provided the Company
is, within thirty (30) days after such transfer, furnished with written notice
of the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned; and provided
further, that (i) such assignee or transferee agrees to be bound by the terms of
this Agreement; and (ii) such assignment or transfer is made other than in
connection with the public offering of such stock or in a transaction (pursuant
to Rule 144 or any successor rule) as a consequence of which the subsequent
transfer of such stock is not restricted under the Act.
7.14 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registerable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 7.3 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will be on the same basis as the inclusion of the Registerable
Securities of the Holders or (b) to have any securities included in any
registration effected pursuant to Section 7.2.
7.15 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
shall not, to the extent requested by the Company or the Underwriter, sell or
otherwise transfer or dispose of any Registerable Securities (other than those
included in the registration or those transferred to persons who agree to be
similarly bound) during the period not to exceed one hundred eighty (180) days
following the effective date of a registration statement of the Company filed
under the Act; provided, however, that such agreement shall be applicable only
to the first such registration
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statement of the Company which covers shares (or securities) to be sold on its
behalf to the public in an underwritten offering.
In order to enforce the foregoing covenant, the Company may impose stop
transfer instructions with respect to the Registerable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
7.16 Termination of Registration Rights. A Holder's rights pursuant to
this Section 7 shall terminate at the earlier of (a) such time as the Holder
may, within a three-month period, offer and sell all of his Registerable
Securities pursuant to Rule 144 under the Act without any adverse effect on the
price at which such Registerable Securities may be sold, such determination as
to such adverse effect to be made by such Holder acting in good faith, or (b)
the date forty-eight (48) months from the closing of its Qualified IPO.
8. Board of Directors.
8.1 Size of Board of Directors. At the time of the Closing, the Board of
Directors of the Company shall consist of eight (8) members, as follows: C. V.
Prothro, Joel P. Adams, Howard D. Wolfe, Jr., C. Richard Kramlich, Otis H.
Brinkley, Victor D. Poor, John S. McCarthy and J. Michael Gullard.
8.2 Membership of Board of Directors Subsequent to Closing. At all times
subsequent to the Closing, the Company shall submit to the stockholders of the
Company and will use its best efforts to cause to be elected an eight (8) member
Board of Directors of the Company which shall consist of: (i) one (1) person
designated by a majority of the then elected officers of the Company (excluding
assistants); (ii) one (1) person designated by Fostin Capital Associates II
("Fostin"); (iii) two (2) persons designated by SEA Management Corporation
("SEA"); (iv) one (1) person designated by Gateway Venture Partners III, L.P.
("Gateway"); and (v) three (3) persons designated by Investors holding a
majority of the Preferred Stock or Common Stock into which such Preferred Stock
has been converted. The parties hereto acknowledge that Mr. Brinkley is the
current designee of the Company officers, Mr. Adams is the current designee of
Fostin, Messrs. Prothro and Poor are the current designees of SEA, Mr. McCarthy
is the current designee of Gateway, and Messrs. Wolfe, Kramlich and Gullard are
the current designees of the Investors. The Investors, by virtue of their
execution of this Agreement, covenant to vote any and all shares of capital
stock of the Company entitled to vote thereon, to elect and maintain at all
times a Board of Directors whose membership conforms with the provisions of this
Section 8.2. The Board of Directors, in filling any vacancy or newly created
directorship, shall likewise elect and maintain a Board of Directors whose
membership conforms with the provisions of this Section 8.2.
8.3 Termination of Voting Agreement. At the earlier of: (i) such time as
the Company may complete its Qualified IPO, or (ii) the expiration of a term of
ten years from the date hereof (which term may be extended for additional terms
(each not to exceed ten years) by agreement of the parties hereto made within
two years of the expiration of any such term(s)), the
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provisions of this Section 8 shall terminate, and the legend on the shares of
the Company's capital stock shall be modified accordingly.
8.4 Expenses of Directors. Members of the Board of Directors shall be
reimbursed for their reasonable travel and other expenses incurred in connection
with attendance at board meetings and committee meetings thereof.
9. Covenants of the Company.
9.1 Delivery of Financial Statements.
(a) The Company shall deliver to each Investor then holding shares of
Preferred Stock (or Common Stock into which Preferred Stock has been
converted):
(i) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an
income statement for such fiscal year, a balance sheet of the
Company as of the end of such year, and a schedule as to the
sources and applications of funds for such year, such year-end
financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles
("gaap"), and audited and certified by independent public
accountants of nationally recognized standing selected by the
Company;
(ii) as soon as practicable, but in any event within forty-five (45)
days after the end of the first three (3) quarters of each
fiscal year of the Company, an unaudited balance sheet as of
the end of such fiscal quarter, in reasonable detail and
prepared in accordance with gaap; and
(iii) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time
request in writing.
(b) The Company shall deliver to each Investor then holding 38,250 or
more shares of the outstanding Preferred Stock, or Common Stock into
which such Preferred Stock has been converted (as adjusted to reflect
subsequent changes in the capitalization of the Company and
aggregating the holdings of affiliated Investors solely for the
purpose hereof) (a "Qualified Investor"):
(i) within forty-five (45) days of the end of each month, an
unaudited income statement and balance sheet for and as of the
end of such month, in reasonable detail and prepared in
accordance with gaap;
(ii) within thirty (30) days of the end of each fiscal year, a
budget for the next fiscal year, prepared on a monthly basis,
including balance sheets
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and sources and applications of funds statements for such months
and, as soon as prepared, any other budgets or revised budgets
prepared by the Company to the extent prepared for presentation to
the Board of Directors of the Company;
(c) With respect to the financial statements called for in subsections
(a)(ii) and (b)(i) of this Section 9.1, the Company shall deliver to
each Investor an instrument executed by the Chief Financial Officer
of the Company and certifying that such financials were prepared in
accordance with gaap consistently applied with prior practice for
earlier periods and fairly present the financial condition of the
Company and its result of operation for the period specified, subject
to normal year-end audit adjustment;
(d) Any information provided pursuant to Sections 9.1(a)(iii) and
9.1(b)(ii) shall be used by the Investor or any assignee of the
Investor solely in furtherance of its interests as an Investor in the
Company, and the Investor and any assignee of the Investor shall use
all reasonable effort to maintain the confidentiality of all non-
public information of the Company obtained under said sections,
provided the Company makes an appropriate designation of any such
confidential information, and provided further that the foregoing
shall not prohibit any Investor from communicating information
reasonably necessary or appropriate in fulfilling any fiduciary duty
to its stockholders or partners, any committees thereof, or the like.
The Company shall not be obligated to disclose any confidential and
proprietary non-financial information, the disclosure of which it
believes in good faith would be detrimental to the Company and its
stockholders.
9.2 Inspection. The Company shall permit each Qualified Investor, at
such Qualified Investor's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by the Qualified Investor; provided,
however, that the Company shall not be obligated pursuant to this Section 9.2 to
provide access to any information which it reasonably considers to be a trade
secret or similar confidential information. In addition to such inspection
right, the Company shall invite each Qualified Investor to attend all meetings
of its Board of Directors in a nonvoting observer capacity. The Company shall
provide all such New Investors with copies of all notices and other materials
provided to the Company's directors.
9.3 Assignment of Information and Visitation Rights. The rights granted
to Investors under Sections 9.1 and 9.2 may be assigned in connection with the
transfer or assignment of any shares of Preferred Stock or Common Stock into
which Preferred Stock has been converted, provided that the Company shall be
entitled to notice of any such transfer within thirty (30) days of the date such
transaction is effected, and provided further that such assignee or transferee
agrees to be bound by the terms of this Agreement.
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9.4 Termination of Covenants. The covenants set forth in subsections
9.1(a)(iii), (b) and (c) and Section 9.2 shall terminate as to Investors and be
of no further force or effect at such time as the Company may become subject to
the periodic reporting requirements of Section 15(d) of the 1934 Act, or
register its Common Stock under Section 12 of the 1934 Act, whichever event
shall first occur.
9.5 Right of First Refusal. Subject to the terms and conditions
specified in this Section 9.5, the Company hereby grants to the Qualified
Investors and the Founder who are then in the employ of the Company (for the
purposes hereof, the Qualified Investors and such Founder shall be referred to
collectively as the "Qualified Shareholders") a right of first refusal with
respect to future sales by the Company of its Shares (as hereinafter defined).
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for, any class of its capital stock ("Shares"),
the Company shall first make an offering of such Shares to each Qualified
Shareholder in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail ("Notice") to
the Qualified Shareholders stating (i) its bona fide intention to
offer or issue such Shares, (ii) the approximate number of such
Shares to be offered, (iii) the approximate price, if any, for which
it proposes to offer such Shares, and (iv) in case of a non-public
offering, and if and to the extent then known, the name(s) of the
proposed offeree(s).
(b) Within twenty (20) calendar days after receipt of the Notice, each
Qualified Shareholder may elect (by written notice delivered to the
Company within such period) to purchase or obtain, at the price and
on the terms specified in the Notice, up to that portion of such
Shares which equals the proportion that the number of shares of
Common Stock issue and held, or issuable upon the conversion of the
Preferred Stock or exercise of the Warrants then held by such
Qualified Shareholder, bears to the total number of shares of Common
Stock issued and held, or issuable upon conversion of Preferred Stock
or exercise of the Warrants then held, by all the Qualified
Shareholders. The Company shall promptly, in writing, inform each
Qualified Shareholder which purchases all the Shares available to it
("Fully-Exercising Investor") of any other Qualified Shareholder's
failure to do likewise. During the ten-day period commencing after
receipt of such information, each Fully-Exercising Investor shall be
entitled to obtain (by written notice delivered to the Company within
such period) that portion of the Shares not subscribed for by the
Qualified Shareholders which is equal to the proportion that the
number of shares of Common Stock issued and held, or issuable upon
conversion of Preferred Stock or exercise of the Warrants then held,
by such Fully-Exercising Investor bears to the total number of shares
of Common Stock issued and held, or issuable upon conversion of
Preferred Stock or exercise of the Warrants then held, by all Fully
Exercising Investors who wish to purchase some of the unsubscribed
Shares.
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(c) If any of such Shares referred to in the Notice are not elected to be
obtained as provided in subsection 9.5(b) hereof, the Company may,
during the 45-day period following the expiration of the period
provided in subsection 9.5(b) hereof, offer such remaining
unsubscribed Shares at a price not less than, and upon terms no more
favorable to the offeree than those specified in the Notice. If the
Company does not enter into an agreement for the sale of the Shares
within such period, or if such agreement is not consummated within 45
days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Shares shall not be offered unless
first reoffered to the Investors in accordance herewith.
(d) The following shall not constitute an offer and sale by the Company
for purposes of this Section 9.5: (i) the conversion of shares of
Preferred Stock and issuance of Common Stock pursuant thereto; (ii)
the issuance of Common Stock pursuant to the exercise of the
Warrants; (iii) the exercise of options and warrants which are
outstanding or listed on Schedule 2.2 hereof (including any
additional shares issuable pursuant to the operation of the
antidilution features of such options and warrants or by amendment
thereto in satisfaction of such antidilution features), the issuance
of Preferred Stock or Common Stock pursuant thereto, and the
conversion of the Preferred Stock issued pursuant to any such
exercise and the issuance of Common Stock pursuant thereto; (iv) the
issuance and sale of Common Stock or options or other rights (and
Common Stock issued upon exercise thereof) for up to 3,201,976 shares
of Common Stock pursuant to a stock option plan or other stock-based
compensation plan approved by the stockholders and directors of the
Company (less any shares issuable or issued pursuant to the exercise
of any option granted under such stock option plan prior to the date
of this Agreement); (v) 50,000 additional shares of Common Stock,
including options or warrants therefor issued or issuable from time
to time in the discretion of the Board of Directors of the Company;
(vi) the issuance and sale of Common Stock or Preferred Stock, or
warrants, options or similar rights therefor, and the issuance of
Common Stock or Preferred Stock upon the exercise of any such rights,
provided that the aggregate consideration received or to be received
upon the issuance of such stock shall be at least $4.00 per share
(adjusted to reflect subsequent changes in the capitalization of the
Company; and (vii) the issuance and sale of Series B Preferred Stock
pursuant to Section 1.3 hereof.
(e) The right of first refusal granted under this Section 9.5 (i) shall
not be assignable except in connection with the transfer by a
Qualified Shareholder of Preferred Stock (or Common Stock into which
such Preferred Stock has been converted) as a result of which such
transferee shall hold at least 38,250 shares of the outstanding
Preferred Stock, or Common Stock into which such Preferred Stock has
been converted (as adjusted to reflect subsequent changes in the
capitalization
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of the Company and aggregating the holdings of any affiliated
Investors and transferees solely for the purpose of determining
whether or not such transferee holds such minimum number of shares);
and (ii) in all events shall expire at such time as the Company may
complete its initial firm commitment underwritten public offering of
its Common Stock pursuant to a registration statement under the Act
on Form S-1 or its then equivalent.
9.6 Affirmative Covenants. Without limiting any other covenants and
provisions hereof, the Company covenants and agrees that so long as Preferred
Stock or Common Stock issued upon conversion thereof is outstanding and held by
the Investors hereunder, the Company shall (unless it has received the written
consent of the Investors holding such number of shares of the Company's capital
stock specified in Section 10.10 of this Agreement to effect a wavier or
amendment of such covenants and provisions) perform and observe the following
covenants and provisions:
(a) The Company will promptly pay and discharge, or cause to be paid and
discharged, when due and payable, all lawful taxes, assessments, and
governmental charges or levies imposed upon the income, profits,
property, or business of the Company or any subsidiary; provided,
however, that any such tax, assessment, charge or levy need not be
paid if the validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company shall have set
aside on its books adequate reserves with respect thereto, and
provided further, that the Company will pay all such taxes,
assessments, charges, or levies forthwith upon the commencement of
proceedings to foreclose any lien that may have attached as security
therefor. The Company will promptly pay or cause to be paid when due,
or in conformance with customary trade terms, all other indebtedness
incident to the operations of the Company, except indebtedness
contested in good faith by the Company;
(b) The Company will keep its properties and those of its subsidiaries in
good repair, working order, and condition, reasonable wear and tear
excepted, and from time to time make all needful and proper repairs,
renewals, replacements, additions, and improvements thereto; and the
Company and its subsidiaries will at all times comply with the
provisions of all material leases to which any of them is a party or
under which any of them occupies property so as to prevent any loss
or forfeiture thereof or thereunder;
(c) The Company will keep its assets and those of its subsidiaries that
are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, extended coverage,
and explosion insurance in amounts customary for companies in similar
businesses similarly situated; and the Company will maintain, with
financially sound and reputable insurers, insurance against other
hazards, risks, and liabilities to persons and property to the extent
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and in the manner customary for companies in similar businesses
similarly situated;
(d) The Company will keep true records and books of account in which
full, true, and correct entries will be made of all dealings or
transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent
basis;
(e) The Company and all its subsidiaries shall duly observe and conform
to all valid requirements of governmental authorities relating to the
conduct of their businesses or to their property or assets;
(f) The Company shall maintain in full force and effect its corporate
existence, rights, and franchises, and all licenses and other rights
to use patents, processes, licenses, trademarks, trade names, or
copyrights owned or possessed by it or any subsidiary and deemed by
the Company to be necessary to the conduct of its business. The
Company shall qualify and remain qualified, as a foreign corporation,
in each jurisdiction in which such qualification is necessary or
desirable in view of its business and operations or the ownership of
its properties; and
(g) The Company will indemnify each Investor and such Investors'
representatives serving on the Board of Directors of the Company, to
the maximum extent that it is permitted to do so under applicable law
and the Certificate of Incorporation of the Company, against
expenses, damages, and claims (including, but not limited to,
reasonable attorneys' fees and costs of investigation), judgments,
fines and amounts paid in settlement, which are incurred by such
indemnified party in connection with any pending or threatened
action, suit or proceeding, whether civil, criminal, administrative,
or investigative, in which such party is threatened to be made a
party by reason of having served, or having a representative serve,
as a director of the Company or as a director, officer, or other
official of any company, partnership, joint venture, or other entity
in which the Company directly or indirectly owns any equity interest,
provided, however, that no entity or person who would otherwise be
entitled to indemnification by virtue of the foregoing shall be so
entitled in relation to a matter as to which such party shall be
adjudged in a final judgment of a court of competent jurisdiction,
subject to no further appeal, to be liable for misconduct in the
performance of a duty to the Company unless and only to the extent
that such applicable law permits indemnification despite such
adjudication of liability. Expenses incurred in defending any such
action or proceeding shall be paid by the Company in advance of the
final disposition of such action or proceeding, subject to the
undertaking of the indemnified party to repay such amount if it is
ultimately determined that the indemnified party is not entitled to
be indemnified hereunder. The remedy provided herein shall be
cumulative of any other remedy which such indemnified
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party may have against the Company by virtue of the Company's legal
obligation to provide indemnification for such party.
9.7 Negative Covenants. Without limiting any other covenants and
provisions hereof, the Company covenants and agrees that so long as Preferred
Stock of the Company or Common Stock issued upon conversion thereof is
outstanding and held by the Investors hereunder, the Company shall (unless it
has received the written consent of the Investors or the New Investors (as the
case may be) holding such number of shares of the Company's capital stock
specified in Section 10.10 of this Agreement to effect a waiver or amendment of
such covenants and provisions) comply with and observe the following negative
covenants and provisions and will not:
(a) Authorize or issue any other class or series of stock senior (as to
dividends or liquidation preference) to the Preferred Stock;
(b) Offer for sale, sell or otherwise dispose of for value, any of its
Shares, other than the offer and sale of Shares in accordance with
the provisions of Section 9.5(d) hereof;
(c) Alter or change the rights, preferences or privileges of the shares
of Preferred Stock, or alter or change its Bylaws, so as to adversely
affect such shares or the Investors;
(d) Increase the aggregate authorized number of shares of Preferred
Stock;
(e) Declare or pay any dividends on Common Stock other than dividends
payable solely in Common Stock or declare or pay any dividends on any
series of Preferred Stock unless it shall simultaneously declare or
pay a dividend on all series of Preferred Stock; nor will it declare
any dividend on Common Stock unless, prior to the declaration
thereof, it shall have provided to all holders of Preferred Stock
notice of the proposed dividend and the record date thereof in a
manner sufficient to enable such holders, if they elect to do so, to
exercise the right to convert any or all of their shares of Preferred
Stock into shares of Common Stock in time to receive the proposed
dividend;
(f) Make, or permit any subsidiary to make, any loan or advance to or
investment in, or own, purchase or acquire any stock, securities or
obligations of, or interest in, any subsidiary or other corporation,
partnership, other entity or person, except (1) loans or advances by
(i) a subsidiary to the Company or a wholly-owned subsidiary of the
Company or (ii) by the Company to a wholly-owned subsidiary, (2)
acquisition and ownership of stock of a wholly-owned subsidiary, (3)
investments in prime commercial paper due no more than one year after
the date of purchase and certificates of deposit maturing no more
than a year after the date of acquisition which are issued by
commercial banks organized under the
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laws of the United States of America or any state and having a net
worth of more than $25,000,000, (4) investments in obligations of the
United States of America and agencies thereof and obligations
guaranteed by the United States of America maturing within one year
after the date of acquisition, and (5) other high quality investments
authorized by the Board of Directors of the Company;
(g) Guarantee or permit any subsidiary to guarantee, directly or
indirectly, any indebtedness except for: (1) trade accounts of the
Company or any subsidiary arising in the ordinary course of business,
(2) indebtedness arising in connection with surety bonds and similar
obligations for the Company, (3) indebtedness of employees incurred
for the purpose of purchasing securities of the Company, and (4)
indebtedness otherwise incurred for the use or benefit of the Company
or its subsidiaries (including, without limitation, indebtedness
relating to industrial revenue bonds and similar financings);
(h) Sell, convey or otherwise dispose of or encumber all or substantially
all of its property or business or merge into or consolidate with any
other corporation (other than a wholly-owned subsidiary corporation)
entity or person, in any transaction or series of transactions, upon
the effectiveness of which the stockholders of the Company
immediately prior thereto hold less than 51% of the voting power of
the surviving corporation or entity, or permit any subsidiary to do
so;
(i) Do any act or thing which would result in taxation of the holders of
shares of the Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the
Internal Revenue Code as hereafter from time to time amended);
(j) Repurchase any outstanding shares of capital stock except pursuant to
the terms of any shareholder agreement with an employee or except for
the redemption of Preferred Stock; or redeem any series of Preferred
Stock until such time as all such series are redeemable and unless
shares of each such series are redeemed pari passu in proportion to
the respective amounts due the holders of each such series;
(k) Sell or otherwise dispose of any shares of capital stock of any
subsidiary, except to the Company or another subsidiary, or permit
any subsidiary to issue, sell or otherwise dispose of any shares of
its capital stock or the capital stock of any subsidiary, except to
the Company or another subsidiary; provided, however, that the
Company may liquidate, merge or consolidate any subsidiary or
subsidiaries: (i) into or with itself, provided that the Company is
the surviving entity or (ii) into or with another subsidiary or
subsidiaries; or
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(l) Engage, directly or indirectly, in any business or in any transaction
(other than normal services rendered as an employee) involving more
than $1,000 with an officer, director or stockholder of the Company,
any relative of such officer, director or stockholder, or any
corporation or other entity or proprietorship directly or indirectly
controlled by any one or more of the officers, directors or
stockholders of the Company or any relative of such officer, director
or stockholder, unless the terms of such business or transaction have
been determined, after full disclosure of the terms and effects of
such transaction, by not less than a majority vote of the members of
the Board of Directors having no interest, directly or through any
affiliation, in the transaction to be at least as favorable to the
Company as could be obtained from an independent third party in an
arms length transaction.
9.8 Invalid Dividend or Redemption. Each of the Investors hereby agrees
that (i) any dividend paid in violation of the provisions of subsection 9.7(e);
and (ii) the proceeds of the redemption of any share(s) of Preferred Stock in
violation of the provisions of subsection 9.7(j), shall be held in trust for the
benefit of all Investors.
9.9 Specific Performance. The Company and the Investors each agree that
if any covenant set forth in Sections 9.6 and 9.7 is breached, remedies at law
might be inadequate and that, all such covenants shall, therefore, be
enforceable by specific performance. The remedy of specific performance shall
not be an exclusive remedy, but shall be cumulative of all other rights and
remedies at law, in equity or under this Agreement.
9.10 Termination of Covenants. The covenants contained in Sections 9.6,
9.7 and 9.8 shall terminate and be of no force and effect upon the consummation
of the Company's Qualified IPO.
9A. Right of Co-Sale among Qualified Investors.
9A.1 Offer. If any Qualified Investor receives a bona fide offer to
purchase shares of Preferred Stock or Common Stock (collectively, "Shares")
owned by it which it does not wish to accept, it shall immediately give notice
as provided in Section 10.6 of this Agreement to the other Qualified Investors,
setting forth the terms of such offer and the identity of and means of
contacting the offeror.
9A.2 Proposed Sale. Should any Qualified Investor desire to sell, assign,
encumber, transfer, or otherwise dispose of any of its Shares, or of any
interest in such Shares in any transaction other than an Excluded Transaction
(as hereinafter defined), it (the "Selling Investor") shall first give written
notice (the "Selling Notice") to the other Qualified Investors, in the manner
prescribed in Section 10.6 of this Agreement, of its desire to do so. The
Selling Notice shall specify: (i) the name and address of the person or entity
to whom the Selling Investor proposes to sell, encumber, assign, or transfer the
Shares or an interest in the Shares (the "Offeror") (ii) the number of Shares,
or the interest in the Shares the Selling Investor proposes to sell, assign,
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<PAGE>
or transfer (the "Offered Shares"); (iii) the price or amount per Share to be
paid or delivered to the Selling Investor for the proposed sale, assignment, or
transfer; and (iv) all other terms and conditions of the proposed sale,
assignment or transfer (the "Transaction").
9A.3 Excluded Transaction. Each of the following shall be an Excluded
Transaction and the provisions of this Section 9A shall not apply to (i) the
transfer by a Qualified Investor that is a partnership to a partner of such
partnership or a retired partner; (ii) the transfer by a Qualified Investor that
is a corporation to its shareholders or to any subsidiary or affiliated entity;
and (iii) the transfer by a Qualified Investor that is an individual by gift,
donation or bequest to a member of his family or to a trust established for his
benefit or for the benefit of members of his family, if in each such case the
transferee(s) (but only if such transferee(s) would hold a sufficient number of
shares to be considered a Qualified Investor) agree in writing to be subject to
the terms hereof to the same extent as if it were an original Qualified Investor
hereunder.
9A.4 Option to Purchase. Each Qualified Investor may within thirty (30)
days of its receipt of the Selling Notice give written notice to the Selling
Investor of its election to purchase a specified number of the Shares at the
price and on the terms and conditions specified in the Selling Notice, or,
alternatively, its election to sell Shares on the terms set forth in the Selling
Notice and the number of Shares it would like to sell in the Transaction if
given the opportunity.
9A.5 Failure to Exercise Option; Joint Sale.
(a) Should the Qualified Investors fail to timely elect to purchase
all of the Offered Shares specified in the Selling Notice, and if any
Qualified Investor has timely expressed, pursuant to Section 9A.4, a desire
to sell all or a portion of its Shares, then each such Qualified Investor
shall be entitled to sell a portion of its Shares in the Transaction. The
Selling Investor shall use its best efforts to interest the Offeror in
purchasing the Shares the Qualified Investors desire to sell, as well as
all of the Offered Shares. If the Offeror does not wish to purchase the
full amount of available Shares, then the Selling Investor and each of the
Qualified Investors shall be entitled to sell in the Transaction up to that
number of Shares which is the same percentage of the number of Shares the
Offeror will accept as such Qualified Investor's Share ownership bears to
the total number of Shares owned by the Selling Investor and all of the
Qualified Investors entitled to sell in the Transaction.
(b) The Transaction shall then proceed on the terms and conditions
set forth in the Selling Notice, with the Selling Investor and each
Qualified Investor who has made the proper election selling its pro rata
portion of Shares, as determined above.
(c) If there are no Qualified Investors electing to participate, the
Selling Investor shall be entitled to sell all of the Offered Shares to the
person or entity specified in the Selling Notice at the price and on the
terms and conditions specified in the Selling Notice, if such sale is
consummated within sixty (60) days from the date the Selling Notice is
first received by a Qualified Investor. The Selling Investor may not,
however, without
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giving a new Selling Notice of its intention to do so, which Selling Notice
shall reinstate the options of the Qualified Investors set forth in this
Section 9A, sell any or all of the Offered Shares to the person or entity
and on the terms specified in the Selling Notice after said sixty day
period has elapsed, or to any other person or entity or at any other price
or on any other terms and conditions than those specified in the Selling
Notice.
(d) The proceeds of any sale made by a Qualified Investor without
compliance with the provisions of this Section 9A shall be deemed to be
held in constructive trust in such amount or amounts as would have been due
the other Qualified Investors had the Selling Investor complied with this
Section 9A.
9A.6 Termination of Section. This Section 9A shall, if not earlier
terminated pursuant to Section 10.10 hereof, terminate upon the occurrence of a
Qualified IPO.
9A.7 Transferees Subject to Provisions. Any transferee of a Qualified
Investor who as a result of such transfer shall hold at least 38,250 shares of
outstanding Preferred Stock, or Common Stock into which such Preferred Stock has
been converted (or adjusted to reflect subsequent changes in the capitalization
of the Company and aggregating the holdings of any affiliated Investors and
transferors solely for the purpose of determining whether or not such transferee
holds such minimum number of shares) shall be subject to the terms of this
Section 9A, and must, prior to the receipt of any Shares, agree in writing to be
bound by the terms of this Section 9A. Any transfer without such consent shall
be null and void.
10. Miscellaneous.
10.1 Survival of Warranties. The warranties, representations and
covenants of the Company contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing and shall
in no way be affected by any investigation of the subject matter thereof made by
or on behalf of the Investors.
10.2 Successors and Assigns. 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 the consent given in Section 10.10 hereof.
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.
10.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
UNDER THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE IS APPLICABLE.
10.4 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.
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<PAGE>
10.5 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.
10.6 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or upon deposit with
the United State Post Office, by registered or certified mail, postage prepaid
and addressed to the party to be notified at the address indicated for such
party below, or at such other address as such party may designate by ten (10)
days' advance written notice to the other parties, provided that notice to any
Investor located outside the United States shall be made by facsimile or Telex
to the number shown with a copy sent concurrently as specified above and to any
counsel designated by it on Schedule A or Schedule B attached hereto.
If to the Company:
Southwest Network Services, Inc.
9130 Jollyville Road
Austin, Texas 78759
If to the Investors:
To the addresses listed, respectively, on Schedule A or Schedule B
attached hereto.
10.7 Finder's Fee. Except with respect to certain agreements entered into
in April 1992 between the Company and Robertson Stephens & Company, each party
represents that it neither is nor will be obligated for any finder's fee or
commission in connection with this transaction. Each Investor agrees to
indemnify and to hold harmless the Company from any liability for any commission
or compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability) for which the Investor or any of its officers,
partners, employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
10.8 Expenses. Except as provided in the following sentence, each party
to this Agreement shall bear its own expenses relating to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
agrees that it shall pay the legal fees incurred by Nippon Enterprise
Development Corp. and Crossover Fund, L.P. relating to the review and
negotiation of this Agreement; provided that the aggregate of such legal fees
for both of such entities shall not exceed a total sum of $3,000.
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<PAGE>
10.9 Termination. In the event that this Agreement is not executed and
delivered as of the Closing, it may be terminated at any time prior to Closing
by written consent of the Company and the Investors proposing to purchase at
least a majority of the Series B Preferred Stock. This Agreement may be
terminated by the Investors proposing to purchase at least a majority of the
Series B Preferred Stock if the Closing has not occurred, or the conditions to
Closing have not been satisfied, on or before October 30, 1992.
10.10 Amendments and Waivers. Except with respect to Sections 7 and 9.7(a)
and (b) hereof, 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 Investors holding at least a majority of the then
outstanding Preferred Stock. Any provisions of Section 7 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 Holders (as
defined in Section 7 hereof) holding at least a majority of the then outstanding
Registerable Securities (as defined in Section 7 hereof). Any provision of
Section 9.7(a) or (b) of this Agreement may be amended and the observance of any
term of said Section may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of
Investors holding at least seventy percent (70%) of the then outstanding
Preferred Stock. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any securities purchased under
this Agreement at the time outstanding (including securities into which such
securities are convertible), each Holder of Registerable Securities under
Section 7 hereof, each future holder of all such securities, and the Company.
10.11 Prior Agreement. Sections 7, 8, 9 and 9A of the Prior Agreement are
hereby rendered null and void and are replaced in their entirety by Sections 7,
8, 9 and 9A, respectively, of this Agreement. All rights of the Prior Investors
accruing to such Prior Investors under Section 9.5 of the Prior Agreement prior
to the effective date of this Agreement in connection with the offer and sale of
the Series B Preferred Stock and Warrants under this Agreement are hereby
waived, released and terminated. Except as expressly amended and restated
hereby, the Prior Agreement shall remain in full force and effect in accordance
with its terms.
10.12 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
the Agreement and the balance of the Agreement shall be interpreted as if such
provision(s) were so excluded and shall be enforceable in accordance with its
term.
10.13 Entire Agreement. This Agreement sets forth the entire
understanding and agreement among the parties with respect to the subject matter
hereof and supersedes and replaces any prior understanding, agreement or
statement (written or oral).
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
SOUTHWEST NETWORK SERVICES, INC.
ATTEST: By: /s/ Otis H. Brinkley
------------------------------
Otis H. Brinkley, President
By: /s/ Kenneth C. Kieley
-------------------------
Kenneth C. Kieley,
Secretary
FOUNDER:
/s/ John W. Merritt
---------------------------------
John W. Merritt
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<PAGE>
SOUTHWEST ENTERPRISE FOSTIN CAPITAL ASSOCIATES II
ASSOCIATES, LIMITED
PARTNERSHIP
By: /s/ Joel P. Adams
By: /s/ C. V. Prothro ----------------------------
----------------------------- Joel P. Adams
C. V. Prothro, General Partner
LOYALHANNA COMMONWEALTH
FUND
By: Fostin Capital Venture Partners
NEW ENTERPRISE ASSOCIATES IV, By: /s/ Joel P. Adams
LIMITED PARTNERSHIP -----------------------------
Joel P. Adams
By: NEA Partners IV, Limited APA/FOSTIN PENNSYLVANIA
Partnership VENTURE CAPITAL FUND
By: Fostin Capital Corp
By: /s/ Nancy Dorman By: /s/ Joel P. Adams
----------------------------- -----------------------------
Joel P. Adams
NEW VENTURE PARTNERS II, L.P. TRP PARTNERS 1989
By: /s/ Howard D. Wolfe Jr. By: /s/ Preston G. Athey
----------------------------- -----------------------------
CORNERSTONE VENTURES SPECTRA ENTERPRISE ASSOCIATES,
LIMITED PARTNERSHIP
By: /s/ J. Michael Gullard
----------------------------- By: /s/ Curran W. Harvey
J. Michael Gullard -----------------------------
CORNERSTONE VENTURES
INTERNATIONAL, C.V. HOOK PARTNERS II
By: /s/ J. Michael Gullard
---------------------------- By: /s/ David J. Hook
J. Michael Gullard -----------------------------
ABINGWORTH PLC /s/ John A. Griner III
--------------------------------
John A. Griner III
By:
----------------------------
NIPPON ENTERPRISE DEVELOPMENT
TETRAVEN FUND S.A. CORP.
By: /s/ Allen J. Latta By: /s/ Takeshi Watanabe
---------------------------- -----------------------------
Allen J. latta Takeshi Watanabe
Attorney in Fact Managing Director
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<PAGE>
GATEWAY VENTURE PARTNERS III, L.P.
By: Gateway Associates III, L.P. its General Partner
By: /s/ John S. McCarthy
-----------------------------
John S. McCarthy, General Partner
CROSSOVER FUND, L.P.
By: /s/ Robert C. Sepiel
-----------------------------
NATIONSBANK TEXAS VENTURE
GROUP, INC.
By:
-----------------------------
SEQUOIA CAPITAL V
By: /s/ Richard Norton
-----------------------------
SEQUOIA TECHNOLOGY PARTNERS V
By: /s/ Richard Norton
-----------------------------
SEQUOIA XX
By: /s/ Richard Norton
-----------------------------
/s/ M. D. Sampels
- --------------------------------
M. D. Sampels
- --------------------------------
Stephen H. Kelley
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<PAGE>
EXHIBIT 10.8
SOUTHWEST NETWORK SERVICES, INC.
1988
STOCK OPTION PLAN
1. Purpose. The Southwest Network Services, Inc. 1988 Stock Option Plan
(the "Plan") is intended to advance the interests of Southwest Network Services,
Inc., a Delaware corporation (the "Company"), and its stockholders, by
encouraging and enabling selected key employees, directors and officers (who in
any such case are also employees) of, and consultants to, the Company, upon
whose judgment, initiative and effort the Company is largely dependent for the
successful conduct of its business, to acquire and retain a proprietary interest
in the Company by ownership of its stock. It is intended that options which may
qualify for treatment as "incentive stock options" under Section 422A of the
Internal Revenue Code of 1986, as amended, and applicable regulations and
rulings promulgated thereunder (collectively, the "Code"), as well as options
which may not so qualify, may be granted under the Plan.
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Common Stock" means the Company's Common Stock, $.01 par value
per share.
(c) "Date of Grant" means the date on which an Option is granted
under the Plan, which will be the date the Board authorizes the Option
unless the Board specifies a later date.
(d) "Date of Exercise" means the date on which an option is validly
exercised pursuant to the Plan.
(e) "Option" means an option granted under the Plan.
(f) "Optionee" means a person to whom an Option, which has not
expired, has been granted under the Plan.
(g) "Subsidiary" or "Subsidiaries" means a subsidiary corporation or
corporations of the Company as defined in Section 425(f) of the Code.
<PAGE>
(h) "Successor" means the legal representative of the estate of a
deceased Optionee or the person or persons who acquire the right to
exercise an Option by bequest or inheritance or by reason of the death of
any Optionee.
(i) "Incentive Stock Option" means an Option that qualifies as an
incentive stock option under all of the requirements of the Code.
(i) "Incentive Stock Option Agreement" means the agreement between
the Company and the Optionee, substantially in the form attached hereto as
Exhibit "A" or such other form as may from time to time be adopted by the
Board, under which the Optionee may purchase Common Stock pursuant to the
terms of an Incentive Stock Option granted under the Plan.
(k) "Non-Qualified Stock Option" means an Option to purchase Common
Stock granted pursuant to the provisions of the Plan that does not qualify
as an Incentive Stock Option.
(1) "Non-Qualified Stock Option Agreement" means the agreement
between the Company and the Optionee, substantially in the form attached
hereto as Exhibit "B" or such other form as may from time to time be
adopted by the Board, under which the Optionee may purchase Common Stock
pursuant to the terms of a Non-Qualified Stock Option granted under the
Plan.
3. Administration of Plan. The Plan shall be administered by the Board.
The Board shall have full and final authority in its discretion, subject to the
provisions of the Plan: (i) to determine the individuals to whom, and the time
or times at which, options shall be granted and the number of shares of Common
Stock covered by each Option; (ii) to reduce the price of outstanding options,
under such circumstances as the Board may in its discretion deem appropriate;
(iii) to construe and interpret the Plan; and (iv) to make all other
determinations and take all other actions deemed necessary or advisable for the
proper administration of the Plan. All such actions and determinations by the
Board shall be final and conclusively binding for all purposes and upon all
persons. Any committee authorized to administer the
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<PAGE>
Plan shall consist entirely of disinterested directors in accordance with the
provisions of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
4. Common Stock Subject to Options. The aggregate number of shares of
the Company's Common Stock which may be issued upon the exercise of Options
granted under the Plan shall not exceed 2,001,976 subject to adjustment by the
Board to reflect, as deemed appropriate by the Board, any stock dividend, stock
split, reverse stock split, share combination, reorganization, recapitalization
or the like, of or by the Company. The shares of Common Stock to be issued upon
the exercise of options may be authorized but unissued shares, shares issued and
reacquired by the Company or shares bought on the open market for the purposes
of the Plan. In the event any Option shall, for any reason, terminate or expire
or be cancelled or surrendered without having been exercised in full, the shares
subject to such Option, but not purchased thereunder, shall again be available
for options to be granted under the Plan.
5. Participants. Options may be granted under the Plan to any person who
is an employee, director or officer (who in any such case is also an employee)
of, or a consultant (including venture capital funds and other entities
individuals associated with which have provided consulting services to the
Company) to, the Company or any of its Subsidiaries.
6. Terms and Conditions of Options. Any option granted under the Plan
shall be evidenced by either an Incentive Stock Option Agreement or a Non-
Qualified Stock Option Agreement executed by the Company and the Optionee. Such
agreement shall be subject to the following limitations and conditions:
(a) Option Price. The option price per share with respect to each
Option shall be determined by the Board but in no instance shall the option
price for an Option which is intended to qualify as an Incentive Stock
Option be less than 100% of the fair market value of a share of the Common
Stock on the Date of Grant. For the purposes hereof, the fair market value
shall be
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<PAGE>
determined by the Board and such determination shall be final and binding
upon the Optionee. The Board shall make such determination based on any
reasonable valuation method.
(b) Payment of Option Price. Full payment for shares purchased upon
exercising an Option shall be made in cash or by delivery of previously
owned shares of Common Stock, or partly in cash and partly in such stock.
The value of shares of Common Stock delivered in connection with the
payment of the option price shall be the fair market value of such shares
on the Date of Exercise of the option, as determined by the Board, and such
determination shall be binding upon the Optionee. The Board shall make
such determination based on any reasonable valuation method.
(c) Term of Option. The expiration date of each Incentive Stock
Option shall not be more than ten (10) years from the Date of Grant. The
expiration date of each Non-Qualified Stock Option shall not be more than
ten (10) years from the Date of Grant.
(d) Vesting of Stockholder Rights. Neither an Optionee nor his
Successor shall have any of the rights of a stockholder of the Company
until the certificate or certificates evidencing the shares purchased
pursuant to the exercise of an Option are properly delivered to such
Optionee or his Successor.
(e) Exercise of an Option. Each Option shall be exercisable at any
time, and from time to time, and in no particular order if the Optionee
holds more than one Option, throughout a period commencing on the Date of
Grant and ending upon the earliest of the expiration, cancellation,
surrender or termination of the Option; provided however, that no Option
shall be exercisable in whole or in part prior to the date of stockholder
approval of the Plan. Furthermore, the exercise of each Option shall be
subject to the condition that if at any time the Company shall determine in
its discretion that the satisfaction of withholding tax or other
withholding liabilities, or that the listing, registration, or
qualification of any share otherwise deliverable upon such
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<PAGE>
exercise upon any securities exchange or under any state or federal law, or
that the report to, or consent or approval of, any regulatory body, is
necessary or desirable as a condition of, or in connection with, such
exercise or the delivery or purchase of shares pursuant thereto, then in
any such event, such exercise shall not be effective unless such
withholding, listing, registration, qualification, report, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company.
(f) Non-ISO Tax Benefit Right. The Board may grant a tax benefit
right to such Optionees and on such bases as the Board shall determine,
including, but not limited to, a tax benefit right which becomes
exercisable only upon an optionee's being subject to the restrictions of
Section 16 of the Exchange Act, and a provision relating thereto shall be
included in the stock option agreement at the time the right is granted. A
tax benefit right may be granted only with respect to a Non-Qualified Stock
Option under the Plan, and may be granted concurrently with or after the
grant of the Non-Qualified Stock Option. A tax benefit right shall entitle
an Optionee to receive from the Company or a Subsidiary an amount in cash
no greater than the then existing maximum statutory Federal income tax rate
(including any surtax or similar charge or assessment) for individuals
multiplied by the amount of ordinary income, if any, realized by the
Optionee for Federal income tax purposes as a result of the exercise of the
Non-Qualified Stock Option. The Board may cancel or place a limit on the
term of, or the amount payable for, any tax benefit right at any time. The
Board shall determine all other terms and provisions of any tax benefit
right. The Company shall not be required to fund such tax benefit right
prior to the due date for such taxes, and the proceeds of such tax benefit
right shall be advanced to the Optionee in the form of a check payable to
the Internal Revenue Service for the account of the Optionee or such other
method as the Board may determine. The Board shall have the right to
require an Optionee to present reasonable proof of the amount of such taxes
as a condition precedent to the making of
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<PAGE>
such payment. The Company shall be under no obligation of any nature to
grant any tax benefit right to any Optionee at any time.
(g) Nontransferability of Option. No Option shall be transferable or
assignable by an Optionee, voluntarily, or by operation of law, other than
by will or the laws of descent and distribution. Each Option shall be
exercisable, during the Optionee's lifetime, only by him. No Option, or
the shares covered thereby, shall be pledged or hypothecated in any way and
no Option, or the shares covered thereby, shall be subject to execution,
attachment, or similar process except with the prior express written
consent of the Board.
(h) Termination of Employment. Effective July 1, 1993, upon
termination of an Optionee's employment with the Company or with any of its
Subsidiaries for any reason other than his death, his Option privileges
shall be limited to the shares which were immediately purchasable by him at
the date of such termination and such Option privileges shall expire unless
exercised by him prior to the earlier of the date of the expiration of the
Option or: (i) thirty (30) days after the date of such termination in the
event of termination for any reason other than retirement or permanent
disability; or (ii) three (3) months after the date of such termination in
the event of termination by reason of retirement or permanent disability.
Neither the adoption of this Plan nor the grant of an Option to an eligible
person shall alter in any way the Company's or the relevant Subsidiary's
rights to terminate such person's employment at any time with or without
cause nor does it confer upon such person any rights or privileges to
continued employment, or any other rights and privileges, except as
specifically provided in the Plan.
(i) Death of Optionee. If an Optionee dies while an employee of the
Company or any Subsidiary, his Option privileges shall be limited to the
shares which were immediately purchasable by him at his date of death and
such Option privileges shall expire unless exercised by his
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<PAGE>
successor prior to the date of its expiration or one (1) year from the date
of the Optionee's death, whichever occurs first.
(j) Ten Percent Stockholders. Notwithstanding anything herein to the
contrary, an Option which is intended to qualify as an Incentive Stock
Option shall be granted hereunder to any Optionee who, immediately before
such Option is granted, beneficially owns, directly or indirectly, more
than 10% of the total voting power of all classes of stock of the Company
only if both of the following conditions are met:
(i) The Option price per share shall be no less than 110% of
the fair market value of a share of Common Stock on the Date of Grant; and
(ii) The expiration date of the Option shall be not more than
five (5) years from the Date of Grant.
(k) Other Terms. Each Incentive Stock Option Agreement or Non-
Qualified Stock Option Agreement, as the case may be, may contain such
other provisions (not inconsistent herewith) as the Board in its discretion
may determine, including, without limitation:
(i) in the event that an Option shall be immediately
exercisable, any provision which shall provide that the shares acquired
pursuant thereto shall not be deemed to have been issued pursuant to a
fully vested stock option and thereby subject to the repurchase rights
contained in the Shareholder's Agreement with the Optionee, entered into
pursuant to Paragraph 10 hereof;
(ii) any provision which shall condition the exercise of all or
part of an Option upon such matters as the Board may deem appropriate (if
any) such as the passage of time, or the attainment of certain performance
goals, appropriate to reflect the contribution of the employee to the
performance of the Company;
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<PAGE>
(iii) any provision which would give the Board the discretionary
authority to accelerate the exercisability of an Option in spite of any
provision contained in an option pursuant to clause (ii) above, under such
circumstances as the Board may deem appropriate; and
(iv) the manner in which an Option is to be exercised.
7. Allotment of Shares. The Board shall, in its discretion, determine
the number of shares of Common Stock to be offered from time to time by grant of
Options to Optionees. The grant of an Option shall not be deemed either to
entitle the Optionee to, or disqualify the Optionee from, participation in any
other grant of options under this Plan or any other stock option plan of the
Company.
The above provision notwithstanding, the aggregate fair market value
(determined as of the time the Option is granted) of the Common Stock with
respect to which Options which are intended to qualify as Incentive Stock
Options are exercisable for the first time by such Optionee during any calendar
year (under all such plans of the Optionee's employer corporation and its parent
and subsidiary corporations) shall not exceed $100,000.
8. Adjustments. The number of shares of Common Stock covered by each
outstanding Option granted under the Plan and the Option price shall be adjusted
to reflect, as deemed appropriate by the Board in its discretion, any stock
dividend, stock split, reverse stock split, share combination, exchange of
shares, recapitalization, merger, consolidation, separation, reorganization,
liquidation or the like of or by the Company. Decisions by the Board as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive on all Optionees.
9. Designation of Incentive Stock Options. The Board shall cause each
Option granted hereunder to be clearly designated in the agreement evidencing
such option, at the time of grant, as to whether or not it is intended to
qualify as an Incentive Stock Option.
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10. Execution of Shareholder's Agreement. Options may only be exercised
hereunder by Optionees who have executed a Shareholder's Agreement substantially
in the form attached hereto as Exhibit "C" or such other form as the Board may
adopt from time to time.
11. Notices. Whenever any notice is required or permitted hereunder, such
notice must be in writing and personally delivered or sent by mail. Any notice
required or permitted to be delivered hereunder shall be deemed to be delivered
on the date which it is personally delivered, or, whether actually received or
not, on the third business day after it is deposited in the United States mail,
certified or registered, postage prepaid, addressed to the person who is to
receive it at the address which such person has theretofore specified by written
notice delivered in accordance herewith. The Company or an Optionee may change,
at any time and from time to time, by written notice to the other, the address
which it or he had theretofore specified for receiving notices. Until changed
in accordance herewith, the Company and each Optionee shall specify as its and
his address for receiving notices the address set forth in the option agreement
pertaining to the shares to which such notice relates.
12. Amendment or Discontinuance. The Plan and any Option outstanding
hereunder may be amended or discontinued by the Board without the approval of
the shareholders of the Company, except that the Board may not, except as
expressly provided in the Plan, increase the aggregate number of shares which
may be issued under Options granted pursuant to the Plan and except that no
action may be taken by the Board, not expressly provided for herein, in
derogation of the vested rights of any Optionee under an Option previously
granted hereunder.
13. Effect of the Plan. Neither the adoption of this Plan nor any action
of the Board shall be deemed to give any officer or employee any right to be
granted an option to purchase Common Stock of the Company or any of its
Subsidiaries, or any other rights except as may be evidenced by a stock option
agreement, or any amendment thereto, duly authorized by the Board and executed
on behalf of the Company and then only to the extent and on the terms and
conditions expressly set forth therein.
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14. Grant of Incentive Stock Options. No Incentive Stock Option shall be
granted pursuant to this Plan after the expiration of ten years from the date of
the earlier of: (i) the date the Plan is adopted, or (ii) the date the Plan is
approved by the stockholders of the Company.
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EXHIBIT 10.9
NETSOLVE, INCORPORATED
LONG-TERM INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE
NetSolve, Incorporated, a Delaware corporation (the "Company"), hereby
establishes the NetSolve, Incorporated Long-Term Incentive Compensation Plan
(the "Plan") to promote the interests of the Company and its stockholders
through the (i) attraction and retention of executive officers and other key
employees of the Company, as well as directors and other consultants who are
essential to the success of the Company; (ii) motivation of executive officers
and other key employees using performance-related incentives linked to long-
range performance goals and the interests of Company stockholders; and (iii)
enabling of such employees to share in the long-term growth and success of the
Company. The Plan permits the grant of Incentive Stock Options (intended to
qualify under Section 422 of the Code), Nonqualified Stock Options, Stock
Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance
Shares, Performance Units, Bonus Stock, and any other Stock Unit Awards or
stock-based forms of awards as the Committee, in its sole and complete
discretion, may determine to be appropriate in carrying out the intent and
purposes of this Plan.
SECTION 2. DEFINITIONS
When used in this Plan, the following terms shall have the meanings set
forth below:
2.1 "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
under the Exchange Act.
2.2 "Agreement" means a written agreement between the Company and a
Participant implementing and setting forth the particular terms,
conditions and restrictions of each Award. With respect to the grant
of an Option, the Agreement may be referred to herein as an "Option
Agreement," and with respect to any other Award hereunder, the
Agreement may be referred to herein as an "Award Agreement."
2.3 "Award" means a grant under the Plan of Incentive Stock Options,
Nonqualified Stock Options, Stock Appreciation Rights, Restricted
Stock, Restricted Stock Units, Performance Shares, Performance Units,
Bonus Stock, or other Stock Unit Awards.
2.4 "Award Date" or "Grant Date" means the date on which an Award is made
by the Committee under the Plan.
2.5 "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 under the Exchange Act.
2.6 "Board" or "Board of Directors" means the Board of Directors of the
Company.
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2.7 "Bonus Stock" means an Award granted pursuant to Section 10 of the
Plan.
2.8 "Change in Control" shall be deemed to have occurred if the conditions
set forth in any one of the following paragraphs shall have been
satisfied:
(a) Any person, corporation, entity or group, including any "group"
as defined in Section 13(d)(3) of the Exchange Act (collectively
"Person"), who, as of the effective of this Plan is unaffiliated
with any current stockholder of the Company, becomes the
beneficial owner of equity securities of the Company comprising
20% or more of the total number of votes that may be cast for the
election of directors of the Company; or
(b) As the result of, or in connection with, any tender or exchange
offer, merger or other business combination, sale of assets, sale
of securities, contested election, or any combination of the
foregoing (a "Transaction"), the persons who were directors of
the Company immediately before the Transaction shall cease to
constitute a majority of the Board of Directors of the Company or
any successor to the Company or its assets; or
(c) If at any time: (i) the Company shall consolidate or merge with
any other Person and the Company shall not be the continuing or
surviving entity; (ii) any Person shall consolidate or merge with
the Company, and the Company shall be the continuing or surviving
corporation and in connection therewith, all or part of the
outstanding Common Stock shall be converted into, or exchanged
for, stock or other securities of any other Person or cash or any
other property; (iii) the Company shall be a party to a statutory
share exchange with any other Person after which the Company is a
subsidiary of any other Person; or (iv) the Company shall sell or
otherwise transfer 50% or more of the assets or earning power of
the Company and its Subsidiaries (taken as a whole) to any Person
or Persons.
2.9 "Code" means the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder, or any successor law, as amended
from time to time.
2.10 "Committee" means the Compensation Committee of the Board.
2.11 "Common Stock" or "Stock" means the Common Stock of the Company, $.01
par value per share, or such other security or right or instrument
into which such Common Stock may be changed or converted in the
future.
2.12 "Company" means NetSolve, Incorporated, including all Affiliates and
wholly-owned subsidiaries, or any successor thereto.
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2.13 "Covered Participant" means a Participant who is a "covered employee"
as defined in Code Section 162(m)(3) and the regulations promulgated
thereunder.
2.14 "Designated Beneficiary" means the beneficiary designated by the
Participant, pursuant to procedures established by the Committee, to
receive amounts due to the Participant in the event of the
Participant's death. If the Participant does not make an effective
designation, then the Designated Beneficiary will be deemed to be the
Participant's estate.
2.15 "Disability" means the mental or physical disability of a Participant
that precludes the Participant from engaging in any occupation or
employment for wage or profit for at least twelve months and appears
to be permanent, as determined by the Committee in its sole
discretion. All decisions by the Committee relating to a
Participant's Disability (including a decision that a Participant is
not disabled), shall be final and binding on all parties.
2.16 "Divestiture" means the sale of, or closing by, the Company of the
business operations in which the Participant is employed.
2.17 "Exchange Act" means the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder, or any successor law as
amended from time to time.
2.18 "Executive Officer" means any employee considered by the Company to
be an Executive Officer.
2.19 "Fair Market Value" means the fair market value of the Stock as
determined by the Committee using any reasonable valuation method.
2.20 "Full-time Employee" means an individual who is employed by the
Company or a Subsidiary in a customary employer-employee relationship,
is on the payroll of the Company or such Subsidiary, receives
compensation directly from the Company or such Subsidiary, and is
designated in the internal payroll or other records of the Company or
a Subsidiary as a regular, full-time employee. This designation
excludes all leased employees (within the meaning of Code Section
414(n)), part-time employees, temporary employees, or contract
employees, as well as all consultants to, the Company.
2.21 "Incentive Stock Option" or "ISO" means an option to purchase Stock,
granted under Section 6 herein, which is designated as an incentive
stock option and is intended to meet the requirements of Code Section
422.
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2.22 "Key Employee" means a Full-time Employee who is an officer or other
key employee of the Company or its Subsidiaries as designated or
determined by the Committee.
2.23 "Nonqualified Stock Option" or "NQSO" means an option to purchase
Stock, granted under Article 6 herein, which is not intended to
qualify as, or constitute an Incentive Stock Option.
2.24 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.25 "Other Stock Unit Award" means awards of Stock or other Awards that
are valued in whole or in part by reference to, or are otherwise based
on, the value of the Company's Common Stock.
2.26 "Participant" means a Key Employee or director of, or a consultant
to, the Company who has been granted an Award under the Plan.
2.27 "Performance Criteria" means the objectives established by the
Committee for a Performance Period, for the purpose of determining
when an Award subject to such objectives has been earned.
2.28 "Performance Award" means a performance-based Award made under
Section 9 herein, which may be in the form of either Performance
Shares or Performance Units.
2.29 "Performance Period" means the time period designated by the
Committee during which performance goals must be met in order for a
Participant to obtain a performance-based Award.
2.30 "Performance Share" means an Award, designated as a Performance
Share, granted to a Participant pursuant to Section 9 herein, the
value of which is determined, in whole or in part, by the value of the
Stock in a manner deemed appropriate by the Committee and described in
the applicable Agreement.
2.31 "Performance Unit" means an Award, designated as a Performance Unit,
granted to a Participant pursuant to Section 9 herein, the value of
which is determined, in whole or in part, by the attainment of pre-
established Performance Criteria as deemed appropriate by the
Committee and described in the Agreement.
2.32 "Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock is restricted, pursuant to Section 8
herein.
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2.33 "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d).
2.34 "Plan" means the NetSolve, Incorporated Long-Term Incentive
Compensation Plan as herein established and as hereafter amended from
time to time.
2.35 "Restricted Stock" means an Award of Stock granted to a Participant
pursuant to Section 8 herein.
2.36 "Restricted Stock Unit" means a fixed or variable dollar denominated
right to acquire Stock, which may or may not be subject to
restrictions, contingently awarded under Section 8 of the Plan.
2.37 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange Act
as adopted in Exchange Act Release No. 34-37260 (May 30, 1996), or any
successor rule as amended from time to time.
2.38 "Section 162(m)" means Section 162(m) of the Code, or any successor
section under the Code, as amended from time to time and as
interpreted by final or proposed regulations promulgated thereunder
from time to time.
2.39 "Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder, or any successor law, as amended
from time to time.
2.40 "Stock" or "Shares" means the Common Stock of the Company.
2.41 "Stock Appreciation Right" means the right to receive an amount equal
to the excess of the Fair Market Value of a share of Stock (as
determined on the date of exercise) over the Exercise Price of a
related Option or the Fair Market Value of the Stock on the Grant Date
of the Stock Appreciation Right.
2.42 "Stock Unit Award" means an award of Common Stock or units granted
under Section 11.
2.43 "Subsidiary" means a corporation in which the Company owns, either
directly or through one or more of its Subsidiaries, at least 50% of
the total combined voting power of all classes of stock.
SECTION 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered and interpreted by the
Committee which shall have full authority, discretion and power necessary or
desirable for such administration
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and interpretation. The express grant in this Plan of any specific power to the
Committee shall not be construed as limiting any power or authority of the
Committee. In its sole and complete discretion the Committee may adopt, alter,
suspend and repeal any such administrative rules, regulations, guidelines, and
practices governing the operation of the Plan as it shall from time to time deem
advisable. In addition to any other powers and, subject to the provisions of the
Plan, the Committee shall have the following specific powers: (i) to determine
the terms and conditions upon which Awards may be made and exercised; (ii) to
determine the Participants to which Awards shall be made; (iii) to determine all
terms and provisions of each Agreement, which need not be identical for types of
Awards nor for the same type of Award to different Participants; (iv) to
construe and interpret all terms, conditions and provisions of the Plan and all
Agreements; (v) to establish, amend, or waive rules or regulations for the
Plan's administration; (vi) to accelerate the exercisability of any Award, the
length of a Performance Period or the termination of any Period of Restriction;
and (vii) to make all other determinations and take all other actions necessary
or advisable for the administration or interpretation of the Plan. The Committee
may seek the assistance or advice of any persons it deems necessary to the
proper administration of the Plan.
3.2 Committee Decisions. Unless strictly and expressly prohibited by
law, all determinations and decisions made by the Committee pursuant to the
provisions of this Plan shall be final, conclusive, and binding upon all
persons, including Participants, Designated Beneficiaries, the Company, its
stockholders and employees.
SECTION 4. ELIGIBILITY
The Committee shall have sole and complete discretion in designating and
determining Participants in the Plan.
SECTION 5. SHARES SUBJECT TO THE PLAN
5.1 Number of Shares. Subject to adjustment as provided for in Section
5.4 below, the maximum aggregate number of Shares that may be issued pursuant to
Awards made under the Plan shall not exceed 600,000 Shares, which may be in any
combination of Options, Restricted Stock, Restricted Stock Units, Performance
Shares, Bonus Shares, or Other Stock Unit Award. Shares of Common Stock may be
available from the authorized but unissued Shares, Shares issued and reacquired
by the Company or Shares purchased in the open market for purposes of the Plan.
Except as provided in Sections 5.2 and 5.3 herein, the issuance of Shares in
connection with the exercise of, or as other payment for, Awards under the Plan
shall reduce the number of Shares available for future Awards under the Plan.
5.2 Lapsed Awards or Forfeited Shares. In the event that: (i) any Option
or other Award granted under the Plan terminates, expires, or lapses for any
reason without having been exercised in accordance with its terms; (ii) Shares
issued pursuant to the Awards are canceled or forfeited for any reason; or (iii)
Awards are paid in cash, the Shares subject to such Award shall thereafter be
again available for grant of an Award under the Plan.
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5.3 Delivery of Shares as Payment. In the event a Participant pays for
any Option or other Award granted under the Plan through the delivery of
previously acquired shares of Common Stock, the number of shares of Common Stock
available for Awards under the Plan shall be increased by the number of shares
surrendered by the Participant.
5.4 Capital Adjustments. The number and class of Shares subject to each
outstanding Award, the Option Price and the aggregate number, type and class of
Shares for which Awards thereafter may be made shall be subject to adjustment,
if any, as the Committee deems appropriate, based on the occurrence of a number
of specified and non-specified events. Such specified events are discussed in
this Section 5.4, but such discussion is not intended to provide an exhaustive
list of such events which may necessitate adjustments.
(a) If the outstanding Shares are increased, decreased or exchanged
through merger, consolidation, sale of all or substantially all of the
property of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or
other distribution in respect to such Shares, for a different number
or type of Shares, or if additional Shares or new or different Shares
are distributed with respect to such Shares, an appropriate and
proportionate adjustment shall be made in: (i) the maximum number of
shares of Stock available for the Plan as provided in Section 5.1
herein; (ii) the type of shares or other securities available for the
Plan; (iii) the number of shares of Stock subject to any then
outstanding Awards under the Plan; and (iv) the price (including
Exercise Price) for each share of Stock (or other kind of shares or
securities) subject to then outstanding Awards, but without change in
the aggregate purchase price as to which such Options remain
exercisable or Restricted Stock releasable.
(b) In the event other events not specified above in this Section 5.4,
such as any extraordinary cash dividend, split-up, reverse split,
spin-off, combination, exchange of shares, warrants or rights offering
to purchase Common Stock, or other similar corporate event, affect the
Common Stock such that an adjustment is necessary to maintain the
benefits or potential benefits intended to be provided under this
Plan, then the Committee in its discretion may make adjustments to any
or all of: (i) the number and type of shares which thereafter may be
optioned and sold or awarded or made subject to Stock Appreciation
Rights under the Plan; (ii) the grant, exercise or conversion price of
any Award made under the Plan thereafter; and (iii) the number and
price (including Exercise Price) of each share of Stock (or other kind
of shares or securities) subject to the then outstanding Awards.
(c) Any adjustment made by the Committee pursuant to the provisions of
this Section 5.4 shall be final, binding and conclusive. A notice of
such adjustment, including identification of the event causing such
adjustment, the calculation method of such adjustment, and the change
in price and the number of shares of Stock, or securities,
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cash or property purchasable subject to each Award shall be sent to
each Participant. No fractional interests shall be issued under the
Plan based on such adjustments.
SECTION 6. STOCK OPTIONS
6.1 Grant of Stock Options. Subject to the terms and provisions of the
Plan and applicable law, the Committee, at any time and from time to time, may
grant Options to Key Employees as it shall determine. The Committee shall have
sole and complete discretion in determining the type of Option granted, the
Option Price (as hereinafter defined), the duration of the Option, the number of
Shares to which an Option pertains, any conditions imposed upon the
exercisability or the transferability of the Options, including vesting
conditions, the conditions under which the Option may be terminated, and any
such other provisions as may be warranted to comply with the law or rules of any
securities trading system or stock exchange. Each Option grant shall have such
specified terms and conditions detailed in an Option Agreement. The Option
Agreement shall specify whether the Option is intended to be an Incentive Stock
Option or a Nonqualified Stock Option.
6.2 Option Price. The exercise price per share of Stock covered by an
Option ("Option Price") shall be determined on the Grant Date by the Committee;
provided that the Option Price of an Option intended to constitute an Incentive
Stock Option shall not be less than 100% of the Fair Market Value of the Common
Stock on the Grant Date.
6.3 Exercisability. Options granted under the Plan shall be exercisable
at such times and be subject to such restrictions and conditions as the
Committee shall determine, which will be specified in the Option Agreement and
need not be the same for each Participant. However, no Option granted under the
Plan may be exercisable after the expiration of ten years from the Grant Date.
6.4 Method of Exercise. Options shall be exercised by the delivery of a
written notice from the Participant to the Company in a form prescribed by the
Committee setting forth the number of Shares with respect to which the Option is
to be exercised, accompanied by full payment or provision for full payment for
the Shares. The Option Price shall be payable to the Company in full in cash,
or its equivalent, or by delivery of Shares of Stock (not subject to any
security interest or pledge) having a Fair Market Value at the time of exercise
equal to the exercise price of the Shares, or by a combination of the foregoing.
As soon as practicable, after receipt of written notice and full payment of the
Option Price, the Company shall deliver to the Participant a stock certificate,
issued in the Participant's name, evidencing the number of Shares with respect
to which the Option was exercised.
SECTION 7. STOCK APPRECIATION RIGHTS
7.1 Grant of Stock Appreciation Rights. Subject to the terms and
provisions of the Plan and applicable law, the Committee, at any time and from
time to time, may grant freestanding Stock
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Appreciation Rights, Stock Appreciation Rights in tandem with an Option, or
Stock Appreciation Rights in addition to an Option. Stock Appreciation Rights
granted in tandem with an Option or in addition to an Option may be granted at
the time of the Option or at a later time. No Stock Appreciation Rights granted
under the Plan may be exercisable after the expiration of ten years from the
Grant Date.
7.2 Price. The exercise price of each Stock Appreciation Right shall be
determined at the time of grant by the Committee, subject to the limitation that
the grant price shall not be less than 100% of Fair Market Value of the Common
Stock on the Grant Date.
7.3 Exercise. Stock Appreciation Rights shall be exercised by the
delivery of a written notice from the Participant to the Company in a form
prescribed by the Committee. Upon such exercise, the Participant shall be
entitled to receive an amount equal to the excess of the Fair Market Value of a
Share over the grant price thereof on the date of exercise of the Stock
Appreciation Right multiplied by the number of Shares for which the Stock
Appreciation Right was granted.
7.4 Payment. Payment upon exercise of the Stock Appreciation Right
shall be in the amount of the full exercise price therefor, and shall be made in
the form of cash, cash installments, Shares of Common Stock, or a combination
thereof, as determined in the sole and complete discretion of the Committee.
However, if any payment in the form of Shares results in a fractional share,
such payment for the fractional share shall be made in cash.
SECTION 8. RESTRICTED STOCK AND RESTRICTED STOCK UNITS
8.1 Grant of Restricted Stock. Subject to the terms and provisions of
the Plan and applicable law, the Committee, at any time and from time to time,
may grant shares of Restricted Stock and Restricted Stock Units under the Plan
to such Participants, and in such amounts and for such duration and/or
consideration as it shall determine.
8.2 Restricted Stock Award Agreement. Each Restricted Stock and
Restricted Stock Unit granted hereunder shall be evidenced by an Award Agreement
that shall specify the Period of Restriction, the conditions which must be
satisfied prior to removal of the restriction, the number of Shares of
Restricted Stock or Restricted Stock Units granted, payment terms for each such
Award (e.g. whether the Award will be paid in shares of Stock, cash or a
combination thereof, and whether payment will be in a lump sum or installments),
and such other provisions as the Committee shall determine. The Committee may
specify, but is not limited to, the following types of restrictions in the Award
Agreement: (i) restrictions on acceleration or achievement of terms or vesting
based on any Performance Criteria, including, but not limited to, absolute or
relative increases in total shareholder return, revenues, sales, net income, or
net worth of the Company, any of its Subsidiaries, divisions, business units or
other areas of the Company; and (ii) any other restrictions which the Committee
may deem advisable, including requirements established pursuant to the
Securities Act, the Exchange Act, the Code and, if applicable, any securities
trading system or stock exchange upon which such Shares under the Plan may be
listed.
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8.3 Nontransferability. Except as provided in this Section 8, the
Shares of Restricted Stock or Restricted Stock Units granted under the Plan may
not be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated until the termination of the applicable Period of Restriction or
upon earlier satisfaction of other conditions as specified by the Committee in
its sole discretion and set forth in the applicable Award Agreement. All rights
with respect to the Restricted Stock and Restricted Stock Units granted to a
Participant under the Plan shall be exercisable during his or her lifetime only
by such Participant or his or her guardian or legal representative.
8.4 Removal of Restrictions. Except as otherwise noted in this Section
8, Restricted Stock and Restricted Stock Units covered by each Award made under
the Plan shall become freely transferable by the Participant after the last day
of the Period of Restriction and/or upon the satisfaction of other conditions as
determined by the Committee.
8.5 Voting Rights. During the Period of Restriction, Participants in
whose name Restricted Stock is granted under the Plan may exercise full voting
rights with respect to those shares.
8.6 Dividends and Other Distributions. During the Period of
Restriction, Participants in whose name Restricted Stock is granted under the
Plan shall be entitled to receive all dividends and other distributions paid
with respect to those Shares. If any such dividends or distributions are paid in
Shares, the Shares shall be subject to the same restrictions on transferability
and forfeitability as the Restricted Stock with respect to which they were
distributed.
SECTION 9. PERFORMANCE AWARDS
9.1 Grant of Performance Awards. Subject to the terms and provisions of
the Plan and applicable law, the Committee, at any time and from time to time,
may issue Performance Awards in the form of either Performance Shares or
Performance Units to Participants subject to the Performance Criteria,
Performance Period and other consideration or restrictions as it shall
determine. The Committee shall have complete discretion in determining the
number and value of Performance Units or Performance Shares granted to each
Participant.
9.2 Value of Performance Awards. The Committee shall determine the
number and value of Performance Units or Performance Shares granted to each
Participant as a Performance Award. The Committee shall set Performance Criteria
in its discretion for each Participant who is granted a Performance Award. The
extent to which such Performance Criteria are met will determine the value of
the Performance Unit or Performance Share to the Participant. Such Performance
Criteria may be particular to a Participant, may relate to the performance of
the Company or Subsidiary which employs him or her, or any combination of the
foregoing. The Performance Criteria may be based on achievement of financial
statement objectives, or any other objectives established by the Committee. The
Performance Criteria may be absolute in their terms or measured against, or in
relationship to, other companies comparably, similarly or otherwise situated.
The terms and conditions of each Performance Award will be set forth in an Award
Agreement.
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9.3 Settlement of Performance Awards. After a Performance Period has
ended, the holder of a Performance Unit or Performance Share shall be entitled
to receive the value thereof based on the degree to which the Performance
Criteria established by the Committee and set forth in the Award Agreement have
been satisfied.
9.4 Form of Payment. Payment of the amount to which a Participant shall
be entitled upon the settlement of the Performance Award shall be made in cash,
Stock, or a combination thereof and may be made in a lump sum or installments
all as determined by the Committee and set forth in the related Award Agreement.
SECTION 10. BONUS STOCK
Subject to the terms and provisions of the Plan and applicable law, the
Committee may, at any time and from time to time, award shares of Bonus Stock to
participants under the Plan without cash consideration. The Committee shall
determine and indicate in the related Award Agreement whether such shares of
Bonus Stock shall be unencumbered of any restrictions (other than those which
the Committee deems necessary or advisable to comply with law) or shall be
subject to restrictions and limitations similar to those referred to in Section
9. In the event the Committee assigns any restrictions on the shares of Bonus
Stock, then such shares shall be subject to at least the following restrictions:
(a) No Shares of Bonus Stock may be sold, transferred, pledged, assigned
or otherwise alienated or hypothecated if such Shares are subject to
restrictions which have not lapsed or been satisfied.
(b) If any condition of vesting of the shares of Bonus Stock are not
met, all such Shares subject to such vesting shall be delivered to
the Company (in a manner determined by the Committee) within 60 days
of the failure to meet such conditions without any payment from the
Company.
SECTION 11. OTHER STOCK BASED AWARDS
11.1 Grant of Other Stock Based Awards. Subject to the terms and
provisions of the Plan and applicable law, the Committee may, at any time and
from time to time, issue to Participants, either alone or in addition to other
Awards made under the Plan, Stock Unit Awards which may be in the form of Common
Stock or other securities. The value of each such Award shall be based, in
whole or in part, on the value of the underlying Common Stock on the Grant Date.
The Committee, in its sole and complete discretion, may determine that an Award,
either in the form of a Stock Unit Award under this Section 11 or as an Award
granted pursuant to Sections 6 through 10, may provide to the Participant (i)
dividends or dividend equivalents (payable on a current or deferred basis) and
(ii) cash payments in lieu of or in addition to an Award. Subject to the
provisions of the Plan, the Committee, in its sole and complete discretion,
shall determine the terms, restrictions, conditions, vesting requirements, and
payment rules of the Award. The Award Agreement shall specify the
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rules of each Award as determined by the Committee. However, each Stock Unit
Award need not be subject to identical rules.
11.2 Rules. The Committee, in its sole and complete discretion, may
grant a Stock Unit Award subject to the following rules:
(a) If applicable and to the extent Stock Unit Awards are deemed to be
derivative securities within the meaning of Rule 16b-3, the rights
of a Participant who is subject to Section 16 of the Exchange Act
with respect to such Awards shall not vest or be exercisable until
the expiration of at least six months from the Award Date.
(b) All rights with respect to such Stock Unit Awards granted to a
Participant under the Plan shall be exercisable during his or her
lifetime only by such Participant or his or her guardian or legal
representative.
(c) Stock Unit Awards may require the payment of cash consideration by
the Participant in receipt of the Award or provide that the Award,
and any Common Stock or other securities issued in conjunction with
the Award, be delivered without the payment of cash consideration.
(d) The Committee, in its sole and complete discretion, may establish
certain Performance Criteria that may relate in whole or in part to
receipt of Stock Unit Awards.
(e) Stock Unit Awards may be subject to a deferred payment schedule
and/or vesting over a specified period.
(f) The Committee, in its sole and complete discretion, as a result of
certain circumstances, may waive or otherwise remove, in whole or in
part, any restriction or condition imposed on a Stock Unit Award.
SECTION 12. SPECIAL PROVISIONS APPLICABLE TO COVERED PARTICIPANTS
If the Company shall become subject to Code Section 162(m), Awards to
Covered Participants shall be governed by the conditions of this Section 12 in
addition to the requirements of Sections 6 through 11 above. Should conditions
set forth under this Section 12 conflict with the requirements of Sections 6
through 11, the conditions of this Section 12 shall prevail.
(a) All Performance Criteria relating to Covered Participants for a
relevant Performance Period shall be established by the Committee in
writing prior to the beginning of the Performance Period, or by such
other later date for the Performance Period as may be permitted
under Section 162(m) of the Code. Performance Criteria may include
alternative and multiple Performance Criteria and will be based on
one or more of the
12
<PAGE>
following business criteria: business or financial goals of the
Company, including absolute or relative levels of total shareholder
return, revenues, sales, net income, or net worth of the Company, any
of its Subsidiaries, divisions, business units, or other areas of the
Company.
(b) The Performance Criteria must be objective and must satisfy third
party "objectivity" standards under Code Section 162(m), and the
regulations promulgated thereunder.
(c) The Performance Criteria shall not allow for any discretion by the
Committee as to an increase in any Award, but discretion to lower an
Award is permissible.
(d) The Award and payment of any Award under this Plan to a Covered
Participant with respect to a relevant Performance Period shall be
contingent upon the attainment of the Performance Criteria that are
applicable to such Award. The Committee shall certify in writing
prior to payment of any such Award that such applicable Performance
Criteria have been satisfied. Resolutions adopted by the Committee
may be used for this purpose.
(e) No Awards may be paid (in cash or in shares of Stock or a combination
thereof) to any Covered Participant under the Plan pursuant to
Sections 8, 9, 10 and 11 during any calendar year.
(f) The aggregate maximum number of shares of Stock subject to Options and
SARs made to any Covered Participant during any calendar year shall be
100,000.
(g) All Awards to Covered Participants under this Plan shall be further
subject to such other conditions, restrictions, and requirements as
the Committee may determine to be necessary to carry out the purposes
of this Section 12.
SECTION 13. CHANGE IN CONTROL
Notwithstanding any other provision of this Plan, in the event of a Change
in Control: (i) all outstanding Options shall immediately become fully vested
and exercisable; (ii) all Periods of Restriction shall be deemed to have been
completed; (iii) all Performance Criteria shall be deemed to have been satisfied
in full; and (iv) all other restrictions of any kind applicable to all
outstanding Awards shall be deemed to have lapsed or been satisfied in full;
provided that none of the effects described in (i) - (iv) above shall occur if
the Change in Control, or the transaction, event or occurrence causing the
Change in Control was duly and effectively approved in advance by the
affirmative vote of a majority of the Company's Board of Directors.
13
<PAGE>
SECTION 14. GENERAL PROVISIONS
14.1 Plan Term. The Plan was adopted by the Board on July 14, 1997, and
became effective upon receiving stockholder approval on July 29, 1997.
The Plan shall terminate December 31, 2006; however, all Awards made
prior to, and which are outstanding on such date, shall remain valid in
accordance with their terms and conditions.
14.2 Withholding. The Company shall have the right to deduct or
withhold, or require a Participant to remit to the Company, any taxes required
by law to be withheld from Awards made under this Plan. In the event an Award is
paid in the form of Common Stock, the Committee may require the Participant to
remit to the Company the amount of any taxes required to be withheld from such
payment in Common Stock, or, in lieu thereof, the Company may withhold (or the
Participant may be provided the opportunity to elect to tender) the number of
shares of Common Stock equal in Fair Market Value to the amount required to be
withheld.
14.3 Awards. Each Award granted under the Plan shall be evidenced in a
corresponding Award Agreement provided in writing to the Participant, which
shall specify the terms, conditions and any rules applicable to the Award.
14.4 Nontransferability. Except with respect to Nonqualified Stock
Options, no Award granted under the Plan may be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated, except by will or the laws of
descent and distribution. Further, no lien, obligation, or liability of the
Participant may be assigned to any right or interest of any Participant in an
Award under this Plan.
14.5 No Right to Employment. Neither the Plan, nor any Award made, or
any other action taken, hereunder shall be construed as giving any Participant
or other person any right of employment or continued employment with the
Company.
14.6 Rights as Stockholder. Subject to the terms and conditions of each
particular Award, no Participant or Designated Beneficiary shall be deemed a
stockholder of the Company nor have any rights as such with respect to any
shares of Common Stock to be provided under the Plan until he or she has become
the holder of such shares.
14.7 Construction of the Plan. The Plan and all Agreements shall be
governed, construed, interpreted and administered in accordance with the laws of
the State of Texas. In the event any provision of the Plan or any Agreement
shall be held invalid, illegal or unenforceable, in whole or in part, for any
reason, such determination shall not affect the validity, legality or
enforceability of any remaining provision, portion of provision or Plan overall,
which shall remain in full force and effect as if the Plan had been absent the
invalid, illegal or unenforceable provision or portion thereof.
14.8 Amendment of Plan. The Committee or the Board of Directors may
amend, suspend, or terminate the Plan or any portion thereof at any time,
provided such amendment is made with stockholder approval if and to the extent
such stockholder approval is necessary to comply with any
14
<PAGE>
legal requirement, including for these purposes any approval requirement which
is a requirement for the performance-based compensation exception under Code
Section 162(m).
14.9 Amendment of Award. In its sole and complete discretion, the
Committee may at any time amend any Award for the following reasons: (i)
additions and/or changes are made to the Code, any federal or state securities
law, or other law or regulations applicable to the Award; or (ii) any other
event not described in clause (i) occurs and the Participant gives his or her
consent to such amendment.
14.10 Exemption from Computation of Compensation for Other Purposes.
By acceptance of an applicable Award under this Plan, subject to the conditions
of such Award, each Participant shall be considered in agreement that all shares
of Stock sold or awarded and all Options granted under this Plan shall be
considered extraordinary, special incentive compensation and will not be
included as "earnings," "wages," "salary" or "compensation" in any pension,
welfare, life insurance, or other employee benefit arrangement of the Company.
14.11 Legend. In its sole and complete discretion, the Committee may
elect to legend certificates representing Shares sold or awarded under the Plan,
to make appropriate references to the restrictions imposed on such Shares.
14.12 Unfunded Plan. The Plan is intended to constitute an unfunded
deferred compensation arrangement for a select group of management or highly
compensated employees.
EXECUTED on this ____ day of ________________, 1997.
NETSOLVE, INCORPORATED
By:
--------------------------------
15
<PAGE>
EXHIBIT 10.10
PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
, 19
NetSolve/(R)/, Incorporated
12331 Riata Trace Parkway
Austin, Texas 78727
Gentlemen:
The following confirms an agreement between me and NetSolve(R),
Incorporated, a Delaware corporation (the "Company", which term includes the
Company's subsidiaries), which is a material part of the consideration for my
employment by the Company:
1. I recognize that the Company is engaged in a continuous program
of research, development and production respecting its business, present and
future, including fields generally related to its business and that the Company
possesses and will continue to possess information that has been created,
discovered, developed or otherwise become known to the Company (including,
without limitation, information created by, discovered or developed by, or made
known to me during the period of or arising out of my employment by the Company)
and/or in which property rights have been assigned or otherwise conveyed to the
Company, which information has commercial value in the business in which the
Company is engaged. All of the aforementioned information is hereinafter called
"NetSolve Proprietary Information." By way of illustration, but not limitation,
NetSolve Proprietary Information includes trade secrets, designs, technological
advancements, configurations, processes, formulas, data and know-how, software
programs, manuals, guides, improvements, inventions, techniques, marketing
plans, strategies, forecasts, computer programs, financial information,
personnel information, copyrightable material and customer and prospective
customer lists, belonging to the Company (whether or not reduced to writing and
whether or not patentable or protectable by copyright). Notwithstanding anything
to the contrary set forth herein, the restrictions regarding the use and
disclosure of NetSolve Proprietary Information and Inventions (as hereinafter
defined) set forth herein shall not apply if the same:
(a) is in the public domain or already in my possession without
restriction at the time the same came into my possession;
(b) is used or disclosed with the prior written approval of the
Company; or
(c) is made available by the Company to a third party on an
unrestricted, non-confidential basis.
1
<PAGE>
2. I understand that my employment creates a relationship of
confidence and trust between me and the Company with respect to any information,
materials, or inventions:
(a) applicable to the business of the Company; or
(b) applicable to the business of any client, customer, vendor, or
other third party, which may be made known to me by the Company
or by any client, customer, vendor, or other third party, or
learned by me during the period of my employment.
3. In consideration of my employment by the Company and the
compensation received by me from the Company from time to time, I hereby agree
as follows:
(a) Unless required by the Company in connection with my employment
or with the Company's express written consent, I will not, either
during my employment or afterwards, directly or indirectly, use
or disclose for my own benefit or the benefit of another any
NetSolve Proprietary Information, including trade secrets or
confidential information, whether or not the information is
acquired, learned, attained, or developed by myself alone or in
conjunction with others. I make the same pledge with regard to
the proprietary information of the Company's customer,
contractors, or others with whom the Company has a business
relationship.
(b) All NetSolve Proprietary Information shall be the sole property
of the Company and its assigns, and the Company and its assigns
shall be the sole owner of all patents, copyrights, and other
rights in connection therewith. I hereby assign to the Company
any rights I may have or acquire in such NetSolve Proprietary
Information. At all times, both during my employment by the
Company and after its termination, I will keep in confidence and
trust all NetSolve Proprietary Information, and I will not use or
disclose any NetSolve Proprietary Information or anything
relating to it without the written consent of the Company, except
as may be necessary during my employment in the ordinary course
of performing my duties to the Company.
(c) All documents, records, apparatus, equipment and other physical
property, whether or not pertaining to NetSolve Proprietary
Information, furnished to me by the Company or produced by myself
or others in connection with my employment shall be and remain
the sole property of the Company and shall be returned to it
immediately as and when requested by the Company. Even if the
Company does not so request, I shall promptly return and deliver
all such property upon termination of my employment by me or by
the Company for any reason and I will not take with me any such
property or any reproduction of such property upon such
termination.
(d) I will promptly disclose to the Company, or any persons
designated by it, all improvements , inventions, formulas, ideas,
designs, configurations, processes, techniques, know-how and
data, whether or not patentable, made or conceived or reduced to
practice or learned by me, either alone or jointly with others,
during the term of m employment (all said improvements,
inventions, formulas, ideas, designs, configurations, processes,
techniques,
2
<PAGE>
know-how and data shall be hereinafter collectively called
"Inventions").
(e) I agree that all Inventions which I develop during my employment
with the Company (in whole or in part, either alone or jointly
with others) and (i) used equipment, supplies, facilities of the
Company or NetSolve Proprietary Information, or (ii) used the
hours for which I was compensated by the Company, or (iii) which
relate to the business of the Company or to its actual research
and development or (iv) which result, in whole or in part, from
work performed by me for the Company, shall be the sole property
of the Company and its assigns, and the Company and its assigns
shall be the sole owner of all patents, copyrights and other
rights in connection therewith. I hereby assign to the Company
any rights I may have or acquire in such Inventions. I further
agree as to all such Inventions and improvements to assist the
Company in every proper way (but at the Company's expense) to
obtain and from time to time enforce patents, copyrights or other
rights on said Inventions and improvements in any and all
countries, and to that end I will execute all documents for use
in applying for and obtaining such patents and copyrights thereon
and enforcing same, as the Company may desire, together with any
assignments thereof to the Company or persons designated by it.
My obligation to assis the Company in obtaining and enforcing
patents, copyrights or other rights for such Inventions and
improvements in any and all countries shall continue beyond the
termination of my employment, but the Company shall compensate me
at a reasonable rate after such termination for time actually
spent by me at the Company's request on such assistance and
reimburse me for any expenses reasonably incurred by me in
connection therewith. In the event that the Company is unable for
any reason whatsoever to secure my signature to any lawful and
necessary document required to apply for or execute any patent,
copyright or other application with respect to such Inventions
and improvements (including renewals, extensions, continuations,
divisions or continuations in whole or in part thereof), I hereby
irrevocably designate and appoint the Company and its duly
authorized officers and agents, as my agents and attorneys- in-
fact to act for and in my behalf and instead of me, to execute
and file any such application and to do all other lawfully
permitted acts to further the prosecution and issuance of
patents, copyrights or other rights thereon with the same legal
force and effect as if executed by me.
(f) As a matter of record I attach hereto a complete list of all
Inventions or improvements relevant to the subject matter of my
employment by the Company which have been made or conceived or
first reduced to practice by me alone or jointly with others
prior to my employment with the Company that I desire to remove
from the operation of this Agreement, and I covenant that such
list is complete. If no such list is attached to this Agreement,
I represent that I have no such Inventions and improvements at
the time of signing this Agreement.
(g) I represent that my performance of all the terms of this
Agreement will not breach any agreement to keep in confidence
proprietary information acquired by me in confidence or in trust
prior to my employment by the Company. I have not entered into,
and I agree I will not enter into, any agreement (either
3
<PAGE>
written or oral) in conflict herewith.
(h) I represent that execution of this Agreement, my employment with
the Company and my performance of my proposed duties to the
Company will not violate any obligations I may have to any former
employer.
4. As an independent covenant, I further agree that, without the
express written consent of the Company, I will refrain, during my employment by
the Company and for a period of six (6) months thereafter, from consulting with
or otherwise associating with or working for any business which directly
competes with the business of the Company and from otherwise planning the
formation of a new business or enterprise which proposes to directly compete
with the business of the Company. If any such activities are engaged in by me,
after having obtained the written consent of the Company, I agree to promptly
disclose to the Company the full nature and extent of such activities.
5. If any portion of this Agreement is found by a court of competent
jurisdiction to be void or unenforceable, that portion shall be deemed to be
reformed to the extent necessary to cause such portion to be enforceable and the
same shall not affect the remainder of the Agreement, which shall be given full
force and effect without regard to the invalid or unenforceable portions.
6. I understand and agree that, in the event of a breach or
threatened breach by me of any of the provisions of this Agreement, damages will
not provide a sufficient remedy to the Company, and, accordingly, the Company
shall have the right, in addition to any other right or remedy of any nature,
whether at law or in equity, to seek injunctive or other equitable relief from
any court of competent jurisdiction, without notice or the posting of any bond,
and I hereby consent to the entry of an order granting such relief.
7. This Agreement shall be effective as of the first day of my
employment by the Company.
8. This Agreement shall be binding upon me, my heirs, executors,
assigns, and administrators and shall inure to the benefit of the Company, its
successors and assigns.
Employee Signature
Accepted and Agreed to:
NETSOLVE/(R)/, INCORPORATED
By:
---------------------------
4
<PAGE>
SCHEDULE TO PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
NetSolve/(R)/, Incorporated
12331 Riata Trace Parkway
Austin, TX 78727
Gentlemen:
1. The following is a complete list of all inventions or
improvements relevant to the subject matter of my employment by NetSolve(R),
Incorporated (the "Company") that have been made or conceived or first reduced
to practice by me alone or jointly with others prior to my employment by the
Company that I desire to remove from the operation of the Company's Proprietary
Information and Inventions Agreement.
No inventions or improvements.
- ---------
See below: Any and all inventions regarding
- ---------
Additional sheets attached.
- ---------
2. I propose to bring to my employment the following materials and
documents of a former employer:
No materials or documents.
- ---------
See below:
- ---------
Employee Signature
5
<PAGE>
EXHIBIT 10.11
2420 Sand Hill Road, Suite 202
Menlo Park, California 94025
Telephone: 415/854-2576
Fax: 415/854-1549
CORNERSTONE MANAGEMENT
- --------------------------------------------------------------------------------
August 12, 1993
Mr. Craig S. Tysdal
380 Bryan Drive
Danville CA 94526
Dear Craig:
On behalf of all my colleagues on the SNS Board of Directors, as well as the
officers of SNS, I am pleased to present our formal offer to you to become SNS's
new President and Chief Executive Officer, and member of the Board of Directors.
SNS's Directors and senior staff have all enjoyed getting to know you, and we
are unanimous in our enthusiastic support of this offer -- and we all look
forward very much to welcoming you, Janet and Cindy to SNS and to Austin. All
of us have been impressed with your personal stature, your skills, and your
achievements, and by how well you fit the profile we established. We are
convinced that you are very well qualified to lead SNS to major growth and
success. We also believe, as I know you do, that becoming President and CEO of
SNS is an excellent opportunity for you to lever your many talents, experiences
and achievements, and to attain your own career and financial goals.
We have given careful thought to compensation arrangements that would be
appropriate to your professional stature, to SNS's stage of development, and to
SNS precedents and policies. Accordingly:
1. Your initial base salary as President and CEO will be $12,500 per month,
and it will be reviewed annually by the Board in September of each year,
beginning with September 1994.
2. You will be granted, upon your employment, a stock option in the amount of
500,000 shares of SNS common stock, which will vest over four years -- 25%
after twelve months and 6.25% per quarter thereafter. Those 500,000 shares
are equivalent to 4.488% of the fully diluted common and common equivalent
shares after an addition of 500,000 shares to the SNS Employee Stock Option
Plan, which addition must be submitted to the shareholders of the Company
for their approval. SNS will reserve the right of first refusal on your
stock, should you desire to make any transfer of ownership, for as long as
SNS remains a privately-held corporation.
<PAGE>
Page 2
3. Should SNS be sold, all of your unvested shares -- should there then be any
-- will become immediately vested.
4. Responsive to your desire to take up residence with your family in Austin
as soon as possible, SNS will reimburse you the ordinary and reasonable
costs of moving some of your personal and household goods, including two
cars, to Austin at the beginning of your employment. Furthermore, for the
first six months of your employment or until you acquire permanent housing,
whichever comes first, you will receive an interim housing allowance of
$2,000 per month, grossed up as required for tax purposes.
5. To assist Janet and you in finding a suitable new home in Austin, SNS will
reimburse the cost of up to two, three-day househunting trips for you,
Janet and Cindy.
6. Regarding your permanent relocation, including the sale of your California
residence and purchase of a new home in Austin, SNS will reimburse you the
ordinary and reasonable costs of moving your remaining household items. To
partially compensate for your other expenses related to such a move, SNS
will reimburse other documented expenses up to a maximum of $30,000.
7. As an SNS employee, you will be eligible to participate in all benefit
plans sponsored by SNS as in effect from time to time, which plans may be
changed or amended in the future, and currently include medical, dental,
and disability plans (see benefits outline enclosed). In addition, SNS
will pay for a $25,000 term life insurance policy in favor of your
beneficiary(s), and you may participate in SNS's 401K plan.
8. It is mutually understood and agreed that, should your employment be
terminated by SNS, other than for "cause" (as hereinafter defined), you
shall be entitled to receive a severance payment equal to six times your
monthly base salary then in effect.
9. Termination of employment shall be for "cause" if in the reasonable opinion
of SNS's Board of Directors: you breach or neglect the duties which you are
required to perform; commit any material act of dishonesty, fraud,
misrepresentation, or other act of moral turpitude; are guilty of gross
carelessness or misconduct; fail to obey the lawful direction of SNS's
Board of Directors; or act in any way that results in direct, substantial
and adverse effect on SNS's reputation.
<PAGE>
Page 3
In accordance with U.S. law, this offer is conditional upon satisfactory proof
of U.S. citizenship or other eligibility for employment, as required by the
Immigration Reform and Control Act of 1986. Texas common law provides for
employment at will and accordingly, employment may be terminated by either
party, with or without cause, at any time upon notice to the other.
Craig, we look forward to your prompt acceptance of our offer, and to your
joining SNS full time by Wednesday, September 8th. To signify your acceptance,
please sign and return to me one copy of this letter. By signing below, you
also certify that you are in good health and not under a physician's care for
any illness or injury that endangers your ability to assume your duties.
May I say again how much we all look forward to welcoming you, Janet and Cindy
to SNS. We look forward to working with you over many challenging and fruitful
years.
Sincerely,
/s/ J. Michael Gullard
J. Michael Gullard
Chairman of the Board
SNS, Inc.
AGREED AND ACCEPTED:
I accept your position and acknowledge that it is conditioned upon my signing of
the Southwest Network Services Confidentiality Agreement (copy attached)."
/s/ Craig S. Tysdal
- ----------------------------------------
Craig S. Tysdal
August 18, 1993
- ----------------------------------------
Date
Enclosures: 1. Second signature copy of letter
2. Overview of SNS Benefits
3. Proprietary Information and Inventions Agreement
<PAGE>
EXHIBIT 10.12
[NetSolve/SM/]
January 29, 1998
Christopher D. Buffum
927 Mission Hill Road
Boynton Beach, FL 33435
Dear Chris,
On behalf of NetSolve Incorporated, I am pleased to offer you a position as Vice
President of Sales, reporting to me. We would like you to commence work on
Monday, March 2, 1998, in our offices at 9130 Jollyville Road, Austin, Texas.
Your basic hours of work shall initially be 8:00 AM to 5:00 PM; however, your
job duties are professional in nature and therefore you are not eligible for
compensation in excess of forty (40) hours per week. It is anticipated that you
will work the number of hours necessary to accomplish the job for which you have
been hired, which may necessitate that you work more or different hours than
those described. The salary for this position is currently $12,500 per month.
Pay periods currently end on the 15th and the last day of each month. Your
salary and compensation level will be reviewed annually.
You will be eligible for commissions and bonuses in accordance with the current
NetSolve Sales Compensation Plan. This plan is subject to modification, in
whole or in part, and your participation, as well as the benefits available
thereunder, are subject to the terms of the plan document. You will be started
on this plan effective April 1, 1998. The target variable compensation for the
plan at quota will be $100,000/plan year. A non-recoverable draw against
commissions of $5,000.00 per month will be provided during the first 12 months
of your employment.
In addition to salary, the Company also offers certain employee benefits,
including group medical and dental insurance, 401(k) Plan, 125 Cafeteria Plan,
and equity in the Company. You will become eligible for these benefits under,
and subject to, the plans offered by the Company on your date of hire. As the
Company is committed to an ongoing review of its benefits and policies, these
items can vary in the future and are, at all times, subject to the provisions of
the documents describing such benefits and policies.
It is mutually understood and agreed that, should your employment be terminated
by NetSolve prior to your first anniversary, other than for "cause," you shall
be entitled to receive salary continuance for 12 months from the date of
termination. Termination of employment shall be for "cause" if in the
reasonable opinion of NetSolve's President and CEO you:
<PAGE>
Christopher D. Buffum 2
January 29, 1998
. breach or neglect the duties which you are required to perform;
. commit any material act of dishonesty, fraud, theft, misrepresentation,
or other act of moral turpitude;
. are guilty of gross carelessness or misconduct;
. fail to obey the lawful direction of your management;
. or act in any way that results in direct, substantial, and adverse
effect on NetSolve's reputation.
At the next Board of Director's meeting, we will recommend that you be issued
Incentive Stock Options to purchase 120,000 shares of NetSolve Incorporated
common stock pursuant to the Company's Stock Option Plan. The actual grant of
options will be subject to Board of Director approval. Your option exercise
price will be the fair market value of the Company's common stock at the date of
the grant, and your participation in the Company's Stock Option Plan is subject
to the provisions of that plan. In addition, we will recommend to the Board
that in the event NetSolve is acquired and/or merged (where NetSolve is not the
surviving entity) in the first twelve months of your employment, the Board will
accelerate your vesting schedule to a minimum of 50%.
In order to assist you with your relocation to Austin, NetSolve will make a one
time payment to you of $60,500. In addition, we will provide you with the use
of NetSolve's apartment for a minimum of three months. You will be responsible
for any state or federal income tax consequences with respect to this payment.
Should you terminate employment prior to completing 12 months of service (unless
terminated by NetSolve other than for cause), you will be required to refund
this amount on a prorated basis.
All offers of employment made by NetSolve are contingent upon the following:
. You are able to establish that you are authorized to work in the U.S.A.
by the third day following your hire date; and
. You agree to and we receive satisfactory results on a background check
of your education, work, driving, and criminal history; and
. You sign the NetSolve Proprietary Information and Inventions Agreement.
As with all our employees, if you should accept and then change your mind later,
you can terminate your employment at any time for any or no reason, as can the
Company, it being understood that your employment with the Company will be on an
"at will" basis.
I sincerely hope that you will join our team, and I look forward to working with
you.
<PAGE>
Christopher D. Buffum 3
January 29, 1998
If you agree to accept this offer, please sign below. This offer expires
February 6, 1998.
Sincerely,
/s/ Craig S. Tysdal
Craig S. Tysdal
President and CEO
I accept your position and acknowledge that it is conditioned upon my
establishing authorization to work in the U.S.A., agreeing to and receiving a
satisfactory background check, and signing of the NetSolve Proprietary
Information and Inventions Agreement. I further acknowledge that there were no
promises of stock, stock options, bonuses, guaranteed raises, promotions, review
dates, pay in lieu of notice or severance pay or other inducements to my
acceptance thereof other than those outlined above. Finally, I acknowledge that
this letter does not constitute a promise or contract of continued employment
and that both the Company and I may, at any time, terminate my employment for
any or no reason.
/s/ Christopher D. Buffum 1/30/98
- ----------------------------------- -------------------------
Christopher D. Buffum Date
<PAGE>
EXHIBIT 10.13
[NetSolve/SM/]
April 15, 1998
Terrence Cheng
8514 Sweet Chery Dr.
Austin, TX 78750
Dear Terrence,
On behalf of NetSolve Incorporated, I am pleased that you have accepted our
offer of the position as Vice President of Software Development, reporting to
Craig Tysdal. We would like you to commence work on Monday, April 27, 1998, in
our offices at 12331 Riata Trace Pkwy, Austin, Texas.
Your basic hours of work shall initially be 8:00 AM to 5:00 PM; however, your
job duties are professional in nature and therefore you are not eligible for
compensation in excess of forty (40) hours per week. It is anticipated that you
will work the number of hours necessary to accomplish the job for which you have
been hired, which may necessitate that you work more or different hours than
those described. The salary for this position is currently $10,833.33 per
month. Pay periods currently end on the 15th and the last day of each month.
In addition to salary, the Company also offers certain employee benefits,
including group medical and dental insurance, 401(k) Plan, 125 Cafeteria Plan,
and equity in the Company. You will become eligible for these benefits under,
and subject to, the plans offered by the Company on your date of hire. As the
Company is committed to an ongoing review of its benefits and policies, these
items can vary in the future and are, at all times, subject to the provisions of
the documents describing such benefits and policies.
It is mutually understood and agreed that, should your employment be terminated
by NetSolve prior to your first anniversary, other than for "cause," you shall
be entitled to receive salary continuance for 6 months from the date of
termination. Termination of employment shall be for "cause" if in the
reasonable opinion of NetSolve's President and CEO you:
. breach or neglect the duties which you are required to perform;
. commit any material act of dishonesty, fraud, theft, misrepresentation,
or other act of moral turpitude;
. are guilty of gross carelessness or misconduct;
. fail to obey the lawful direction of your management;
. or act in any way that results in direct, substantial, and adverse
effect on NetSolve's reputation.
<PAGE>
Terrence S. Cheng 2
April 15, 1998
At the next Board of Director's meeting, we will recommend that you be issued
Incentive Stock Options to purchase 25,000 shares of NetSolve Incorporated
common stock pursuant to the Company's Stock Option Plan. The actual grant of
options will be subject to Board of Director approval. Your option exercise
price will be the fair market value of the Company's common stock at the date of
the grant, and your participation in the Company's Stock Option Plan is subject
to the provisions of that plan.
All offers of employment made by NetSolve are contingent upon the following:
. You are able to establish that you are authorized to work in the U.S.A.
by the third day following your hire date; and
. You agree to and we receive satisfactory results on a background check
of your education, work, driving, and criminal history; and
. You sign the NetSolve Proprietary Information and Inventions Agreement.
As with all our employees, if you should accept and then change your mind later,
you can terminate your employment at any time for any or no reason, as can the
Company, it being understood that your employment with the Company will be on an
"at will" basis.
I am sincerely happy that you have joined our team, and I look forward to
working with you.
If you agree to the terms of this letter, please sign below.
Sincerely,
/s/ Robin Day
Robin Day
Recruiting Manager
I accept your position and acknowledge that it is conditioned upon my
establishing authorization to work in the U.S.A., agreeing to and receiving a
satisfactory background check, and signing of the NetSolve Proprietary
Information and Inventions Agreement. I further acknowledge that there were no
promises of stock, stock options, bonuses, guaranteed raises, promotions, review
dates, pay in lieu of notice or severance pay or other inducements to my
acceptance thereof other than those outlined above. Finally, I acknowledge that
this letter does not constitute a promise or
<PAGE>
Terrence S. Cheng 3
April 15, 1998
contract of continued employment and that both the Company and I may, at any
time, terminate my employment for any or no reason.
/s/ Terrence S. Cheng 4/15/98
- ------------------------------------ --------------------------------
Terrence S. Cheng Date
<PAGE>
EXHIBIT 10.14
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement) is made and entered into as
of this 27th day of July, 1989, by and between SOUTHWEST NETWORK SERVICES, INC.,
a Delaware corporation (the "Company"), and Howard D. Wolfe, a director of the
Company ("Optionee").
WHEREAS, in consideration and recognition of his contributions to the
Company as a director, the Company desires to afford Optionee an opportunity to
purchase shares of its Common Stock, $.01 par value per share (the "Common
Stock"), under the terms and conditions provided herein.
NOW, THEREFORE, in consideration of the covenants herein set forth, the
parties hereto have agreed and do hereby agree as follows:
1. Grant of Option. The Company hereby grants to Optionee, pursuant to
the terms and provisions hereof, an option (the "Option") to purchase all or any
part of 40,000 shares of the Common Stock of the Company on the terms and
conditions herein set forth.
2. Purchase Price. The purchase price of each share of Common Stock
subject to this Option shall be $.06 per share. Full payment for shares
purchased upon exercise of this Option shall be made in cash, cashier's check or
by delivery of previously owned shares of Common Stock or partly in cash or such
check and partly in such stock. The value of shares of Common Stock delivered
in connection with the payment of the option price shall be the fair market
value of such shares as determined by the Board of Directors of the Company (the
"Board") and such determinations shall be binding upon the Optionee. No shares
may be issued until full payment of the purchase price therefor has been made.
3. Term of Option. The term of the Option shall be for a period of ten
(10) years from the Date of Grant, subject to earlier termination or
cancellation as provided herein.
4. Exercise of the Option. This Option shall be exercisable in full or
in part at any time, and from time to time, during the term hereof. No
fractional shares may be issued pursuant to the exercise of this Option.
Furthermore, the exercise of this Option shall be subject to the condition that
if at any time the Company shall determine in its sole discretion that the
satisfaction of withholding tax or other withholding liabilities, or that the
listing, registration, or qualification of any shares otherwise deliverable upon
such exercise upon any national securities exchange or under any state or
federal law, or that the report to, or consent or approval of, any regulatory
body,
<PAGE>
is necessary or desirable as a condition of, or in connection with, such
exercise or the delivery or purchase of shares pursuant hereto, then in any such
event, such exercise shall not be effective unless such withholding, listing,
registration, qualification, report, consent or approval shall have been
effected or obtained free of all conditions not acceptable to the Company.
5. Notice of Election. Subject to the terms and conditions hereof,
Optionee may exercise this Option by delivering written notice to the Secretary
of the Company in person or by registered or certified mail, postage prepaid.
Such notice shall state the election to partially or totally exercise this
Option and the number of shares in respect of which it is being exercised, and
shall be signed by Optionee. Such notice shall be accompanied by payment as
provided for hereinbefore, in which event, the Company shall deliver a
certificate or certificates, as may be requested by Optionee, representing such
shares as soon as practicable after the notice and payment shall be received.
The certificate or certificates for the shares as to which the Option shall have
been exercised shall be registered as designated in the notice. In the event
the Option shall be exercised, pursuant to Paragraph 8 hereof, by any person or
persons other than the Optionee, such notice shall be accompanied by proof
deemed appropriate by the Company of the right of such person or persons to
exercise the Option. All shares that shall be purchased upon the exercise of
this Option as provided herein shall be fully paid and non-assessable.
6. Non-Transferability. During the lifetime of Optionee, this Option
shall be exercisable only by Optionee. This Option shall not be assignable or
transferable by Optionee, voluntarily or by operation of law, other than by will
or by the laws of descent and distribution. Neither this Option nor the shares
covered hereby shall be pledged or hypothecated in any way. Neither this Option
nor the shares covered hereby shall be subject to execution, attachment, or
similar process except with the prior written consent of the Board.
7. Termination of Directorship. In the event that Optionee shall at
any time hereafter cease to be a director of the Company or its subsidiaries for
any reason other than his death, retirement or permanent disability, any part of
the Option granted hereunder which has not been exercised by the date of such
cessation shall immediately terminate on the date of such cessation. In the
event that Optionee's directorship with the Company or its subsidiary shall
terminate by reason of his retirement or permanent disability, the Option may be
exercised, to the extent of the shares with respect to which the Option could
have been exercised by Optionee on the date of such termination prior to the
date of its expiration or three (3) months after the date of such termination,
whichever occurs first.
8. Death of Optionee. If Optionee dies prior to the termination of his
right to exercise the Option in accordance with the provisions hereof without
having totally exercised the Option, the Option may be exercised, to the extent
of the shares with respect to which the Option could have been exercised by
Optionee on the date of Optionee's death, by the Optionee's estate or by the
person who acquires the right to exercise the Option by bequest, inheritance, or
by reason of the death of the Optionee, provided the Option is exercised prior
to the date of its expiration or one (1) year from the date of the Optionee's
death, whichever occurs first.
- 2 -
<PAGE>
9. Adjustments. The number of shares of Common Stock covered by this
Option and the option price may be adjusted to reflect, as deemed appropriate by
the Board in its discretion, any stock dividend, stock split, share combination,
exchange of shares, recapitalization, merger, consolidation, separation,
reorganization, liquidation or the like of or by the Company. Decisions by the
Board as to what adjustments shall be made, and the extent thereof, shall be
final, binding and conclusive on Optionee.
10. No Other Rights or Obligations. Optionee shall have no rights by
reason of this Option as a shareholder with respect to any shares covered hereby
until the date of the issuance of one or more stock certificates to him for such
shares pursuant to the due exercise of the Option. The granting of this Option
does not confer on Optionee any continued right of service or tenure as a
director of the Company or any additional rights other than as expressly
provided for herein. There is no obligation upon Optionee to exercise this
Option or any part thereof.
11. Non-Qualified Stock Option. This Option is not intended to qualify
as an "incentive stock option" under the Internal Revenue Code of 1986, as
amended, and applicable regulations and rulings promulgated thereunder, and
shall not be so construed. This Option is not intended to be subject to, or
granted under or pursuant to, the Company's 1988 Stock Option Plan, and shall
not be so construed.
12. Purchaser Deemed to be a Consultant. As a director of the Company,
Purchaser shall be deemed to be a consultant to the Company for purposes of
Section 6(c)(ii) of the Company's Designation of the Series A Preferred Stock,
Section 6(c)(ii) of the Company's Designation of the Series B Preferred Stock
and Section 9.5(d) of that certain Series B Preferred Stock Purchase Agreement
dated as of October 18, 1988 by and among the Company and the Investors (as
defined therein).
13. Amendment. The Board shall have the right, without the consent or
approval of the Optionee, to amend, modify, limit or terminate this Option or
any term or provision hereof; provided, however, that no such action may be
taken by the Board, not expressly provided for herein or in the Plan, in
derogation of the vested rights of the Optionee, without the consent or approval
of the Optionee. Any such action by the Board shall be final and binding on
Optionee.
14. Shareholder's Agreement. The exercise of this Option is expressly
conditioned upon the contemporaneous execution by the Optionee and the Company
of a Shareholder's Agreement, substantially in the form attached hereto as
Exhibit "A". All rights of the Optionee and Optionee's heirs, successors and
assigns shall be determined by such agreement and Optionee and Optionee and his
heirs, successors and assigns shall be bound thereby.
IN WITNESS WHEREOF, Southwest Network Services, Inc. and Howard D. Wolfe,
Optionee, have executed this Stock Option Agreement as of the date first above
written.
- 3 -
<PAGE>
Address for Notices: SOUTHWEST NETWORK SERVICES, INC.
4807 Spicewood Springs Road
Suite 4100
Austin, Texas 78759
By: /s/ Stephen H. Kelley
---------------------------------------------
Stephen H. Kelley, President
/s/ Howard D. wolfe
- ---------------------------- ------------------------------------------------
Optionee
- ----------------------------
- 4 -
<PAGE>
EXHIBIT 10.15
SHAREHOLDER'S AGREEMENT
THIS SHAREHOLDER'S AGREEMENT (the "Agreement") is made as of the 27th day
of July, 1989, by and between Southwest Network Services, Inc., a Delaware
corporation (the "Company"), and Howard D. Wolfe (the "Purchaser").
WHEREAS, the Purchaser has been granted an option to purchase shares of
Common Stock of the Company pursuant to the terms of that certain Stock Option
Agreement (the "Stock Option Agreement") dated of even date herewith by and
between the Company and the Purchaser; and
WHEREAS, the Company and the Purchaser desire to set forth certain
understandings with respect to the purchase and sale of such stock and
Purchaser's ownership thereof;
NOW, THEREFORE, IT IS HEREBY AGREED:
1. Sale and Purchase of Shares. Pursuant to the terms and conditions of
this Agreement, upon exercise of the option granted pursuant to the Stock Option
Agreement, the Purchaser shall purchase, and the Company shall sell to
Purchaser, up to 40,000 shares of Common Stock of the Company (the "Shares") for
a cash consideration of $.06 per share.
2. Company's Right to Repurchase. The Shares shall be subject to the
following right ("Repurchase Right"):
(a) If the Purchaser should cease to be a director of the Company for
any reason, including without limitation termination of such engagement by
either Purchaser or the Company for any reason or on reason, with or
without cause, the Company (or, as provided in (c) below, its designee)
shall have the right to repurchase from the Purchaser, or the Purchaser's
personal representative as the case may be, all of the Shares subject to
the Repurchase Right. The starting date for determination of the percentage
of the Shares which are subject to the Repurchase Right shall be July 27,
1989 (the "Vesting Commencement Date").
(b) The percentage of the Shares which are subject to the Repurchase
Right shall be determined as follows:
Length of Time Purchaser
Has Been a Director of Percentage of
the Company Since the Shares Subject to
Vesting Commencement Date Repurchase Right
------------------------- ----------------
Less than 1 complete quarter 100%
1 completed quarter 87.5%
2 completed quarters 75%
3 completed quarters 62.5%
<PAGE>
4 completed quarters 50%
5 completed quarters 37.5%
6 completed quarters 25%
7 completed quarters 12.5%
8 or more completed quarters None
(c) Within sixty (60) days after the date Purchaser ceases to be a
director of the Company, upon notice to Purchaser specifying the time,
place and date for settlement, the Company (or, to the extent the Company
is legally prohibited from exercising such right, its designee) shall
repurchase from the Purchaser, in cash, at Purchaser's original purchase
price per share as set forth in Paragraph 1 above, the Shares which are
subject to the Repurchase Right. If the Company is prohibited by law from
fully exercising, or the Company (or its designee) fails to fully exercise
within such 60 day period, its Repurchase Right, the Repurchase Right shall
expire as to all Shares.
(d) Nothing in this Agreement shall affect in any manner whatsoever
the right or power of the Company to terminate Purchaser's engagement as a
consultant to the Company for any reason or no reason with or without
cause.
3. Rights as Stockholder; Escrow.
(a) Subject to the terms and conditions of this Agreement, the
Purchaser shall have all of the rights of a stockholder of the Company with
respect to the Shares from and after the date of issuance of the Shares
until repurchase or other disposition of the Shares as provided for herein.
At all times after the date of this Agreement, whenever submitted to the
stockholders of the Company for vote thereon, the Purchaser agrees to vote
the Shares in accordance with the terms of Section 8 of the Stock Purchase
Agreement (the terms of which, as they may be amended from time to time
pursuant to such agreement, are incorporated herein by reference) as though
he were a party thereto.
(b) Purchaser shall deliver all certificates representing the Shares
to the Secretary of the Company for safekeeping. Each such certificate
shall be accompanied by a duly executed stock power authorizing any officer
to effect the transfer of such Shares on the books of the Company in
accordance with the terms of this Agreement. If Purchaser so requests, such
Secretary will deliver to Purchaser certificates representing such number
of Shares as are not then subject to the Repurchase Right. Within five (5)
days after the exercise or lapse without exercise of the Repurchase Right,
the Company will direct its Secretary to deliver to Purchaser a
certificate(s) representing the aggregate number of Shares, if any, not
repurchased by the Company.
- 2 -
<PAGE>
4. Stock Splits, Recapitalizations, Etc. If during the term of the
Repurchase Right:
(a) There is any stock dividend, stock split, recapitalization or
other change in the character or amount of the outstanding securities of
the Company; or
(b) There is any consolidation, merger or sale of all, or
substantially all, of the assets of the Company;
then, in such event, any and all new, substituted or additional securities or
property to which the Purchaser is entitled by reason of ownership of the Shares
shall be immediately subject to this Agreement and be included in the term
"Shares" for all purposes of this Agreement, and the repurchase price per share
specified in Paragraph 2(c) shall be appropriately adjusted by the Board of
Directors of the Company.
5. Purchase of Additional Stock. If the Purchaser at any time after the
date of this Agreement acquires any capital stock of the Company, in addition to
that described in Paragraphs 1 and 4 above (other than capital stock acquired on
the open market or from an unrelated third party, and capital stock acquired
from the Company which the Board of Directors of the Company, in its discretion,
expressly designates as not subject to this Agreement), or any options, rights
or warrants therefor ("Additional Stock"), such Additional Stock shall be
immediately subject to this Agreement and included in the term "Shares" for all
purposes of this Agreement; provided, however, that:
(a) the repurchase price per share of such Additional Stock shall be
the purchase price paid or to be paid by the Purchaser therefor;
(b) any such Additional Stock purchased pursuant to a vested option
shall be deemed to be fully vested and not subject to the Repurchase Right;
and
(c) the "Vesting Commencement Date" for purposes of the Repurchase
Right shall be the date of purchase by, or issuance to, Purchaser of such
Additional Stock unless otherwise specified by the Company's Board of
Directors at the time of such purchase or issuance.
6. Right of First Refusal. Shares subject to the Repurchase Right may not
be transferred. Before any Shares held by the Purchaser and not subject to the
Repurchase Right may be sold or otherwise transferred (including, but not
limited to, any transfer by operation of law and any transfer at death or by
inheritance, but excluding a transfer described in Paragraph 6(e) hereof), such
Shares shall first be offered to the Company in the following manner:
(a) Purchaser shall deliver to the Company a notice (the "Notice")
stating (i) his bona fide intention to sell or otherwise transfer such
Shares; (ii) the number of Shares to be transferred; (iii) the name of the
proposed transferee; and (iv) the price or other consideration for which
Purchaser proposes to transfer the Shares.
- 3 -
<PAGE>
(b) At any time within 60 days after receipt of the Notice, the
Company, upon notice to Purchaser specifying the time, place and date for
settlement, may elect to purchase all of the Shares specified in the Notice
at the price per share specified therein, or if no price is specified, at
the fair market value thereof as determined in good faith by the Company's
Board of Directors.
(c) The Company's right of first refusal provided for in this
Paragraph 6 shall not be assignable, except that if the Company does not,
for any reason, exercise its right of first refusal within 30 days after
receipt of the Notice, the Company hereby assigns such right as of that
date to the Investors, or their heirs, executors, guardians, successors and
assigns, who are then holders of the Company's Preferred Stock or Common
Stock of the Company into which such stock has been converted. The Company
may also, by written agreement, assign such right (on a pro rata basis) to
subsequent purchasers of the Company's Preferred Stock. The right shall be
exercisable by each such assignee, upon notice to Purchaser specifying the
time, place and date for settlement, with respect to the number of Shares
subject to such right in the proportion which the number of shares of
Common Stock owned (or which would be owned upon conversion of the
Preferred Stock) by such assignee at the time of exercise, bears to the
total number of shares of Common Stock so owned or deemed to be owned by
all such assignees. Each such assignee which exercises its right to
purchase all of the Shares purchasable by it hereunder may, in addition,
exercise such right as to the Shares not purchased by other assignees
hereunder, pro rata based upon the number of shares of Common Stock so
owned (or deemed to be owned) by each assignee exercising its right
hereunder. The sale by Purchaser to the Company or its assignees shall be
consummated within 60 days after receipt by the Company of the Notice.
(d) If all of the Shares to which the Notice refers are not purchased
by the Company or such assignees within such 60 day period, then such right
of first refusal shall terminate and Purchaser may sell such Shares to any
person named in the Notice at the price specified therein, or at a higher
price, provided that such sale or transfer is consummated within 90 days of
the date of the Notice to the Company, and provided further, that any such
sale is in accordance with all the terms and conditions hereof. If the
Purchaser does not consummate the sale or transfer within such 90-day
period, the right of first refusal provided herein shall be deemed to be
revived with respect to such Shares and no sale or transfer shall be
effected without first offering the Shares in accordance herewith.
(e) There shall be excepted from this right of first refusal any gift
or donation to a member of Purchaser's family, or to a trust established
for the benefit of Purchaser or a member or members of his family, provided
that any such transfer to a child who is then under twenty-one (21) years
of age must be conditioned upon the Purchaser retaining and reserving for
himself the right to do any act with respect to the transferred Shares on
behalf of such transferee that is permitted, authorized or required by this
Agreement. For purposes
- 4 -
<PAGE>
hereof, the term "family" shall mean the spouse, natural or adopted
children and other lineal descendants, parents, parents-in-law, brothers,
sisters, nephews, and nieces of Purchaser.
(f) Notwithstanding the above, neither the Company nor its assignees
shall have any right under this Paragraph 6 at any time subsequent to the
closing of a bona fide, firm commitment underwritten public offering of the
Common Stock of the Company pursuant to a Registration Statement on Form S-
1, or its then equivalent, declared effective under the Securities Act of
1933, as amended.
7. Investment Representations of Purchaser. Purchaser hereby represents
and warrants that he is acquiring the Shares with his own funds for investment
for an indefinite period for his own account, not as a nominee or agent, and not
with a view to the sale or distribution of any part thereof, and that he has no
present intention of selling, granting participation in, or otherwise
distributing the same, but subject, nevertheless, to any requirement of law that
the disposition of his property shall at all times be within his control.
Purchaser further represents that he does not have any contract, undertaking,
agreement or arrangement to sell, transfer, or grant participations to any third
person, with respect to any of the Shares.
Purchaser represents that he is able to fend for himself in the transaction
contemplated by this Agreement, has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of his
investment, has the ability to bear the economic risks of his investment and has
been furnished with and has had access to such information as would be made
available in the form of a registration statement, together with such additional
information as is necessary to verify the accuracy of the information supplied
and to have all questions answered by the Company.
Purchaser understands that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Act"), on the ground that the sale
provided for in this Agreement is exempt pursuant to Section 3(b) or 4(2) of the
Act, and that the Company's reliance on such exemption is predicated on his
representations set forth herein.
Purchaser understands that if the Company does not register with the
Securities and Exchange Commission pursuant to Sections 12 or 15 of the
Securities Exchange Act of 1934 or if a registration statement covering the
Shares (or a filing pursuant to the exemption from registration under Regulation
A of the Act) under the Act is not in effect when he desires to sell the Shares,
he may be required to hold the Shares for an indeterminate period. The Purchaser
also acknowledges that he understands that any sale of the Shares which might be
made by him in reliance upon Rule 144 under the Act may be made only in limited
amounts in accordance with the terms and conditions of that Rule and that he may
not be able to sell the Shares at the time or in the amount he so desires.
Purchaser is familiar with Rule 144 and understands that the Shares constitute
"restricted securities" within the meaning of that Rule.
- 5 -
<PAGE>
Purchaser agrees that in no event will he make a disposition of any of the
Shares unless and until (a) he shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and (b) he shall have
furnished the Company with an opinion of counsel satisfactory to the Company to
the effect that (i) such disposition will not require registration of such
Shares under the Act, or (ii) that appropriate action necessary for compliance
with the Act has been taken, or (c) the Company shall have waived, expressly and
in writing, its rights under clauses (a) and (b) of this subparagraph. Except as
provided in Section 7.3 of the Stock Purchase Agreement, the Company shall be
under no obligation to register such Shares.
8. Restrictive Legends. All certificates representing any Shares subject
to the provisions of this Agreement shall have endorsed thereon the following
legends:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER'S AGREEMENT WHICH, AMONG
OTHER THINGS, INCLUDES A RIGHT OF REPURCHASE OF THESE SECURITIES, A
RIGHT OF FIRST REFUSAL ON THE SALE OF THE SECURITIES AND REQUIRES THAT
THESE SECURITIES BE VOTED AS THEREIN PROVIDED. COPIES OF THE AGREEMENT
MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
CORPORATION."
(b) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR
RESALE, AND MAY NOT BE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT COVERING SUCH SHARES UNDER THE SECURITIES ACT OF 1933, OR
PURSUANT TO RULE 144 UNDER THE ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT."
(c) Any legend required to be placed thereon by applicable state
securities laws.
9. No Obligation to Transfer. The Company shall not be required (i) to
transfer on its books any Shares which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement, or (ii) to treat
as owner of such Shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such Shares shall have been so transferred.
10. Purchaser Deemed to be a Consultant. As a director of the Company,
Purchaser shall be deemed to be a consultant to the Company for purposes of
Section 6(c)(ii) of the Company's Designation of the Series A Preferred Stock,
Section 6(c)(ii) of the Company's Designation of the Series B Preferred Stock
and Section 9.5(d) of that certain Series B Preferred Stock Purchase
- 6 -
<PAGE>
Agreement dated as of October 18, 1988 by and among the Company and the
Investors (as defined herein).
11. Further Assurances. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
12. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail, with
postage and fees prepaid, addressed to the other party hereto at the address
shown below his signature or at such other address as such party may designate
by 10 days' advance written notice to the other party hereto.
13. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED, GOVERNED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT
THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE IS APPLICABLE.
14. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof. This Agreement may only
be amended with the written consent of the parties hereto and the written
consent of the Investors, or their respective successors or assigns, who are
then holders of at least a majority of the Series A and Series B Preferred Stock
or Common Stock of the Company into which such stock has been converted; and no
oral waiver or amendment shall be effective under any circumstances whatsoever.
15. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, heirs, executors,
administrators, guardians and personal representatives. Nothing in this
Agreement shall be construed to give any person or entity other than the parties
hereto and their respective successors any legal or equitable right, remedy or
claim under this Agreement.
16. Headings. Headings of the several sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SOUTHWEST NETWORK SERVICES, INC.
By: /s/ Stephen H. Kelley
-------------------------------------------
Stephen H. Kelley, President
4807 Spicewood Springs Road,
Suite 4100
Austin, Texas 78759
- 7 -
<PAGE>
PURCHASER
/s/ Howard D. Wolfe
--------------------------------------------------
Howard D. Wolfe
Address:
-----------------------------------------
--------------------------------------------------
- 8 -
<PAGE>
Exhibit 22.1
Subsidiaries of the Company
SNS Credit Corporation
Specialized Network Services, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 30, 1998 (except for Note 11, as to which the
date is September 30, 1998) in the Registration Statement (Form S-1) and the
related Prospectus of NetSolve, Incorporated for the registration of shares of
common stock.
/s/ ERNST & YOUNG LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
MARCH 31, 1998 FINANCIAL STATEMENTS AND THE UNAUDITED 6 MONTHS ENDED SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1999
<PERIOD-START> APR-01-1997 APR-01-1998
<PERIOD-END> MAR-31-1998 SEP-30-1998
<CASH> 1,488 384
<SECURITIES> 4,532 4,091
<RECEIVABLES> 1,811 3,122
<ALLOWANCES> 209 193
<INVENTORY> 616 466
<CURRENT-ASSETS> 656 1,097
<PP&E> 5,179 6,066
<DEPRECIATION> 2,337 2,822
<TOTAL-ASSETS> 13,227 14,013
<CURRENT-LIABILITIES> 3,495 4,278
<BONDS> 0 0
41,615 42,884
0 0
<COMMON> 3,020 3,041
<OTHER-SE> (36,049) (37,414)
<TOTAL-LIABILITY-AND-EQUITY> 13,227 14,013
<SALES> 14,523 6,683
<TOTAL-REVENUES> 14,523 6,683
<CGS> 11,054 5,383
<TOTAL-COSTS> 11,054 5,383
<OTHER-EXPENSES> 6,623 3,293
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 159 54
<INCOME-PRETAX> (3,029) (1,918)
<INCOME-TAX> 297 187
<INCOME-CONTINUING> (2,732) (1,731)
<DISCONTINUED> 506 320
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,226) (1,411)
<EPS-PRIMARY> (1.59) (0.91)
<EPS-DILUTED> (1.59) (0.91)
</TABLE>
