<PAGE>
As filed with the Securities and Exchange Commission on July 26, 1999
Registration No. 333-65691
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
Amendment No. 1 To
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
NETSOLVE, INCORPORATED
(Exact name of registrant as specified in its charter)
----------------
Delaware 75-2094811-2
(State or other 7379
jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or Industrial Identification Number)
organization) Classification Code
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, Foley, Hoag & Eliot LLP
L.L.P. Attn: Mark L. Johnson, Esq.
Attn: L. Scott Austin, Esq. One Post Office Square
Timothy A. Mack, Esq. Boston, Massachusetts 02109
1601 Bryan Street, 30th Floor
Dallas, Texas 75201
CALCULATION OF REGISTRATION FEE
<TABLE>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered(1) Per Share(2) Offering Price(2) Registration Fee
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share........ 4,255,000 shares $13.00 $55,315,000
Registered previously.. 51,750,000 (3)
Registered hereby...... 3,565,000 $991
</TABLE>
- -------------------------------------------------------------------------------
(1) Includes 555,000 shares that the underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457 under the Securities Act of 1933.
(3) A filing fee of $15,267 was paid previously.
----------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 JULY 26, 1999
[LOGO OF NETSOLVE APPEARS HERE]
3,700,000 Shares
Common Stock
NetSolve, Incorporated is offering 3,500,000 shares of its common stock and
the selling stockholders are offering an additional 200,000 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 $11.00 and $13.00 per share.
------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 6.
------------
<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.
We have granted the underwriters a thirty-day option to purchase up to an
additional 555,000 shares of our common stock. BancBoston Robertson Stephens
Inc. expects to deliver the shares of common stock to purchasers on ,
1999.
------------
BancBoston Robertson Stephens Thomas Weisel Partners LLC
The date of this prospectus is , 1999.
<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
. Alarm
. Diagnose
. Resolve
. Report
. Upgrade
. Document
[4. The following text appears below the diagram:]
Benefits to Customers
. Increased network reliability and up time
. Reduced overall network cost
. Simple and timely migration to new technology
[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.
We are a service company, building our business around two key industry
trends: first, growth in data networks and the Internet, and second, the
well publicized shortage of information technology professionals. We design
and implement computer networks and network security solutions, then
provide ongoing network and security management 24 hours a day, 7 days a
week.
[3. Graphic depiction of the NetSolve network management center appears in the
center of the diagram. Superimposed on the graphic element are the words:]
NetSolve Management Center
Standards Based Tools, Database
[4. A computer screen containing lines of code appears in the left center of
the diagram. The following text appears next to the screen:]
PROWATCH FOR WANS
Managing router-based frame relay networks for hundreds of companies with
thousands of locations
[5. A second 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
Customers get up-to-date information about their network reliability and
performance through this web-based capability, which helps keep them
informed and in control
[6. The NetSolve name and logo appear in a circle at the lower right hand
corner of the diagram.]
[7. A schematic diagram linking four graphic depictions surrounding a graphic
depiction labeled "Internet" and linked to the central graphic element
labelled "NetSolve Management Center" appears in the lower left hand corner
of the diagram. The following words appear superimposed around these
graphic depictions:]
Remote User
Partner
Customer
Headquarters
[8. A third computer screen appears above the schematic diagram described in
item 7 above. The computer screen depicts a portion of a sample monthly
security incident report. The following text appears next to the screens]
ProWatch Secure
Security management for companies using the Internet for business. Services
include security assessments, firewall management, and remote intrusion
detection.
[9. A fourth computer screen appears at the top center of the diagram. The
screen contains a line graph and a bar graph. The following text appears
next to the screen:]
ProWatch for LANs
Management of LAN switches, hubs, and routers, with a focus on performance
engineering
[10. A schematic diagram appears in the upper right corner, linked by arrows to
the computer screens described in items 4 and 9 above. At the center of
this diagram is a cloud with the words "Frame Relay/ATM Wide Area Network"
superimposed in its center. Surrounding this cloud are five graphic
depictions, each linked to the central cloud. The following text appears
next to each graphic element:]
Headquarters
Branch Office
Branch Office
Factory
Factory
<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 any sale of our common stock.
Until , 1999, 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............................................................. 6
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 31
Management............................................................... 42
Transactions with Related Parties........................................ 50
Principal and Selling Stockholders....................................... 50
Description of Capital Stock............................................. 53
Shares Eligible for Future Sale.......................................... 55
Underwriting............................................................. 57
Legal Matters............................................................ 58
Experts.................................................................. 58
Where You Can Find More Information...................................... 59
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
We have federal trademark registrations for the NetSolve(R) logo, the name
NetSolve(R) and the trade names ProWatch(R) and ProWatch Secure(R). We have
applications pending for the trade names ProWatch for WANs SM, ProWatch for
LANs SM and ProWatch Exchange SM. Trade names, trademarks and service marks of
other companies appearing in this prospectus are the property of the respective
holders.
3
<PAGE>
SUMMARY
This summary may not contain all the information that is important to you.
You should read the entire prospectus, including the consolidated financial
statements and related notes, before deciding to invest in shares of our common
stock.
Unless otherwise indicated, all information in this prospectus assumes the
underwriters do not exercise their over-allotment option and reflects the
conversion of all of our outstanding preferred stock into common stock, which
will take effect immediately before the closing of this offering.
NetSolve
We offer a range of services that allow companies to selectively outsource,
or "out-task," activities relating to the design, implementation, management
and security of their computer networks. Our network management and security
services are designed to increase network reliability and up-time, reduce
overall network costs, and simplify timely migration to new technologies.
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 large
computer networks across multiple sites, referred to as wide area networks, or
WANs, but may be too small to afford or may prefer not to devote the
information technology personnel necessary to manage and secure their networks.
Facing rapid advances in technology and a continuing shortage of information
technology professionals, these companies are beginning to turn to third-party
service providers for network management and security solutions.
Our network management services address all or selected parts of the full
life cycle of network management, which consists of the following elements:
<TABLE>
<S> <C> <C>
. design . monitoring . reporting
. configuration . fault diagnosis . upgrading
. implementation . fault resolution . documentation
</TABLE>
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.
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 575 middle market companies currently use our services
to manage approximately 8,700 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 59% of our total revenues in our fiscal year ended March 31, 1999
and 69% of our total revenues in the three months ended June 30, 1999. We
derive our revenues from both recurring and non-recurring network management
services, as well as from equipment resales.
Our executive offices are located at 12331 Riata Trace Parkway, Austin, Texas
78727. Our telephone number is (512) 340-3000, and our web site is located at
www.netsolve.com. Information contained on our web site is not a part of this
prospectus.
4
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by NetSolve........ 3,500,000 shares
Common stock offered by selling
stockholders........................... 200,000 shares
Common stock to be outstanding after
this offering.......................... 13,378,516 shares
Use of proceeds......................... General corporate purposes, including
working capital and potential
acquisitions.
Proposed Nasdaq National Market symbol.. NTSL
</TABLE>
The number of shares of our common stock to be outstanding after this
offering is based on shares outstanding as of June 30, 1999. It excludes:
. 2,584,411 shares issuable upon exercise of outstanding options with a
weighted average exercise price of $3.39 per share;
. 107,500 shares issuable upon exercise of outstanding warrants with a
weighted average exercise price of $2.01 per share; and
. 2,986,020 shares reserved for future issuance under our stock-based
compensation plans.
Summary Consolidated Financial Data
The following tables summarize the financial data of our business. The pro
forma income from continuing operations per share and pro forma net income per
share are described in notes 2 and 4 of the notes to consolidated financial
statements included elsewhere in this prospectus. The pro forma balance sheet
data reflect the conversion of all of our outstanding preferred stock into
common stock that will occur immediately before the closing of this offering.
The pro forma as adjusted data reflect the sale of 3,500,000 shares of common
stock offered by us at an assumed public offering price of $12.00 and our
application of our estimated net proceeds of this offering.
<TABLE>
<CAPTION>
Three Months
Year Ended March 31, Ended June 30,
--------------------------- ----------------
1997 1998 1999 1998 1999
------- -------- -------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Total revenues.................... $ 6,316 $ 14,523 $ 26,716 $ 5,562 $ 9,076
Total cost of revenues............ 5,072 11,131 18,923 4,129 6,208
Operating income (loss)........... (3,753) (3,231) 680 (293) 724
Discontinued operations, net...... 12,757 506 98 -- --
Net income (loss)................. 10,295 (2,226) 952 (245) 755
Pro forma diluted income per
share:
From continuing operations....... $ 0.07 $ 0.07
Net income....................... $ 0.08 $ 0.07
Pro forma weighted average shares
used in diluted per share
calculation...................... 11,341 11,450
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Balance sheet data:
Cash and cash equivalents..................... $ 6,582 $ 6,582 $44,842
Working capital............................... 6,685 6,685 44,945
Total assets.................................. 17,238 17,238 55,498
Capital lease obligations, net of current
portion...................................... 763 763 763
Redeemable convertible preferred stock........ 44,776 -- --
Total stockholders' equity (deficit).......... (34,330) 10,446 48,706
</TABLE>
5
<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 may be unable to operate profitably in the future.
We may not operate profitably. Although we began operating in 1987, we did
not introduce our first network management service until the quarter ended
March 31, 1994. Our track record of operating profitably in the network
management services business is short, and it is difficult to predict our
future revenues and operating results. We have previously incurred substantial
net losses. Our ability to operate profitably in the future depends on
increasing sales of our services while maintaining sufficient gross profit
margins. We must, among other things:
. maintain satisfactory relationships with resellers such as AT&T, 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 network management services; and
. maintain reliable, uninterrupted service from our network management
center 24 hours per day, seven days per week.
We depend on AT&T for a large portion of our sales.
Sales to AT&T, which resells our services to its customers, accounted for 59%
of our total revenues in the fiscal year ended March 31, 1999 and 69% of our
total revenues in the three months ended June 30, 1999. We expect sales to AT&T
to continue to comprise a substantial percentage of our revenues at least
through fiscal year 2000 and it is possible this percentage could increase. We
cannot be sure that we will be successful in reducing our dependence on AT&T in
the future.
Our existing agreements with AT&T expire at various dates beginning in
December 1999. In addition, a number of the orders for services that we provide
to AT&T's customers under an agreement expiring in December 2001 can be
cancelled beginning in July 2000 and all new orders placed after June 30, 1999
can be cancelled beginning July 2001. Our agreements with AT&T are not
exclusive arrangements. 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.
On December 9, 1998, AT&T announced that it was acquiring IBM's Global
Network business, which services the networking needs of global companies, mid-
sized businesses and individual Internet users. We are unable to predict what
impact, if any, this acquisition will have on our relationship with AT&T.
Our quarterly results may fluctuate and cause the price of our common stock to
fall.
Our revenues and results of operations are difficult to predict and may
fluctuate significantly from quarter to quarter. If either our revenues or
results of operations fall below the expectations of investors or public market
analysts, the price of our common stock could fall dramatically.
Our revenues are difficult to forecast and may fluctuate 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;
6
<PAGE>
. 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;
. we expect to encourage end users to purchase equipment from other
sources, and we therefore anticipate that our revenues from equipment
resales will decline as we seek to manage our mix of revenues;
. 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; and
. we may not be able to develop new or improved services as rapidly as
they are needed.
Most of our expenses, particularly employee compensation and rent, are
relatively fixed. As a result, variations in the timing of revenues could
significantly affect our results of operations from quarter to quarter and
could result in quarterly losses.
Our future operating results may vary by season, which will make it difficult
to predict our future performance.
Our bookings may be slower during the months of July and August due to the
vacation schedules of our resellers' sales and marketing employees. This
situation 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 network 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 an 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.
The market for our services is new and evolving rapidly, and our business could
be seriously damaged if the market does not develop as we expect.
Our long-term viability depends significantly upon the acceptance and use of
remote network management services by mid-sized companies. The market for
remote network management services is new and rapidly evolving. This market
environment 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 information technology 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.
We must establish relationships with additional resellers in order to broaden
the marketing and sales of our services.
We expect to rely increasingly on resellers such as telecommunications
carriers, Internet service providers and data networking value-added resellers
to market our services. We must establish these alternative sales channels in
order to increase our revenues and become consistently profitable. We have
limited experience in managing sales through resellers. We have only recently
begun to develop these sales channels, and we have
7
<PAGE>
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.
Our agreements with resellers, including AT&T, generally do not require that
the resellers sell any minimum level of our services and generally do not
restrict the resellers' development or sale of competitive services. We cannot
be sure that these resellers 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,
software or service 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.
We depend on one service for most of our revenues.
Sales of our ProWatch for WANs and similar wide area network, or WAN,
management services accounted for 98% of our recurring network management
services revenues in the fiscal year ended March 31, 1999. Likewise, a
substantial portion of our nonrecurring network management services and
equipment resale revenues depend on the successful sale of these WAN management
services. We expect that these WAN management services will continue to
generate substantially all of our revenues for the foreseeable future. Our
success therefore depends directly on continued market acceptance of our WAN
management services, as well as our ability to introduce enhanced versions of
these services that make these services more efficient and economical.
Competitive pressures or other factors that adversely affect sales of our WAN
management services or that cause significant decreases in the prices of our
WAN management services could significantly limit or reduce our revenues.
Our future financial performance will depend in part on our ability to
develop, introduce and sell new and enhanced network management services other
than WAN management 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 network management services
for local area networks, or 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 cannot assure you that future technological or industry
developments will be compatible with our business strategy 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 management services
could seriously damage our business.
Our business may be harmed if we lose the services of our chief executive
officer.
Our future success depends to a significant degree on the skills, experience
and efforts of our executive officers, particularly Craig S. Tysdal, our
president and chief executive officer. Mr. Tysdal has led us during
8
<PAGE>
our transition from our data transport business to the network management
services field. He is 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.
We face intense competition for qualified information technology professionals.
We derive all of our revenues from network management services and related
resales of equipment. These services can be extremely complex, and in general
only highly qualified, highly trained information technology, or IT,
professionals have the skills necessary to develop and provide these services.
In order to continue to support our current and future business, 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 end users, marketing partners and other companies throughout the
network services 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 support our
business. We do not enter into employment agreements requiring these employees
to continue in our employment for any period of time. Departures of trained
employees could limit our ability to generate revenues and would require us to
incur additional costs in training new employees.
We currently compete most directly with our customers' internal solutions, and
we expect increasing competition from other network services companies.
We face competition from different sources. Currently, we compete principally
with potential end users' and resellers' internal network administration
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 like us.
If the market for out-sourced network management services grows as we expect,
we believe this market will become highly competitive. Competition is likely to
increase significantly as new network management services companies enter the
market and current competitors expand their service and 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.
If our operations are interrupted, we may lose customers and revenues.
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 network
management services are provided remotely from our network management center,
which is located at a single site in Austin, Texas. We do not have any
redundant
9
<PAGE>
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.
The networking equipment and carrier services we support may become obsolete.
As part of our strategy, we have elected to support only selected providers
of networking equipment and carrier services. For example, we support routers
manufactured by 3Com, Bay/Nortel, Cabletron and Cisco, but not by other
equipment providers. Our services cannot be used by companies with 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 could limit or reduce our revenues or could force
us to incur significant costs attempting to support other networking equipment
and carrier services.
We may be unable to protect our intellectual property, and we could incur
substantial costs defending our intellectual property from infringement or
claims of infringement made by others.
Our success depends to a significant degree upon our software and other
proprietary technology. The software industry has experienced widespread
unauthorized reproduction of software products. We have no patents. The steps
we have taken may not be adequate to deter competitors from misappropriating
our proprietary 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.
Our stock price may be volatile.
Volatility in our stock price may negatively impact the price investors may
receive for their shares of our common stock and increase the risk that we
could be the subject of costly securities litigation. The market price of our
common stock may fluctuate substantially due to a variety of factors,
including:
. the reaction of the market to the negotiated public offering price;
. quarterly fluctuations in our results of operations;
10
<PAGE>
. 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;
. inactivity in the trading market for our stock;
. loss of market-making or securities analyst coverage for our stock;
. changes in accounting principles;
. sales of common stock by existing holders; and
. loss of key personnel.
We may incur significant costs from securities litigation.
In the past, securities class action litigation often has been brought
against companies following periods of volatility in the market price of their
stock. We may in the future be the target of similar litigation. Securities
litigation against us could result in substantial costs and divert our
management's attention and resources.
Problems related to the year 2000 issue could cause system failures that impair
our operations.
Many currently installed computer systems and software 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.
We have only recently completed the conversion of our financial and
accounting system to make it year 2000 compliant and we are still in the
process of completing routine upgrades to some of our server and desktop
computer operating systems, desktop computer packaged software, desktop
computer firmware and one third-party software tool. We expect to spend less
than $100,000 to complete all remaining hardware and software upgrades in order
to be year 2000 compliant. If, however, we discover significant year 2000
errors or defects, we could incur substantial costs and our operations could be
seriously disrupted.
We could be subject to significant liability claims.
Because our products are designed to provide critical 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.
Our remote network management service for WANs generally includes a guarantee
that the customer's end-to-end network will be available for at least 99.5% of
the time in any given month. If this guaranteed level of availability is not
achieved for an end user, we may be required to refund all of our WAN
management fees
11
<PAGE>
payable by the end user for that month. We may, in some instances, refund
amounts to customers for circumstances beyond our control.
Our existing stockholders will be able to control all matters requiring
stockholder approval and could prevent someone from acquiring or merging with
us.
After this offering, our executive officers and directors collectively will
beneficially own approximately 58.3% of our outstanding common stock. Thus,
they will continue to control our company and, if they act together, could
elect all of the directors and control all matters submitted to our
stockholders for a vote. This could delay or prevent someone from acquiring or
merging with us on terms favored by a majority of our independent stockholders.
Substantial sales of our common stock could cause our stock price to decline.
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market after this
offering, or the perception that these sales could occur. These sales might
also make it more difficult for us to sell equity securities at a time and at a
price that we deem appropriate.
We intend to file a registration statement approximately 90 days after the
completion of this offering covering 3,850,000 shares subject to outstanding
options or reserved for issuance under our stock plans.
Our management will have broad discretion in using the net proceeds of this
offering.
We expect to use our net proceeds from this offering for general corporate
purposes, giving our management broad discretion in the allocation of the net
proceeds. Possible 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 provisions in our charter documents and Delaware law could
prevent or delay a change in control of our company.
Our board of directors will be able to use a number of mechanisms that could
make it more difficult for a third party to acquire control of our company,
even if a change of control might be beneficial to our stockholders. These
mechanisms include:
. the denial of cumulative voting contained in our charter, which could
make it more difficult to replace the board of directors;
. the provisions of the Delaware anti-takeover law that can be used to
discourage certain business combinations;
. the issuance of series of preferred stock in connection with share
rights plans or otherwise, pursuant to the "blank check" preferred stock
provisions of our charter, with disproportionate voting rights or other
features that could thwart a change of control; and
. the acceleration of the vesting of options or other incentive
compensation, in a manner that could make a business combination
significantly more expensive to conclude.
Investors will suffer dilution and may never be paid dividends.
Since our common stock has in the past been sold at prices substantially less
than the public offering price that you will pay, you will suffer immediate
dilution of $8.36 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.
12
<PAGE>
The forward-looking statements we make in this prospectus may prove inaccurate,
and our actual results and performance may differ materially from those
expressed in the forward-looking statements.
Some of the statements under "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus constitute forward-looking
statements. In some cases, you can identify forward-looking statements by terms
such as "may," "will," "should," "could," "would," "expects," "plans,"
"intends," "anticipates," "believes," "estimates," "predicts," "potential,"
"continue" or comparable terms. These statements include known and unknown
risks and uncertainties that may cause our actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. These factors include those listed under "Risk
Factors" and elsewhere in this prospectus.
We cannot guarantee any future results, levels of activity, performance or
achievements. Neither we nor anyone else assumes responsibility for the
accuracy and completeness of these statements. We undertake no obligation to
update any of the forward-looking statements after the date of this prospectus.
13
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds from our sale of 3,500,000 shares of common
stock will be approximately $38.3 million ($44.5 million if the underwriters'
over-allotment is exercised in full), assuming a public offering price of
$12.00 per share and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us. We estimate that our
expenses in connection with this offering will total approximately $800,000. We
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 our capitalization and financial flexibility;
.increase our visibility in the marketplace;
.provide a public market for our common stock;
.facilitate our future access to public equity markets; and
.provide liquidity for our existing stockholders.
We believe that our enhanced financial position will provide us with needed
flexibility to respond to technological and market developments as well as
other future opportunities. We also believe that our completion of this
offering will improve our ability to attract and retain customers and
employees.
We intend to use our net proceeds from this offering for general corporate
purposes, including working capital and possible acquisitions of, and
investments in, complementary businesses and technologies. We are not currently
involved in negotiations with respect to, and we have no agreement or
understanding regarding, any such acquisition or investment. Accordingly, we
will have broad discretion in the application of our net proceeds. Pending
these uses, we intend to invest our net proceeds in short-term, investment-
grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
intend to retain all available funds and any future earnings for use in the
operation of our business. Therefore, we do not anticipate paying any cash or
other dividends in the foreseeable future. Payment of future dividends, if any,
will be at the discretion of our board of directors after taking into account
various factors, including our financial condition, results of operations,
current and anticipated cash needs, and plans for expansion.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
. on an actual basis;
. on a pro forma basis giving effect to the conversion of our preferred
stock into common stock; and
. on a pro forma basis, as further adjusted to reflect the receipt of the
estimated net proceeds from our sale of 3,500,000 shares of common
stock, assuming a public offering price of $12.00 per share and after
deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
This table should be read together with the consolidated financial statements
and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
June 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Capital lease obligations, net of current
portion....................................... $ 763 $ 763 $ 763
-------- -------- ---------
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...................................... 44,776 -- --
-------- -------- ---------
Stockholders' equity (deficit):
Common stock, $0.01 par value; 25,000,000
shares authorized; 3,483,789 shares issued
and outstanding, actual; 9,878,516 shares
issued and outstanding, pro forma;
13,378,516 issued and outstanding, pro forma
as adjusted................................. 35 99 134
Additional paid-in capital................... (16,059) 28,653 66,878
Accumulated deficit.......................... (18,306) (18,306) (18,306)
-------- -------- ---------
Total stockholders' equity (deficit)........... (34,330) 10,446 48,706
-------- -------- ---------
Total capitalization........................... $ 11,209 $ 11,209 $ 49,469
======== ======== =========
</TABLE>
The number of shares of our common stock that will be outstanding after this
offering excludes as of June 30, 1999:
.2,584,411 shares issuable upon exercise of outstanding options with a
weighted average exercise price of $3.39 per share;
.107,500 shares issuable upon exercise of outstanding warrants with a
weighted average exercise price of $2.01 per share; and
.2,986,020 shares reserved for future issuance under our stock-based
compensation plans.
15
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of June 30, 1999
was $10.4 million, or $1.06 per share. 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 our
preferred stock into common stock. After giving effect to the sale of 3,500,000
shares of common stock offered by us in this offering at an assumed public
offering price of $12.00 per share, and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us, the adjusted pro forma net tangible book value at June 30, 1999, would
have been approximately $48.7 million, or $3.64 per share. This amount
represents an immediate increase in pro forma net tangible book value of $2.58
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $8.36 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share....................... $12.00
Pro forma net tangible book value per share at June 30,
1999........................................................ $1.06
Increase per share attributable to new investors............. 2.58
-----
Adjusted pro forma net tangible book value per share after
this offering................................................ 3.64
------
Dilution per share to new investors........................... $ 8.36
======
</TABLE>
The following table summarizes, on a pro forma as adjusted basis as of June
30, 1999, the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid (based on an assumed
public offering price of $12.00 per share before deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us).
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 9,878,516 74% $28,752,000 41% $ 2.91
New investors.......... 3,500,000 26 42,000,000 59 12.00
---------- --- ----------- ---
Total.............. 13,378,516 100% $70,752,000 100%
========== === =========== ===
</TABLE>
These tables assume no exercise of options and warrants outstanding at
June 30, 1999. Sales by selling stockholders will reduce the number of shares
of common stock held by existing stockholders to 9,678,516, or 72% of the total
number of shares of common stock outstanding after this offering (or 69%, if
the underwriters' overallotment option is exercised in full) and will increase
the number of shares of common stock held by new investors to 3,700,000, or 28%
of the total number of shares of common stock outstanding after this offering
(or 4,255,000, or 31%, if the underwriters' overallotment option is exercised
in full).
16
<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 related notes
appearing elsewhere in this prospectus. The following selected consolidated
financial data for the years ended March 31, 1997, 1998 and 1999 and as of
March 31, 1998 and 1999 are derived from our consolidated financial statements
included elsewhere in this prospectus, which have been audited by Ernst & Young
LLP, independent auditors. The following selected consolidated financial data
for the years ended March 31, 1995 and 1996 and as of March 31, 1995, 1996 and
1997 are derived from our audited consolidated financial statements not
included in this prospectus. The following selected consolidated financial data
for the three months ended June 30, 1998 and 1999 and as of June 30, 1999 are
derived from our unaudited consolidated financial statements included elsewhere
in this prospectus. Our unaudited consolidated financial statements have been
prepared on the same basis as our audited consolidated financial statements and
in the opinion of our management include all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the data set forth.
<TABLE>
<CAPTION>
Three Months
Year Ended March 31, Ended June 30,
------------------------------------------- ----------------
1995 1996 1997 1998 1999 1998 1999
------- ------- ------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of operations
data:
Revenues:
Network management
services.............. $ 428 $ 782 $ 2,830 $ 7,324 $12,777 $ 2,560 $ 4,584
Equipment and other.... 1,846 2,888 3,486 7,199 13,939 3,002 4,492
------- ------- ------- ------- ------- ------- -------
Total revenues......... 2,274 3,670 6,316 14,523 26,716 5,562 9,076
Cost of revenues:
Cost of network
management services... 390 548 2,434 5,706 8,258 1,808 2,672
Cost of equipment and
other................. 1,138 1,998 2,638 5,425 10,665 2,321 3,536
------- ------- ------- ------- ------- ------- -------
Total cost of
revenues.............. 1,528 2,546 5,072 11,131 18,923 4,129 6,208
------- ------- ------- ------- ------- ------- -------
Gross profit............ 746 1,124 1,244 3,392 7,793 1,433 2,868
Operating expenses:
Development............ 1,081 1,132 1,262 1,902 1,862 446 579
Sales and marketing.... 383 732 2,246 2,562 3,153 739 943
General and
administrative........ 1,331 1,353 1,489 2,159 2,098 541 622
------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 2,795 3,217 4,997 6,623 7,113 1,726 2,144
------- ------- ------- ------- ------- ------- -------
Operating income
(loss)................. (2,049) (2,093) (3,753) (3,231) 680 (293) 724
Other income (expense),
net.................... (178) (110) 34 202 193 48 46
------- ------- ------- ------- ------- ------- -------
Income (loss) from
continuing operations
before income taxes.... (2,227) (2,203) (3,719) (3,029) 873 (245) 770
Income tax expense
(benefit).............. (599) (618) (1,257) (297) 19 -- 15
------- ------- ------- ------- ------- ------- -------
Net income (loss) from
continuing operations.. (1,628) (1,585) (2,462) (2,732) 854 (245) 755
Discontinued operations:
Income from
discontinued
operations, net of
applicable income
taxes................. 1,244 2,041 2,142 165 -- -- --
Gain on sale of
discontinued
operations, net of
applicable income
taxes................. -- -- 10,615 341 98 -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ (384) $ 456 $10,295 $(2,226) $ 952 $ (245) $ 755
======= ======= ======= ======= ======= ======= =======
Basic income (loss) per
share from(1):
Continuing operations.. $ (3.45) $ (2.22) $ (1.75) $ (1.76) $ (0.51) $ (0.27) $ 0.04
======= ======= ======= ======= ======= ======= =======
Net income (loss)...... $ (2.42) $ (1.12) $ 2.72 $ (1.59) $ (0.48) $ (0.27) $ 0.04
======= ======= ======= ======= ======= ======= =======
Weighted average shares
used in basic per share
calculations(1)........ 1,204 1,860 2,851 2,995 3,297 3,280 3,361
======= ======= ======= ======= ======= ======= =======
Diluted income (loss)
per share from(1):
Continuing operations.. $ (3.45) $ (2.22) $ (1.75) $ (1.76) $ (0.51) $ (0.27) $ 0.02
======= ======= ======= ======= ======= ======= =======
Net income (loss)...... $ (2.42) $ (1.12) $ 2.72 $ (1.59) $ (0.48) $ (0.27) $ 0.02
======= ======= ======= ======= ======= ======= =======
Weighted average shares
used in diluted per
share calculations(1).. 1,204 1,860 2,851 2,995 3,297 3,280 5,055
Pro forma basic income
per share from(2):
Continuing operations.. $ 0.09 $ 0.08
======= =======
Net income ............ $ 0.10 $ 0.08
======= =======
Pro forma weighted
average shares used in
basic per share
calculations(2)........ 9,692 9,755
Pro forma diluted income
per share from(2):
Continuing operations.. $ 0.07 $ 0.07
======= =======
Net income ............ $ 0.08 $ 0.07
======= =======
Pro forma weighted
average shares used in
diluted per share
calculations(2)........ 11,341 11,450
</TABLE>
- --------------
(1) Calculated as described in note 2 of notes to consolidated financial
statements.
(2) Reflects the conversion of our redeemable convertible preferred stock into
common stock. See note 4 of notes to consolidated financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
March 31,
------------------------------------------------ June 30,
1995 1996 1997 1998 1999 1999
-------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance sheet data:
Cash and cash
equivalents............ $ 361 $ 874 $ 8,128 $ 1,333 $ 2,764 $ 6,582
Working capital
(deficit).............. (859) (623) 9,464 5,399 5,282 6,685
Total assets............ 2,464 3,534 16,068 13,227 14,936 17,238
Capital lease
obligations, net of
current portion........ 248 235 175 1,146 1,027 763
Redeemable convertible
preferred stock........ 34,018 36,555 39,085 41,615 44,146 44,776
Total stockholders'
deficit................ (34,046) (36,104) (28,313) (33,029) (34,529) (34,330)
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements which involve risks and
uncertainties. Actual results could differ materially from those anticipated in
these forward-looking statements.
Overview
We provide 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
simplify timely migration to new technologies. We were incorporated in
September 1985 in the State of Delaware and began operating in the second half
of 1987. Until December 1996, substantially all of our services revenues were
derived from the sale of data transport services. To provide these transport
services, we leased network transmission facilities from major carriers, and we
also resold AT&T's transport services. We began developing our first remote
network management service offering for WANs in early 1993 and began offering
that service, together with AT&T's transport services, in the quarter ended
March 31, 1994. We began selling network management services separately from
our data transport services in the quarter ended March 31, 1995. We introduced
our first security service in the quarter ended September 30, 1996. We
discontinued our data transport business in the quarter ended December 31,
1996. We began offering network management services for LANs in the quarter
ended June 30, 1997.
Revenues
Our revenues consist of network management services revenues as well as
equipment resales and other revenues. Our network management services include
both recurring and nonrecurring revenues:
. Revenues from recurring services represent monthly fees charged to
resellers or end users for our 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. In fiscal year 1999, 67% of
network management services revenues were from recurring services.
. 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 network management
services. Non-recurring network management services revenues are
generally recognized upon completion of the assignment or service.
For example, we charge fees for project implementation services on a
per-location basis and we recognize revenues associated with such
services upon completion of the network implementation for a
location.
Our network management services revenues are derived from contracts with
telecommunications carriers, value-added resellers of networking equipment and
services, and enterprises sold to by our direct sales force. Typical contracts
for our services include an initial implementation fee plus a fixed monthly fee
per managed device. Our contracts with 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, which to date have not been material, are generally subject to
cancellation fees ranging from 20% to 80% of the recurring charges payable for
the remainder of the service term. We recognize revenues from cancellation fees
on a cash basis unless collection is assured. Our contracts with resellers
typically extend from 12 to 36 months and, in some cases, require that we
continue providing services throughout the term of the reseller's contract with
the end user. In these cases, we continue to recognize revenues upon
performance of the services, even if performance occurs after the term of the
contract with the reseller.
19
<PAGE>
Our 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, we
generally are obligated to refund our 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 our
control. As a result, we may, in some instances, refund amounts to customers
for circumstances beyond our control. We establish a reserve against guarantees
we offer. Guarantee payments have not been significant in any month, other than
in May 1998 when a major carrier's network was inoperable for an extended
number of hours. In order to enhance our relationships with direct customers
using that carrier's service, we refunded all of the management fees for that
month to those direct customers, even though the outage was outside the
coverage of our guarantee. The cost of that refund was $64,000. In the future,
refunds made under our guarantees or otherwise could have a material adverse
impact on the results of our operations.
We derive equipment and other revenues from the resale of customer premise
equipment, or CPE, and from the sale of CPE maintenance contracts to our
network management services customers. We recognize revenues from the sale of
CPE upon shipment to the end user. However, if the transaction is financed
through our lease financing subsidiary, we recognize the revenues upon sale of
the underlying lease contract on a non-recourse basis. We recognize revenues
from CPE maintenance contracts on a monthly basis as the services are provided.
We expect to limit discounts on CPE and encourage end users to purchase
equipment from other sources. Further, as an alternative to selling CPE to our
resellers, we have recently amended some of our reseller agreements such that
we receive management fees for ordering CPE and managing CPE inventories for
these resellers. We therefore anticipate that revenues from CPE sales will
decline as we seek to manage our mix of revenues.
We currently have a network management services contract with two business
units within AT&T: AT&T Solutions and AT&T Business Network Services. AT&T
accounted for 30% of our total revenues in fiscal year 1997, 52% of our total
revenues in fiscal year 1998, 59% of our total revenues in fiscal year 1999 and
69% of our total revenues in the three months ended June 30, 1999. We
anticipate that sales to AT&T will continue to comprise a substantial
percentage of our revenues at least through fiscal year 2000 and it is possible
that this percentage could increase. No other customer accounted for more than
10% of our revenues in fiscal year 1997, 1998 or 1999 or in the three months
ended June 30, 1999.
Historically, we have generated substantially all of our revenues from sales
to customers in the United States, although we manage devices in several
locations around the world for these U.S.-based customers.
Costs and expenses
In March 1998, we relocated all of our operations from our 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, we upgraded our 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, 1999, we had net operating loss carryforwards of
approximately $17.2 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. We have alternative minimum tax credit
carryforwards of $196,000 which do not expire. Our 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. The annual limitation may result in the expiration of the net
operating losses before utilization. We have provided a full valuation
allowance on the deferred tax asset at March 31, 1999 because of the
uncertainty regarding its realization. In concluding that a full valuation
allowance was required, we primarily considered factors such as our history of
operating losses, our potential future losses and the nature of the deferred
tax assets.
20
<PAGE>
Discontinued operations
In December 1996, we decided to discontinue our data transport services
business segment and we sold a portion of that segment to Intermedia
Communications Inc. of Florida. The sale to Intermedia was closed on December
30, 1996 at a price of $12.3 million. As a part of this transaction, we
assigned to Intermedia all customer and supplier contracts related to a portion
of the business segment and we sold to Intermedia the capital equipment related
to this portion of the business segment. The agreement for this sale contains a
non-compete provision which prohibits us from competing in the data transport
business for five years. To ease the transition associated with this sale, we
agreed to provide management services to the transferred customer base through
October 1997. We recorded related revenues of $500,000 in fiscal year 1997,
$715,000 in fiscal year 1998 and $0 in fiscal year 1999, with respect to these
services. To complete the discontinuance of this business segment, on October
1, 1997, we assigned our rights and obligations to customer and supplier
contracts for other transport services to NetPlus, Inc. The purchase price,
initially established at 25% of NetPlus' gross profit from these services for a
period of three years beginning April 1, 1998 up to a maximum of $600,000, was
renegotiated to be a single payment of $100,000, which was received in fiscal
year 1999.
Results of operations
The following table sets forth statement of operations data expressed as
percentages of total revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months
Year Ended March 31, Ended June 30,
----------------------- -----------------
1997 1998 1999 1998 1999
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Network management services....... 44.8% 50.4% 47.8% 46.0% 50.5%
Equipment and other............... 55.2 49.6 52.2 54.0 49.5
------ ------ ------ ------- -------
Total revenues.................. 100.0 100.0 100.0 100.0 100.0
Total cost of revenues............. 80.3 76.6 70.8 74.2 68.4
------ ------ ------ ------- -------
Gross profit....................... 19.7 23.4 29.2 25.8 31.6
Operating expenses:
Development....................... 20.0 13.1 7.0 8.0 6.4
Sales and marketing............... 35.5 17.6 11.8 13.3 10.3
General and administrative........ 23.6 14.9 7.8 9.7 6.9
------ ------ ------ ------- -------
Total operating expenses........ 79.1 45.6 26.6 31.0 23.6
------ ------ ------ ------- -------
Operating income (loss)............ (59.4) (22.2) 2.6 (5.2) 8.0
Other income, net.................. 0.5 1.3 0.7 0.8 0.5
------ ------ ------ ------- -------
Income (loss) from continuing
operations before income taxes.... (58.9) (20.9) 3.3 (4.4) 8.5
Income tax expense (benefit)....... (19.9) (2.1) 0.1 -- 0.2
------ ------ ------ ------- -------
Net income (loss) from continuing
operations........................ (39.0) (18.8) 3.2 (4.4) 8.3
Discontinued operations:
Income from discontinued
operations, net of applicable
income taxes..................... 33.9 1.1 -- -- --
Gain on sale of discontinued
operations, net of applicable
income taxes..................... 168.1 2.4 0.4 -- --
------ ------ ------ ------- -------
Net income (loss).................. 163.0% (15.3)% 3.6% (4.4)% 8.3%
====== ====== ====== ======= =======
Cost of network management services, expressed as percentages of network
management services revenues, and cost of equipment and other, expressed as
percentages of equipment and other revenues, were as follows:
<CAPTION>
Three Months
Year Ended March 31, Ended June 30,
----------------------- -----------------
1997 1998 1999 1998 1999
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Cost of network management serv-
ices............................ 86.0% 77.9% 64.6% 70.6% 58.3%
Cost of equipment and other...... 75.7 75.4 76.5 77.3 78.7
</TABLE>
21
<PAGE>
Three months ended June 30, 1998 compared to three months ended June 30, 1999
Revenues
Total revenues. Total revenues increased 63%, from $5.6 million in the three
months ended June, 30 1999 to $9.1 million in the three months ended June 30,
1999.
Network management services. Revenues from network management services
increased 77%, from $2.6 million in the three months ended June 30, 1998 to
$4.6 million in the three months ended June 30, 1999, representing 46% of total
revenues in the three months ended June 30, 1998 and 51% of total revenues in
the three months ended June 30, 1999. The dollar and percentage increases
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.
Equipment and other. Revenues from equipment and other increased 50%, from
$3.0 million in the three months ended June 30, 1998 to $4.5 million in the
three months ended June 30, 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. We expect to limit discounts on CPE and
encourage end users to purchase equipment from other sources. Further, as an
alternative to selling CPE to our resellers, we have recently amended some of
our reseller agreements such that we receive management fees for ordering CPE
and managing CPE inventories for these resellers. We therefore anticipate that
revenues from CPE sales will decline as we seek to manage our mix of revenues.
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
50%, from $1.8 million in the three months ended June 30, 1998 to $2.7 million
in the three months ended June 30, 1999, representing 71% of network management
services revenues in the three months ended June 30, 1998 and 58% of such
revenues in the three months ended June 30, 1999. The dollar increase was due
primarily to the addition of personnel to accommodate growth, upgrades to the
network management infrastructure 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 us for
replacement of failed units. These costs are expensed in the period the related
revenues are recognized, other than costs associated with capital equipment
maintained by us for the replacement of failed units. The cost of replacement
units is amortized generally over three years, with the unamortized balance
expensed when the replacement unit is used. Cost of equipment and other
increased 52%, from $2.3 million in the three months ended June 30, 1998 to
$3.5 million in the three months ended June 30, 1999, representing 77% of
equipment and other revenues in the three months ended June 30, 1998 and 79% of
such revenues in the three months ended June 30, 1999. The increase in dollars
and as a percent of equipment and other revenues was due to higher volume of
CPE sales in the three months ended June 30, 1999 to our 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
22
<PAGE>
internal software systems, selecting and integrating purchased software
applications, developing software tools for our network management services,
developing our web-enabled software applications that give customers access to
network management information, and defining and developing operating processes
for new services. Development expenses increased 30%, from $446,000 in the
three months ended June 30, 1998 to $579,000 in the three months ended June 30,
1999, representing 8% of total revenues in the three months ended June 30, 1998
and 6% of total revenues in the three months ended June 30, 1999. The increase
in dollars was due to an increase in the number of software and service
development personnel devoted to the development and enhancement of network
management tools and our network management services. The decrease as a
percentage of total revenues was affected by our decision to manage development
spending to a lower level as a percentage of total revenues. The decrease was
also affected by higher than anticipated equipment revenues in the three months
ended June 30, 1999. We anticipate that development costs may increase as a
percentage of total revenues over the remainder of fiscal year 2000 as
additional development personnel are added.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries, commissions, travel and costs associated with creating awareness of
our services. Sales and marketing expenses increased 28%, from $739,000 in the
three months ended June 30, 1998 to $943,000 in the three months ended June 30,
1999, representing 13% of total revenues in the three months ended June 30,
1998 and 10% of total revenues in the three months ended June 30, 1999. The
increase in dollars was due to increased spending for advertising and other
promotional activities, as well as costs associated with the recruiting and
relocation of a new vice president of marketing. 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 we began to rely more on an indirect distribution strategy. We
anticipate that sales and marketing costs may increase slightly as a percentage
of total revenues over the remainder of fiscal year 2000, as additional sales
and marketing personnel are added.
General and administrative. General and administrative expenses consist
primarily of expenses related to our human resources, finance and executive
departments. Included in human resources spending is all employee training
sponsored by us, as well as most costs of recruiting and relocating new
employees. General and administrative expenses increased 15%, from $541,000 in
the three months ended June 30, 1998 to $622,000 in the three months ended June
30, 1999, representing 10% of total revenues in the three months ended June 30,
1998 and 7% of total revenues in the three months ended June 30, 1999. The
dollar increase was due primarily to additional spending related to recruiting
of new employees. The decrease as a percentage of total revenues is primarily
the result of higher total revenues in the three months ended June 30, 1999.
Other income, net
Other income, net consists primarily of interest expense from our leases for
capital equipment, offset by interest income earned on our cash balances. Other
income, net remained relatively flat, decreasing from $48,000 in the three
months ended June 30, 1998 to $46,000 in the three months ended June 30, 1999,
representing approximately 1% of total revenues in both periods.
Fiscal year ended March 31, 1998 compared to fiscal year ended March 31, 1999
Revenues
Total revenues. Total revenues increased 84%, from $14.5 million in fiscal
year 1998 to $26.7 million in fiscal year 1999.
Network management services. Revenues from network management services
increased 75%, from $7.3 million in fiscal year 1998 to $12.8 million in fiscal
year 1999, representing 50% of total revenues in fiscal year 1998 and 48% of
total revenues in fiscal year 1999. The dollar increase resulted primarily from
a growth in the number of managed devices under contract, increased
implementation revenues and, to a lesser extent,
23
<PAGE>
increased installation revenues resulting from higher volumes of CPE sales.
Increased implementation fees in fiscal year 1999 were largely due to a change
in company policy in the quarter ended March 31, 1998 which resulted in our
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. The percentage of revenues from
network management services derived from our relationship with AT&T was
approximately equal to the percentage of total revenue derived from AT&T.
Equipment and other. Revenues from equipment sales and other increased 93%,
from $7.2 million in fiscal year 1998 to $13.9 million in fiscal year 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.
Cost of revenues
Cost of network management services. Cost of network management services
increased 46%, from $5.7 million in fiscal year 1998 to $8.3 million in fiscal
year 1999, representing 78% of network management services revenues in fiscal
year 1998 and 65% of such revenues in fiscal year 1999. 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 our facilities, 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 increased 98%, from
$5.4 million in fiscal year 1998 to $10.7 million in fiscal year 1999,
representing 75% of equipment and other revenues in fiscal year 1998 and 77% of
such revenues in fiscal year 1999. The increases in dollars and as a percent of
equipment and other revenues were due to higher volume of CPE sales in fiscal
year 1999 to our resellers at lower resale margins. These increases in cost
were 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 were $1.9 million in both fiscal years 1998
and 1999, representing 13% of total revenues in fiscal year 1998 and 7% of
total revenues in fiscal year 1999. The decrease as a percentage of total
revenues was due to the development of our LAN product which was introduced in
the first quarter of fiscal year 1998 and reduced usage of third-party contract
programming resources. The decrease was also affected by our decision to manage
development spending to a lower level as a percentage of total revenues in
fiscal year 1999, after having accelerated spending in fiscal year 1998 in
order to support future revenue growth, cost reduction and service quality.
This decrease was partially offset by increased depreciation on development
tools.
Sales and marketing. Sales and marketing expenses increased 23%, from $2.6
million in fiscal year 1998 to $3.2 million in fiscal year 1999, representing
18% of total revenues in fiscal year 1998 and 12% of total revenues in fiscal
year 1999. In fiscal year 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 from centralizing all sales activities in our headquarters in Austin.
This centralization eliminated the costs of remote sales offices and more than
offset the additional costs associated with the move to the new headquarters
facility in March 1999. The decrease of sales and marketing expenses as a
percentage of total revenues reflected the increase in total revenues and a
move to reduce these expenditures as a percentage of total revenues as we began
to rely more on an indirect distribution strategy.
24
<PAGE>
General and administrative. General and administrative expenses decreased 5%,
from $2.2 million in fiscal year 1998 to $2.1 million in fiscal year 1999,
representing 15% of total revenues in fiscal year 1998 and 8% of total revenues
in fiscal year 1999. The decreases in dollars and as a percentage of total
revenues were due primarily to decreased legal and consulting fees and outside
recruiting and relocation fees. These decreases were offset by increased
salaries related to the addition of human resource professionals who are
responsible for enhancing training and recruiting programs in preparation for
growth.
Other income, net
Other income, net decreased 4%, from $202,000 in fiscal year 1998 to $193,000
in fiscal year 1999, both representing 1% of total revenues in fiscal year 1998
and in fiscal year 1999. The dollar decrease in fiscal year 1999 was due to
higher interest income in fiscal year 1998 earned from a higher level of funds
available for investment and increased interest expense incurred on capital
lease obligations in fiscal year 1999. This dollar decrease was partially
offset by a recovery in fiscal year 1999 of a portion of certain contract
development expenses written off in fiscal year 1998.
Fiscal year ended March 31, 1997 compared to fiscal year ended March 31, 1998
Revenues
Total revenues. Total revenues increased 130%, from $6.3 million in fiscal
year 1997 to $14.5 million in fiscal year 1998.
Network management services. Revenues from network management services
increased 161%, from $2.8 million in fiscal year 1997 to $7.3 million in fiscal
year 1998, representing 45% of total revenues in fiscal year 1997 and 50% of
total revenues in fiscal year 1998. The dollar and percentage increases 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. The impact of changes in average revenues per device was
not significant. Increased implementation fees in fiscal year 1998 were largely
due to a change in company policy in the quarter ended March 31, 1998 which
resulted in our charging fees for, rather than absorbing the costs of,
implementing new networks. These increases were partially offset by a decrease
in the three months ended December 31, 1997 in the revenues attributable to the
management of the customer base sold to Intermedia. The percentage of revenues
from network management services derived from our relationship with AT&T was
approximately equal to the percentage of total revenue derived from AT&T.
Equipment and other. Revenues from equipment and other increased 106%, from
$3.5 million in fiscal year 1997 to $7.2 million in fiscal year 1998, primarily
as a result of increased sales of CPE.
Cost of revenues
Cost of network management services. Cost of network management services
increased 138%, from $2.4 million in fiscal year 1997 to $5.7 million in fiscal
year 1998, representing 86% of network management services revenues in fiscal
year 1997 and 78% of such revenues in fiscal year 1998. 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 108%, from
$2.6 million in fiscal year 1997 to $5.4 million in fiscal year 1998,
representing 76% of equipment and other revenues in fiscal year 1997 and 75% of
such revenues in fiscal year 1998. The dollar increase was due primarily to the
higher volume of CPE sales in fiscal year 1998 and, to a lesser extent,
increased equipment maintenance revenues.
25
<PAGE>
Operating expenses
Development. Development expenses increased 46%, from $1.3 million in fiscal
year 1997 to $1.9 million in fiscal year 1998, representing 20% of total
revenues in fiscal year 1997 and 13% of total revenues in fiscal year 1998. The
dollar increase was due to higher development spending in fiscal year 1998
enabled by the sale of our transport business in the third quarter of fiscal
year 1997. This sale provided a source of working capital to invest in our
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 was primarily the result of higher total revenues in fiscal year
1998.
Sales and marketing. Sales and marketing expenses increased 18%, from $2.2
million in fiscal year 1997 to $2.6 million in fiscal year 1998, representing
36% of total revenues in fiscal year 1997 and 18% of total revenues in fiscal
year 1998. This dollar increase was due to one-time costs, including accrual of
future rentals on vacated spaces, related to the closing of most of our remote
sales offices as we began consolidating sales efforts at our Austin
headquarters as well as increased public relations and market awareness
efforts. The decrease as a percentage of total revenues reflected 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 we began
to rely more on an indirect distribution strategy.
General and administrative. General and administrative expenses increased
47%, from $1.5 million in fiscal year 1997 to $2.2 million in fiscal year 1998,
representing 24% of total revenues in fiscal year 1997 and 15% of total
revenues in fiscal year 1998. The dollar increase was due primarily to the
addition of human resources professionals beginning in the first quarter of
fiscal year 1998 who were responsible for enhancing training and recruiting
programs in preparation for growth. The dollar increase was also due to a
lesser extent 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
year 1998.
Other income, net
Other income, net increased 494%, from $34,000 in fiscal year 1997 to
$202,000 in fiscal year 1998, representing 1% of total revenues in both fiscal
year 1997 and fiscal year 1998. The dollar increase in fiscal year 1998 was due
to higher interest income in fiscal year 1998 earned from a higher level of
funds available for investment, offset by a write-off of contract development
expenses and increased interest on capital lease obligations in fiscal year
1998.
Quarterly results of operations
Although our total revenues have increased in each of the last nine quarters,
results of operations have varied from quarter to quarter. Accordingly, we
believe that period-to-period comparisons of results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. Our operating results may fluctuate as a result of many factors,
including our ability 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, we 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 our business. Finally, there can be no
assurance that we will be profitable in the future or, if we are profitable,
that our levels of profitability will not vary significantly between quarters.
26
<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 nine quarters in the period ended June 30, 1999. This quarterly
information is unaudited and has been prepared on the same basis as our audited
annual consolidated financial statements and, in the opinion of our management,
includes all adjustments consisting only of normal recurring adjustments that
we consider necessary for a fair presentation of the information for the
periods presented. The information should be read together with the
consolidated financial statements and related notes appearing elsewhere in this
prospectus. Operating results for any quarter are not necessarily indicative of
results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1997 1997 1997 1998 1998 1998 1998 1999 1999
-------- --------- -------- -------- -------- --------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Network management
services.............. $1,524 $ 1,723 $1,811 $2,266 $2,560 $3,081 $3,335 $3,801 $4,584
Equipment and other.... 1,584 1,852 1,795 1,968 3,002 3,342 3,557 4,038 4,492
------ ------- ------ ------ ------ ------ ------ ------ ------
Total revenues....... 3,108 3,575 3,606 4,234 5,562 6,423 6,892 7,839 9,076
Cost of revenues:
Cost of network
management services... 1,325 1,476 1,407 1,498 1,808 1,974 2,098 2,378 2,672
Cost of equipment and
other................. 1,232 1,350 1,426 1,417 2,321 2,629 2,663 3,052 3,536
------ ------- ------ ------ ------ ------ ------ ------ ------
Total cost of
revenues............ 2,557 2,826 2,833 2,915 4,129 4,603 4,761 5,430 6,208
------ ------- ------ ------ ------ ------ ------ ------ ------
Gross profit............ 551 749 773 1,319 1,433 1,820 2,131 2,409 2,868
Operating expenses:
Development............ 494 464 465 479 446 459 464 493 579
Sales and marketing.... 627 771 561 603 739 723 791 900 943
General and
administrative........ 419 518 600 622 541 512 511 534 622
------ ------- ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............ 1,540 1,753 1,626 1,704 1,726 1,694 1,766 1,927 2,144
------ ------- ------ ------ ------ ------ ------ ------ ------
Operating income
(loss)................. (989) (1,004) (853) (385) (293) 126 365 482 724
Other income (expense),
net.................... 134 (59) 61 66 48 23 103 19 46
------ ------- ------ ------ ------ ------ ------ ------ ------
Income (loss) from
continuing operations
before income taxes.... (855) (1,063) (792) (319) (245) 149 468 501 770
Income tax expense
(benefit).............. (83) (104) (78) (32) -- -- 6 13 15
------ ------- ------ ------ ------ ------ ------ ------ ------
Net income (loss) from
continuing operations.. (772) (959) (714) (287) (245) 149 462 488 755
Discontinued operations:
Income (loss) from
discontinued
operations, net of
applicable income
taxes................. 72 97 5 (9) -- -- -- -- --
Gain (loss) on sale of
discontinued
operations, net of
applicable income
taxes................. -- 151 (4) 194 -- -- 98 -- --
------ ------- ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $ (700) $ (711) $ (713) $ (102) $ (245) $ 149 $ 560 $ 488 $ 755
====== ======= ====== ====== ====== ====== ====== ====== ======
Basic income (loss) per
share from:
Continuing
operations............ $(0.48) $ (0.54) $(0.46) $(0.28) $(0.27) $(0.15) $(0.05) $(0.04) $ 0.04
====== ======= ====== ====== ====== ====== ====== ====== ======
Net income (loss)...... $(0.45) $(0.46) $(0.46) $(0.22) $(0.27) $(0.15) $(0.02) $(0.04) $ 0.04
====== ======= ====== ====== ====== ====== ====== ====== ======
Weighted average shares
used in basic per share
calculations........... 2,912 2,930 2,947 3,193 3,280 3,286 3,298 3,340 3,361
Diluted income (loss)
per share from:
Continuing
operations............ $(0.48) $ (0.54) $(0.46) $(0.28) $(0.27) $(0.15) $(0.05) $(0.04) $ 0.02
====== ======= ====== ====== ====== ====== ====== ====== ======
Net income (loss)...... $(0.45) $ (0.46) $(0.46) $(0.22) $(0.27) $(0.15) $(0.02) $(0.04) $ 0.02
====== ======= ====== ====== ====== ====== ====== ====== ======
Weighted average shares
used in diluted per
share calculations..... 2,912 2,930 2,947 3,193 3,280 3,286 3,298 3,340 5,055
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1997 1997 1997 1998 1998 1998 1998 1999 1999
-------- --------- -------- -------- -------- --------- -------- --------- --------
(As a percentage of total revenues)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Network management
services.............. 49.0 % 48.2 % 50.2 % 53.5 % 46.0 % 48.0% 48.4% 48.5% 50.5%
Equipment and other
revenues.............. 51.0 51.8 49.8 46.5 54.0 52.0 51.6 51.5 49.5
----- ----- ----- ----- ----- ----- ----- ----- -----
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Total cost of revenues.. 82.3 79.0 78.6 68.8 74.2 71.7 69.1 69.3 68.4
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 17.7 21.0 21.4 31.2 25.8 28.3 30.9 30.7 31.6
Operating expenses:
Development............ 15.9 13.0 12.9 11.3 8.0 7.1 6.7 6.3 6.4
Sales and marketing.... 20.1 21.6 15.6 14.3 13.3 11.2 11.5 11.5 10.3
General and
administrative........ 13.5 14.5 16.6 14.7 9.8 8.0 7.4 6.8 6.9
----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............. 49.5 49.1 45.1 40.3 31.1 26.3 25.6 24.6 23.6
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income
(loss)................. (31.8) (28.1) (23.7) (9.1) (5.3) 2.0 5.3 6.1 8.0
Other income (expense),
net.................... 4.3 (1.6) 1.7 1.6 0.9 0.3 1.5 0.3 0.5
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
continuing operations,
before income taxes.... (27.5) (29.7) (22.0) (7.5) (4.4) 2.3 6.8 6.4 8.5
Income tax expense
(benefit).............. (2.7) (2.9) (2.2) (0.8) -- -- 0.1 0.2 0.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss) from
continuing operations.. (24.8) (26.8) (19.8) (6.7) (4.4) 2.3 6.7 6.2 8.3
Discontinued operations:
Income (loss) from
discontinued
operations, net of
applicable income
taxes................. 2.3 2.7 0.1 (0.2) -- -- -- -- --
Gain (loss) on sale of
discontinued
operations, net of
applicable income
taxes................. -- 4.2 (0.1) 4.5 -- -- 1.4 -- --
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (22.5)% (19.9)% (19.8)% (2.4)% (4.4)% 2.3% 8.1% 6.2% 8.3%
===== ===== ===== ===== ===== ===== ===== ===== =====
Cost of network management services, expressed as a percentage of network
management services revenues, and the cost of equipment and other, expressed as
a percentage of equipment and other revenues, were as follows:
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
1997 1997 1997 1998 1998 1998 1998 1999 1999
-------- --------- -------- -------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of network
management services.. 86.9% 85.7% 77.7% 66.1% 70.6% 64.1% 62.9% 62.6% 58.3%
Cost of equipment and
other................ 77.8 72.9 79.4 72.0 77.3 78.7 74.9 75.6 78.7
</TABLE>
The trends discussed in the annual comparisons of operating results from
fiscal year 1998 to fiscal year 1999 and the three months ended June 30, 1998,
to the three months ended June 30, 1999 are generally applicable to the
comparison of quarters within the nine quarters in the period ended June 30,
1999. 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 under which we managed the
28
<PAGE>
customer base of the discontinued transport business. The larger than usual
sequential growth in equipment and other revenues in the three months 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 equipment and other 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. We expect to limit discounts on CPE and encourage end users
to purchase equipment from other sources. Further, as an alternative to selling
CPE to our resellers, we have recently amended some of our reseller agreements
such that we receive management fees for ordering CPE and managing CPE
inventories for these resellers. We therefore anticipate that revenues from CPE
sales will decline as we seek to manage our mix of revenues.
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 our inception we have funded our operations primarily through:
. private sales of capital stock totaling $28.3 million, including our
most recent sale of capital stock in fiscal year 1993 for $9.8
million;
. the sale of our discontinued transport business for $12.3 million in
December 1996;
. leases on capital equipment;
. working capital lines of credit; and
. cash provided by operations of $1.1 million in fiscal year 1995, $1.0
million in fiscal year 1996, $892,000 in fiscal year 1999 and $1.5
million in the three months ended June 30, 1999.
We used $1.5 million in cash during fiscal year 1997, $2.2 million during
fiscal year 1998, $1.6 million during fiscal year 1999, and $724,000 in the
first three months of fiscal year 2000 to purchase capital assets primarily
used in the delivery of our network management services. We currently have no
material commitments for capital expenditures. Proceeds from leases of capital
equipment totaled $218,000 in fiscal year 1997, $1.7 million in fiscal year
1998, $831,000 in fiscal year 1999, and $0 in the first three months of fiscal
year 2000. We paid $514,000 in 1997, $257,000 in 1998, $732,000 in 1999 and
$249,000 in the first three months of fiscal year 2000 toward our lease
obligations for capital equipment. We intend to continue to add sales,
marketing and development resources over the next 12 months; however, we
anticipate that costs associated with sales, marketing and development
initiatives will not materially increase as a percentage of revenues and will
not result in significant uses of working capital.
In July 1999, we completed a conversion of our financial and accounting
system for accounts payable, accounts receivable and general ledger accounts,
in order to make the system year 2000 compliant. With the exception of routine
upgrades to certain server and desktop computer operating systems, desktop
computer packaged software, desktop computer firmware and one third-party
software tool, all of our internal, mission-critical systems, including the
software tools we supply to customers, are year 2000 compliant. Resellers', end
users' and vendors' software and systems, however, 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 end users, or otherwise
have a material adverse effect on our business, financial condition and results
of operations.
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 less than $100,000
to complete all remaining hardware and software upgrades in order to be year
2000 compliant. However, any disruption of our operations or additional
unanticipated expenses could have an adverse effect on our business, financial
condition and results of operations.
In December 1996, we terminated our $1.0 million bank line of credit prior to
the closing of the sale of the transport business. If desirable, we believe we
can obtain a similar working capital line of credit on acceptable terms.
29
<PAGE>
As of June 30, 1999, we had $6.6 million in cash and cash equivalents and
$3.4 million in net accounts receivable. We believe that the net proceeds from
this offering, together with cash generated from operations, will be sufficient
to fund our anticipated working capital needs, capital expenditures and any
potential future acquisitions for at least 12 months. In the event our plans or
assumptions change or prove to be inaccurate, or if we consummate any unplanned
acquisitions of businesses or assets, we 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.
30
<PAGE>
BUSINESS
We offer a range of 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. Our 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. 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
offer around-the-clock remote security protection services for the Internet and
intranet perimeter points of our customers' networks. Our security offerings
currently include a managed firewall service and a remote intrusion detection
and response service. We have offered network management services since 1995
and currently have over 575 end users representing approximately 8,700 managed
sites. We target middle market enterprises, and provide services both directly
to end users as well as indirectly 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, or WANs, which allow companies to communicate with a large number of
computers over a broad geographic area, and local area networks, or LANs, which
are generally more limited in the number of computers in the network and the
geographic area covered. This proliferation of networks has resulted in a
dramatic increase in network traffic as well as heightened requirements for
network performance. It has also increased the magnitude 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 which allow any user to be connected to
any other user in a more efficient manner than traditional network
architectures. Examples of these switched data technologies include Frame
Relay, Asynchronous Transfer Mode, or ATM, and Internet Protocol, or IP. These
new switched data technologies are able to share and allocate bandwidth, the
electronic frequencies used to transmit data over computer networks, based on
actual network use, while traditional network architectures use fixed bandwidth
and dedicated circuits regardless of network use. 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.
31
<PAGE>
Further, the tools available to manage today's networks are 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, or IT, professionals. We estimate, based on
industry reports, that between 15% and 30% of permanent IT positions were
unfilled in mid-1998. The United States Department of Commerce, in a report
released in June 1999, projects 75% growth in the demand for core IT
occupations in the decade ending in 2006 as compared to 14% growth in demand
for all occupations. 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.
Our solution
We offer 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. We also offer security protection for network perimeter
points such as an enterprise's Internet or intranet connections. Our solutions
are designed to address the needs of middle market enterprises. We currently
have over 575 middle market end users that maintain approximately 8,700 managed
sites. We believe our solution offers the following key benefits:
Full breadth of network management services. Our 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 us, 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. We
are 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, we believe we are able to offer a better network solution
at a lower cost than if an end user attempted to manage its network in-house.
Furthermore, we evaluate, purchase, develop and integrate application-specific
software and tools that allow us to deliver reliable solutions at low costs. We
support only the relatively small
32
<PAGE>
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, we are able to leverage
economies of scale in managing multiple end-user networks.
Increased 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. We provide our remote network management and security services
to end-user locations worldwide 24 hours per day, seven days per week. Our
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. Our network management
professionals act as an extension of the customer's IT staff. By relying on our
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. We report to end users on an ongoing
basis and recommend upgrades or changes when appropriate.
Web-enabled network monitoring and reporting. End users can out-task to us
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 our 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. We also
provide end users with reports of network activity periodically or on demand.
Strategy
Our goal is to be a leading provider of remote network management services.
The key elements of our strategy include the following:
Target middle market enterprises. We believe that a significant market
opportunity exists for our 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. We believe that our network management and security services
offer an attractive solution for many middle market companies and we intend to
target these companies, as we market our existing services and develop new
services.
Support leading technologies. We have been able to provide cost-effective
solutions to our customers by supporting only the leading providers of
networking hardware and carrier services. The suppliers that we support include
AT&T, MCI/WorldCom, Qwest Communications and Sprint in the data transport
arena, and 3Com, Bay/Nortel, Cabletron and Cisco in the market for customer
premise equipment, or CPE. By designing our services to support this select
group of leading service and equipment vendors, we seek to leverage our
expertise, technologies and processes, while still providing support for the
needs of most middle market companies. We intend to continue to develop our
processes and tools to support new hardware and services introduced by leading
vendors. This ongoing support may require us to modify existing services and,
in some cases, develop new services. For example, we recently began managing
ATM devices and are actively attempting to define new value added services.
Expand service offerings. We seek to expand our service offerings by
leveraging our existing expertise, technologies and processes in the network
management arena. In August 1996, we introduced a security service that
provides remote intrusion detection. In March 1999, we introduced an add-on
service to our WAN management
33
<PAGE>
service that offers customers increased proactive network management
capabilities, including our ability to identify many network problems and
faults before the customer's network goes down. These offerings use our
network management center and tools infrastructure and are supplemented by
additional proprietary and third-party tools. In addition, the security
service is enhanced by engineers with specific network security expertise. In
the future, we intend to further develop our proactive network management
service involving performance engineering and to add services addressing
capacity planning.
Add distribution partners. We believe that we can market our services to
middle market companies most effectively by partnering with resellers that
bundle our services with transport services or CPE. We believe that we can
expand our current distribution relationships to include other major carriers,
competitive local exchange carriers, or CLECs, and Internet service providers,
or ISPs, and that we can also establish sales referral relationships with
various manufacturers of networking hardware. We believe that these
relationships will provide us with a significant competitive advantage.
Network management services
Our 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. Our 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
Our 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
[Three rectangles are linked by arrows pointing from left to right. The three
rectangles contain the following words:]
Design
Configure
Implement
[Six items linked by arrows circumscribe the words "Operate and Support." The
six items consist of the following words, beginning at the top and moving
clockwise:]
Alarm
Fix
Report & Trend
Upgrade
Document
Monitor
34
<PAGE>
We provide 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 us for
each life cycle activity:
<TABLE>
<CAPTION>
Life cycle activity Our services
------------------- --------------------------------------------------------
<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
our 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
. Offer real-time reporting on network performance which
falls below predefined thresholds
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 our management platform
information related to CPE configurations, carrier and
CPE service provider data and other network
connectivity information
. Create and update network maps
</TABLE>
We have two branded network management service packages: ProWatch for WANs
and ProWatch for LANs.
ProWatch for WANs. We introduced our 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 us and
certain of our 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, or 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) proactive monitoring; and (3)
performance reporting. The ProWatch for WANs service generally includes
a guarantee to provide the customer 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. Substantially all of our
recurring network management services revenues are derived from
ProWatch for WANs and related WAN services.
ProWatch for LANs. We introduced our LAN remote management service in
May 1997 to measure, monitor and manage the routers, switches and
intelligent hubs in corporate LANs. This
35
<PAGE>
service can also monitor the availability of servers manageable by the
Simple Network Management Protocol, or SNMP. Our LAN management
services are marketed by us and certain of our 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,
we leveraged the expertise, technologies and processes we 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
Our 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, or VPN, configuration management. The pricing for these
security services is generally established as a monthly fee on a per-managed-
device basis. We offer two different security services:
ProWatch Secure Managed Firewall Service. This service provides
active management of the firewall, the electronic barrier between
network segments. Our security engineers regularly review firewall logs
and alarms to detect suspicious activity. Through this monitoring we
can consult with the end user regarding potential changes in the
firewall configuration. ProWatch Secure Managed Firewall Service is
supported on Cisco's PIX Firewall series. The Cisco PIX Firewall is
configured by our security engineers 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 our Remote Intrusion Detection and Response
Service.
ProWatch Secure 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. We introduced our ProWatch Secure
Remote Intrusion Detection and Response Service in August 1996.
End users may purchase these services individually, together or as part of a
combined network management service offering.
Web-enabled tools
Our 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
us. End users access these tools through a standard web browser using our
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.
Equipment and other services
We resell customer premises equipment from leading network equipment
manufacturers or their resellers. This equipment typically includes routers,
CSUs and LAN switches and is obtained from Cisco and, to a lesser extent, from
3Com, Bay/Nortel, Paradyne and others.
36
<PAGE>
We also resell 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
Our 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. We
currently have over 575 middle market end users that maintain approximately
8,700 managed sites. Our end users consist of our direct customers as well as
customers of our resellers. The following is a selected list of our direct
customers grouped by industry.
<TABLE>
Business Services Education High Technology
<S> <C> <C>
Claremont Technology Bucks County School Santa Cruz
Group District Operation
The Kinetic Group Corinthian Colleges, Verifone, Inc.
Inc.
Chemicals Financial Services/Real Manufacturing
Estate
CONDEA Vista Company Amresco Temple-Inland
Helena Chemical Company Security Capital Group Forest Products Corp.
Texas Industries
Distribution Food and Agricultural Medical
Products
BT Office Products Kendall-Jackson American Medical Response
International
Computer Discount Warehouse Sun Gro Horticulture YFCS, Inc.
</TABLE>
When sold to end users by resellers, our services are typically sold under
the reseller's trade or brand name. In some instances, however, the reseller
utilizes our brand names. Certain of our services sold to resellers are
provided directly to the reseller either to support the reseller's network, as
in the case of some carriers, or are embedded as a portion of a carrier
transport service sold to end users. Our resellers include AT&T, NEC Business
Network Solutions, e.spire Communications and Intermedia.
We have derived a significant portion of our revenue from one reseller,
AT&T. No other customer accounted for more than 10% of our revenues in any of
the last three fiscal years. AT&T accounted for 30% of our total revenues in
fiscal year 1997, 52% of our total revenues in fiscal year 1998, 59% of our
total revenues in fiscal year 1999 and 69% of our total revenues in the three
months ended June 30, 1999. We anticipate that this concentration of revenue
from AT&T will continue at least through fiscal year 2000.
Relationship with AT&T
We have 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 our network management services to AT&T customers in
conjunction with AT&T's overall network solution offering. Our technicians
work directly with AT&T's sales and marketing personnel and the end users to
design, implement and manage the end users' networks. AT&T accounted for 30%
of our total revenues in fiscal year 1997, 52% of our total revenues in fiscal
year 1998, 59% of our total revenues in fiscal year 1999 and 69% of our total
revenues in the three months ended June 30, 1999. We anticipate that this
concentration of revenue from AT&T will continue at least through fiscal year
2000.
37
<PAGE>
We provide our 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 December 31, 2001 with respect to placing new
orders for service. Individual orders received prior to July 1, 1999 may be
canceled at AT&T's option at a rate not to exceed 150 devices per month
beginning in July 2000. This rate represents approximately 4% per month of the
orders eligible for this option as of June 30, 1999. For orders placed after
June 30, 1999, the agreement provides for us to continue providing services
until the earlier of the expiration of the end-user customer service term or
December 31, 2004. However, individual orders placed after June 30, 1999 may be
canceled at any time at AT&T's option on thirty days' notice by paying a
cancellation charge. Such cancellations are limited to ten percent of the
beginning backlog of all orders in any twelve month period. In addition, all
orders may be cancelled at any time after July 1, 2001, upon 12 months' written
notice. In the event of such a cancellation, the number of devices that may be
cancelled by AT&T each month may not exceed 8% of the number of devices billed
in the last full month prior to cancellation.
Our arrangements with AT&T Business Network Services relate to multiple
carrier services: AT&T Frame Relay Plus Services, AT&T Inverse Multiplexing
Services, AT&T IP Enhanced Frame Relay Services and AT&T ATM Plus Services. Our
arrangements relating to Frame Relay Plus Services will terminate December 31,
2000, except that, following the termination date, we will continue to provide
services until the earlier of the expiration of the end user customer service
term or December 31, 2003. Our arrangements in support of Inverse Multiplexing
Services will terminate December 31, 1999. Our arrangements in support of IP
Enhanced Frame Relay Services will terminate April 4, 2000, except that,
following the termination date, we may continue to provide services until the
expiration of the end-user customer service term if elected by AT&T. The
arrangements in support of ATM Plus Services will terminate February 28, 2001,
except that, following the termination date, we will continue to provide
services until the earlier of the expiration of the end-user customer service
term or February 8, 2004.
On December 9, 1998, AT&T announced that it was acquiring IBM's Global
Network business, which services the networking needs of global companies, mid-
sized businesses and individual Internet users. We are unable to predict what
impact, if any, this acquisition will have on our relationship with AT&T.
Sales and marketing
We market our 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
year 1999, 26% of network management service revenues was derived from direct
customers. Our strategy is to build our reseller channels and we expect that
these channels will represent an increasing percentage of our network
management revenues for the foreseeable future. Our resellers include AT&T, NEC
Business Network Solutions, e.spire Communications and Intermedia. All sales of
our services to date have been made in the U.S. However, we remotely manage
locations around the world for these U.S.-based customers.
At June 30, 1999, we employed eleven 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 our
services. Reseller support by our sales organization includes assistance with
responses to requests for proposals, network design and proposal generation,
and participation in sales calls to potential customers. Our sales organization
also helps resellers define services and familiarize the reseller's sales
forces with our services and networking options. All of our sales and marketing
employees are based at our headquarters in Austin.
At June 30, 1999, we 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
our web site. Public relations activities include obtaining media coverage and
public recognition. Marketing activities related to 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 our larger reseller partners to define, develop and
implement embedded carrier services.
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<PAGE>
Software development
The objective of our software development group, which consisted of 14 people
as of June 30, 1999, is to develop or integrate the tools we utilize to manage
networks and to develop software applications, such as ProWatch Exchange, which
become components of our services. While certain of our applications and tools
are proprietary, all are built using industry-standard protocols, tools and
development environments, including HyperText Markup Language, or HTML, Java,
Java Script, Microsoft Access, Oracle 8.x relational database software and
development tools, Remote Monitoring, or RMON, SNMP and Visual Basic.
Operations
Our operations organization, comprised of 94 individuals as of June 30, 1999,
is responsible for delivery of our services to end users. By defining network
management tasks into sets of tightly defined services, we are able to deliver
functionality to our end users at cost effective prices. Our 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 our
operations group. The first level of service delivery is our 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. Our
network management center continuously monitors responses to polls to managed
devices and opens trouble tickets 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, we can utilize network engineers with a broad range of skills and
experience.
Our 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, we employ a SONET ring which is served from
two separate local exchange carrier serving offices. Our facility contains two
separate rooms with some redundant computing and networking equipment, each of
which is monitored 24 hours per day, seven days per week.
We deliver our services utilizing a workforce with a wide range of skills,
from entry-level to highly trained networking professionals. We use a strict
operational methodology combined with proprietary software tools to leverage
our workforce. We believe that we can meet our resource requirements by hiring
experienced networking professionals and by recruiting and training recent
college graduates. Nonetheless, qualified IT professionals are in short supply
and we face significant competition for these professionals.
Competition
Currently, we compete primarily with the internal network administration
organizations of actual or potential end users of our 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. We believe 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.
39
<PAGE>
The remote network management service market is new, highly fragmented,
rapidly evolving and largely undefined. There are few substantial barriers to
entry, and we expect that we 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 we have. We believe that 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 conformity with industry
standards. While we believe that we currently are able to provide end users
with reliable network management and security services at prices that allow us
to compete favorably with respect to other service providers, there can be no
assurance that we will have the resources or expertise to compete successfully
in the future.
We currently face 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 our security services, we currently face competition from computer
systems vendors such as IBM. We also face potential competition from IT
consulting firms, systems integrators, VARs, and local and regional network
services firms and other new entrants into our 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 we have. There can be no assurance that we will be
able to compete successfully against current or potential competitors. Our
failure to successfully compete would significantly damage our business.
We also face potential competition from resellers with which we currently
partner, or could partner, to market and sell our services. These resellers
generally have substantially greater resources than we have and could directly
compete, rather than partner, with us. Such a decision by our resellers would
significantly damage our business.
With respect to the sale of equipment and on-site equipment maintenance
services, we compete primarily with the equipment manufacturers and their
resellers.
Intellectual property rights
We rely 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 our services. We have applied for a patent with
the United States Patent Office. This patent relates to software technology
which allows us to poll, or communicate with, large numbers of routers or other
SNMP devices over multiple WANs. Although we currently have no patented
technology that would preclude or inhibit competitors from entering our market,
we intend to continue to evaluate the appropriateness of such protection and to
seek patent protection for our inventions when appropriate. There can be no
assurance that patents will issue from our 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 us. We have registered the name NetSolve, our logo and the names ProWatch
and ProWatch Secure as separate service marks in the United States and various
state trademark offices. We also have service mark registrations pending for
ProWatch for WANs, ProWatch for LANs and ProWatch Exchange. There can be no
assurance that such trademarks will be granted. We have not made any foreign
patent or trademark filings. We have entered into proprietary rights and
confidentiality agreements with our employees, and generally enter into
nondisclosure agreements with our suppliers, distributors and appropriate
customers in order to limit access to and disclosure of our proprietary
information.
There can be no assurance that these contractual arrangements or the other
steps taken by us to protect our intellectual property will prove sufficient to
prevent infringement or misappropriation of our technology or to deter
independent third-party development of similar technologies. Any such
infringement or misappropriation, should it occur, could significantly damage
our business. Furthermore, litigation may be necessary to enforce our
intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the
40
<PAGE>
proprietary rights of others, or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources. We may be unable to protect our intellectual property, and we could
incur substantial costs defending our intellectual property from infringement
or claims of infringement.
In June 1996, in connection with our registration of the service mark
NetSolve, GRC International, Inc. claimed that our use of the name NetSolve
infringed GRC's common law intellectual property rights. This claim was settled
by an agreement with GRC and GRC withdrew its opposition and consented to our
service mark registration. GRC retains the right to use the name NetSolve to
describe a particular software product, and we retain the full right to our
corporate name. We also agreed with GRC to refrain from using NetSolve as a
brand name to describe products and services. We believe that the limited joint
use of the name NetSolve by GRC will not have a material adverse effect on us.
With the exception of GRC, we have not, to date, been notified that our
services infringe the proprietary rights of third parties; however, there can
be no assurance that third parties will not claim infringement or
indemnification by us with respect to current or future services or products.
We expect that participants in our markets will be increasingly subject to
infringement claims as the number of services and competitors in our 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 us from using important technologies
or methods, subject us to substantial damages, or require us to enter into
royalty or licensing agreements. Such royalty or licensing agreements might not
be available on terms acceptable to us or at all. As a result, any such claim
could materially harm our business.
Employees
As of June 30, 1999, we had 135 full-time employees, including 16 in sales
and marketing, 14 in development, 94 in operations and 11 in finance and
administration. Our success depends to a significant degree upon the continued
contributions of our executive management, network management and engineering
teams. Our future success will depend in large part upon our continued ability
to attract and retain highly skilled and qualified personnel.
None of our employees is represented by a collective bargaining agreement. We
believe relations with our employees are good.
Facilities
Our corporate headquarters are located in a leased facility in Austin, Texas.
In March 1998, we relocated all of our operations, including all employees and
the network management center, into our current facility, which covers
approximately 70,000 square feet. In connection with this move, we upgraded our
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. Our new facility allows us to maintain dual computer rooms with some
redundant equipment in order to provide safeguards in the event of a fire or
similar emergency.
The lease for our offices expires in November 2008, including a five-year
option to renew. We believe that our current facilities are adequate to meet
our foreseeable requirements or that suitable additional or substitute space
will be available on commercially reasonable terms.
Litigation
We are not currently a party to any material legal proceedings.
41
<PAGE>
MANAGEMENT
Executive officers and directors
Our executive officers and directors and their ages as of July 15, 1999 are
as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
Craig S. Tysdal......... 53 Director; president and chief executive officer
Kenneth C. Kieley....... 49 Vice president--finance, chief financial officer and secretary
Christopher D. Buffum... 50 Vice president--sales
Terrence S. Cheng....... 42 Vice president--software development
Robert C. Pojman........ 36 Vice president--operations
Harry S. Budow.......... 38 Vice president--marketing
J. Michael Gullard(1)... 54 Chairman of the board
Joel P. Adams(1)........ 42 Director
C. Richard Kramlich(2).. 64 Director
John S. McCarthy(2)..... 50 Director
H. Leland Murphy(1)..... 53 Director
Suzanne C. Narducci..... 57 Director
Howard D. Wolfe,
Jr.(2)................. 58 Director
</TABLE>
- ---------------
(1) Member of compensation committee.
(2) Member of audit committee.
Craig S. Tysdal became our president and chief executive officer and a member
of our board of directors 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 WAN equipment. 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 us in September 1989 as our 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.
Christopher D. Buffum became our 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.
Terrence S. Cheng joined us in April 1998, as our 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.
Robert C. Pojman has been our vice president--operations since February 1997.
From January 1995 to February 1997, Mr. Pojman was employed as first vice
president--data centers at Deluxe Data Systems, 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>
Harry S. Budow commenced his employment with us as vice president--marketing
in July 1999. From April 1998 until joining us, Mr. Budow served as the
president and chief executive officer and a director of AXCESS Inc., a provider
of technology focusing on the security access market; and before AXCESS, Mr.
Budow served as the president and chief operating officer of AXCESS Inc.'s
wholly owned subsidiary, Sandia Imaging Systems, Inc. from June 1997 to April
1998. From January 1996 to February 1997, Mr. Budow was employed as the vice
president--marketing & business development of Bell Packaging Corp., a
manufacturing and distribution company serving the packaging, paper and retail
display industry. Mr. Budow was employed by SpectraVision, an entertainment
company, as its senior vice president--marketing & business development from
December 1991 to December 1995, and as its vice president--marketing &
technology from March 1990 to December 1991. SpectraVision was the subject of a
bankruptcy proceeding under Chapter 11 of the U.S. Bankruptcy Code beginning in
1995 until its acquisition in 1996.
J. Michael Gullard is our chairman of the board and has been one of our
directors 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.
Joel P. Adams has been a member of our board of directors 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.
C. Richard Kramlich has been a member of our board of directors since April
1991. He is the co-founder and 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, Juniper Networks, a network equipment infrastructure company,
Healtheon Corporation, an Internet-based health services company, Lumisys
Incorporated, a producer of picture archiving and communications systems, and
Silicon Graphics, Inc., a developer of workstations with computer graphics
capabilities.
John S. McCarthy has been a member of our board of directors since August
1991. He is a managing general partner of Gateway Associates, L.P., a venture
capital firm.
H. Leland Murphy was a member of our board of directors 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.
Suzanne C. Narducci has been a member of our board of directors since April
1999. She has been vice president for Service Provider Solutions Integration
and Alliances at Cisco Systems since February 1999. From July 1995 to February
1999 she held various positions at Cisco Systems, in which she was responsible
for sales and support to service providers within the continental United
States. Before joining Cisco, Ms. Narducci served as vice president of sales
and marketing at Eastern Telelogic, an access provider serving New Jersey,
Pennsylvania and Delaware from January 1993 to July 1995.
Howard D. Wolfe, Jr. has been a member of our board of directors 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.
Each director is elected for a period of one year and serves until his or her
successor is duly elected and qualified. Our executive officers are appointed
by, and serve at the discretion of, the board of directors.
There are no family relationships among any of our 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 our annual audit and meets
with our 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 our stock-based compensation plans.
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<PAGE>
Compensation committee interlocks and insider participation
No compensation committee member is currently or has been an officer or
employee of our company. None of our executive officers serves as a member of
the board of directors or compensation committee, or any entity serving an
equivalent function, of any other entity that has one or more executive
officers serving on our board or compensation committee.
Director compensation
Directors are entitled to receive cash compensation in an amount equal to
$2,000 for each board of directors meeting attended in person and $500 for each
board of directors meeting attended by teleconference. Additionally, directors
are reimbursed for their reasonable expenses incurred in attending meetings of
the board of directors. Directors are eligible to participate in our 1988 Stock
Option Plan and Long-Term Incentive Compensation Plan.
Limitation of liability and indemnification matters
Our 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 liability for (1) any breach of their duty of loyalty to the
corporation or its stockholders, (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3)
improper payments of dividends or improper stock repurchases or redemptions as
provided in Section 174 of the Delaware General Corporation Law, or (4) any
transaction from which the director derived an improper personal benefit.
Our bylaws provide that we shall indemnify our directors, officers, employees
and agents to the fullest extent permitted by law. We believe that
indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties.
We have entered into agreements that indemnify our 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 us or on our
behalf, arising out of his or her service as a director or executive officer of
our company, any of our subsidiaries or any other company or enterprise to
which the person provides services at our request. We believe 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 of our
directors, officers, employees or agents in which indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
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<PAGE>
Executive compensation
The following table sets forth the total compensation earned during fiscal
year 1999 by the following individuals for their service to our company: (1)
our chief executive officer and (2) our four other executive officers whose
bonus and salary exceeded $100,000. We refer to these individuals collectively
as the Named Executive Officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
----------------------------------- ----------------
Awards
----------------
Salary Other Annual Stock Underlying All Other
Name and Principal Position ($) Bonus ($) Compensation ($) Options (#) Compensation ($)
- --------------------------- -------- --------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Craig S. Tysdal,
president and
chief executive
officer................ $189,583 $1,746 -- 200,000 --
Robert C. Pojman, vice
president--operations.. 153,029 1,746 -- 50,000 --
Christopher D. Buffum,
vice president--sales.. 150,000 1,746 $69,150 -- --
Kenneth C. Kieley, vice
president--finance,
chief financial officer
and secretary.......... 133,333 1,070 -- 50,000 $1,247
Michael R. Turner, vice
president--marketing... 123,333 1,814 -- -- 812
</TABLE>
The other annual compensation for Mr. Buffum consisted of sales commissions
and reimbursement of relocation expenses. The other compensation we paid to
Messrs. Kieley and Turner consisted of a reimbursement for long-term disability
insurance premiums. Mr. Turner's employment with us terminated on May 28, 1999.
Harry S. Budow accepted the position of our vice president--marketing
commencing in July 1999 at an initial salary of $200,000 per year.
Option grants
The following table provides certain summary information concerning the
shares of common stock represented by stock options granted to each of the
Named Executive Officers during fiscal year 1999.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential realizable
value at assumed
annual rates of stock
price appreciation
Individual Grants for option term
------------------------------------------------ ---------------------
Number of Percentage of
Securities total options
Underlying granted to Exercise
Option Granted employees in price Expiration
(#) fiscal year ($/sh) Date 5%($) 10%($)
-------------- ------------- -------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Craig S. Tysdal......... 200,000 32% $7.50 7/21/2008 $944,000 $2,390,000
Robert C. Pojman........ 50,000 8 7.50 7/21/2008 236,000 597,500
Christopher D. Buffum... -- -- -- -- -- --
Kenneth C. Kieley....... 50,000 8 7.50 7/21/2008 236,000 597,500
Michael R. Turner....... -- -- -- -- -- --
</TABLE>
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<PAGE>
All options were granted at their "fair market value" on the date of grant
and may be exercised at any time during the term of the option. Each option
vests over a four-year period with one fourth of the total amount vesting one
year from the date of grant and one-sixteenth of the total amount vesting in
each calendar quarter remaining. The unvested portion of any previously
exercised option is subject to our repurchase right upon termination of the
executive's employment. Under the terms of our Long-Term Incentive Compensation
Plan, the board of directors retains discretion, subject to certain limitations
provided for in the plan, to modify the terms of outstanding options. All
options were granted for a term of 10 years, subject to earlier termination in
certain events related to termination of employment. The exercise price for all
options may be paid in cash or shares of our common stock or a combination of
cash and shares.
In connection with his commencing employment in July 1999, Mr. Budow was
granted an option to purchase 100,000 shares of our common stock under our
Long-Term Incentive Compensation Plan at an exercise price of $9.00 per share.
Fiscal year-end option values
The following table provides information concerning the shares of common
stock represented by outstanding stock options held by each of the Named
Executive Officers as of March 31, 1999.
Fiscal 1999 Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at March 31, 1999 in-the-Money Options
(#) at March 31, 1999 ($)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Craig S. Tysdal............. 569,375 220,625 $6,618,313 $1,108,688
Robert C. Pojman............ 60,000 110,000 594,000 819,000
Christopher D. Buffum....... 30,000 90,000 276,000 828,000
Kenneth C. Kieley........... 219,250 66,250 2,492,750 389,250
Michael R. Turner........... 112,500 7,500 1,303,750 74,250
</TABLE>
There was no public market for the common stock as of March 31, 1999.
Accordingly, the values of unexercised in-the-money options have been
calculated by determining the difference between an assumed public offering
price of $12.00 per share and the per share exercise prices of the options.
No options were exercised by the Named Executive Officers during fiscal
year 1999.
Long-term incentive compensation plan
Our Long-Term Incentive Compensation Plan, or 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 us in attracting, retaining and
motivating executive officers, key employees and directors and consultants who
are essential to our 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 our company or any of our
subsidiaries, divisions, business units or other areas, 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.
Our full-time employees, directors, and consultants 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.
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<PAGE>
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 us or shares purchased in the open market.
We expect that awards made under the Long-Term Incentive Plan will be fully
deductible for federal income tax purposes. In this connection, if we become
subject to Section 162(m) of the Internal Revenue Code, which limits such
deductions for awards to certain covered participants, 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 June 30, 1999, options covering an aggregate of 980,636 shares of
common stock had been granted under the Long-Term Incentive Plan at exercise
prices ranging from $2.80 to $9.00. 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-fourth of the total amount vesting one year from the
date of grant and one-sixteenth of the total amount vesting in each subsequent
calendar quarter. The unvested portion of any exercised options are subject to
our repurchase right 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 will 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 will terminate on December 31, 2006.
Stock options. The Long-Term Incentive Plan authorizes (1) the grant of
options to purchase common stock intended to qualify as incentive stock options
under Section 422(b) of the Internal Revenue Code, or incentive options, and
(2) the grant of options that do not so qualify, or 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 our 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 our
employees, officers, consultants and directors, whether or not they are our
employees. 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, or 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.
47
<PAGE>
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 awarded subject to performance
criteria or other restrictions which are not satisfied, are forfeited and must
be returned to us. 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 our 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
our voting securities; (2) we are involved in a merger, acquisition or similar
transaction pursuant to which our directors immediately before the transaction
cease to constitute a majority of our directors after the transaction; or (3)
we are involved in a transaction pursuant to which we are not the surviving
corporation, our common stock is exchanged for, or converted into securities of
another entity, we become a subsidiary of another entity, or 50% or more of our
aggregate assets or earning powers are sold to another entity.
1988 stock option plan
Our 1988 Stock Option Plan, or 1988 Option Plan, was adopted by our board of
directors and approved by our stockholders in November 1988. The principal
purpose of the 1988 Option Plan is to advance the interests of our company and
our stockholders by enabling us to attract qualified management and other key
personnel and encourage selected directors, officers, key employees and
consultants to acquire and retain a proprietary interest in our company through
the ownership of our common stock. A total of 1,636,395 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
of our plans 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 June 30, 1999, there were options outstanding under the 1988 Option
Plan for 1,636,395 shares of common stock. As of such date, a total of 863,442
shares had been purchased pursuant to option exercises and we had repurchased
6,600 unvested shares pursuant to the provisions of the 1988 Option Plan. No
incentive options were allowed to 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 1988 Option Plan is currently administered by the
compensation committee. The 1988 Option Plan administrator determines the terms
of options granted under the 1988 Option Plan, including the number of
48
<PAGE>
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 our company or any parent or subsidiary
corporation of our 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.
The 1988 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 1988 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-fourth of the stock vesting one year from
the date of grant and one-sixteenth of the stock underlying the option vesting
in each subsequent calendar quarter. The unvested portion of exercised options
may be repurchased by us at the original exercise price upon termination of
employment.
We have the authority to amend or terminate the 1988 Option Plan, except that
we may not increase the aggregate number of shares which may be issued under
options granted pursuant to the 1988 Option Plan, and we may not take any
action 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, we established a 401(k) defined contribution
retirement plan, or 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 being hired by us. 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 1999). We 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, we have not
made any contribution to the Retirement Plan, and we do not anticipate making
any contribution to the Retirement Plan in the foreseeable future.
Bonus plan
In July 1998, we adopted a 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, we meet certain
financial performance objectives established from time to time by us. We may
amend or terminate the bonus plan at any time.
49
<PAGE>
TRANSACTIONS WITH RELATED PARTIES
Venture capital firms affiliated with Messrs. Gullard, Adams, Kramlich,
McCarthy and Wolfe, each of whom is a member of our board of directors, have
certain rights with respect to the registration of 604,541, 2,257,089,
3,182,734, 875,000, and 300,589 shares, respectively, of common stock they may
hold under the Securities Act. Under these rights, which are held by all
venture capital firms that participated in our financings, holders may require
us to register their shares and may include their shares in registration
statements filed by us.
We have entered into indemnification agreements with our executive officers
and directors. Among other terms, under these agreements, we 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.
We intend to execute similar indemnification agreements with our future
directors and executive officers.
As a matter of policy, all future transactions between us and any of our
directors or executive officers 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 our company.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of June 30, 1999, and as adjusted
to reflect the sale of the shares of common stock offered by this prospectus,
by: (1) each of our directors; (2) each of the Named Executive Officers; (3)
all of our current directors and executive officers as a group; (4) each person
we know to own beneficially 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. Unless otherwise indicated, the address of each of the
named individuals is: c/o NetSolve, Incorporated, 12331 Riata Trace Parkway,
Austin, Texas 78727.
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 our 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 our common stock subject to options and warrants held by that person
that are currently exercisable within 60 days of June 30, 1999. 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. For purposes of this table, the
number of shares of common stock outstanding prior to the offering is deemed to
be 9,878,516, consisting of 3,483,789 shares of common stock outstanding on
June 30, 1999 and an additional 6,394,727 shares issuable upon conversion of
our preferred stock. For purposes of calculating the percentage beneficially
owned by any person, shares of our common stock issuable to such person upon
the exercise of any options exercisable within 60 days of June 30, 1999 are
also assumed to be outstanding. The number of shares of common stock deemed
outstanding after this offering includes the additional 3,500,000 shares being
offered by us hereby, and assumes no exercise of the underwriters' over-
allotment option.
50
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Offering Owned After Offering
--------------------------- Shares -----------------------
Number Percent Offered Number Percent
-------------- ------------ ------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Directors, Named
Executive Officers and
all directors and
executive officers as a
group
- -----------------------
C. Richard Kramlich(1).. 3,197,734 32.3% -- 3,197,734 23.9%
Joel P. Adams(2)........ 2,272,089 23.0 -- 2,272,089 17.0
John S. McCarthy(3)..... 890,000 9.0 -- 890,000 6.6
Craig S. Tysdal(4)...... 790,000 7.4 -- 790,000 5.6
J. Michael Gullard(5)... 619,541 6.1 -- 619,541 4.6
Howard D. Wolfe,
Jr.(6)................. 317,589 3.2 -- 317,589 2.4
Kenneth C. Kieley(7).... 285,500 2.8 -- 285,500 2.1
Robert C. Pojman(8)..... 170,000 1.7 -- 170,000 1.3
Christopher D.
Buffum(9).............. 120,000 1.2 -- 120,000 *
H. Leland Murphy(10).... 65,000 * -- 65,000 *
Suzanne C.
Narducci(11)........... 15,000 * 15,000 *
All directors and
executive officers as a
group
(13 persons)(12)....... 8,892,453 75.7 -- 8,892,453 58.3
Other 5% stockholders
- ---------------------
New Enterprise Associ-
ates IV................ 2,365,087 23.9 -- 2,365,087 17.7
Limited Partnership
1119 St. Paul Street
Baltimore, MD 21202
APA/Fostin Pennsylva-
nia.................... 1,187,020 12.0 -- 1,187,020 8.9
Venture Capital Fund
518 Broad Street
Sewickley, PA 15143
Gateway Venture Partners
III, L.P. ............. 875,000 8.9 -- 875,000 6.5
8000 Maryland Avenue,
Suite 1190
St. Louis, MO 63105
Southwest Enterprise As-
sociates, L.P. ........ 817,647 8.3 -- 817,647 6.1
14305 Inwood Road, Suite
101-44
Dallas, TX 75244-3944
Fostin Capital Associ-
ates II................ 640,827 6.5 -- 640,827 4.8
518 Broad Street
Sewickley, PA 15143
Selling stockholders
- --------------------
BA Capital Company,
L.P. .................. 70,491 * 28,877 41,814 *
Otis Brinkley........... 139,392 1.4 120,000 19,392 *
Robert Karasch.......... 16,666 * 8,333 8,333 *
Steve Kelley............ 76,313 * 26,313 50,000 *
Rob Lynch(13)........... 55,000 * 2,000 53,000 *
John Merritt............ 95,703 * 4,703 91,000 *
Sequoia Partners and
related entities....... 1,024 * 1,024 -- --
Darren Spohn(14)........ 87,500 * 8,750 78,750 *
</TABLE>
- --------
*Less than 1%.
(1) 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 member of our
board of directors and a general partner of NEA Partners IV, Limited
Partnership ("NEA Partners"), the general partner of NEA IV, and a general
partner of NEA Partners Southwest, L.P. ("NEA SW"), 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. Mr.
Kramlich shares voting and investment power with respect to shares held by
NEA IV with NEA Partners. Mr. Kramlich shares voting and investment power
with respect to shares held by SEA. Also includes 15,000 shares that may be
acquired upon the exercise of options within 60 days of June 30, 1999.
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<PAGE>
(2) 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 member of our board of directors 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. Also includes 15,000 shares that may be acquired upon the
exercise of options within 60 days of June 30, 1999.
(3) Represents 875,000 shares held by Gateway Venture Partners III, L.P. Mr.
McCarthy, a member of our board of directors 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. Also includes 15,000 shares that may be
acquired upon the exercise of options within 60 days of June 30, 1999.
(4) Represents 790,000 shares that may be acquired upon the exercise of options
within 60 days of June 30, 1999.
(5) 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 June 30, 1999 upon the exercise of options held by Cornerstone
Ventures and Cornerstone Ventures International C.V. Mr. Gullard, a member
of our board of directors 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. Also includes 15,000 shares that may be
acquired upon the exercise of options within 60 days of June 30, 1999.
(6) Represents 300,589 shares held by New Ventures Partners II, L.P. Mr. Wolfe
a member of our board of directors, 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 15,000 shares that may be
acquired upon the exercise of options within 60 days of June 30, 1999.
(7) Represents 285,500 shares that may be acquired upon the exercise of options
within 60 days of June 30, 1999.
(8) Represents 170,000 shares that may be acquired upon the exercise of options
within 60 days of June 30, 1999.
(9) Represents 120,000 shares that may be acquired upon the exercise of options
within 60 days of June 30, 1999.
(10) Represents 65,000 shares that may be acquired upon the exercise of options
within 60 days of June 30, 1999.
(11) Represents 15,000 shares that may be acquired upon the exercise of options
within 60 days of June 30, 1999.
(12) Includes 1,870,500 shares issuable upon exercise of options held by
directors and officers that are exercisable within 60 days of June 30,
1999. Shares that may be acquired by directors and officers upon the
exercise of options are subject to our right to repurchase such shares if
such person's employment or directorship with us 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 of our directors are affiliated, as described above.
(13) Mr. Lynch served as our vice president-sales from August 1994 to October
1996.
(14) Mr. Spohn served as our vice president-development from March 1994 to
March 1998.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists 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 June 30, 1999, we had 139 stockholders that owned a total of 9,878,516
shares of common stock, including shares issuable upon conversion of all
outstanding preferred stock. Options to purchase an aggregate of 2,584,411
shares of our common stock and warrants to purchase an aggregate of 107,500
shares of our common stock were also outstanding. There will be 13,378,516
shares of our common stock outstanding after this offering (assuming no
exercise of the underwriters' over-allotment option, and no exercise of
outstanding warrants or options after June 30, 1999) after giving effect to the
sale of the shares of common stock offered in this offering.
Each share of our 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
our board of directors. If we liquidate or dissolve, subject to the rights of
the holders of outstanding shares of preferred stock issued in the future, if
any, the holders of our 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 our common stock are, and
those to be issued in this offering will be, fully paid and non-assessable.
Preferred stock
Each share of our preferred stock outstanding as of June 30, 1999 will be
converted into one share of our common stock and automatically retired upon the
closing of this offering. Thereafter, our board of directors is authorized to
issue up to 7,500,000 shares of preferred stock. Our 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 we issue preferred stock, this may delay, defer or prevent a change in
control of our company without further stockholder action. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of our common stock. In certain circumstances, the
market price of our common stock may decrease as a result. As of the closing of
this offering, no shares of preferred stock will be outstanding and we
currently have no plans to issue any shares of preferred stock.
Warrants
As of June 30, 1999, we had outstanding exercisable warrants to purchase
107,500 shares of our common stock with a weighted average exercise price of
$2.01 per share. These warrants will expire between 1999 and 2001.
Registration rights
Following this offering, the holders of 9,378,511 shares of common stock 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 us and the holders of these shares of common
stock. The holders of at least 30% of these shares may generally require that
we register their shares for public resale. If we register any of our common
stock, either for our own
53
<PAGE>
account or for the account of other security holders, the holders of these
shares are entitled to include their shares 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 these shares may also require us, not more
than one time in any 12-month period, to register all or a portion of their
shares 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. These
registration rights terminate at the earlier of: (a) such time as the holder
may, within a three-month period, offer and sell all of his shares pursuant to
Rule 144 under the Securities Act without any adverse effect on the price at
which such shares 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 charter provisions
Provisions of Delaware law and our certificate of incorporation could
complicate our 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 our management and those persons seeking control. We
believe it is more advantageous to protect our potential ability to negotiate,
rather than discourage, unfriendly or unsolicited third parties attempting to
acquire or restructure us. Among other things, negotiating such proposals could
result in an improvement of their terms.
We are 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 our
company without the stockholders taking further action.
It is more difficult for our existing stockholders to replace the board of
directors as well as for another party to obtain control of our company by
replacing our board of directors because cumulative voting is eliminated. Our
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 our board of directors.
In addition, these provisions could make it more difficult for a third party to
acquire, or discourage a third party from attempting to acquire, a majority of
our outstanding voting stock.
Transfer agent and registrar
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock,
and no prediction can be made as to the effect, if any, that future sales of
common stock or the availability of common stock for sale in the public market
will have on prevailing market prices of our common stock. Furthermore, because
only a limited number of shares will be available for sale for 180 days after
this offering as a result of resale restrictions (as described below), sales of
substantial amounts of our common stock in the public market after these
restrictions lapse could lower the prevailing market price and our ability to
raise equity capital in the future.
Upon the closing of this offering, we will have outstanding an aggregate of
13,378,516 shares of our common stock (assuming no exercise of the
underwriters' over-allotment option and no exercise of warrants or options to
purchase common stock outstanding as of June 30, 1999). Of these shares, the
3,700,000 shares sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act, except that
shares purchased by an existing "affiliate" of ours as that term is defined in
Rule 144 under the Securities Act may be sold only in compliance with the
limitations described below. The remaining 9,878,516 shares of common stock
held by existing stockholders are "restricted securities" as that term is
defined in Rule 144 under the Securities Act.
Subject to these lock-up agreements, the shares of common stock outstanding
upon the closing of the offering will be available for sale in the public
market as follows:
<TABLE>
<CAPTION>
Number of
Shares Date
--------- ----
<C> <S>
3,700,000 After the date of this prospectus, freely tradeable shares sold in
the offering.
9,283,678 After 180 days from the date of this prospectus (subject in some
cases to volume limitations and other restrictions of Rule 144).
229,934 At various times after 180 days from the date of this prospectus,
upon expiration of applicable holding periods under Rule 144
(subject in some cases to volume limitations and other
restrictions of Rule 144).
</TABLE>
In addition, as of June 30, 1999, there were outstanding 2,584,411 options
and 107,500 warrants to purchase shares of common stock. Of such options, held
primarily by affiliates, 2,035,100 will be subject to 180-day lock-up
agreements. After 180 days from the date of this prospectus 1,470,882 of such
options will be vested and exercisable. All of such warrants are exercisable
and will be eligible for sale, subject to the restrictions of Rule 144.
Lock-up agreements. All of our officers and directors and certain
stockholders and optionholders have entered into lock-up agreements with the
underwriters under which they agree not to transfer or dispose of, directly or
indirectly, any shares of our common stock or any securities convertible into,
or exercisable or exchangeable for shares of our common stock owned by them
(other than shares purchased in the public market), for a period of 180 days
after the date of this prospectus. Transfers or dispositions can be made
sooner: (a) with the prior written consent of BancBoston Robertson Stephens, in
the case of certain transfers to affiliates who sign identical lock-up
agreements or (b) if the transfer is a bona fide gift and the donee signs an
identical lock-up agreement. BancBoston Robertson Stephens may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to such restrictions; however, BancBoston Robertson Stephens
currently has no plans to release any portion of the securities subject to
these lock-up agreements.
Rule 144. 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 certain prior owners except an affiliate) is
entitled to sell within any 90-day period a number of shares that does not
exceed the greater of: (a) 1% of the number of
55
<PAGE>
shares of our common stock then outstanding (which is expected to be
approximately 133,785 shares immediately after this offering); or (b) the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding the filing of a notice on Form 144
with respect to that sale. Sales under Rule 144 are also subject to certain
manner-of-sale provisions, notice requirements and the availability of current
public information about us.
Rule 144(k). 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 for at least two years
(including the holding period of certain prior owners except an affiliate), is
entitled to sell those shares without complying with the manner for sale,
public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the closing of this offering.
Rule 701. In general, Rule 701 of the Securities Act may be relied upon with
respect to the resale of securities originally purchased from us by our
directors, officers, employees, consultants or advisors before the date of this
prospectus, in connection with written compensatory benefit plans or written
contracts relating to the compensation of such persons. In addition, Rule 701
will apply to the stock options granted by us before the date of this
prospectus, along with the shares acquired upon exercise of such options
(including exercises after the date of this offering). Shares issued under Rule
701 are restricted securities and, subject to the contractual restrictions
described above, may be sold beginning 90 days after the date of this
prospectus by: (1) persons other than affiliates, subject only to the manner-
of-sale provisions of Rule 144 and (2) affiliates without compliance with
certain restrictions contained in Rule 144, including the one-year minimum
holding period.
Stock plans. Approximately 90 days after this offering, we intend to file a
registration statement under the Securities Act covering approximately
3,850,000 shares of common stock subject to outstanding options or reserved for
issuance under our Long-Term Incentive Plan and 1988 Option Plan. Shares
registered under this registration statement, and not subject to a 180-day
lock-up agreement will, subject to Rule 144 volume limitations applicable to
affiliates, be available for sale in the open market.
Registration rights. After this offering, the holders of approximately
9,378,511 shares or their transferees will be entitled to certain rights with
respect to the registration of those shares under the Securities Act.
Approximately 9,199,614 of such shares will be subject to 180-day lock-up
agreements. Registration of such shares under the Securities Act would result
in such shares becoming freely tradeable without restriction under the
Securities Act (except for shares purchased by affiliates) immediately upon the
effectiveness of such registration.
56
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens and Thomas Weisel Partners, have severally agreed
with us and the selling stockholders, subject to the terms and conditions of
the underwriting agreement, to purchase from us 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..................................
Thomas Weisel Partners LLC.........................................
---------
Total............................................................ 3,700,000
=========
</TABLE>
The representatives have advised us and the selling stockholders that the
underwriters propose to offer the shares of common stock to the public at the
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 this 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 us and the selling stockholders as set forth on the cover page
of this prospectus.
We have granted to the underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to 555,000 additional
shares of common stock at the same price per share as we and the selling
stockholders will receive for the 3,700,000 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 3,700,000 shares offered hereby. If purchased, such
additional shares will be sold by the underwriters on the same terms as those
on which the 3,700,000 shares are being sold. We 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, us 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.
All of our officers and directors and certain stockholders and optionholders
have entered into lock-up agreements with the underwriters under which they
agree not to transfer or dispose of, directly or indirectly, any shares of our
common stock or any securities convertible into, or exercisable or exchangeable
for shares of our common stock owned by them (other than shares purchased in
the public market), for a period of 180 days after the date of this prospectus.
Transfers or dispositions can be made sooner: (a) with the prior written
consent of BancBoston Robertson Stephens, in the case of certain transfers to
affiliates who sign identical lock-up agreements or (b) if the transfer is a
bona fide gift and the donee signs an identical lock-up agreement. BancBoston
Robertson Stephens may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to such restrictions;
however, BancBoston Robertson Stephens currently has no
57
<PAGE>
plans to release any portion of the securities subject to these lock-up
agreements. In addition, we have agreed that during the 180-day lock-up period
we will not, without the prior written consent of BancBoston Robertson
Stephens, (1) consent to the disposition of any shares held by stockholders
subject to lock-up agreements prior to the expiration of the 180-day lock-up
period or (2) 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 our sale of shares in this
offering, the issuance of common stock upon the exercise of outstanding
options, and our issuance of options and shares under existing stock option and
incentive plans.
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 our common stock.
Consequently, the public offering price for the common stock offered by this
prospectus will be determined through negotiations among us, the selling
stockholders and the representatives. Among the factors to be considered in
such negotiations are prevailing market conditions, certain of our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to our company, estimates of our
business potential, the present state of our development and other factors
deemed relevant.
Thomas Weisel Partners, one of the representatives of the underwriters, was
organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager on 45 filed
public offerings of equity securities, of which 27 have been completed, and has
acted as a syndicate member in an additional 19 public offerings of equity
securities. Thomas Weisel Partners does not have any material relationship with
us or any of our officers, directors or other controlling persons, except with
respect to its contractual relationship with us pursuant to the underwriting
agreement to be entered into in connection with this offering.
Stabilization. The representatives have advised us 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 us 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 us by
Worsham, Forsythe & Wooldridge, L.L.P., Dallas, Texas. Legal matters will be
passed upon for the underwriters by Foley, Hoag & Eliot LLP, Boston,
Massachusetts.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at March 31, 1998 and 1999 and for each of the three years
in the period ended March 31, 1999, as set forth in their report. We have
included financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
58
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for our
common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement for the copies of the
actual contract, agreement or other document. When we complete this offering,
we will also be required to file annual, quarterly and special reports, proxy
statements and other information with the SEC.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's Web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at its public reference facilities at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and 7 World Trade
Center, Thirteenth Floor, New York, New York 10048. You may also obtain copies
of the documents at prescribed rates by writing to the Public Reference Section
of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on
the operation of the public reference facilities. Our SEC filings are also
available at the office of the Nasdaq National Market. For further information
on obtaining copies of our public filings at the Nasdaq National Market, you
should call (212) 656-5060.
We intend to send our 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.
59
<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, 1998 and 1999 and June 30,
1999 (unaudited)........................................................ F-3
Consolidated Statements of Operations for each of the three years in the
period ended March 31, 1999 and the three months ended June 30, 1998 and
1999 (unaudited)........................................................ F-4
Consolidated Statements of Stockholders' Equity (Deficit) for each of the
three years in the period ended March 31, 1999 and the three months
ended June 30, 1999 (unaudited)......................................... F-5
Consolidated Statements of Cash Flows for each of the three years in the
period ended March 31, 1999 and the three months ended June 30, 1998 and
1999 (unaudited)........................................................ 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, 1998 and 1999, 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, 1999. 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 consolidated financial position
of NetSolve, Incorporated, at March 31, 1998 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1999, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Austin, Texas
April 29, 1999
F-2
<PAGE>
NETSOLVE, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
Redeemable
Convertible
Preferred Stock
and
Stockholders'
Equity
March 31, (Deficit) at
------------------ June, 30 June 30,
1998 1999 1999 1999
-------- -------- ----------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $ 1,333 $ 2,764 $ 6,582
Restricted cash............... 155 642 599
Certificates of deposit....... 4,532 2,000 --
Accounts receivable, net of
allowance for doubtful
accounts of $209 at March 31,
1998, $227 at March 31, 1999
and $260 at June 30, 1999 ... 1,602 2,622 3,441
Inventory..................... 616 279 600
Prepaid expenses and other
assets....................... 656 1,267 1,492
-------- -------- --------
Total current assets........... 8,894 9,574 12,714
Restricted cash................ 1,491 1,638 497
Property and equipment:
Network communications
equipment.................... 77 71 71
Computer equipment and
software..................... 1,882 2,601 3,376
Other equipment............... 305 173 216
Furniture, fixtures and
leasehold improvements....... 730 865 1,113
Equipment held under capital
leases....................... 2,185 3,108 2,716
-------- -------- --------
5,179 6,818 7,492
Less accumulated depreciation
and amortization............. (2,337) (3,571) (3,922)
-------- -------- --------
Net property and equipment..... 2,842 3,247 3,570
Other assets................... -- 477 457
-------- -------- --------
Total assets................... $ 13,227 $ 14,936 $17,238
======== ======== ========
LIABILITIES, REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............. $ 1,361 $ 1,569 $ 3,243
Accrued liabilities........... 1,543 1,914 1,962
Capital leases obligation..... 591 809 824
-------- -------- --------
Total current liabilities...... 3,495 4,292 6,029
Capital leases obligation, net
of current portion............ 1,146 1,027 763
Redeemable convertible
preferred stock, $.10 par
value; 7,500,000 shares
authorized; 6,394,727 issued
and outstanding at March 31,
1997, March 31, 1998, and June
30, 1999; aggregate
liquidation preferences of
$41,615 at March 31, 1998,
$44,146 at March 31, 1999 and
$44,776 at June 30, 1999; none
issued and outstanding on a
pro forma basis at
June 30, 1999................. 41,615 44,146 44,776 $ --
Stockholders' equity (deficit)
Common stock, $.01 par value;
14,000,000, 25,000,000 and
25,000,000 shares authorized
at March 31, 1998, March 31,
1999 and June 30, 1999,
respectively; 3,265,094,
3,336,444 and 3,483,789
issued and outstanding at
March 31, 1998, March 31,
1999 and June 30, 1999,
respectively; 25,000,000
shares authorized and
9,878,516 shares issued and
outstanding on a pro forma
basis at June 30, 1999....... 33 33 35 99
Additional paid-in capital.... (13,049) (15,501) (16,059) 28,653
Accumulated deficit........... (20,013) (19,061) (18,306) (18,306)
-------- -------- -------- --------
Total stockholders' equity
(deficit)..................... (33,029) (34,529) (34,330) $ 10,446
-------- -------- -------- --------
Total liabilities, redeemable
convertible preferred stock
and stockholders' equity
(deficit)..................... $ 13,227 $ 14,936 $ 17,238
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
NETSOLVE, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended March 31, June 30,
-------------------------------- ---------------------
1997 1998 1999 1998 1999
--------- --------- ---------- --------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Network management
services.............. $ 2,830 $ 7,324 $ 12,777 $ 2,560 $ 4,584
Equipment and other.... 3,486 7,199 13,939 3,002 4,492
--------- --------- ---------- --------- ----------
Total revenues......... 6,316 14,523 26,716 5,562 9,076
Costs of revenues:
Cost of network
management services... 2,434 5,706 8,258 1,808 2,672
Cost of equipment and
other................. 2,638 5,425 10,665 2,321 3,536
--------- --------- ---------- --------- ----------
Total cost of
revenues.............. 5,072 11,131 18,923 4,129 6,208
--------- --------- ---------- --------- ----------
Gross profit............ 1,244 3,392 7,793 1,433 2,868
Operating expenses:
Development............ 1,262 1,902 1,862 446 579
Selling and marketing.. 2,246 2,562 3,153 739 943
General and
administrative........ 1,489 2,159 2,098 541 622
--------- --------- ---------- --------- ----------
Total operating
expenses.............. 4,997 6,623 7,113 1,726 2,144
--------- --------- ---------- --------- ----------
Operating income
(loss)................. (3,753) (3,231) 680 (293) 724
Other income (expense):
Interest income........ 163 470 441 103 83
Interest expense....... (116) (159) (254) (59) (37)
Other, net............. (13) (109) 6 4 --
--------- --------- ---------- --------- ----------
34 202 193 48 46
--------- --------- ---------- --------- ----------
Income (loss) from
continuing operations
before income taxes.... (3,719) (3,029) 873 (245) 770
Income tax expense
(benefit).............. (1,257) (297) 19 -- 15
--------- --------- ---------- --------- ----------
Net income (loss) from
continuing operations.. (2,462) (2,732) 854 (245) 755
Discontinued operations:
Income from
discontinued
operations, net of
applicable income
taxes................. 2,142 165 -- -- --
Gain on sale of
discontinued
operations, net of
applicable income
taxes................. 10,615 341 98 -- --
--------- --------- ---------- --------- ----------
Net income (loss)....... $ 10,295 $ (2,226) $ 952 $ (245) $ 755
========= ========= ========== ========= ==========
Dividends on redeemable
convertible preferred
stock.................. $ (2,530) $ (2,530) $ (2,531) $ (630) $ (630)
--------- --------- ---------- --------- ----------
Net income (loss)
applicable to common
stock.................. $ 7,765 $ (4,756) $ (1,579) $ (875) $ 125
========= ========= ========== ========= ==========
Basic net income (loss)
per share from:
Continuing operations.. $ (1.75) $ (1.76) $ (0.51) $ (0.27) $ 0.04
Discontinued
operations............ 4.47 0.17 0.03 -- --
--------- --------- ---------- --------- ----------
Net income (loss)...... $ 2.72 $ (1.59) $ (0.48) $ (0.27) $ 0.04
========= ========= ========== ========= ==========
Weighted average shares
used in basic per share
calculation............ 2,850,565 2,995,070 3,297,012 3,280,444 3,360,510
========= ========= ========== ========= ==========
Diluted net income
(loss) per share from:
Continuing operations.. $ (1.75) $ (1.76) $ (0.51) $ (0.27) $ 0.02
Discontinued
operations............ 4.47 0.17 0.03 -- --
--------- --------- ---------- --------- ----------
Net income (loss)...... $ 2.72 $ (1.59) $ (0.48) $ (0.27) $ 0.02
========= ========= ========== ========= ==========
Weighted average shares
used in diluted per
share calculation...... 2,850,565 2,995,070 3,297,010 3,280,444 5,054,952
========= ========= ========== ========= ==========
Pro forma basic net
income per share from:
Continuing operations.. $ 0.09 $ 0.08
Discontinued
operations............ 0.01 0.00
---------- ----------
Net income ............. $ 0.10 $ 0.08
========== ==========
Pro forma weighted
average shares used in
basic per share
calculation............ 9,691,737 9,755,237
========== ==========
Pro forma diluted net
income per share from:
Continuing operations.. $ 0.07 $ 0.07
Discontinued
operations............ 0.01 0.00
---------- ----------
Net income ............ $ 0.08 $ 0.07
========== ==========
Pro forma weighted
average shares used in
diluted per share
calculation............ 11,340,578 11,449,679
========== ==========
</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,
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............. 71,352 -- 79 -- 79
Dividends on
redeemable
convertible preferred
stock................ -- -- (2,531) -- (2,531)
Net income ........... -- -- -- 952 952
--------- --- -------- -------- --------
Balance, March 31,
1999................... 3,336,446 33 (15,501) (19,061) (34,529)
Exercise of common
stock options and
warrants
(unaudited).......... 147,343 2 72 -- 74
Dividends on
redeemable
convertible preferred
stock (unaudited).... -- -- (630) -- (630)
Net income
(unaudited).......... -- -- -- 755 755
--------- --- -------- -------- --------
Balance, June 30, 1999
(unaudited)............ 3,483,789 $35 $(16,059) $(18,306) $(34,330)
========= === ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
NETSOLVE, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Year ended March 31, Ended June 30,
-------------------------- ----------------
1997 1998 1999 1998 1999
-------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............... $ 10,295 $(2,226) $ 952 $ (245) $ 755
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization... 776 863 1,234 305 400
(Gain) loss on disposition of
property and equipment......... 29 (20) (4) (5) 1
Gain on sale of discontinued
operations..................... (10,615) (341) (98) -- --
Change in assets and
liabilities:
Accounts receivable, net....... (1,628) 992 (1,020) (603) (819)
Inventory and prepaid expenses
and other assets.............. (478) (409) (751) (108) (526)
Accounts payable............... 784 (581) 208 399 1,674
Accrued liabilities............ 741 (1,182) 371 269 48
-------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities............ (96) (2,904) 892 12 1,533
Cash flows from investing
activities:
Investments in certificates of
deposit........................ (3,000) (1,532) -- (14) --
Proceeds from sale of
certificates of deposit........ -- -- 2,532 -- 2,000
Transfer of funds from (to)
restricted cash................ -- (1,646) (634) -- 1,184
Purchases of property and
equipment...................... (1,541) (2,236) (1,639) (668) (724)
Proceeds from sale of property
and equipment.................. 231 34 4 6 --
Proceeds from sale of
discontinued operations........ 12,280 -- 98 -- --
-------- ------- ------- ------- -------
Net cash provided by (used in)
investing activities............ 7,970 (5,380) 361 (676) 2,460
-------- ------- ------- ------- -------
Cash flows from financing
activities:
Payments under line of credit... (350) -- -- -- --
Proceeds from capital lease
financing...................... 218 1,706 831 -- --
Payments under capital lease
obligations.................... (514) (257) (732) (155) (249)
Proceeds from exercise of common
stock options and warrants..... 26 40 79 21 74
-------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities............ (620) 1,489 178 (134) (175)
-------- ------- ------- ------- -------
Net increase (decrease) in cash
and cash equivalents............ 7,254 (6,795) 1,431 (798) 3,818
Cash and cash equivalents,
beginning of period............. 874 8,128 1,333 1,333 2,764
-------- ------- ------- ------- -------
Cash and cash equivalents, end of
period.......................... $ 8,128 $ 1,333 $ 2,764 $ 535 $ 6,582
======== ======= ======= ======= =======
Supplemental disclosure of cash
flow information:
Cash paid for interest.......... $ 116 $ 168 $ 242 $ 58 $ 37
======== ======= ======= ======= =======
Income taxes paid............... $ 39 $ 196 $ 24 $ 10 $ 12
======== ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
Information with respect to the three months ended June 30, 1998 and 1999 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.
In accordance with Statement of Financial Accounting Standards (SFAS) 121,
the Company reviews its long-lived assets for impairment. Based on the results
of a periodic review of equipment for obsolescence the Company recorded a
$77,000 charge to cost of equipment and other revenues in fiscal 1998.
Income Taxes
The Company accounts for income taxes in accordance with 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)
June 30, 1999
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
1,317,224, 1,265,861 and 1,648,841 in 1997, 1998 and 1999, respectively, and
1,687,424 for the three months ended June 30, 1998. For 1997, 1998, 1999 and
the three months ended June 30, 1998 and 1999, 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 income (loss) from continuing operations is as follows:
<TABLE>
<CAPTION>
Three months ended June
Year ended March 31, 30,
------------------------------------- --------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Numerator:
Net income (loss) from
continuing
operations............ $(2,462,000) $(2,732,000) $ 854,000 $(245,000) $ 755,000
Dividends on redeemable
convertible
preferred stock....... (2,530,000) (2,530,000) (2,531,000) (630,000) (630,000)
----------- ----------- ----------- --------- ----------
Numerator for basic and
diluted net income
(loss) per share from
continuing
operations............ $(4,992,000) $(5,262,000) $(1,677,000) $(875,000) $ 125,000
=========== =========== =========== ========= ==========
Denominator:
Denominator for basic
net income (loss) per
share from continuing
operations--weighted
average common stock
outstanding........... 2,850,565 2,995,070 3,297,010 3,280,444 3,360,510
Dilutive common stock
equivalents--common
stock options and
warrants.............. -- -- -- -- 1,694,442
----------- ----------- ----------- --------- ----------
Denominator for diluted
net income (loss) per
share from continuing
operations--weighted
average common stock
outstanding and
dilutive common stock
equivalents........... 2,850,565 2,995,070 3,297,010 3,280,444 5,054,952
=========== =========== =========== ========= ==========
</TABLE>
F-8
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1999
Revenue Recognition
Network management services revenues are recognized in the period services
are provided by NetSolve, whether sold directly or through resellers, based
upon rates established by contract net of any availability credits. The typical
contract terms are from 24 to 36 months and provide for one-time services,
consisting primarily of project implementation services at a fixed fee per
customer site or device, as well as recurring services which are provided at a
fixed monthly fee per customer site or device over the life of the contract.
Revenues for project implementation services are recognized upon completion of
the implementation of the site, and recurring revenues are recognized on a
monthly basis as the services are performed. Equipment revenues are recognized
in the period the equipment is shipped to the customer. Equipment revenues from
assets leased by the Company's lease financing subsidiary are recognized upon
the sale of the equipment and the related lease to a third party lessor on a
non-recourse basis following installation of the equipment. Other revenues,
which consist primarily of equipment maintenance services, are recognized in
the period services are provided. 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. The Company provides a
reserve based on the estimated costs of these refunds.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense for
the years ended March 31, 1997 and 1998 and 1999 was approximately $242,000,
$370,000 and $419,000 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 AT&T represented 47% and 69% of the
outstanding accounts receivable balance at March 31, 1998 and 1999,
respectively.
F-9
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1999
The following table summarizes the changes in the allowance for doubtful
accounts for 1997, 1998 and 1999 (in thousands):
<TABLE>
<S> <C>
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............................. 59
Write-off of uncollectible accounts................................. (41)
-----
Balance at March 31, 1999............................................. $ 227
=====
</TABLE>
Concentrations of Revenues
Revenues from AT&T amounted to 30%, 52%, 59% and 69% of the Company's net
revenues for the years ended March 31, 1997, 1998, 1999 and the three months
ended June 30, 1999, respectively. The Company currently is providing multiple
services to AT&T 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
from December 1999 to December 2001, will be renewed or replaced. No other
customer accounted for greater than 10% of revenue in fiscal year 1997, 1998,
1999 and the three months ended June 30, 1999.
Comprehensive Income (Loss)
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
Reporting Comprehensive Income. The Company adopted SFAS 130 in the year ended
March 31, 1999. 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. The
Company adopted SFAS 131 in the year ended March 31, 1999. The implementation
of this standard had no impact on its financial disclosures as the Company had
no reportable operating segments.
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.
F-10
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1999
Unaudited Interim Results
The accompanying consolidated balance sheet as of June 30, 1999, the
consolidated statements of operations and cash flows for the three months ended
June 30, 1998 and 1999 and the consolidated statements of stockholders' equity
(deficit) for the three months ended June 30, 1999 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
three months ended June 30, 1999 are not necessarily indicative of the results
that may be expected for the year ending March 31, 2000.
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 a 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.
As a part of this transaction, all customer and supplier contracts related to
a 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, $715,000, and $0 in fiscal years 1997,
1998 and 1999, 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 other transport services
resold by the Company, and its obligations under a supplier contract, effective
October 1, 1997 to NetPlus, Inc. The purchase price, which was initially
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, was renegotiated to $100,000 which was received in
fiscal year 1999. 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 $13,223,000 and $1,072,000 for the years ended March 31, 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).
F-11
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1999
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, March 31,
1997 1998 1999
--------- --------- ---------
<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 $3.011 to $3.158 at March 31, 1999
and an aggregate redemption price of $28,102,000.
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 less than the original issue price
(there have been no such subsequent offerings through March 31, 1999). 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 $0.40 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
F-12
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1999
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. 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 $2.382 to
$2.551 at March 31, 1999 and an aggregate redemption price of $16,044,000. The
Company has reserved 2,450,543 shares of common stock for issuance upon
conversion of the Series B redeemable convertible preferred stock.
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, 1999, total outstanding options subject to repurchase rights were
942,638.
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, 1999, 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
F-13
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1999
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 1,350,000. 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.
The Company has also granted non-qualified options other than pursuant to the
above plans. Options granted totaled 3,250 shares representing grants to two
outside directors at exercise prices of $.80 and $1.20 per share. During fiscal
1999, 1,250 of these options were exercised.
At March 31, 1999 the Company had reserved 3,148,723 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 options
granted prior to the Company's initial filing on Form S-1 dated October 15,
1998 was estimated as of the date of grant using a minimum value option pricing
model with weighted-average risk free interest rates for 1997, 1998 and 1999 of
6.45%, 5.69% and 5.56%, respectively; no dividends; and a weighted-average
expected life of the option of five years. The fair value for options granted
subsequent to the initial filing date was estimated as of the date of grant
using the Black-Scholes pricing model and a volatility of 40%.
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>
Year ended March 31,
----------------------------------
1997 1998 1999
----------- ----------- --------
<S> <C> <C> <C>
Pro forma net income (loss) from
continuing operations................. $(2,501,000) $(2,779,000) $679,000
Pro forma basic and diluted net income
(loss) per share...................... $ (1.75) $ (1.76) $ (0.56)
</TABLE>
F-14
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1999
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, 1997 March 31, 1998 March 31, 1999
-------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning
of period.............. 1,745,087 $0.35 2,005,859 $0.81 2,007,647 $3.03
Granted................ 582,500 $2.10 388,844 $2.57 618,176 $7.23
Exercised.............. (96,963) $0.27 (124,633) $0.30 (70,102) $1.10
Canceled............... (224,765) $0.82 (262,423) $1.96 (116,782) $3.11
--------- ----- --------- ----- --------- -----
Outstanding and
exercisable--end of
period--total.......... 2,005,859 $0.81 2,007,647 $1.03 2,438,939 $2.50
========= ===== ========= ===== ========= =====
Outstanding and
exercisable--end of
period--vested......... 1,188,793 $0.27 1,464,123 $0.53 1,498,301 $0.63
========= ===== ========= ===== ========= =====
Weighted-average fair
value of options
granted during the
period................. $0.52 $0.64 $0.65
</TABLE>
Exercise prices for options outstanding at March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Weighted-
Weighted- Average
Average Remaining
Exercise Exercise Contractual
Options Price Range Price Life
--------- ----------- --------- -----------
<S> <C> <C> <C>
1,070,637 $0.20-$0.30 $ .20 4.2
73,075 $0.40-$0.50 $ .40 2.3
95,350 $0.80-$1.20 $1.20 5.9
371,281 $1.70-$2.10 $2.10 7.5
284,960 $2.30-$2.80 $2.76 8.8
543,636 $7.50-$8.50 $7.68 9.4
--------- ----------- -----
2,438,939 $0.20-$8.50 $2.50
========= =========== =====
</TABLE>
Warrants
The Company issued warrants at various dates between 1991 and 1993 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 60,000 expired in
the three months ended June 30, 1999 with the remaining expiring in 1999 and
2001. In 1993, 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 2001. In 1993, the Company 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. These warrants were
accounted for at the fair value of the warrants on the date of issuance.
F-15
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1999
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 are as follows:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1999
----------- ----------
<S> <C> <C>
Deferred tax assets:
Tax carryforwards................................. $ 6,923,000 $6,544,000
Depreciable assets................................ 159,000 130,000
Accruals, reserves and other...................... 365,000 421,000
----------- ----------
Gross deferred tax assets........................... 7,447,000 7,095,000
Valuation allowance................................. (7,447,000) (7,095,000)
----------- ----------
Net deferred taxes.................................. $ -- $ --
=========== ==========
</TABLE>
The valuation allowance decreased by approximately $352,000 during the year
ended March 31, 1999 primarily as a result of utilization of net operating
losses which were not previously benefited. The valuation allowance increased
by approximately $813,000 during the year ended March 31, 1998.
As of March 31, 1999, the Company had federal net operating loss
carryforwards of approximately $17,157,000 which will expire beginning in 2004,
if not utilized. The Company has alternative minimum tax credit carryforwards
of $196,000 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 expense (benefit) for income taxes attributable
to continuing operations are as follows:
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------------
1997 1998 1999
----------- --------- -------
<S> <C> <C> <C>
Current...................................... $(1,257,000) $ -- $19,000
Deferred..................................... -- (297,000) --
----------- --------- -------
$(1,257,000) $(297,000) $19,000
=========== ========= =======
</TABLE>
Income tax expense (benefit) is included in the financial statements as
follows:
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------------
1997 1998 1999
----------- --------- -------
<S> <C> <C> <C>
Continuing operations....................... $(1,257,000) $(297,000) $19,000
Income from discontinued operations......... 366,000 97,000 2,000
Gain on sale of discontinued operations..... 1,161,000 200,000 --
----------- --------- -------
$ 270,000 $ -- $21,000
=========== ========= =======
</TABLE>
F-16
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1999
The tax benefit attributed to continuing operations in the years ended March
31, 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 expense (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,
------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Federal statutory rate.. (34.0)% (34.0)% 34.0 %
Operating losses not
benefitted............. -- 26.8 --
Utilization of losses
not previously
benefitted............. -- -- (36.7)
Permanent items and
other.................. 0.2 (2.6) 4.9
------ ------ ------
Total expense
(benefit).............. (33.8)% (9.8)% 2.2 %
====== ====== ======
</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.
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, 1999,
are as follows:
<TABLE>
<CAPTION>
Year ended March 31,
--------------------
<S> <C>
2000........................................................... $1,532,000
2001........................................................... 1,500,000
2002........................................................... 1,581,000
2003........................................................... 1,576,000
2004........................................................... 1,048,000
----------
Total minimum lease payments..................................... $7,237,000
==========
</TABLE>
Total rental expense was approximately $563,000, $639,000 and $1,425,000 for
the years ended March 31, 1997, 1998 and 1999, respectively.
F-17
<PAGE>
NETSOLVE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 1999
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, 1999.
<TABLE>
<CAPTION>
Year ended March 31,
--------------------
<S> <C>
2000........................................................... $1,112,000
2001........................................................... 586,000
2002........................................................... 337,000
----------
Total minimum lease payments..................................... 2,035,000
Less amount representing interest................................ (199,000)
----------
Present value of net minimum lease payments...................... 1,836,000
----------
Less current portion............................................. (809,000)
----------
Non-current obligation........................................... $1,027,000
==========
</TABLE>
10. Restricted Cash
At March 31, 1999, the Company had purchased irrevocable letters of credit
totaling $1,280,000 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 was required to purchase an irrevocable letter of credit. The
requirement for the letter of credit extended through the earlier of the
expiration of the lease (November 2003) or four consecutive quarters of
profitability. As of June 30, 1999, the requirement of the letter of credit was
removed as a result of the Company attaining the fourth consecutive quarter of
profitability in the three months ended June 30, 1999.
F-18
<PAGE>
[The inside back cover contains the following:]
[1. The following text appears at the top of the page:]
NetSolve Customer Locations
[2. 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.]
[3. The following text appears below the map:]
Managing Hundreds of Networks Throughout the United States
From its central network management center in Austin, Texas, we manage
approximately 8,700 network sites for more than 575 middle market
companies. Customers are headquartered across the United States, with
network locations throughout North America as well as overseas.
Our customers are in a broad range of industries, including manufacturing,
distribution, and financial services. We distribute our services indirectly
through resellers such as carriers, Internet service providers and value-
added resellers, as well as directly to end users.
[4. The NetSolve name and logo appear in the bottom right hand corner of the
page]
<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...................... $ 16,258
National Association of Securities Dealers, Inc. filing fee........ 6,032
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...................................................... 106,710
--------
Total............................................................ $800,000
========
</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
NetSolve, the selling stockholders and the underwriters, filed as Exhibit 1.1
to this registration statement, for a description of indemnification
arrangements between NetSolve, 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 four unaffiliated entities 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 44 460,744(6) 7.50
10/21/98 24 40,056 8.50
1/20/99 24 60,296 8.50
4/13/99 31 160,540(7) 9.00
6/21/99 33 161,420(8) 9.00
</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.
(7) The options granted include grants of 15,000 shares at an exercise price of
$9.00 to each of the following directors: C. Richard Kramlich, Joel P.
Adams, John S. McCarthy, J. Michael Gullard, Howard D. Wolfe, H. Leland
Murphy and Suzanne C. Narducci.
(8) The options granted include a grant to the following executive officer: a
grant of 100,000 shares at an exercise price of $9.00 to Harry Budow.
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
NetSolve, together with all amendments thereto.**
3.2 Certificate of Amendment, as filed.****
3.3 Form of Restated Certificate of Incorporation of NetSolve, as
amended, to be in effect upon the closing of this offering.**
3.4 By-laws of NetSolve.**
4.1 Specimen Form of Common Stock Certificate of NetSolve.***
5.1 Opinion of Worsham, Forsythe & Wooldridge, L.L.P.*
10.1 Contract Services Agreement between AT&T Corp. and NetSolve, 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 NetSolve, 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 NetSolve, as Lessee, dated October 30, 1995,
relating to certain items of equipment.**
10.4 Master Lease Agreement between Trimarc Financial, as Lessor, and
NetSolve, as Lessee, dated as of January 30, 1998, relating to
certain items of equipment.**
10.5 Asset Acquisition Agreement between Intermedia Communications Inc.
and NetSolve, 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 Amended and Restated Long-Term Incentive Compensation Plan.****
10.10 Form of Proprietary Information and Inventions Agreement entered
into between NetSolve and each officer.**
10.11 Offer Letter from NetSolve to Craig S. Tysdal, dated August 12,
1993.**
10.12 Offer Letter from NetSolve to Christopher D. Buffum, dated January
29, 1998.**
10.13 Offer Letter from NetSolve to Terrence Cheng, dated April 15,
1998.**
10.14 Stock Option Agreement with Howard D. Wolfe.**
10.15 Shareholder Agreement with Howard D. Wolfe.**
10.16 Offer Letter from NetSolve to Harry S. Budow, dated June 17,
1999.***
10.17 Form of Stock Option Agreement with Directors.***
10.18 Form of Shareholder Agreement with Directors.***
22.1 Subsidiaries of NetSolve.**
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 for officers and directors other than Mr.
McCarthy and Ms. Narducci (included on page II-6 of original
filing).**
24.2 Power of Attorney for Mr. McCarthy and Ms. Narducci (included on
Page II-6 of Amendment No. 1).***
27.1 Financial Data Schedule.****
</TABLE>
II-4
<PAGE>
- --------
*To be subsequently filed by amendment.
**Previously filed with original filing.
***Filed with Amendment No. 1.
**** Refiled, as amended, with Amendment No. 1.
(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.
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 Amendment No. 1 to its 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 July 26, 1999.
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 Amendment
No. 1 to its registration statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Craig S. Tysdal Principal Executive July 26, 1999
______________________________________ Officer and Director
(Craig S. Tysdal, President and
Chief Executive Officer)
/s/ Kenneth C. Kieley Principal Financial July 26, 1999
______________________________________ Officer and Principal
(Kenneth C. Kieley, Vice President-- Accounting Officer
Finance, Chief Financial Officer and
Secretary)
J. MICHAEL GULLARD, C. RICHARD Directors July 26, 1999
KRAMLICH, JOEL P. ADAMS, HOWARD D.
WOLFE, JR., and H. LELAND MURPHY
/s/ Craig S. Tysdal
By: _____________________________
(Craig S. Tysdal,
Attorney-in-Fact)
/s/ John S. McCarthy Director July 26, 1999
______________________________________
(John S. McCarthy)
/s/ Suzanne C. Narducci Director July 26, 1999
______________________________________
(Suzanne C. Narducci)
</TABLE>
II-6
<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 29, 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:
<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 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
<PAGE>
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:
(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
<PAGE>
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.
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 30th day of November, 1998.
NETSOLVE, INCORPORATED
By: /s/ Craig S. Tysdal
----------------------------------
Craig S. Tysdal, President and
Chief Executive Officer
ATTEST:
/s/ Kenneth C. Kieley
- ------------------------------------
Kenneth C. Kieley, Vice President-
Finance, Chief Financial Officer
and Secretary
<PAGE>
FACE EXHIBIT 4.1
C
NETSOLVE, INCORPORATED
COMMON STOCK
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
PAR VALUE $0.01
PER SHARE
CUSIP 64115J 10 6
SEE REVERSE FOR
CERTAIN DEFINITIONS
This Certifies that is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $0.01 PER
SHARE, OF
NETSOLVE, INCORPORATED
(hereinafter referred to as the "Corporation"), transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate and the shares
represented hereby are issued and shall be held subject to all of the provisions
of the Certificate of Incorporation, as amended from time to time, of the
Corporation (a copy of which Certificate is on file with the Transfer Agent), to
all of which the holder, by acceptance hereof, assents. This Certificate is not
valid until countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
DATED:
/S/ CRAIG S. TYSDAL
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
/S/ KENNETH C. KIELEY
CHIEF FINANCIAL OFFICER AND SECRETARY
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
BACK
<PAGE>
NETSOLVE, INCORPORATED
Upon the request of any stockholder, the Corporation will furnish, without
charge, a full statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ......................... Custodian ............
(Cust) (Minor)
under Uniform Gifts to Minors Act
..............................................................
(State)
UNIF TRF MIN ACT -- ................. Custodian (until age
................)
(Cust)
............................ under Uniform Transfers
(Minor)
to Minors Act ..............................................
(State)
Additional abbreviations may also be used though not in the above list.
ASSIGNMENT
For Value Received,
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF
ASSIGNEE
Shares of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
<PAGE>
Attorney to register the transfer of the said shares of Common Stock on the
books of the within-named Corporation, with full power of substitution in the
premises. Dated
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE WITHOUT ALTERATION OR ANY CHANGE WHATEVER.
X
(SIGNATURE)
X
(SIGNATURE)
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
SIGNATURE(S) GUARANTEED BY:
<PAGE>
-1-
EXHIBIT 10.1
As indicated on the affected
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, 6, 7, 8, 9, 10 and 11 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, 6, 7, 8, 9, 10 and 11 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, 6, 7, 8, 9, 10 and 11 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, 6, 7, 8, 9, 10 and 11 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>
-2-
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>
-3-
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 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 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
AT&T PROPRIETARY
<PAGE>
-4-
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.
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.
AT&T PROPRIETARY
<PAGE>
-5-
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.
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.
AT&T PROPRIETARY
<PAGE>
-6-
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 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
AT&T PROPRIETARY
<PAGE>
-7-
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 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
AT&T PROPRIETARY
<PAGE>
-8-
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.
<TABLE>
<S> <C> <C>
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
</TABLE>
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.
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.
AT&T PROPRIETARY
<PAGE>
-9-
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, 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
AT&T PROPRIETARY
<PAGE>
-10-
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. 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
AT&T PROPRIETARY
<PAGE>
-11-
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, 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,
AT&T PROPRIETARY
<PAGE>
-12-
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
--------- -------------
<PAGE>
[The original terms contained in Attachment A have been superseded by the terms
set forth in Amendment No. 5 which is attached hereto.]
<PAGE>
[The original terms contained in Attachment B have been superseded by the terms
set forth in Amendment No. 5 which is attached hereto.]
<PAGE>
[The original terms contained in Attachment C have been superseded by the terms
set forth in Amendment No. 5 which is attached hereto.]
<PAGE>
[The original terms contained in Attachment D have been superseded by the terms
set forth in Amendment No. 5 which is attached hereto.]
<PAGE>
[The original terms contained in Attachment E have been superseded by the terms
set forth in Amendment No. 5 which is attached hereto.]
<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: Darren L. Spohn By: Judi Arney
--------------- ----------
Signature: /s/ Darren 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: [ ]
- ------------------------------------------------------------------------------
3 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
- ------------------------------------------------------------------------------
4 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
- ------------------------------------------------------------------------------
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: [ ]
- -------------------------------------------------------------------------------
8 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
- -------------------------------------------------------------------------------
9 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
- -------------------------------------------------------------------------------
10 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
- -------------------------------------------------------------------------------
11 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
- -------------------------------------------------------------------------------
12 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
- -------------------------------------------------------------------------------
13 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
- -------------------------------------------------------------------------------
14 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
- -------------------------------------------------------------------------------
15 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
- -------------------------------------------------------------------------------
16 Street Address: [ ]
City/State: [ ]
PU id: [ ]
Max Bytes Out: [ ]
- -------------------------------------------------------------------------------
<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
- -------------------------------
[The original terms contained in this Paragraph 1 have been superseded by the
terms set forth in Amendment No. 11.0, which is attached hereto.]
Paragraph 2 - CONTRACT REPRESENTATIVE
- -------------------------------------
[The original terms contained in this Paragraph 2 have been superseded by the
terms set forth in Amendment No. 11.0, which is attached hereto.]
Paragraph 3 - TERM
- ------------------
[The original terms contained in this Paragraph 3 have been superseded by the
terms set forth in Amendment No. 11.0, which is attached hereto.]
Paragraph 4 - PAYMENT FOR SERVICES
- ----------------------------------
[The original terms contained in this Paragraph 4 have been superseded by the
terms set forth in Amendment No. 11.0, which is attached hereto.]
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
- -----------------------------------
[The original terms contained in this Paragraph 7 have been superseded by the
terms set forth in Amendment No. 11.0, which is attached hereto.]
<PAGE>
-2-
Agreement #GSA005D
Page 2 of 31
The following paragraph is modified to be included in the paragraph from the
Original Contract:
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:
<PAGE>
-3-
Agreement #GSA005D
Page 3 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;
(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 RampDown 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:
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
<PAGE>
-4-
Agreement #GSA005D
Page 4 of 31
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 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.
<PAGE>
-5-
Agreement #GSA005D
Page 5 of 31
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).
<PAGE>
-6-
Agreement #GSA005D
Page 6 of 31
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 AT&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.
<PAGE>
-7-
Agreement #GSA005D
Page 7 of 31
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
NETSOLVE, INCORPORATED AT&T CORP.
<TABLE>
<CAPTION>
<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>
<PAGE>
[The original terms contained in Attachment A have been superseded by the terms
set forth in Amendment No. 11 which is attached hereto.]
<PAGE>
[The original terms contained in Attachment B have been superseded by the terms
set forth in Amendment No. 11 which is attached hereto.]
<PAGE>
[The original terms contained in Appendix A have been superseded by the terms
set forth in Amendment No. 11 which is attached hereto.]
<PAGE>
[The original terms contained in Appendix B have been superseded by the terms
set forth in Amendment No. 11 which is attached hereto.]
<PAGE>
[The original terms contained in Attachment D have been superseded by the terms
set forth in Amendment No. 11 which is attached hereto.]
<PAGE>
[The original terms contained in Attachment H have been superseded by the terms
set forth in Amendment No. 11 which is attached hereto.]
<PAGE>
[The original terms contained in Attachment H-1 have been superseded by the
terms set forth in Amendment No. 11 which is attached hereto.]
<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]
------- -------
-1-
<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.
-2-
<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.
- --------------------
/*/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.
-3-
<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
-4-
<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.
-5-
<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
-6-
<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
-7-
<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
-8-
<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.
-9-
<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
-10-
<PAGE>
Attachment J
To Agreement No. GSA00D
AT&T Network Operations Center
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
-11-
<PAGE>
. 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.
-12-
<PAGE>
Attachment K
To Agreement No. GSA005D
Amendment No. 7
The Contract Services Agreement effective August 1, 1995, between NetSolve,
Incorporated ("NetSolve") and AT&T Corp. ("AT&T") ("Original Contract") as
heretofore modified by Amendment Number 5 (collectively the "GSA005D
Agreement"or "Agreement") is further amended by this Amendment No. 7 as follows
effective as of February 1, 1999:
1) Attachment K, attached hereto,entitled "AT&T Frame Relay Plus Service" is
hereby incorporated as part of the Agreement.
ALL OTHER TERMS AND CONDITIONS OF THE AGREEMENT REMAIN UNCHANGED.
<TABLE>
<CAPTION>
NETSOLVE, INCORPORATED AT&T CORP.
<S> <C> <C> <C>
By: [Craig Tysdal] By: [Priscilla A. Taylor]
--------------------------------------- ----------------------------------
Signature: [Signature of Craig Tysdal] Signature: [Signature of Priscilla A. Taylor]
--------------------------------------- ----------------------------------
Title: [President and Chief Executive Officer] Title: [Manager - SMD]
--------------------------------------- ----------------------------------
Date: [2/4/99] Date: [2/11/99]
--------------------------------------- ----------------------------------
</TABLE>
1 of 5
<PAGE>
Attachment K
To Agreement No. GSA005D
ATTACHMENT K
AT&T Frame Relay Plus Services
This Attachment for Contract Services ("Attachment K") to the Agreement covers
AT&T Frame Relay Plus Implementation and Management Services ("Services") that
NetSolve shall provide to AT&T in support of AT&T's Frame Relay Plus Service
offering, as requested by AT&T and as described herein. This Attachment K 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 K.
For purposes of this Attachment K only, 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 Frame Relay Plus
Service offering in accordance with the "Statement of Work," Attachments K-1, K-
2, K-3, and K-4 attached 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 K-1, L-2, K-3, and K-4 may be requested from time to
time by AT&T. 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
reasonably believes 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 with appropriate supporting documentation
substantiating the basis for the requested price increase. Following delivery
of such notice, NetSolve shall not proceed with Services with any such
modification until AT&T and NetSolve Contract Representatives (as then
designated and authorized) agree, in writing, to the appropriate charges.
"Orders" for Services pursuant to this Attachment K shall be sent to Netsolve
via a mutually agreed upon method. Monthly recurring Service charges as further
described in Paragraph 4 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 Customer Service Order ("CSO")
but in no case greater than 36 months (the "Service Term"). The agreement term
for ordering Frame Relay Plus Service is set forth in Paragraph 3.
Upon expiration or termination of this Attachment K, all Services will continue
to be provided through the end of each End User Service Term and will be non-
cancelable by either party except as set forth in Paragraph 24 of this
Attachment K.
Paragraph 2 - Contract Representative:
AT&T's Contract Representative for this Attachment K is Owen Brennan. AT&T will
notify NetSolve in writing if a new Contract Representative is designated by
AT&T. The effective date of this Attachment K is February 1, 1999 and it shall
end on December 31, 2000.
Paragraph 3 - Term
The effective date of this Attachment K is February 1, 1999 and it shall end on
December 31, 2000.
2 of 5
<PAGE>
Attachment K
To Agreement No. GSA005D
Paragraph 4 - Payment for Services
For services performed by NetSolve under this Attachment K, AT&T will pay
NetSolve the following:
Recurring Services
- ------------------
<TABLE>
<CAPTION>
Service Type Network Component Type Price
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
FRP 1 Visual CPE $*/month/unit
- ----------------------------------------------------------------------------------------------
FRP 2 Visual CPE $*/month/unit
- ----------------------------------------------------------------------------------------------
FRP 3 Visual CPE $*/month /unit
- ----------------------------------------------------------------------------------------------
</TABLE>
This pricing will remain effective provided the ratio of unmanaged PVCs to
managed PVCs does not exceed 1.2 to 1.
Nonrecurring Services
- ---------------------
<TABLE>
<CAPTION>
Service Type Network Component Type Price
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Program Management Visual CPE and/or Port $*/CPE and/or Port
- ----------------------------------------------------------------------------------------------
Order Management Ports with PVCs $*/port
- ----------------------------------------------------------------------------------------------
Order Management Additional PVCs, port upgrade/no $*/event
new facility
- ----------------------------------------------------------------------------------------------
Installation Engineering Visual CPE and PAM $*/Visual unit
- ----------------------------------------------------------------------------------------------
</TABLE>
Rescheduling Charges
- --------------------
AT&T agrees to pay NetSolve fees for each site that requires rescheduling.
Rescheduling will be defined as any change in the Customer's Planned
Installation Date (PID) that is not the result of an error by NetSolve. An
order cancellation will qualify as a PID change.
Rescheduling Fee $75 per PID change
Examples of events that will change a Planned Installation Date include:
. Changes to a customer information, such as address, that causes a change
in the PID
. An AT&T subcontractor does not complete their work in sufficient time
for the schedule to be kept.
. The LEC does not complete the loop installation in sufficient time for
the schedule to be kept.
. AT&T does not complete the frame installation in sufficient time for the
schedule to be kept.
. The End User changes the installation date.
- -------------------------
* 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.
3 of 5
<PAGE>
Attachment K
To Agreement No. GSA005D
Time and Material Services
- --------------------------
. $200 per hour for on-site work (minimum 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.
. All Time and Material SERVICES are to be authorized in writing by
AT&T prior to the actual dispatch and completion of on-site work by
NetSolve or a NetSolve provider.
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 K, and shall be payable when the
Services have been performed to the satisfaction of AT&T. NetSolve shall mail
invoices referring to GSA0005D Agreement, Amendment 7 with copies of any
supporting documentation required by AT&T to: Owen Brennan, 900 Route 202/206,
Room 3A110E, North Bedminster, NJ 07921. 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 provisions contained in the Original
Contract as modified by Amendment 5 of the Agreement that apply to the
entire Agreement shall survive the expiration or termination of the Original
Contract and/or Amendment 5 and shall continue to apply to this Attachment K
as if the Original Contract and Amendment 5 had not expired or been
terminated, subject to AT&T's right to terminate under Paragraph 24 2) a)
below.
2) Termination of the Agreement and/or Attachment K-
a) In the event NetSolve shall be in breach or default of any of the terms,
conditions or covenants of the Agreement, this Attachment K, 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 the limitations in
the Agreement specifically set forth in Paragraph 36 of Amendment 5 to
the Agreement), AT&T shall have the right to terminate this Attachment K
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 K 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.
iii) if a voluntary proceeding is commenced under an provision of the
United States Bankruptcy Code by NetSolve, the Agreement, this
Attachment K, and any or all Orders may be immediately terminated
by AT&T;
4 of 5
<PAGE>
Attachment K
To Agreement No. GSA005D
iv) if an involuntary proceeding is commenced under an provision of the
United States Bankruptcy Code against NetSolve that is not dismissed
within thirty (30) days of its filing, the Agreement, this Attachment K,
and any or all Orders may be immediately terminated by AT&T.
c) This Attachment K 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.
3) Termination of Individual Orders placed pursuant to this Attachment K
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; 2) AT&T's End User has a change in their normal course of
business that impacts services, such as relocation, office closings, or
moves; 3) the End User's Contract expires or is terminated; 4) the End
User downgrades to a non-managed service; or 5) the End User changes to
another AT&T service which does not involve NetSolve.
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.
c) AT&T may terminate upon thirty (30) days written notice by AT&T, at no
charge, any Order that includes modifications (as described in Paragraph
1 of this Attachment K), in the event AT&T and NetSolve are unable to
agree on pricing for any modifications to the Statement Of Work.
Modifications cannot apply retroactively to installed business unless
AT&T and NetsSolve mutually agree.
4) Ownership and Return of Data upon Termination
In accordance with proprietary information or confidentiality clauses
contained within the Original Contract under Paragraph 6, Competition or
the Agreement, NetSolve agrees and acknowledges that all customer data {eg.
(without limitation): the customer premises equipment configurations,
customer database, trouble history, passwords etc.) is the property of AT&T
and will be promptly conveyed and returned to AT&T in electronic format
upon written notice.
Paragraph 37 - Access to AT&T Systems
AT&T agrees to provide NetSolve, at no charge, access to all AT&T internal
information systems, which include provisioning and maintenance systems, which
AT&T determines in its reasonable judgment to be necessary for NetSolve to
effectively perform under the SOW as outlined in Attachments K-1, K-2, K-3, and
K-4. If applicable, any such information shall be provided to NetSolve subject
to Data Connect Agreement #197 dated April 16, 1998 and Non-Disclosure
Agreement dated July 17, 1997, each between AT&T Corp. and NetSolve.
5 of 5
<PAGE>
Attachment K-1
To Agreement No. GSA005D
Attachment K-1
Program Management, , Order Management, and Installation Engineering -
Statement of Work
Service Description This Statement of Work for NetSolve's Program Management,
- -------------------
Order Management, and Installation Engineering service defines the
responsibilities and deliverables for AT&T and NetSolve with respect to
coordinated ordering, delivery, and installation coordination of CSU/DSUs (CSU)
and ports, local access, and PVCs in support of the AT&T Frame Relay Plus
Service Levels 1, 2, and 3 (FRP1, FRP2, & FRP3 respectively).
The terms Network or Network Components mean all hardware and network components
from the managed CSU at one location to the managed CSU 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 FRP1, FRP2, or FRP3 under a CSO
accepted by NetSolve.
NetSolve Responsibilities
Program Management
- ------------------
NetSolve will perform the following program management tasks:
A. NetSolve will develop the NetSolve Operations Support Systems (OSS) and
Performance Archive Manager (PAM) system enhancements to provide the
FRP1, 2, and 3 service.
B. Enter required End User information in the Performance Archive Manager
(PAM) platform based on FRP level supported
C. Perform ongoing administrative duties, including password management, on
the PAM to ensure continued customer access
D. Interface with the End User to validate equipment and network
configuration and protocol information
E. Develop an installation schedule with the End User contact for each site
based on installation intervals supplied by AT&T
F. Provide site survey information for the End User, as required, to enable
proper equipment installation
G. 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 changed
H. Conduct a post-installation review with the End User and initiate
necessary corrective action
I. NetSolve will coordinate with the appropriate groups inside AT&T to
expeditiously enable an installed customer to upgrade from FRP1 to a
higher FRP Service level
J. 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
1 of 4
<PAGE>
Attachment K-1
To Agreement No. GSA005D
Order Management
- ----------------
NetSolve will perform the following order 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. Place order with AT&T (to be billed to End User) for the Network
Components of the FRP service including the ports, local access, and PVCs
D. Place order with AT&T for the PVC management channel(s) from each CSU to
the NetSolve NMC (to be billed to End User or provided at no charge by
AT&T)
E. Verify correct circuit numbers, DLCI information, and firm order
commitment dates (against End User requested date) as received from AT&T
Order management system
F. Interface directly with mutually agreed upon AT&T systems
G. Create, issue, manage, and maintain the IP address plan to connect the
CSUs to the management tools
Installation Engineering
- ------------------------
NetSolve will perform the following with respect to End User installations:
A. NetSolve will coordinate testing of the End User premise CSU 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 FRP1,
2, and 3 services
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
2 of 4
<PAGE>
Attachment K-1
To Agreement No. GSA005D
NetSolve and AT&T will mutually agree on these metrics by no later than June
30, 1999 as well as the metrics containing performance charges and or credits.
Web Reporting
- -------------
A. Provide End Users and AT&T with access to mutually agreed upon
installation tracking information utilizing the installation tracking
capabilities of NetSolve's web interface.
B. Provide End Users and AT&T with access to mutually agreed upon transport
inventory information utilizing the tracking capabilities of NetSolve's
web interface.
C. Provide End Users and AT&T with access to Trouble ticket status utilizing
the capabilities of NetSolve's web interface
D. Provide End Users and AT&T with access to mutually agreed upon reports
utilizing the capabilities of NetSolve's web interface
Billing
- -------
A. NetSolve will either input directly to an AT&T billing system (or AT&T and
NetSolve will provide a jointly developed electronic interface) in order
to update AT&T of newly installed CSUs at customer locations
B. NetSolve will either input directly to an AT&T billing system (or AT&T and
NetSolve will provide a jointly developed electronic interface) in order
to provide invoicing for NetSolve's billable activity to AT&T
C. NetSolve will provide AT&T information reasonably required for AT&T to
resolve billing issues with End Users.
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 pre-configured Visual Networks CSUs 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 (except that during
Trial Period, AT&T or its vendor shall ship CSUs directly to the end user)
F. Introduce to NetSolve appropriate partner 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:
3 of 4
<PAGE>
Attachment K-1
To Agreement No. GSA005D
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 CSUs and associated cables to each
customer location to support the program
B. Provide necessary installation of CSUs 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 customer billing policies relative to the End User
End User Responsibilities
A. End User is responsible for site preparation in accordance with
manufacturer's specifications
B. End User will allow access to their site for installation services, as
reasonably requested
4 of 4
<PAGE>
Attachment K-2
To Agreement No. GSA005D
Attachment K-2
Frame Relay Plus Service-Level 1 ("FRP1") - Statement of Work
Service Description FRP1 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 FRP1 under a CSO accepted by
NetSolve.
The agreement term for ordering FRP1 is two years, with individual End User
service terms of up to three years. Upon expiration of the ordering term, the
agreement will remain in effect and NetSolve will continue to provide FRP1
services under all CSOs executed by AT&T and NetSolve through the expiration of
the End User service term. The pricing for these services are set forth in
Paragraph 4 of Attachment K.
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 End User indicating a network outage or performance issue, fault
identification and resolution procedures will be implemented to include
the following:
1. Notify the End User within a target timeline of fifteen minutes or
less from initial alarm (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 a mutually agreed
upon AT&T's Ticketing system
1 of 3
<PAGE>
Attachment K-2
To Agreement No. GSA005D
ii) Monitor the Ticketing system for updates from AT&T/LEC
testing
iii) Upon resolution notification from the Ticketing system,
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
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 Ticketing 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 FRP1 , 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.
3. NetSolve and AT&T will mutually agree on these metrics by no later than
June 30, 1999 as well as the metrics containing performance charges and or
credits.
Post Installation Activities
----------------------------
. NetSolve will coordinate with the appropriate groups inside AT&T to
expeditiously enable an end user to upgrade from FRP1 to FRP2 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
2 of 3
<PAGE>
Attachment K-2
To Agreement No. GSA005D
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 the network management PVCs at no charge
C. Provide NetSolve with Visual Networks PAM software and the appropriate
hardware and software operating and application systems at no charge
D. Provide NetSolve with on-line access to the appropriate AT&T internal
systems at no charge
E. 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
F. 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 FRP1 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 the NMC with notice of any changes which the End
User intends to make to the Network Components before such changes are
made.
3 of 3
<PAGE>
Attachment K-3
To Agreement No. GSA005D
Attachment K-3
Frame Relay Plus Service-Level 2 ("FRP2") - Statement of Work
Service Description FRP2 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 FRP2 under a CSO accepted by
NetSolve.
The agreement term for ordering FRP2 is two years, with individual End User
service terms of up to three years. Upon expiration of the ordering term, the
agreement will remain in effect and NetSolve will continue to provide FRP2
services under all CSOs executed by AT&T and NetSolve through the expiration of
the End User service term.
The pricing for these services are set forth in Paragraph 4 of Attachment K.
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 End User indicating a network outage or performance issue, fault
identification and resolution procedures will be implemented to include
the following:
1. Notify the End User within a target timeline of fifteen minutes or
less from initial alarm (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 a mutually agreed
upon AT&T's Ticketing system
ii) Monitor the Ticketing system for updates from AT&T/LEC
testing
1 of 3
<PAGE>
Attachment K-3
To Agreement No. GSA005D
iii) Upon resolution notification from the Ticketing system,
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
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 Ticketing 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 FRP2 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 FRP2 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 FRP2 , 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.
3. NetSolve and AT&T will mutually agree on these metrics by no later than
June 30, 1999 as well as the metrics containing performance charges and
or credits.
2 of 3
<PAGE>
Attachment K-3
To Agreement No. GSA005D
Post Installation Activities
----------------------------
. NetSolve will coordinate with the appropriate groups inside AT&T to
expeditiously enable an end user to upgrade from FRP1 to FRP2 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 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 the network management PVCs at no charge
C. Provide NetSolve with Visual Networks PAM software and the appropriate
hardware and software operating and application systems at no charge
D. Provide NetSolve with on-line access to the appropriate AT&T internal
systems at no charge
E. 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
F. 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 FRP2 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 the NMC with notice of any changes which the End
User intends to make to the Network Components before such changes are
made.
3 of 3
<PAGE>
Attachment K-4
To Agreement No. GSA005D
Attachment K-4
Frame Relay Plus-Level 3 ("FRP3") - Statement of Work
Service Description FRP3 is a network management service for frame relay data
- -------------------
transport and RMON-based CSUs/DSUs supplied by Visual Networks ("CSU"). The
service includes proactive monitoring of the CSU, certain defined fault
identification and resolution processes, CSU 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 CSU at one location to the managed CSU 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 FRP3 under a CSO accepted by
NetSolve.
The agreement term for ordering FRP3 is two years, with individual End User
service terms of up to three years. Upon expiration of the ordering term, the
agreement will remain in effect and NetSolve will continue to provide FRP3
services under all CSOs executed by AT&T and NetSolve through the expiration of
the End User service term.
The pricing for these services are set forth in Paragraph 4 of the Attachment K.
NetSolve Responsibilities
- -------------------------
Post Sales
----------
A. Order the additional management PVC required from the customer site,
Platform Applicable Client (PAC) location, to the NetSolve Management
Center using the on-line AT&T order entry system.
B. Provide the customer with the appropriate login information to the PAM via
EMail or telephone
C. Create the necessary connections at the NetSolve Management Center for
customer's PAC routing to the PAM
D. Provide each customer organization with up to five concurrent Level 3 host
accesses (directly to the PAM)
E. Coordinate mail delivery of the Level 3 PAC programs and instructions to
the customer contact
F. Provide the customer with the PC equipment specifications for PAC software
operation and PAM access
- -
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 CSUs
from the NMC.
1 of 5
<PAGE>
Attachment K-4
To Agreement No. GSA005D
Monitoring will consist of a combination of polling and threshold alarms
from the CSU. The following parameters will be set in the CSU 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 End User indicating a network outage or performance issue, fault
identification and resolution procedures will be implemented to include the
following:
1. Notify the End User within a target timeline of fifteen minutes or
less from initial alarm (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 a mutually agreed upon
AT&T's Ticketing system
ii. Monitor the Ticketing system for updates from AT&T/LEC testing
iii. Upon resolution notification from the Ticketing system, test
for LMI and notify the End User of service restoration
a. 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
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 Ticketing 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.
A. 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.
2 of 5
<PAGE>
Attachment K-4
To Agreement No. GSA005D
B. Receive trouble calls from customers regarding access issues to the PAM:
1. Open trouble ticket
2. Provide initial trouble isolation to determine if the fault is in the
AT&T network/local loop, or customer network
3. Follow standard fault resolution procedures within this document for
AT&T network/local loop troubles
4. If the AT&T network/loop is operational, refer trouble to customer for
local network diagnosis
5. If the fault appears to be application related, NetSolve will refer
the customer to the Application Help Desk (Visual Networks), operating
between 7AM-7PM CT, Monday-Friday.
G. Store information to be mutually agreed upon (for a period of time to be
mutually agreed upon) from each polled CSU in the PAM system to aid in the
analysis of network performance problems on an as needed basis
Reporting
---------
A. NetSolve will provide FRP3 customers with Web access to monthly performance
and availability reports as defined by AT&T and mutually agreed.
B. NetSolve will provide report explanation to the End User at a rate of 30
minutes per 20 FRP3 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 FRP3 , for each CSU 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
3 of 5
<PAGE>
Attachment K-4
To Agreement No. GSA005D
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.
3. NetSolve and AT&T will mutually agree on these metrics by no later
than June 30, 1999 as well as the metrics containing performance charges
and or credits.
Post Installation Activities
----------------------------
A. NetSolve will coordinate with the appropriate groups inside AT&T to
expeditiously enable an end user to upgrade from FRP1 to FRP3 Service
B. 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 CSU 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 CSU 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 the network management PVCs at no charge
C. Provide NetSolve with Visual Networks PAM software and the appropriate
hardware and software operating and application systems at no charge
D. Provide NetSolve with the current version of Visual Networks PAC software
at no charge
E. Provide sufficient supply of PAC software for end user distribution by
Visual Networks
F. Provide customer and NetSolve training on PAC software use
G. Provide NetSolve with on-line access to the appropriate AT&T internal
systems at no charge
H. Provide the Visual Networks CSUs 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
4 of 5
<PAGE>
Attachment K-4
To Agreement No. GSA005D
I. 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 CSU. If in connection with providing FRP3 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. Provide, install, and configure the necessary local network equipment (i.e.
router, FRAD, etc.), to gain access to the PAM via the appropriate
management PVC
C. Provide and install the PC equipment necessary for operating the PAC
software in accordance with the manufacturers specification
D. Install the PAC software on the customer provided PC(s)
E. 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.
5 of 5
<PAGE>
Amendment No. 8
The Contract Services Agreement effective August 1, 1995, between NetSolve,
Incorporated ("NetSolve") and AT&T Corp. ("AT&T") as heretofore modified by
Amendment Number 5 (collectively the "Agreement") is further amended by
Amendment 8 as follows effective as of February 1, 1999:
1) Attachment L ---- entitled "AT&T Inverse Multiplexing Service" is hereby
added and by this reference made part of this Agreement.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
<TABLE>
<CAPTION>
NETSOLVE, INCORPORATED AT&T CORP.
By: [Craig Tysdal] By: [Priscilla A. Taylor]
--------------------------------------- ----------------------------------
<S> <C> <C> <C>
Signature: [Signature of Craig Tysdal] Signature: [Signature of Priscilla A. Taylor]
--------------------------------------- ----------------------------------
Title: [President and Chief Executive Officer] Title: [Manager - SMD]
--------------------------------------- ----------------------------------
Date: [2/4/99] Date: [2/11/99]
--------------------------------------- ----------------------------------
</TABLE>
1 of 5
<PAGE>
Attachment L
To Agreement No. GSA005D
ATTACHMENT L
AT&T Inverse Multiplexing Services
This Attachment for Contract Services ("Attachment L") to the Agreement covers
IMA Implementation and Management Services ("Services") that NetSolve shall
provide to AT&T in support of AT&T's IMA Service offering, as requested by AT&T
and as described herein. This Attachment L 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 L.
For purposes of this Attachment L only, 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 IMA Service
offering in accordance with the "Statement of Work," Attachment L-1 attached
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 K-1 may be requested from time to time by AT&T without the need for
a formal amendment to Attachment L-1. 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 reasonably believes 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 with appropriate supporting documentation
substantiating the basis for the requested price increase. Following delivery
of such notice, NetSolve shall not proceed with Services with any such
modification until AT&T and NetSolve Contract Representatives (as then
designated and authorized) agree, in writing, to the appropriate charges.
This Attachment L shall expire upon the end of the term set forth in Paragraph
3- Term of this Attachment L and shall be non-cancelable by either party except
as set forth in Paragraph 24 of this Attachment L.
Paragraph 2 - Contract Representative:
AT&T's Contract Representative for this Attachment L is Timothy M. Halpin. 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 L is February 1, 1999 and it shall end on
December 31, 1999.
2 of 5
<PAGE>
Attachment L
To Agreement No. GSA005D
Paragraph 4 - Payment for Services
For services performed by NetSolve under this Attachment L, AT&T will pay
NetSolve the following:
Recurring Services
- ------------------
<TABLE>
<CAPTION>
Service Type Network Component Type Price
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Configuration Management Kentrox ACC2 $*/month/unit
Infrastructure Management
Monitoring and Fault Management
Software Management
Reporting
- -----------------------------------------------------------------------------------------------------------
Maintenance Services Kentrox ACC2 The current manufacturer's List
Price at time of receipt of the
order from AT&T.
- -----------------------------------------------------------------------------------------------------------
Fault Management Unmanaged PVCs or equivalents $*/month/PVC
Warm Hand Off
- -----------------------------------------------------------------------------------------------------------
Configuration Management AUSM Shelf in Stratacom BPX $*/month for up to 200 T1 customer
Monitoring and ports
Fault Management
Reporting
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Nonrecurring Services
- ---------------------
<TABLE>
<CAPTION>
Service Type Network Component Type Price
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Project Management and Included in T1 charge
Order Management Kentrox ACC2
- -----------------------------------------------------------------------------------------
Inventory Management Kentrox ACC2 No charge
- -----------------------------------------------------------------------------------------
Staging Management Kentrox ACC2 $*/unit
- -----------------------------------------------------------------------------------------
Installation Management Kentrox ACC2 $*/unit during PPM
$*/unit outside PPM
- -----------------------------------------------------------------------------------------
On site Installation Kentrox ACC2 The current manufacturer's
List Price at time of
receipt of the order from
AT&T.
- -----------------------------------------------------------------------------------------
Project Management and
Order Management T1s with Kentrox ACC2 $*/T1
- -----------------------------------------------------------------------------------------
Project Management Non IMA Ports and PVCs $*/port
- -----------------------------------------------------------------------------------------
Order Management Non IMA Ports and PVCs $*/port
- -----------------------------------------------------------------------------------------
Non IMA Ports and PVCs
Port Upgrade No new facilities required $*/event
- -----------------------------------------------------------------------------------------
</TABLE>
PPM = NetSolve is a 24X7 operation. Our primary period of maintenance (PPM) for
installations only is 7AM to 7PM CST Monday through Friday excluding holidays.
The current quote for on site installation charges is uplifted by 50% for
installs outside of a 8AM to 5PM local time window as well.
- ----------------------
* 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.
3 of 5
<PAGE>
Attachment L
To Agreement No. GSA005D
Project Initiation Fees
- -----------------------
NetSolve will be required to modify and add new systems, processes, and tools in
order to support this service. The one time charge for implementing this project
is $*. NetSolve shall prepare and deliver to AT&T within a reasonable time
after the effective date of this Attachment L, a detailed schedule listing the
services and equipment provided by NetSolve in implementing this project for
this one-time fee of $*.
Rescheduling Charges
- --------------------
AT&T agrees to pay NetSolve its standard rescheduling fees for each site that
requires rescheduling with less than seven (7) days advance notice (except that
no charges will be assessed for the first such rescheduling of each site)
provided that NetSolve is not billed by an installation subcontractor for a
reschedule. If NetSolve is billed, then NetSolve's rescheduling fee will be
increased by the amount of said bill.
Standard Rescheduling Fee $50 per site
Time and Material Services
- --------------------------
. $200 per hour for on-site work (minimum 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.
. All Time and Material SERVICES are to be authorized in writing by AT&T
prior to the actual dispatch and completion of on-site work by NetSolve
or a NetSolve provider.
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 L, and shall be payable when the
Services have been performed to the satisfaction of AT&T. NetSolve shall mail
invoices referring to GSA005D Agreement, Amendment 8 with copies of any
supporting documentation required by AT&T to: Mr. Timothy M. Halpin, 900 Route
202/206N, P.O. Box 752, Bedminster, N.J. 07921-0752. 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 provisions contained in the Original
Contract as modified by Amendment 5 of the Agreement that apply to the
entire Agreement shall survive the expiration or termination of the
Original Contract and/or Amendment 5 and shall continue to apply to this
Attachment L as if the Original Contract and Amendment 5 had not expired or
been terminated, subject to AT&T's right to terminate under Paragraph 24 2)
a) below.
2) Termination of this Attachment L -
- ------------------
*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.
4 of 5
<PAGE>
Attachment L
To Agreement No. GSA005D
a) In the event NetSolve shall be in breach or default of any of the terms,
conditions or covenants of the Agreement, this Attachment L, 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 the limitations in the Agreement
specifically set forth in Paragraph 36 of Amendment 5 to the Agreement),
AT&T shall have the right to terminate this Attachment L 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 L 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.
iii) if a voluntary proceeding is commenced under an provision of the
United States Bankruptcy Code by NetSolve, the Agreement, this
Attachment L, and any or all Orders may be immediately terminated by
AT&T;
iv) if an involuntary proceeding is commenced under an provision of the
United States Bankruptcy Code against NetSolve that is not dismissed
within thirty (30) days of its filing, the Agreement, this Attachment
L, and any or all Orders may be immediately terminated by AT&T.
c) This Attachment L 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.
3) Termination of Individual Orders placed pursuant to this Attachment L
a) 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; 2) AT&T's End User has a change in their normal course of
business that impacts services, such as relocation, office closings, or
moves; 3) the End User's Contract expires or is terminated; 4) the End
User downgrades to a non-managed service; or 5) the End User changes to
another AT&T service which does not involve NetSolve.
b) AT&T may terminate upon thirty (30) days written notice by AT&T, at no
charge, any Order that includes modifications (as described in Paragraph
1 of this Attachment L), in the event AT&T and NetSolve are unable to
agree on pricing for any modifications to the Statement Of Work.
Paragraph 37 - Access to AT&T Systems
AT&T agrees to provide NetSolve, at no charge, access to all AT&T internal
information systems, which include provisioning and maintenance systems, which
AT&T determines in its reasonable judgment to be necessary for NetSolve to
effectively perform under the SOW as outlined in Attachments K-1, K-2, K-3, and
K-4. If applicable, any such information shall be provided to NetSolve subject
to Data Connect Agreement #197 dated April 16, 1998 and Non-Disclosure
Agreement dated July 17, 1997, each between AT&T Corp. and NetSolve.
5 of 5
<PAGE>
Attachment L
To Agreement No. GSA005D
Statement of Work for AT&T IMA Management Service
Service Description
- -------------------
IMA Management Service is a set of installation, implementation, and life cycle
management services which allow AT&T to quickly provide High Speed Packet
Services. The service is designed to provide capabilities including equipment
engineering, design validation, ordering, provisioning, project management,
installation, life cycle management, reporting, quality validation, and
documentation.
The services described in this Statement of Work ("SOW") will be performed with
respect to the Network Components in Table 1 where indicated by an `x' at the
intersection of the Service Element and Network Component. The pricing for each
Service Element is set forth in Paragraph 4 of Attachment L.
Table 1
<TABLE>
<CAPTION>
Network Components
------------------------------------------------------------------------
Stratacom / Cisco Customer Kentrox
Service Element AUSM Switch Ports / PVCs CPE
=======================================================================================================
<S> <C> <C> <C>
Project Management X X
- -------------------------------------------------------------------------------------------------------
Order Management X X
- -------------------------------------------------------------------------------------------------------
Inventory Management X
- -------------------------------------------------------------------------------------------------------
Staging Management X
- -------------------------------------------------------------------------------------------------------
Installation Management X X X
- -------------------------------------------------------------------------------------------------------
On-Site Installation X
- -------------------------------------------------------------------------------------------------------
Configuration Management X X
- -------------------------------------------------------------------------------------------------------
Infrastructure Management X
- -------------------------------------------------------------------------------------------------------
Monitoring and X X X
Fault Management
- -------------------------------------------------------------------------------------------------------
Software Management X
- -------------------------------------------------------------------------------------------------------
Reporting X
- -------------------------------------------------------------------------------------------------------
</TABLE>
NetSolve Responsibilities
NetSolve will perform the tasks described under each Service Element below. Any
significant tasks or responsibilities not described will be the responsibility
of AT&T or AT&T's customer (the "End User").
Project Management
- ------------------
The tasks defined below apply to orders for new service as well as for adds,
moves and changes to existing service.
A. Review Orders received from AT&T and request additional information or
clarification where required. Notify AT&T upon receipt of all information
required to begin processing.
B. For each site contained on an Order, contact the End User and develop an
installation schedule based upon the End User's requirements and the
installation intervals of AT&T, AT&T's other vendors, End User's other
vendors and NetSolve (as mutually agreed by AT&T and NetSolve from time to
time).
C. Include End User contact information provided by AT&T in Operations
Support System ("OSS").
<PAGE>
Attachment L
To Agreement No. GSA005D
D. Provide the End User with any installation guidelines or information
necessary to successfully complete the installation.
E. Schedule on-site installations with AT&T's vendor and enter scheduling
information in NetSolve's Operations Support System ("OSS"). Enter other
scheduling information (e.g., transport installation dates) in OSS as
mutually agreed.
F. Provide End Users with access to mutually agreed upon installation
tracking information utilizing the installation tracking capabilities of
NetSolve's web interface.
G. Notify End Users, the Customer Premise Equipment ("CPE") installation
vendor, and applicable NetSolve organizations regarding provisioning and
CPE installation issues with under an agreed to schedule.
H. Conduct post-installation interview with End User to determine any
corrective actions required and implement identified actions or notify
AT&T to take actions with respect to issues related to AT&T's
responsibilities.
I. Notify and coordinate with End User for network related changes that may
impact their service.
J. Provide AT&T with a quote for any services or equipment that is not part
of the standard service description.
Order Management
- ----------------
A. Place information from Orders for network and equipment components into
AT&T's ordering systems as mutually agreed.
B. Update OSS with circuit number and DLCI information, and firm order
commitment dates (against End User requested dates) from AT&T's order
management systems.
C. Track and report systems integration status to the End Users or vendor in
a format selected by NetSolve and follow-up with the appropriate parties
to reschedule if dates are missed or change.
Inventory Management
- --------------------
A. Place orders with AT&T's equipment vendor based upon lead times and
forecasted installation volumes by equipment type as provided by AT&T.
B. Receive and store equipment ordered by NetSolve and maintain perpetual
inventory records of the quantities of such equipment.
C. Install optional equipment components in main chassis against requirement
per Orders. Ship completed units to End User site or other location
specified by AT&T, in either case at AT&T's expense.
D. Reconcile perpetual inventory records to physical counts on a bimonthly
basis and report ending unit balances to AT&T.
Staging Management
- ------------------
A. Configure (hardware and software user-configurable settings) and perform
self-test operability of the assembled equipment components.
B. Order onsite maintenance from the on-site maintenance provider mutually
agreed to by AT&T.
Installation Management
- -----------------------
A. Notify AT&T, AT&T's designated on-site installation vendor, and the End
User of installation dates utilizing the installation tracking
capabilities of NetSolve's web interface.
2 of 6
<PAGE>
Attachment L
To Agreement No. GSA005D
B. Supervise the installation, configuration and test connectivity of Network
Components at each location to the End User's wide area network and to the
NetSolve-designated NetSolve Network Management Center ("NMC"). Initiate
corrective actions to resolve any physical and logical connectivity
issues, including dispatching appropriate on-site vendors as required.
C. Enter CPE configuration information in OSS or other NetSolve database or
management tools.
Configuration Management
- ------------------------
A. Develop and implement mutually agreed to addressing plans.
B. Configure network and management systems connectivity for End User's IMA
network.
C. Provide ongoing management of configuration changes for adds, moves, and
changes
Performance Management
- ----------------------
A. Develop a model for network performance. Monitor actual performance
parameters and recommend model or configuration changes needed to achieve
specified performance standards.
B. When mutually agreed, conduct interoperability testing to determine
service and management compatibility issues of AT&T-specified CPE units
according to test plans and scripts previously developed or specified by
AT&T. NetSolve's charges for this work will be at NetSolve's standard
Professional Services rates.
Infrastructure Management
- -------------------------
A. Receive, install, and configure Kentrox element managers.
B. Operate the element managers, including backups of configuration and data
mutually agreed upon.
Monitoring and Fault Management
- -------------------------------
A. Support End Users as their primary interface for operational issues.
B. Provide the designated End User contact with NMC contact information.
C. Provide 24 hours per day, 7 days per week monitoring of End User physical
and logical networks from the NMC.
D. Upon receipt of an alarm at the NMC, or a call from the End User
indicating a network outage or performance issue with a Network Component,
NetSolve will take the following actions:
1. Open a Trouble Ticket and initiate fault isolation procedures. All
reasonable efforts will be taken to restore service expeditiously.
2. Notify the End User designated contact of the outage and provide with
periodic status updates and provide End User with access to Trouble
Ticket status utilizing the capabilities of NetSolve's web interface.
3. 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, End
User may request escalation with NetSolve at any time.
4. Escalate problems within AT&T and End User organizations according to
a mutually agreed schedule.
5. Upon isolation of the fault, NetSolve will dispatch the appropriate
service entity (End User's carrier or End User- or AT&T-designated
equipment maintenance provider).
6. Close maintenance issues with End Users to their satisfaction.
3 of 6
<PAGE>
Attachment L
To Agreement No. GSA005D
7. When fault isolation procedures indicate a problem with non-Network
Components, NetSolve will provide End User with information gathered
during the fault isolation process in an effort to aid End User in
restoring service. If the information is sufficient to open a ticket
using AT&T's automated systems, NetSolve will open this ticket at the
customer's option. (This procedure is called a Warm Hand Off).
Software Management
- -------------------
A. Remotely install up to one network-wide software upgrade annually to which
the End User is entitled under application CPE maintenance agreements or
which is provided by the CPE manufacturer to correct defects.
B. Maintain a repository of the current software configurations for
applicable Network Components.
C. Download software configurations to Network Components as required to
restore any failed or lost software loads.
Reporting
- ---------
A. NetSolve and AT&T will use their best efforts to mutually agree on DMOQs
(Direct Measures of Quality) by no later than June 30, 1999 as well as
DMOQs containing performance charges and/or credits.
B. Monthly provide mutually agreed reports on NetSolve's activities
demonstrating NetSolve's performance to mutually agreed upon DMOQs.
C. Bimonthly provide the results of the reconciliation of perpetual inventory
records to physical counts
D. Monthly report on units received and shipped.
E. Monthly provide billing information in a mutually agreed format on new
installations (including moves, adds and changes) and other billable
activities.
F. On request provide information reasonably required to resolve billing
issues.
AT&T Responsibilities
The tasks included in this section are the responsibility of the AT&T or the
AT&T's End User. In the event the End User fails to perform its
responsibilities, AT&T shall perform those responsibilities on End User's behalf
or, failing that, shall excuse any failure of NetSolve to perform its
responsibilities to the extent caused by AT&T and / or End User's failure. Any
such failure by AT&T or End User will not reduce the charges by NetSolve for the
affected services, even if NetSolve is unable to perform the services.
Project Management
- ------------------
A. Submit Orders to NetSolve in a mutually agreed upon format. Submitted
orders must contain all information mutually agreed as necessary for
NetSolve to perform its responsibilities under this SOW.
B. Provide End User contact information to NetSolve.
C. Notify NetSolve of the dates of all AT&T installation activities necessary
for NetSolve to perform its services or enter such dates directly into
NetSolve's systems utilizing the capabilities of NetSolve's web interface.
4 of 6
<PAGE>
Attachment L
To Agreement No. GSA005D
Inventory Management
- --------------------
A. Provide NetSolve with all contact and other information necessary for
NetSolve to place orders with AT&T's equipment vendors and provide those
vendors with any communications required in order for them to accept such
orders.
B. If NetSolve is not allowed to order from AT&T vendors, then AT&T will
place the orders.
C. AT&T, AT&T's CPE vendor, or the End User is responsible for shipping
charges for all CPE.
Staging Management
- ------------------
A. Provide NetSolve with all contact and other information necessary for
NetSolve to place orders with AT&T's CPE maintenance vendors and provide
those vendors with any communications required in order for them to accept
such orders.
Installation Management
- -----------------------
A. Notify NetSolve of the dates of all AT&T installation activities necessary
for NetSolve to perform its services.
B. Provide installation services and / or spare parts for all central office
based network components.
Performance Management
- ----------------------
A. Provide NetSolve with access to AT&T's systems or Network Components and
tools as necessary for NetSolve to perform the services.
Infrastructure Management
- -------------------------
A. Provide element managers (hardware and software) required for the Kentrox
production platform management.
B. Provide maintenance services and / or spare parts for management systems,
and backup management systems, as required.
C. Provide maintenance services and / or spare parts for all central office
based network components.
D. Test network components as system components to verify suitability.
E. Provide NetSolve the recommended equipment configurations, scripts, and
training for Network Components at no charge.
F. Provide NetSolve with on-line access to and training for the appropriate
AT&T internal systems at no charge.
G. Introduce to NetSolve appropriate contacts, both internally and with
partners, to allow NetSolve to escalate in the event of a possible End
User satisfaction issue.
H. Develop overall IMA design, and provide NetSolve with schematic and PVC
end points.
I. Provide engineering rules for configuring IMA.
Monitoring and Fault Management
- -------------------------------
A. Resolve network, frame network, / FR interconnect, or or FR access
problems.
B. Provide access to AT&T internal systems for fault resolution at no charge.
5 of 6
<PAGE>
Attachment L
To Agreement No. GSA005D
Software Management
- -------------------
A. Provide NetSolve with authorized copies of software which AT&T requests
NetSolve to install on End User or AT&T Network Components.
General
- -------
A. AT&T or End User is responsible for managing all network elements that are
not a part of Network Components. If, while performing its management
services, NetSolve isolates issues beyond Network Components, a NetSolve
network engineer will consult with the AT&T 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 amounts will be charged to AT&T.
B. The End User must provide a 1FB phone line, or dedicated PBX extension
with DID capability, prior to the install date at each site covered by
NetSolve's services hereunder to allow dial-in access by NMC personnel.
These lines must be connected to a dial modem provided by the End User.
C. The End User and/or AT&T must provide NetSolve with notice of any changes
which are intended to be made to the Network Components before such
changes are made.
D. End User is responsible for managing the "non-IMA" network environment,
defined as equipment and services located on the End User side of the
demarc.
E. It is recommended that End User at all times have maintenance coverage for
all CPE equipment included in network components. NetSolve recommends that
central sites have a minimum of 7x24 coverage with a four hour response.
NetSolve will work with End User to develop alternative maintenance
strategies if desired (on-site spares, e.g.).
F. For optimal service, NetSolve recommends that the End User obtain
registered IP addresses for applicable network components or agree to use
unregistered IP addresses assigned by NetSolve. Secondary addressing
support is also available, but reduces NetSolve's troubleshooting
abilities.
G. The End User and/or must purchase an in-band management channel to
NetSolve to monitor CPE IMA.
6 of 6
<PAGE>
Amendment 9
To Agreement No. GSA005D
Amendment No. 9
The Contract Services Agreement effective August 1, 1995, between NetSolve,
Incorporated ("NetSolve") and AT&T Corp. ("AT&T") ("Original Contract") as
heretofore modified by Amendment Number 5 (collectively the "GSA005D Agreement"
or "Agreement") is further amended by this Amendment No. 9 as follows effective
as of April 5, 1999:
1) Attachment M, attached hereto, entitled "AT&T IP Enhanced Frame Relay
("IPFR") Services" is hereby incorporated as part of the Agreement.
ALL OTHER TERMS AND CONDITIONS OF THE AGREEMENT REMAIN UNCHANGED.
<TABLE>
<CAPTION>
NETSOLVE, INCORPORATED AT&T CORP.
By: [Craig Tysdal] By: [Priscilla A. Taylor]
--------------------------------------- ----------------------------------
<S> <C> <C> <C>
Signature: [Signature of Craig Tysdal] Signature: [Signature of Priscilla A. Taylor]
--------------------------------------- ----------------------------------
Title: [President and Chief Executive Officer] Title: [Manager ]
--------------------------------------- ----------------------------------
Date: [5/14/99] Date: [5/18/99]
--------------------------------------- ----------------------------------
</TABLE>
1 of 6
<PAGE>
Attachment M
To Agreement No. GSA005D
ATTACHMENT M
AT&T IP Enhanced Frame Relay (IPFR) Services
This Attachment for Contract Services ("Attachment M")") to the Agreement covers
AT&T IPFR Implementation and Management Services ("Services") that NetSolve
shall provide to AT&T in support of AT&T's IPFR Service offering, as requested
by AT&T and as described herein. This Attachment M 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 .M.
For purposes of this Attachment M only 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 IPFR Service
offering in accordance with the "Statement of Work," Attachment M-1 attached
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
Attachment M-1 may be requested from time to time by AT&T. 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 reasonably believes 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 with
appropriate supporting documentation substantiating the basis for the requested
price increase. Following delivery of such notice, NetSolve shall not proceed
with Services with any such modification until AT&T and NetSolve Contract
Representatives (as then designated and authorized) agree, in writing, to the
appropriate charges.
"Orders" for Services pursuant to this Attachment M shall be sent to NetSolve
via a mutually agreed upon method. Monthly recurring Service charges as further
described in Paragraph 4 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 order from AT&T to NetSolve, but
in no case greater than 36 months (the "Service Term"). The agreement term for
ordering IPFR Service is set forth in Paragraph 3.
Paragraph 2 - Contract Representative:
AT&T's Contract Representative for this Attachment is Tim Halpin. 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 M is April 5, 1999 and it shall end on
April 4, 2000. At AT&T's option, this Attachment M and the Agreement shall
continue in effect for a maximum term of one year following the expiration of
this Attachment M with respect to individual End User service terms which extend
beyond the term of this Attachment M. AT&T shall have the right to exercise
this option provided that AT&T and NetSolve mutually and reasonably agree that
service levels with respect to such individual end users remain substantially
the same as set forth in Attachment M-1. AT&T shall notify NetSolve in writing
of each individual End User service term that shall be extended hereunder and
such extended individual End User service term(s) shall convert to a "month to
month" service term(s) which shall be cancelable by AT&T under Paragraph 24
subsection 3 (d). NetSolve shall retain network management and monitoring
capabilities and responsibilities as stated in Attachment M-1 hereto for
individual End Users that NetSolve continues to service pursuant to AT&T's
exercise of its option to extend this
2 of 6
<PAGE>
Attachment M
To Agreement No. GSA005D
Attachment M and the Agreement with respect to individual End User service terms
which extend beyond the term of this Attachment M as set forth above.
Paragraph 4 - Payment for Services
For services performed by NetSolve under this Attachment M, AT&T will pay
NetSolve the following:
Recurring Services
- ------------------
<TABLE>
<CAPTION>
Service Type Network Component Type Price
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Configuration Management access line (with Visual CPE), Price is covered under Frame Relay
Infrastructure Management ports, and managed PVCs Plus pricing as specified in
Monitoring and Fault Management paragraph 4 of Attachment K to
Software Management this Agreement GSA005D
Reporting
- -----------------------------------------------------------------------------------------------------------
Monitoring and Fault Management access line (without Visual CPE), $*/month/unit plus
Reporting ports and unmanaged PVCs or $*/month/unmanaged PVC
equivalents
- -----------------------------------------------------------------------------------------------------------
Infrastructure Management IPFR trial and CI backbone $*/month for 3 PER IPFR , 3 TSC
Monitoring and network and 3 BPX "Trial Network";
Fault Management additional PERs, TSCs and BPXs
Reporting will be managed for $* per month
- -----------------------------------------------------------------------------------------------------------
</TABLE>
This pricing will remain effective provided the ratio of unmanaged PVCs to
managed PVCs does not exceed 1.2 to 1.
Nonrecurring Services
- ---------------------
Note: If End User Site is an existing Frame Plus End User Site there will be no
- -------
duplicate charges for provisioning of Frame Relay Plus components used for
IPFR.
<TABLE>
<CAPTION>
Service Type Network Component Type Price
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Program Management Visual CPE and/or Port $*/CPE and/or Port
(Non-Frame Plus Service)
- ----------------------------------------------------------------------------------------------
Order Management Ports with PVCs $*/port
- ----------------------------------------------------------------------------------------------
Order Management Additional PVCs, existing port $*/event
upgrade/no new facility if
ordered by NetSolve
- ----------------------------------------------------------------------------------------------
Installation Management Visual CPE and PAM; or port $*/Visual unit and/or port
(without Visual CPE) (Non-Frame
Plus Service)
- ----------------------------------------------------------------------------------------------
</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.
3 of 6
<PAGE>
Attachment M
To Agreement No. GSA005D
This pricing will remain effective provided the ratio of unmanaged PVCs to
managed PVCs does not exceed 1.2 to 1.
Project Initiation Fees
- -----------------------
NetSolve will be required to modify existing and add new systems, processes, and
tools in order to support this service. The one time charge for implementing
this project is $*. This fee will cover the tasks and resources required by
NetSolve to develop full operational support as specified under this Attachment.
This includes:
1) program management
2) project management
3) analysis, design, review, and modifications to NetSolve internal management
systems and tools. This includes:
a) OSS Trouble Tickets
b) OSS reporting
c) OSS NetRep
d) OSS parts database
e) CANVASS polling system and associated trap filter
4) analysis, design, review, modifications, and allocation for NetSolve
management infrastructure. This includes:
a) management channel terminations
b) switches, hub, and routers
c) security devices
d) redundancy equipment to include software, tools, and database backup
systems
e) redundancy infrastructure to include UPS, generator, and fiber ring
f) NetSolve test lab components
5) staff training on technology, products, and processes
6) staff training on internal AT&T systems and tools
7) internal and partner operational readiness testing
8) process development for provisioning, installation, maintenance, and
software updates
9) AT&T IPFR partner interface agreements
Except for AT&T property set forth in paragraph 24-4 of this Attachment M, this
fee does not provide AT&T ownership of any of the work product of NetSolve under
this section, nor any software, tools, processes, nor other similar items
developed by NetSolve.
Rescheduling Charges
- --------------------
AT&T agrees to pay NetSolve fees for each site that requires rescheduling.
Rescheduling will be defined as any change in the End User's Planned
Installation Date (PID) that is not the result of an error by NetSolve. An
order cancellation will qualify as a PID change.
- -----------------
*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.
4 of 6
<PAGE>
Attachment M
To Agreement No. GSA005D
Rescheduling Fee $75 per PID change
Examples of events that will change a Planned Installation Date include:
. Changes to End User information, such as address, that causes a change in the
PID.
. An AT&T subcontractor does not complete their work in sufficient time for the
schedule to be kept.
. The LEC does not complete the loop installation in sufficient time for the
schedule to be kept.
. AT&T does not complete the frame installation in sufficient time for the
schedule to be kept.
. The End User changes the installation date.
Time and Material Services
- --------------------------
1) NetSolve's Time and Material SERVICES are available at $200 per hour for on-
site work (minimum 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.
2) All Time and Material SERVICES are to be authorized in writing by AT&T
prior to the actual dispatch and completion of on-site work by NetSolve
or a NetSolve provider.
Paragraph 7 - Invoicing and Payment
NetSolve's invoices shall be rendered 1) upon completion of the Services for
non-recurring charges, 2) monthly, sent in advance, for recurring monthly
charges, or 3) at other times expressly provided for in this Attachment M, and
shall be payable when the Services have been performed to the satisfaction of
AT&T. NetSolve shall mail invoices referring to GSA0005D Agreement, Amendment 9
with copies of any supporting documentation required by AT&T to: Tim Halpin,
Room 42B48, 30 Knightsbridge Road, Piscataway, New Jersey 08854. 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 provisions contained in the Original
Contract as modified by Amendment 5 of the Agreement that apply to the
entire Agreement shall survive the expiration or termination of the
Original Contract and/or this Amendment 9 and shall continue to apply to
this Attachment M as if the Original Contract and this Amendment 9 had not
expired or been terminated, subject to AT&T's right to terminate under
Paragraph 24 2) a) below.
2) Termination of the Agreement and/or Attachment M -
a) In the event NetSolve shall be in breach or default of any of the
terms, conditions or covenants of the Agreement, this Attachment M, 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 the
limitations specifically set forth in Paragraph 36 of Amendment 5 to
the Agreement), AT&T shall have the right to terminate this Attachment
M 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 M 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
5 of 6
<PAGE>
Attachment M
To Agreement No. GSA005D
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; or
iii) immediately if a voluntary proceeding is commenced under a
provision of the United States Bankruptcy Code by NetSolve; or
iv) immediately if an involuntary proceeding is commenced under a
provision of the United States Bankruptcy Code against NetSolve
that is not dismissed within thirty (30) days of its filing.
c) This Attachment M 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.
3) Termination of Individual Orders placed pursuant to this Attachment M
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; 2) AT&T's End User has a change in their normal
course of business that impacts services, such as relocation, office
closings, or moves; 3) the End User's Contract expires or is
terminated; 4) the End User downgrades to a non-managed service; or 5)
the End User changes to another AT&T service which does not involve
NetSolve.
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.
c) AT&T may terminate upon thirty (30) days written notice by AT&T, at no
charge, any Order that includes modifications (as described in
Paragraph 1 of this Attachment N), in the event AT&T and NetSolve are
unable to agree on pricing for any modifications to the Statement Of
Work. Modifications cannot apply retroactively to installed business
unless AT&T and NetSolve mutually agree.
d) AT&T may terminate, upon thirty (30) days written notice by AT&T, at no
charge, any Order for any End User and any End User Service term that
AT&T has exercised its option to extend beyond the term of this
Attachment M under Paragraph 3 of this Attachment M.
4) Ownership and Return of Data upon Termination
In accordance with proprietary information or confidentiality clauses
contained within the Original Contract under Paragraph 6, Competition or the
Agreement, NetSolve agrees and acknowledges that all customer data {e.g.
(without limitation except as set forth in paragraph 4 - Project Initiation
Fees): the customer premises equipment configurations, customer database
information, trouble history, passwords etc.} is the property of AT&T and
will be promptly conveyed and returned to AT&T in a mutually agreeable
electronic format upon written notice.
Paragraph 37 - Access to AT&T Systems
AT&T agrees to provide NetSolve, at no charge, access to all AT&T internal
information systems, which include provisioning and maintenance systems, which
AT&T determines in its reasonable judgment to be necessary for NetSolve to
effectively perform under the SOW as outlined in Attachment M-1. If applicable,
any such information shall be provided to NetSolve subject to Data Connect
Agreement #197 dated April 16, 1998 and Non-Disclosure Agreement dated July 17,
1997, each between AT&T Corp. and NetSolve.
6 of 6
<PAGE>
Attachment M-1
To Agreement No. GSA005D
ATTACHMENT M-1
Statement of Work for AT&T IPFR Management Service
Service Description
- -------------------
IPFR Management Service is a set of implementation, installation, and life cycle
management services which allow AT&T to quickly provide High Speed Packet
Services. The service is designed to provide capabilities including equipment
engineering, design validation, ordering, provisioning, program management,
installation, life cycle management, reporting, quality validation, and
documentation.
The services described in this Statement of Work ("SOW") will be performed with
respect to the Network Components in Table 1 where indicated by an `x' at the
intersection of the Service Element and Network Component. The pricing for each
Service Element is set forth in Paragraph 4 of Attachment M.
Table 1
<TABLE>
<CAPTION>
Network Components
------------------------------------------------------------------------
<S> <C> <C> <C>
IPFR "Trail" Customer
Service Element Network Ports / PVCs Visual CPE
=======================================================================================================
Program Management X X
- -------------------------------------------------------------------------------------------------------
Order Management X X
- -------------------------------------------------------------------------------------------------------
Installation Management X X
- -------------------------------------------------------------------------------------------------------
Configuration Management X
- -------------------------------------------------------------------------------------------------------
Infrastructure Management X X
- -------------------------------------------------------------------------------------------------------
Monitoring and X X X
Fault Management
- -------------------------------------------------------------------------------------------------------
Software Management X X
- -------------------------------------------------------------------------------------------------------
Reporting X
- -------------------------------------------------------------------------------------------------------
</TABLE>
NetSolve Responsibilities
- -------------------------
NetSolve will perform the tasks described under each Service Element below. Any
significant tasks or responsibilities not described will be the responsibility
of AT&T or AT&T's customer (the "End User").
Program Management
- ------------------
NetSolve will perform the following program management tasks:
A. Review Orders received from AT&T and request additional information or
clarification where required. Notify AT&T upon receipt of all information
required to begin processing.
B. For each site contained on an Order, contact the End User and develop an
installation schedule based upon the End User's requirements and the
installation intervals of AT&T, AT&T's other vendors, End User's other
vendors and NetSolve (as mutually agreed by AT&T and NetSolve from time to
time).
C. Include End User contact information provided by AT&T in Operations Support
System ("OSS").
D. Provide the End User with any installation guidelines or information
necessary to successfully
1 of 6
<PAGE>
Attachment M-1
To Agreement No. GSA005D
complete the installation.
E. Schedule on-site installations with AT&T's vendor and enter scheduling
information in NetSolve's Operations Support System ("OSS"). Enter other
scheduling information (e.g. transport installation dates) in OSS as
mutually agreed.
F. Notify End Users, the Customer Premise Equipment ("CPE") installation
vendor, and applicable NetSolve organizations regarding provisioning and CPE
installation issues under an agreed to schedule.
G. Conduct post-installation interview with End User to determine any
corrective actions required and implement identified actions or notify AT&T
to take actions with respect to issues related to AT&T's responsibilities.
H. Notify and coordinate with End User for network related changes that may
impact their service.
I. Provide AT&T with a quote for any services or equipment that are not part of
the standard service description.
J. 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 and according to the pricing established in
Paragraph 4 of this Attachment M.
Order Management
- ----------------
NetSolve will perform the following order management tasks:
A. Place information from Orders for network and equipment components into
AT&T's ordering systems as mutually agreed.
B. Update OSS with circuit number and DLCI information, and firm order
commitment dates (against End User requested dates) from AT&T's order
management systems.
C. Track and report systems integration status to the End Users or vendor in a
format selected by NetSolve and follow-up with the appropriate parties to
reschedule if dates are missed or change.
Installation Management
- -----------------------
NetSolve will perform the following installation management tasks:
A. Notify AT&T, AT&T's designated on-site installation vendor, and the End User
of End User installation dates in a format selected by NetSolve.
B. Supervise the installation, configuration, and test connectivity of Network
Components at each location to the End User's wide area network and to the
NetSolve-designated NetSolve Network Management Center ("NMC"). Initiate
corrective actions to resolve any physical and logical connectivity issues,
including dispatching appropriate on-site vendors as required.
C. Enter CPE configuration information in OSS or other NetSolve database or
management tools.
Configuration Management
- ------------------------
NetSolve will perform the following configuration management tasks:
A. Develop and implement mutually agreed to addressing plans for Visual CPE.
B. Provide Visual CPE configuration information to AT&T or their designated
Visual CPE staging vendor.
Infrastructure Management
- -------------------------
NetSolve will perform the following infrastructure management tasks:
2 or 6
<PAGE>
Attachment M-1
To Agreement No. GSA005D
A. Receive, install, and configure Visual CPE element managers.
B. Operate the Visual CPE element managers, including backups of configuration
and data as mutually agreed upon.
C. Provide, install, and manage the NMC management channel terminations,
including frame relay network access and management routers, for the IPFR
management connections for the Visual CPE and Trial IPFR Network components.
D. Configure NMC network and management systems connectivity for the Visual
CPE.
E. Configure NMC network and management systems connectivity for the Trial IPFR
Network components, including PERs, TSCs and BPXs.
Monitoring and Fault Management
- -------------------------------
NetSolve will perform the following monitoring and fault management tasks:
A. Support End Users as their primary interface for operational issues.
B. Provide the designated End User contact with NMC contact information.
C. Provide 24 hours per day, 7 days per week monitoring of End User physical
and logical networks from the NMC.
D. Upon receipt of an alarm at the NMC, or a call from the End User indicating
a network outage or performance issue with a Network Component, NetSolve
will take the following actions:
1. Open a Trouble Ticket and initiate fault isolation procedures. All
reasonable efforts will be taken to restore service expeditiously.
2. Notify the End User designated contact of the outage and provide with
periodic status updates.
3. 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, End User may
request escalation with NetSolve at any time.
4. Escalate problems within AT&T and End User organizations according to a
mutually agreed schedule.
5. Upon isolation of the fault, NetSolve will dispatch the appropriate
service entity (End User's carrier or End User- or AT&T-designated
equipment maintenance provider).
6. Close maintenance issues with End Users to their satisfaction.
7. When fault isolation procedures indicate a problem with non-Network
Components, NetSolve will provide End User with information gathered
during the fault isolation process in an effort to aid End User in
restoring service. If the information is sufficient to open a ticket
using AT&T's automated systems, NetSolve will open this ticket at the
customer's option. (This procedure is called a Warm Hand Off).
8. When fault isolation procedures indicate that the problem is not with
the End User frame relay access arrangement, NetSolve will execute
additional mutually agreed to connectivity tests to further isolate the
problem within AT&T's backbone production and Trial IPFR networks. When
the problem is identified, NetSolve will notify the designated IPFR
AT&T maintenance organization according to mutually agreed notification
procedures to initiate remedial repair efforts. When mutually agreed to
between AT&T and NetSolve, NetSolve may expand the scope of the IPFR
management services by manipulating the Trial IPFR network components
to effect the repair.
3 of 6
<PAGE>
Attachment M-1
To Agreement No. GSA005D
Software Management
- -------------------
NetSolve will perform the following software management tasks:
A. Remotely install up to one network-wide software upgrade annually to which
the End User is entitled under applicable CPE maintenance agreements or
which is provided by the CPE manufacturer to correct defects.
B. Maintain a repository of the current software configurations for applicable
Network Components including PERs and TSCs.
C. Download software configurations to Network Components including PERs and
TSCs as required to restore any failed or lost software loads.
Reporting
- ---------
NetSolve will provide the following reporting:
A. Monthly provide mutually agreed reports on NetSolve's activities
demonstrating NetSolve's performance to mutually agreed upon DMOQs. NetSolve
and AT&T will mutually agree on these metrics by no later than September 15,
1999 as well as the metrics containing performance charges and / or credits.
B. Monthly provide billing information in a mutually agreed format on new
installations (including moves, adds, and changes) and other billable
activities.
C. On request provide information reasonably required to resolve billing
issues.
AT&T Responsibilities
- ---------------------
The tasks included in this section are the responsibility of AT&T or AT&T's End
User. In the event the End User fails to perform its responsibilities, AT&T
shall perform those responsibilities on End User's behalf or, failing that,
shall excuse any failure of NetSolve to perform its responsibilities to the
extent caused by AT&T and / or End User's failure. Any such failure by AT&T or
End User will not reduce the charges by NetSolve for the affected services, even
if NetSolve is unable to perform the services.
Project Management
- ------------------
A. Submit Orders to NetSolve in a mutually agreed upon format. Submitted orders
must contain all information mutually agreed as necessary for NetSolve to
perform its responsibilities under this SOW.
B. Provide End User contact information to NetSolve.
C. Notify NetSolve of the dates of all AT&T installation activities necessary
for NetSolve to perform its services.
Inventory Management
- --------------------
A. Provide NetSolve with all contact and other information necessary for
NetSolve to place orders with AT&T's equipment vendors and provide those
vendors with any communications required in order for them to accept such
orders.
B. If NetSolve is not allowed to order from AT&T vendors, then AT&T will place
the orders.
C. AT&T, AT&T's CPE vendor, or the End User is responsible for shipping charges
for all CPE.
4 of 6
<PAGE>
Attachment M-1
To Agreement No. GSA005D
Staging Management
- ------------------
A. Provide NetSolve with all contact and other information necessary for
NetSolve to place orders with AT&T's CPE maintenance vendors and provide
those vendors with any communications required in order for them to accept
such orders.
Installation Management
- -----------------------
A. Notify NetSolve of the dates of all AT&T installation activities necessary
for NetSolve to perform its services.
B. Provide installation services and / or spare parts for all central office
based network components.
C. Provide onsite installations of all Visual CPE and Trial IPFR Network
components.
Infrastructure Management
- -------------------------
A. Provide element managers (hardware and software) required for the Visual ASE
production platform management.
B. Provide maintenance services and / or spare parts for management systems,
and backup management systems as required.
C. Provide maintenance services and / or spare parts for all central office
based network components.
D. Test network components as system components to verify suitability.
E. Provide NetSolve the recommended equipment configurations, scripts, and
training for Network Components at no charge.
F. Provide NetSolve with on-line access to and training for the appropriate
AT&T internal systems at no charge.
G. Introduce to NetSolve appropriate contacts, both internally and with
partners, to allow NetSolve to escalate in the event of a possible End User
satisfaction issue.
H. Develop overall IPFR design, and provide NetSolve with schematic and PVC end
points.
I. Provide engineering rules for configuring IPFR.
Monitoring and Fault Management
- -------------------------------
A. Resolve network, frame network, FR interconnect, or FR access problems.
B. Provide access to AT&T internal systems for fault resolution at no charge.
Software Management
- -------------------
A. Provide NetSolve with authorized copies of software which AT&T requests
NetSolve to install on End User or AT&T Network Components.
General
- -------
A. AT&T or End User is responsible for managing all network elements that are
not a part of Network Components. If, while performing its management
services, NetSolve isolates issues beyond Network Components, a NetSolve
network engineer will consult with AT&T 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 amounts will be charged to AT&T.
B. The End User and/or AT&T must provide NetSolve with notice of any changes
which are
5 of 6
<PAGE>
Attachment M-1
To Agreement No. GSA005D
intended to be made to the Network Components before such changes are made.
C. End User is responsible for managing the "non-IPFR" network environment,
defined as equipment and services located on the End User side of the
demarc.
D. It is recommended that End User at all times have maintenance coverage for
all CPE equipment included in network components. NetSolve recommends that
central sites have a minimum of 7x24 coverage with a four hour response.
NetSolve will work with End User to develop alternative maintenance
strategies if desired (e.g. on-site spares).
E. For optimal service, NetSolve recommends that the End User obtain registered
IP addresses for applicable network components or agree to use unregistered
IP addresses assigned by NetSolve. Secondary addressing support is also
available, but reduces NetSolve's troubleshooting abilities.
F. The End User and / or AT&T must purchase an in-band management channel to
NetSolve to monitor appropriate IPFR Network Components.
6 to 6
<PAGE>
Attachment N
To Agreement No. GSA005D
Amendment No. 10
The Contract Services Agreement effective August 1, 1995, between NetSolve,
Incorporated ("NetSolve") and AT&T Corp. ("AT&T") ("Original Contract") as
heretofore modified by Amendment Number 5 (collectively the "GSA005D Agreement"
or "Agreement") is further amended by this Amendment No. 10 as follows effective
as of March 1, 1999:
1) Attachment N, attached hereto, entitled "AT&T ATM PLUS ("ATM PLUS")
Services" is hereby incorporated as part of the Agreement.
ALL OTHER TERMS AND CONDITIONS OF THE AGREEMENT REMAIN UNCHANGED.
NETSOLVE, INCORPORATED AT&T CORP.
<TABLE>
<CAPTION>
<S> <C> <C>
By: [Craig Tysdal] By: [C.Botticelli]
--------------------------------------- ----------------------------
Signature: [Signature of Craig Tysdal] Signature: [Signature of C. Botticelli]
--------------------------------------- ----------------------------
Title: [President and Chief Executive Officer] Title: [Procurement Manager]
--------------------------------------- ----------------------------
Date: [5/26/99] Date: [6/8/99]
--------------------------------------- ----------------------------
</TABLE>
1 of 6
<PAGE>
Attachment N
To Agreement No. GSA005D
ATTACHMENT N
AT&T ATM PLUS ("ATM PLUS") Services
This Attachment for Contract Services ("Attachment N") to the Agreement covers
AT&T ATM PLUS Implementation and Management Services ("Services") that NetSolve
shall provide to AT&T in support of AT&T's ATM PLUS Service offering, as
requested by AT&T and as described herein. This Attachment N 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 N.
For purposes of this Attachment N only 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 ATM PLUS Service
offering in accordance with the "Statement of Work," Attachments N-1 and N-2
attached 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 N-1 and N-2 may be requested from time to time by AT&T. 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 reasonably believes 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 with
appropriate supporting documentation substantiating the basis for the requested
price increase. Following delivery of such notice, NetSolve shall not proceed
with Services with any such modification until AT&T and NetSolve Contract
Representatives (as then designated and authorized) agree, in writing, to the
appropriate charges.
"Orders" for Services pursuant to this Attachment N shall be sent to NetSolve
via a mutually agreed upon method. Monthly recurring Service charges as further
described in Paragraph 4 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 order from AT&T to NetSolve, but
in no case greater than 36 months (the "Service Term"). The agreement term for
ordering ATM PLUS Service is set forth in Paragraph 3.
Upon expiration or termination of this Attachment N, all Services will continue
to be provided through the end of each End User Service Term and will be non-
cancelable by either party except as set forth in Paragraph 24 of this
Attachment N.
Paragraph 2 - Contract Representative:
AT&T's Contract Representative for this Attachment N is Kelly A. Donnelly,
BNSVC. 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 N is March 1, 1999 and it shall end on
February 28, 2001; provided, however, that this Attachment N and the Agreement
shall continue in effect beyond February 28, 2001 with respect to specific End
User service terms only which extend beyond the Term of this Attachment N and
the Agreement, except that in no event shall NetSolve be obligated to provide
Services to such specific End Users more than three (3) years after February 28,
2001.
2 of 6
<PAGE>
Attachment N
To Agreement No. GSA005D
Paragraph 4 - Payment for Services
For services performed by NetSolve under this Attachment N, AT&T will pay
NetSolve the following:
Recurring Services
- ------------------
<TABLE>
<CAPTION>
Service Type Network Component Type Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Monitoring and Visual Unit with PAM $*/month/Visual unit
Fault Management;
Software and Firmware
Control; Information and
Reporting
- ---------------------------------------------------------------------------------------------
Modified Fault Management Unmanaged PVC $*/month/PVC
Warm Hand Off
- ---------------------------------------------------------------------------------------------
</TABLE>
This pricing will remain effective provided the ratio of unmanaged PVCs to
managed PVCs does not exceed 1.2 to 1.
Nonrecurring Services
- ---------------------
<TABLE>
<CAPTION>
Service Type Network Component Type Price
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Program Management Visual CPE and/or Port $*/CPE and/or Port
- ----------------------------------------------------------------------------------------------
Order Management Ports with PVCs $*/port
- ----------------------------------------------------------------------------------------------
Order Management Additional PVCs, port upgrade/no $*/event
new facility
- ----------------------------------------------------------------------------------------------
Installation Engineering Visual CPE and PAM $*/Visual unit
- ----------------------------------------------------------------------------------------------
</TABLE>
This pricing will remain effective provided the ratio of unmanaged PVCs to
managed PVCs does not exceed 1.2 to 1.
Project Initiation Fees
- -----------------------
NetSolve will be required to modify existing and add new systems, processes, and
tools in order to support this service. The one time charge for implementing
this project is $*. This fee will cover the tasks and resources required by
NetSolve to develop full operational support as specified under this Attachment.
This includes:
1) program management
2) project management
3) analysis, design, review, and modifications to NetSolve internal management
systems and tools. This
- ---------------------
*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.
3 of 6
<PAGE>
Attachment N
To Agreement No. GSA005D
includes:
a) OSS Trouble Tickets
b) OSS reporting
c) OSS NetRep
d) OSS parts database
e) CANVASS polling system and associated trap filter
f) ProWatch Exchange web tool
4) analysis, design, review, modifications, and allocation for NetSolve
management infrastructure. This includes:
a) management channel terminations
b) switches, hub, and routers
c) security devices
d) redundancy equipment to include software, tools, and database backup
systems
e) redundancy infrastructure to include UPS, generator, and fiber ring
f) NetSolve test lab components
5) staff training on technology, products, and processes
6) staff training on internal AT&T systems and tools
7) internal and partner operational readiness testing
8) process development for provisioning, installation, maintenance, and
software updates
9) AT&T ATM PLUS partner interface agreements
Except for AT&T property set forth in paragraph 24-4 of this Attachment N, this
fee does not provide AT&T ownership of any of the work product of NetSolve under
this section, nor any software, tools, processes, nor other similar items
developed by NetSolve.
Rescheduling Charges
- --------------------
AT&T agrees to pay NetSolve fees for each site that requires rescheduling.
Rescheduling will be defined as any change in the End User's Planned
Installation Date (PID) that is not the result of an error by NetSolve. An
order cancellation will qualify as a PID change.
Rescheduling Fee $75 per PID change
Examples of events that will change a Planned Installation Date include:
. Changes to End User information, such as address, that causes a change in
the PID
. An AT&T subcontractor does not complete their work in sufficient time for
the schedule to be kept.
. The LEC does not complete the loop installation in sufficient time for the
schedule to be kept.
. AT&T does not complete the frame installation in sufficient time for the
schedule to be kept.
. The End User changes the installation date.
Time and Material Services
- --------------------------
1) NetSolve's Time and Material SERVICES are available at $200 per hour for on-
site work (minimum 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.
2) All Time and Material SERVICES are to be authorized in writing by AT&T prior
to the actual dispatch and completion of on-site work by NetSolve or a
NetSolve provider.
4 of 6
<PAGE>
Attachment N
To Agreement No. GSA005D
Paragraph 7 - Invoicing and Payment
NetSolve's invoices shall be rendered 1) upon completion of the Services for
non-recurring charges, 2) monthly, sent in advance, for recurring monthly
charges, or 3) at other times expressly provided for in this Attachment N, and
shall be payable when the Services have been performed to the satisfaction of
AT&T. NetSolve shall mail invoices referring to GSA0005D Agreement, Amendment
10 with copies of any supporting documentation required by AT&T to: Kelly A.
Donnelly, BNSVC, 900 Route 202/206N, Room 3A110E, Bedminster, NJ 07921-0752.
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 provisions contained in the Original
Contract as modified by Amendment 5 of the Agreement that apply to the
entire Agreement shall survive the expiration or termination of the Original
Contract and/or this Amendment 10 and shall continue to apply to this
Attachment N as if the Original Contract and this Amendment 10 had not
expired or been terminated, subject to AT&T's right to terminate under
Paragraph 24 2) a) below.
2) Termination of the Agreement and/or Attachment N -
a) In the event NetSolve shall be in breach or default of any of the
terms, conditions or covenants of the Agreement, this Attachment N, 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 the
limitations specifically set forth in Paragraph 36 of Amendment 5 to
the Agreement), AT&T shall have the right to terminate this Attachment
N 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 N 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; or
iii) immediately if a voluntary proceeding is commenced under a
provision of the United States Bankruptcy Code by NetSolve; or
iv) immediately if an involuntary proceeding is commenced under a
provision of the United States Bankruptcy Code against NetSolve
that is not dismissed within thirty (30) days of its filing.
c) This Attachment N 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.
3) Termination of Individual Orders placed pursuant to this Attachment N -
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; 2) AT&T's End User has a change in their normal
course of business that impacts services, such as relocation, office
closings, or moves; 3) the End User's Contract expires or is
terminated; 4) the End User downgrades to a non-managed service; or 5)
the End User changes to another AT&T service which does not
5 of 6
<PAGE>
Attachment N
To Agreement No. GSA005D
involve NetSolve.
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.
c) AT&T may terminate upon thirty (30) days written notice by AT&T, at no
charge, any Order that includes modifications (as described in
Paragraph 1 of this Attachment N), in the event AT&T and NetSolve are
unable to agree on pricing for any modifications to the Statement Of
Work. Modifications cannot apply retroactively to installed business
unless AT&T and NetSolve mutually agree.
4) Ownership and Return of Data upon Termination
In accordance with proprietary information or confidentiality clauses
contained within the Original Contract under Paragraph 6, Competition or the
Agreement, NetSolve agrees and acknowledges that all customer data {e.g.
(without limitation except as set forth in paragraph 4 - Project Initiation
Fees): the customer premises equipment configurations, customer database
information, trouble history, passwords etc.} is the property of AT&T and
will be promptly conveyed and returned to AT&T in electronic format upon
written notice.
Paragraph 37 - Access to AT&T Systems
AT&T agrees to provide NetSolve, at no charge, access to all AT&T internal
information systems, which include provisioning and maintenance systems, which
AT&T determines in its reasonable judgment to be necessary for NetSolve to
effectively perform under the SOW as outlined in Attachments N-1and N-2. If
applicable, any such information shall be provided to NetSolve subject to Data
Connect Agreement #197 dated April 16, 1998 and Non-Disclosure Agreement dated
July 17, 1997, each between AT&T Corp. and NetSolve.
6 of 6
<PAGE>
Attachment N-1
To Agreement No. GSA005D
Attachment N-1
Program Management, Order Management, and Installation Engineering -
Statement of Work
Service Description This Statement of Work for NetSolve's Program Management,
- -------------------
Order Management, and Installation Engineering service defines the
responsibilities and deliverables for AT&T and NetSolve with respect to
coordinated ordering, delivery, and installation coordination of RMON-based
probes supplied by Visual Networks ("Probe"), Network Termination Units (NTU),
ports, local access, and VP/VCs or PVCs in support of the AT&T ATM Smart Jack
Services ("ASJ"). These services will be performed remotely from a NetSolve
Network Management Center ("NMC").
The terms Network or Network Components mean all hardware and network components
from the managed Probe at one location to the managed Probe at any other
location, including the NTU, ATM ports, and VP/VCs or PVCs and local access to
the AT&T's ATM switches, for any locations covered by ASJ1 under an Order
accepted by NetSolve.
NetSolve Responsibilities
Program Management
- ------------------
NetSolve will perform the following program management tasks:
A. Enter required End User information in the Performance Archive Manager
(PAM) platform based on ASJ level supported.
B. Perform ongoing administrative duties, including password management, on
the PAM to ensure continued End User access.
C. Interface with the End User to validate equipment and network
configuration and protocol information.
D. Develop an installation schedule, with the End User contact, for each site
based on installation intervals supplied by AT&T.
E. Provide site survey information for the End User, as required, to enable
proper equipment installation.
F. 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 changed.
G. Conduct a post-installation review with the End User and initiate necessary
corrective action.
H. NetSolve will coordinate with the appropriate groups inside AT&T to
expeditiously enable an installed customer to upgrade from ASJ1 to
additional ASJ Service levels, if available.
I. 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 and according to the pricing
established in Paragraph 4.
Order Management
- ----------------
NetSolve will perform the following order management tasks:
A. Input required End User information into AT&T's AISE ordering system.
- -------------------------------------------------------------------------------
1 of 4
<PAGE>
Attachment N-1
To Agreement No. GSA005D
B. Input required End User information into NetSolve's OSS Management system.
C. Place order with AT&T (to be billed to End User by AT&T) for the Network
Components of the ASJ service including the ports, local access and NTU, and
VP/VCs or PVCs.
D. Place order with AT&T for the VP/VC or PVC management channel(s) from each
Probe to the NetSolve NMC (to be billed to End User by AT&T or provided at
no charge by AT&T).
E. Verify correct circuit numbers, DLCI information, and firm order commitment
dates (against End User requested date) as received from AT&T Order
management systems.
F. Interface directly with mutually agreed upon AT&T systems.
G. Create, issue, manage, and maintain the IP address plan to connect the
Probes to the management tools.
Installation Engineering
- ------------------------
NetSolve will perform the following with respect to End User installations:
A. NetSolve will coordinate testing of the End User premise Probe equipment
with an AT&T Work Center to test for end-to-end connectivity of all Network
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 ASJ1
service.
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 by no later than October
31, 1999 as well as the metrics containing performance charges and or credits.
Web Reporting
- -------------
A. Provide End Users and AT&T with access to mutually agreed upon installation
tracking information utilizing the installation tracking capabilities of
NetSolve's web interface.
- --------------------------------------------------------------------------------
2 of 4
<PAGE>
Attachment N-1
To Agreement No. GSA005D
B. Provide End Users and AT&T with access to mutually agreed upon transport
inventory information utilizing the tracking capabilities of NetSolve's web
interface.
C. Provide End Users and AT&T with access to Trouble Ticket status utilizing
the capabilities of NetSolve's web interface.
D. Provide End Users and AT&T with access to mutually agreed upon reports
utilizing the capabilities of NetSolve's web interface.
Billing
- -------
A. NetSolve will either input directly to an AT&T billing system (or AT&T and
NetSolve will provide a jointly developed electronic interface) in order to
update AT&T of newly installed Probes at customer locations.
B. NetSolve will either input directly to an AT&T billing system (or AT&T and
NetSolve will provide a jointly developed electronic interface) in order to
provide invoicing for NetSolve's billable activity to AT&T.
C. NetSolve will provide AT&T information reasonably required for AT&T to
resolve billing issues with End Users.
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 pre-configured Visual Networks Probes 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.
F. Introduce to NetSolve appropriate partner 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 Probes and associated cables to each End
User location to support the program.
- -------------------------------------------------------------------------------
3 to 4
<PAGE>
Attachment N-1
To Agreement No. GSA005D
B. Provide necessary installation of Probes at each End User location.
C. Manage issues pertaining to circuit installation by the local exchange
or other carriers 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 VP/VCs or PVCs, ports, circuits, and access charges at the
NetSolve NMC.
Billing
- -------
A. AT&T will manage all customer billing policies relative to the End User.
End User Responsibilities
A. End User is responsible for site preparation in accordance with
manufacturer's specifications.
B. End User will allow access to their site for installation services, as
reasonably requested.
- -------------------------------------------------------------------------------
4 of 4
<PAGE>
Attachment N-2
To Agreement No. GSA005D
Attachment N-2
ATM Smart Jack-Level 1 ("ASJ1") - Statement of Work
Service Description ASJ1 is a network management service for asynchronous
- -------------------
transfer mode (ATM) data transport and RMON-based probes supplied by Visual
Networks ("Probe"). The service includes proactive monitoring of the Probe,
certain defined fault identification and resolution processes, Probe 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 Probe at one location to the managed Probe at any other
location, including the ATM ports and VP/VCs or PVCs and local access to the
AT&T ATM switch, for any locations covered by ASJ1 under an order accepted by
NetSolve.
The pricing for these services are set forth in Paragraph 4 of Attachment N.
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 hours per day, 7 day per week monitoring of the End User's Probes
from the NMC. Monitoring will consist of a combination of polling and
threshold alarms from the Probe.
C. When the logical connection is between two managed sites, and upon receipt
of an alarm for a loss of connectivity condition at the NMC from a Probe, or
a call from an End User indicating a network outage or performance issue,
fault identification and resolution procedures will be executed to include
the following:
1. Notify the End User within a target timeline of fifteen minutes or less
from initial alarm (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 Probe for availability and if site Probe appears functional
NetSolve will:
i) Open a Trouble Ticket electronically in a mutually agreed
upon AT&T's Ticketing system.
ii) Monitor the Ticketing system for updates from AT&T/LEC
testing.
iii) Upon resolution notification from the Ticketing system, test
for connectivity and notify the End User of service
restoration.
d. If trouble appears to be site Probe related, NetSolve will:
i) Utilize additional non-managed parameters available from the
Probes to assist in troubleshooting efforts and customer
presentation as needed from either the NMC or AT&T Network
Operations Center.
- --------------------------------------------------------------------------------
1 of 3
<PAGE>
Attachment N-2
To Agreement No. GSA005D
ii) Dispatch a service technician to the End User site when
necessary, and manage situation to service restoration.
iii) Close ticket in NetSolve's Ticketing system.
D. When the logical connection is between a managed and a non-managed site, and
upon receipt of an alarm for a loss of connectivity condition at the NMC
from a Probe, or a call from an End User indicating a network outage, fault
identification and resolution procedures (referred to as "Warm Handoff")
will be executed to include the following:
1. Notify the End User at the managed site within a target timeline of
fifteen minutes or less from initial alarm (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.
a. If the problem isolated to a network component that is located
anywhere other than the non-managed end, including the access
circuit, the NMC will follow the standard ASJ Fault Management
procedures as described in paragraph C above.
b. If the problem is isolated to the non-managed end, the NMC will
notify the End User designated contact at the managed site of the
outage and offer to open a Trouble Ticket in an AT&T Ticketing
system on their behalf if they will provide us with the necessary
information.
i) If the End User selects to provide the NMC with the required
information, NetSolve will create the Ticket and provide the
End User with the necessary information, in a format selected
by NetSolve, to allow them to conduct all follow up and problem
resolution tasks.
ii) Close ticket in NetSolve's Ticketing system.
E. 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.
F. 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.
G. Store information to be mutually agreed upon (for a period of time to be
mutually agreed upon) from each polled Probe 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 ASJ1, for each Probe 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 Frame Relay Plus Service report is attached to
demonstrate the type of reports that can be made available.
- --------------------------------------------------------------------------------
2 of 3
<PAGE>
Attachment N-2
To Agreement No. GSA005D
3. NetSolve and AT&T will mutually agree on these metrics by no later than
September 1, 1999 as well as the metrics containing performance charges
and or credits.
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 Probe 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 Probe 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 the network management VP/VCs or PVCs at no charge.
C. Provide NetSolve with Visual Networks PAM software and the appropriate
hardware and software operating and application systems at no charge.
D. Provide NetSolve with on-line access to the appropriate AT&T internal
systems at no charge.
E. Provide the Visual Networks Probes 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.
F. Introduce to NetSolve appropriate partner contacts to allow NetSolve to
escalate to these partners in the event of a possible customer satisfaction
issue.
G. Ensure ASJ components and subcontractors are capable of performing to the
specifications required to meet the ASJ features and Service Offer
Description.
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 Probe. If in connection with providing ASJ1 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 the NMC with notice of any changes which the End
User intends to make to the Network Components before such changes are made.
C. Conduct all follow up and resolution efforts for all network problems
between a managed and a non-managed site that have received the modified
warm handoff treatment.
- --------------------------------------------------------------------------------
3 of 3
<PAGE>
AT&T MNS and NetSolve CONTRACT SERVICES AGREEMENT
Amendment No. 11.0
The Contract Services Agreement effective August 1, 1995, between NetSolve,
Incorporated ("NetSolve") and AT&T Corp. ("Contract") as heretofore modified by
Amendments Number 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10 (collectively the
"Agreement") is further amended as follows effective as of August 1, 1999
("Amendment No. 11.0).
The previous Attachments A, B, D, H and H-1, and Appendices A and B, to
Amendment Number 5 are hereby deleted.
Paragraphs 1-4, 7 and 24 are to be deleted in Amendment Number 5 and replaced
with the following for purposes of this Amendment No. 11.0. All other paragraphs
of Amendment Number 5 remain in effect with respect to this Amendment Number
11.0. All paragraphs of Amendment Number 5 other than 1-4 and 7 remain in effect
with respect to any other amendments to the Contract to which those paragraphs
are in effect as of the date of this Amendment Number 11.0.
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, 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, H, H-1 or Appendices A and B shall be approved
and incorporated into this Amendment Number 11.0 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 Charles Mantione. 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 Number 11.0 is August 1, 1999 ("Effective
Date"). AT&T may place Orders with NetSolve under this Amendment Number 11.0
from the Effective Date through and including December 31, 2001 (the "Ordering
Period"). NetSolve shall provide Services for Orders placed under this
Amendment Number 11.0 for the duration of the Service Term for each end user
customer. The Service Term for each Order will start with the initial
installation for each end user customer and will end as of the earlier of (i)
the cancellation of individual Orders by AT&T in accordance with Paragraph 24 of
this Amendment Number 11.0; or (ii) December 31, 2004. This Amendment Number
11.0 will terminate upon expiration of the Service Terms of all Orders under
this Amendment subject to earlier termination in accordance with this Amendment
Number 11.0 (the "Expiration Date"). The Service Term for each Order from AT&T
to NetSolve shall be based on the actual term of the end user customer's order
with AT&T.
AT&T/NETSOLVE PROPRIETARY
Page 1
<PAGE>
Any other extensions of this Amendment Number 11.0 beyond the Expiration Date,
or any other continued work beyond the Expiration Date, shall be pursuant to a
written Agreement signed by both parties.
Paragraph 4 - PAYMENT FOR SERVICES
- ----------------------------------
A. For services performed by NetSolve under this Amendment Number 11.0, AT&T
will pay NetSolve a monthly recurring charge for each Router Site. The monthly
recurring charges are set forth in Tables 1, 2A, 2B and 3 below. In addition,
AT&T will pay certain one time, non-recurring charges and Time and Material
(T&M) charges as set forth in Table 1 below. These prices are net to AT&T and
not subject to additional discount unless mutually agreed in writing. The
thirty-six (36) month pricing for Item 2 in Table 1, as set forth in Tables 2A
and 2B, will be applied to all existing orders effective with the Effective
Date.
B. The following is fixed for the term of this Amendment Number 11.0:
(i) Prices for the services in Items 1, 2, 3, 7, 8, 9, and 10 of Table 1,
and
(ii) The percentage fees in Item 5.
The following pricing may change during the term of this Amendment Number
11.0:
(i) Prices for Item 5, as based on the actual manufacturer's invoice or
list price, and/or
(ii) Prices for Items 4 and 6 upon sixty (60) days written notice, only if
NetSolve's suppliers change the underlying prices to NetSolve. (In which
case NetSolve shall only change its prices to AT&T by the same percentage
(up or down) as the percentage change from NetSolve's suppliers to
NetSolve.) Provided, however, that if a price increase exceeds 5% NetSolve
shall use reasonable efforts to find a substitute supplier.
Any change to the price per Item 4 (pursuant to the terms above) shall be
applied to new Orders placed by AT&T after AT&T's receipt of NetSolve's notice
of the price change.
Any change to the price for Item 6 (pursuant to the terms above) shall be
applied to new Orders placed by AT&T after AT&T's receipt of NetSolve's notice
of the price change, or for existing Orders, the new pricing shall be applied as
of the next annual anniversary of the service start date for each existing
Order.
AT&T and NetSolve shall cooperate in efforts to persuade any mutual supplier
(e.g. Cisco) to provide (i) fixed pricing for the duration of any Orders placed
pursuant to this Amendment Number 11.0 and (ii) cancellation or termination
flexibility. Such cancellation or termination flexibility may include
provisions to allow NetSolve to assign any applicable contracts or orders for
maintenance to AT&T in the event AT&T cancels such services with NetSolve as
permitted under Paragraph 24.
AT&T/NETSOLVE PROPRIETARY
Page 2
<PAGE>
Table 1
- -------
<TABLE>
<CAPTION>
NetSolve Service Performed Billing at List Price
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Growth Markets Sales Process activities for $* per Proposal (1)
Express and MRS defined in Attachments H and H-1.
- ------------------------------------------------------------------------------------------------------------------------
2. Router Managed Hub and Non-Hub Sites services See Tables 2A and 2B below.
as defined in Attachment A Add $* per site per month for WAN Performance View
Add $* per site per month for dial back-up (2)
- ------------------------------------------------------------------------------------------------------------------------
3. Implementation Coordination as defined in $* per Hub or Non-Hub Site installed or moved ($* for
Attachment A international locations). (3)
- ------------------------------------------------------------------------------------------------------------------------
4. Installation Charge Non-recurring fee per managed Router Site at $* (4) per site per
installation (international quotations will be priced individually
upon request). This charge will not apply when NetSolve
coordinates an installation on AT&T's behalf utilizing AT&T's
other vendor(s).
- ------------------------------------------------------------------------------------------------------------------------
5. Equipment procured by NetSolve for AT&T For routers - (i) manufacturer's actual invoice to NetSolve plus
(ii) *% of Manufacturer's list price at the time the Order is
executed (*% effective January 1, 2000 and thereafter).(5) (6)
For other equipment - *% of manufacturer's list price at time of
order from AT&T when NetSolve's vendor is used
- ------------------------------------------------------------------------------------------------------------------------
6. Customer Premise Equipment Maintenance NetSolve's current List Price (which shall be adjusted at least
quarterly to not exceed the then- current manufacturer's List
Price) at time of receipt of 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). (7)
- ------------------------------------------------------------------------------------------------------------------------
7. Implementation Reschedule Fee $50.00 per Router Site Postponed by AT&T or Customer beginning
with the second such postponement for the Router Site.
- ------------------------------------------------------------------------------------------------------------------------
8 . Time and Material Activities. Example of $165.00 per Hour (minimum 2 hour charge)
service to be applied to: All services are subject to a minimum of a two (2) hour T&M charge
. After Hours Installation (Work scheduled after for remote support or a four (4) hour T&M charge for on-site
5:00 p.m.) support.
. Multiple visits to customer site due to
customer non-readiness
. Site visit insisted by customer though problem
resolution is determined and conveyed to be
linked to non-managed customer equipment or due
to fault of a party other than NetSolve or its
subcontractors.
</TABLE>
- ---------------
*An asterisk (*) appears on this page at each place where information has been
omitted. The omitted information has been filed separately with the Securities
and Exchange Commission with a Request for Confidential Treatment of the omitted
information.
AT&T/NETSOLVE PROPRIETARY
Page 3
<PAGE>
<TABLE>
<CAPTION>
NetSolve Service Performed Billing at List Price
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------
9. Performance Reports Reports
Included in charges under Item 2 above.
- ------------------------------------------------------------------------------------------------------------------------
10. Customer Transition Fee in connection with Per Site MRS Hub................................$*
contract expiration or termination
- ------------------------------------------------------------------------------------------------------------------------
11. Tele-Install for customers not desiring an AT&T and NetSolve will negotiate pricing to support these types of
on-site installation per Item 4 above. installations.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Footnotes to Table 1:
(1) Subject to 100% credit if network is managed by NetSolve (see Paragraph
4 of Attachment H).
(2) This charge is waived for Orders accepted by NetSolve prior to the
Effective Date. This charge will apply for such Orders upon expiration
of the current term per the end user customer Order to NetSolve from
AT&T.
(3) This fee may be deferred by increasing the monthly recurring charge.
See Table 3 below.
(4) Additional charge at Time and Materials rate (see Item 8 in Table 1)
for installations completed outside of 8:00 a.m. to 5:00 p.m. local
time Monday through Friday.
(5) This process will be used for all router orders received from AT&T
after August 15, 1999. It may be used for router orders prior to that
date at NetSolve's option in order to manage the transition. Prior to
the transition, the process for `Other Equipment' in Item 5 above will
be utilized.
(6) The cost of the equipment will be invoiced as the equipment is received
from the manufacturer. The percentage fee will be invoiced as the
equipment is shipped to the end user customer. NetSolve will provide a
monthly report detailing all inventory held by NetSolve which has been
billed to AT&T and not yet shipped to the end user customer.
(7) 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 even if it results in NetSolve
providing maintenance services beyond the term of providing the
services in Item 2 of Table 1 (except that AT&T shall not be obligated
to continue maintenance services more than ninety (90) days following
the end of the term per the Order).
Table 2
- -------
The price to AT&T for the services under Item 2 of Table 1 are set forth
below and are based on the Service Term and number of sites per each
individual Order. No more than one end user customer can be included on a
single Order.
If an end user customer adds additional sites and that end user customer
has enough sites in total to qualify for a lower price, the lower price can
be obtained only through the replacement of existing Orders with a new
Order containing all of the served sites for a new service term.
All of the sites on each Order shall be installed within the Ramp-Up Period
(defined as one-hundred-eighty (180) days after installation of the first
site on the Order, unless AT&T and NetSolve mutually agree otherwise on a
case by case basis). If all of the sites under an Order are
- --------------------
*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.
AT&T/NETSOLVE PROPRIETARY
Page 4
<PAGE>
not installed within the Ramp-Up Period, then NetSolve may bill AT&T based
on the actual number of installed sites for that Order. Such price will be
utilized only prospectively (i.e., there will be no adjustments to billing
for prior months). Provided, however, that if the failure to meet the Ramp-
Up schedule is due to NetSolve installation delays, then NetSolve shall
bill AT&T based on the number of sites in the Order until the NetSolve
delay is cured.
If a customer cancels sites, NetSolve may base the pricing on the remaining
number of sites. Provided, however, that if a customer cancels sites, due
to a business downturn, then NetSolve shall not increase the price if the
decrease in the number of sites results in a drop of only one level in
Table 2A and/or Table 2B. Notwithstanding the foregoing, NetSolve may base
the pricing on the remaining number of sites if (i) AT&T has increased its
price to the end user customer or (ii) the decrease results in the number
of sites falling into the first level of Table 2A and/or Table 2B.
The pricing in Table 2A shall apply to Orders existing as of the Effective
Date of this Amendment No. 11.0. The pricing in Table 2B shall apply to
all new Orders placed after the Effective Date of this Amendment.
Provided, however, that Table 2A pricing shall apply to all Orders if at
any time during the term of this Amendment, the total average number of
router sites (new orders and existing customers) managed by NetSolve
hereunder is less than 11. Further provided that once the total average
number of router sites managed hereunder is 11 or more, Table 2B pricing
shall then apply to all new Orders.
<TABLE>
<CAPTION>
Table 2A Domestic Add for International
- -------------------------------------------------------------------------------------------------------------
Number of Sites 12 Months 24 Months 36 Months 12 Months 24 or 36 Months
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
1-6 $* $* S* $* $*
- -------------------------------------------------------------------------------------------------------------
7-25 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
26-50 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
51-75 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
76-100 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
101-150 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
151-1,500 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
1,501-3,000 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
3,001-5,000 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
5,001 + $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 2B Domestic Add for International
- -------------------------------------------------------------------------------------------------------------
Number of Sites 12 Months 24 Months 36 Months 12 Months 24 or 36 Months
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
1-3 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
4-6 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
7-25 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
26-50 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
</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.
AT&T/NETSOLVE PROPRIETARY
Page 5
<PAGE>
<TABLE>
<CAPTION>
Table 2B Domestic Add for International
- -------------------------------------------------------------------------------------------------------------
Number of Sites 12 Months 24 Months 36 Months 12 Months 24 or 36 Months
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
51-75 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
76-100 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
101-150 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
151-1,500 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
1,501-3,000 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
3,001-5,000 $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
5,001 + $* $* $* $* $*
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Table 3
- -------
The charges in Table 1 for the services in the table below may be deferred
over the service term per the Order by increasing the monthly price set
forth in Item 2 of Table 1 as set forth in the table below. These amounts
are non-cancelable during the term per the Order.
<TABLE>
<CAPTION>
12 Months 24 Months 36 Months
Deferred Charge
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Implementation Coordination (Item 3 of Table 1) $* $* $*
- -----------------------------------------------------------------------------------------------
Installation (Item 4 of Table 1) $* $* $*
- -----------------------------------------------------------------------------------------------
</TABLE>
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. Invoices for routers will be sent upon receipt by NetSolve of the
equipment. 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 and installation of equipment
(including the percentage fee for routers in Item 5 of Table 1). Invoices shall
be sent to AT&T at the address shown below, directed to the personal attention
of the person indicated below, 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 in
writing by AT&T prior to the due date. A late charge of one-percent (1%) per
month on all amounts not paid or disputed in writing within sixty (60) days of
receipt of the invoice will be payable by AT&T.
Invoices to be sent to:
AT&T
Attn: Sandra Cafro
- ---------------------
*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.
AT&T/NETSOLVE PROPRIETARY
Page 6
<PAGE>
Room 1B06
745 Rt. 202/206
Bridgewater, NJ 08807
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 Number
11.0, and this Amendment Number 11.0 (and the provisions of the Agreement with
respect to this Amendment Number 11.0) shall continue in effect as though the
Agreement had not been terminated
Termination of this Amendment Number 11.0. -
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 Number 11.0 and
such breach or default continues unremedied twenty-five (25) days after
receipt of written notice, the non-defaulting party may terminate any Orders
that are directly affected by such breach or default without any charge,
obligation or liability. Notwithstanding the foregoing, AT&T's obligation to
pay (i) for Services already received and accepted by AT&T, (ii) any charges
due under Table 3 of Paragraph 4, and (iii) if AT&T is the defaulting party,
the cancellation charges provided for in Paragraph 24e)i), shall not be
excused. If this Agreement is terminated by AT&T due to NetSolve's breach or
default, AT&T may begin a Ramp-Down period, not to exceed twelve (12)
months, to transition existing Router Sites to other management centers
without limitation as to the number of sites transitioned per month. In the
event of such Ramp Down, the pricing shall not change, unless any such price
change is made pursuant to Paragraph 4B.
b.) The Agreement and all Orders under Attachments A 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;
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, and such proceeding is
not dismissed within thirty (30) days.
c) NetSolve shall provide AT&T with written notice, as soon as it may legally
do so, if NetSolve merges with or is acquired by a competitor of AT&T. AT&T
may terminate this Agreement at any time, without termination liability,
within the thirty day period following AT&T's receipt of written notice of
the merger/acquisition. During the first twelve months of the migration the
pricing for each Order shall not change (unless such pricing change is made
pursuant to Paragraph 4B). Pricing for end user customers still managed by
NetSolve after the first twelve months of migration shall be separately
negotiated by the parties.
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 in the event AT&T has received a written notice from the
end user customer that such end user customer: (i)is expanding and NetSolve
is unable to provide the services defined in Attachment A; (ii) has
terminated its services with AT&T due to a business downturn; or (iii) the
Service Term has expired.
The following shall apply with respect to Orders entered into prior to July
1, 1999 and terminated pursuant to Paragraph 24d)iii):
1. No Orders may be terminated prior to July 1, 2000.
AT&T/NETSOLVE PROPRIETARY
Page 7
<PAGE>
2. No more than 150 Router Sites may be moved in any month.
3. AT&T must provide NetSolve ninety (90) days written notice of any
Router Sites it moves.
4. If AT&T moves Router Sites under Paragraph 24d)iii) and the total
number of Router Sites remaining in the NetSolve Network Management
Center under this Amendment Number 11.0 decreases by eight percent (8%)
or more in any ninety (90) day period, then NetSolve may reject Orders
for new end user customers in its sole discretion.
5. The pricing for Orders migrated under this Paragraph 24e) shall not
increase and shall not revert to 12 months rates.
e.) In addition to its termination rights under Paragraphs 24a) through 24d)
above, AT&T may cancel this agreement or individual Orders under this Agreement
for any or no reason (termination for convenience) as set forth in this
Paragraph 24e).
i) AT&T may cancel individual Orders entered into after June 30, 1999 upon
thirty (30) days written notice. In the event of such cancellation, AT&T
shall pay a cancellation charge equal to: (1) 50% of any unpaid Monthly
Recurring Fees (defined as the fees under Item 2 of Table 1, Paragraph
4), whether previously invoiced or not, for months 1 through 24 of the
Service Term of the canceled Order, plus (2) 25% of any unpaid Monthly
Recurring Fees, whether previously invoiced or not, for months 25 through
36. There is no cancellation charge for any canceled Service Term beyond
36 months. Cancellation under this Paragraph 24e)i) is limited in any
twelve (12) month period to Orders with aggregate Monthly Recurring Fees
not exceeding ten percent (10%) of the aggregate total of Monthly
Recurring Fees for all Orders as of the first month of such twelve (12)
month period.
ii) All Orders under this Amendment Number 11.0 may be terminated on twelve
(12) months written notice. At the end of the twelve (12) month notice
period or July 1, 2001, whichever is later, a twelve month Ramp-Down will
begin. Each month during the Ramp-Down, AT&T shall transition no more
than 8% of the existing sites away from the NetSolve management center.
After the 12 month Ramp-Down, Router Sites will still be managed by
NetSolve only upon the mutual agreement of NetSolve and AT&T. During the
12 month Ramp-Down, the cancellation charges under Paragraph 24e)i) will
apply to each Order for which the Service Term has not expired as of the
date of the move. Following receipt of the notice of termination under
this Paragraph 24e)ii), NetSolve may reject Orders for new end user
customers in its sole discretion.
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 AT&T
itself or elsewhere, NetSolve agrees to provide all reasonable efforts and
full cooperation in the orderly transition of the work to AT&T 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 Number 11.0 of
this Agreement.
g) Notwithstanding any other provision of Paragraph 24, the equipment
maintenance services under Item 6 of Table 1, Paragraph 4, may be canceled
only upon an annual anniversary of the maintenance service start date unless
there is an uncured default in the providing of such maintenance services.
Notwithstanding any other provision of Paragraph 24, the fees in Table 3
remain non-cancelable and must be paid in a lump sum for the remainder of
the term per the Order within thirty (30) days of the notice of termination
unless there is an uncured default in the providing of those specific
services.
AT&T/NETSOLVE PROPRIETARY
Page 8
<PAGE>
ALL OTHER TERMS AND CONDITIONS REMAIN THE SAME
<TABLE>
<CAPTION>
NETSOLVE, INCOROPORATED AT&T SOLUTIONS INC.
<S> <C> <C> <C>
By: [Craig Tysdal] By: [Ted Pastarnak]
--------------------------------------- ----------------------------
Signature: [Signature of Craig Tysdal] Signature: [Signature of Ted Pastarnak]
--------------------------------------- ----------------------------
Title: [President and Chief Executive Officer] Title: [Procurement Director]
--------------------------------------- ----------------------------
Date: [7/6/99] Date: [7/1/99]
--------------------------------------- ----------------------------
</TABLE>
AT&T/NETSOLVE PROPRIETARY
Page 9
<PAGE>
ATTACHMENT A
MANAGED NETWORK SOLUTIONS and NETSOLVE
This Attachment A to Amendment Number 11.0 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 on-going 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.
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
. Growth Markets 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 NetSolve's vendors for equipment if
equipment is contained on the Order
. Place order with NetSolve's equipment maintenance vendors (or with
AT&T's vendors for international locations) if equipment maintenance
is contained on the Order
. Place order with NetSolve's equipment install vendors (or with AT&T's
vendors for international locations) if equipment install is
contained on the Order
Installation Activities:
AT&T/NETSOLVE PROPRIETARY
Page 10
<PAGE>
. 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 Order) 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 the following monthly reports via Global Exchange to
begin following the first full month of service for a site. The
reports listed below require that the end user customer router
support the appropriate Management Information Base (MIB)
Variables. Consult with end user customer regarding reports on a
monthly basis (quarterly for end user customers with fifteen
(15) or fewer sites).
- WAN Interface Utilization
- WAN Interface Traffic Type
- WAN Interface Protocol
- WAN Router Performance
- WAN Interface Utilization Exception
- WAN Interface Traffic Type Exception
- WAN Interface Error Exception
- WAN Frame Relay Exception
- WAN General Device Information
. Proactively manage performance of Customer Network
. Provide maintenance through NetSolve's vendors (if equipment
maintenance is contained on the Order) 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
AT&T/NETSOLVE PROPRIETARY
Page 11
<PAGE>
. Develop design and customer pricing for network transport and
equipment
. Present proposal to potential customer
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.
Table 1
<TABLE>
<CAPTION>
Direct Measures of Quality Target
("DMOQ")
- ------------------------------------------------------------------
<S> <C>
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
- ------------------------------------------------------------------
</TABLE>
AT&T/NETSOLVE PROPRIETARY
Page 12
<PAGE>
<TABLE>
<CAPTION>
Direct Measures of Quality Target
("DMOQ")
- ------------------------------------------------------------------
<S> <C>
Mean Time To Restore - Overall 4 Hrs for all outages for all
end users in the aggregate
- ------------------------------------------------------------------
Call Receipt - Average time 80% within 30 seconds in the
customer in queue waiting to be aggregate for all end users
picked up for trouble reporting
- ------------------------------------------------------------------
</TABLE>
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
Order 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.
AT&T/NETSOLVE PROPRIETARY
Page 13
<PAGE>
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 acceptance by AT&T; (ii) the customer requested due date; or (iii)
50 days from receipt by NetSolve of a Order 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
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 Item 2 of Table 1 in Paragraph 4 of Amendment Number 11.0. 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 4 of Table 1 in Paragraph 4 of Amendment Number 11.0.
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.
<TABLE>
<S> <C>
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 Item 2 of Table 1 Paragraph 4 of Amendment Number 11.0 for all the
Router Sites associated with the customer.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
AT&T/NETSOLVE PROPRIETARY
Page 14
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Pro-Active Monitoring For the first month the objective is not met, the credit will be equal to $10.00 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 $20.00 for each router site 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 $30.00 for each router site that had Downtime and was restored
(MTTR) Overall without dispatch in more than four hours if the MTTR Overall with Downtime for all customers
exceeds four hours.
- ---------------------------------------------------------------------------------------------------------------------
Mean Time To Restore The credit will be equal to $20.00 for each router site that had Downtime and was restored
(MTTR) With Dispatch 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 The credit will be equal to $150.00 for each router site that was installed after the
(First Sites) 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 $125.00 for each router site that was installed after the
(Overall) 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.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
Activity Performed Credit Due *
- -------------------------------------------------------------------------------------
<S> <C>
Installation Actual Credit to Customer
Not to exceed 50% of Installation fee for
the affected sites
- -------------------------------------------------------------------------------------
Maintenance Actual Credit to Customer
Not to exceed 25% of maintenance for the
affected sites for the month
- -------------------------------------------------------------------------------------
</TABLE>
* 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.
AT&T/NETSOLVE PROPRIETARY
Page 15
<PAGE>
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 . Network Performance Reports as listed in
Section C of NetSolve's Responsibilities in
Attachment A
Ticket Summary
- -------------------------------------------------------------------------------
AT&T/NETSOLVE PROPRIETARY
Page 16
<PAGE>
Appendix A
Supported CPE
!*! UPDATE IN PROCESS !*!
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
Router Service:
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 9611.0
Out of Band Modems
Multi Modem MT 1932BL
Paradyne 3820
Protocols
IP
Routing protocols
BGP4, RIPV1, RIPV2 and Static
AT&T/NETSOLVE PROPRIETARY
Page 17
<PAGE>
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
. adddress of AT&T DNS Server.
. Recommend performance improvements to customer.
AT&T/NETSOLVE PROPRIETARY
Page 18
<PAGE>
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
Growth Markets 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 1 - Statement of Work
NetSolve shall provide contract services to AT&T in support of AT&T's Growth
Markets 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 Charles Mantione. 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 July 1, 1999 and it shall end on
December 31, 2001.
Paragraph 4 - Payment
For services performed by NetSolve under this Attachment H, AT&T will pay
NetSolve the following:
a.) AT&T agrees to pay $450 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.
b.) The fee in 1. Above will be credited if AT&T executes an Order with
NetSolve for the management of the network contained in the proposal.
c.) AT&T agrees to pay $100 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.
AT&T/NETSOLVE PROPRIETARY
Page 19
<PAGE>
Attachment H-1
MRS Proposal Statement of Work
------------------------------
1. Overview
NetSolve and AT&T Growth Markets 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 Growth Markets 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.
NetSolve will also assist in proposal closure by providing support to the DNAE
and, where mutually agreed by AT&T and NetSolve, assisting in or making customer
presentations.
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.
!*! NEED TO ATTACH EXHIBIT 1 !*!
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.
AT&T/NETSOLVE PROPRIETARY
Page 20
<PAGE>
EXHIBIT 10.7
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made as of the _____ day of ________________, 1998, by
and between NETSOLVE, INCORPORATED, a Delaware corporation (the "Company") and
_____________________________________________________________ ("Indemnitee"), a
director and/or officer of the Company.
WHEREAS, the Company's Certificate of Incorporation and By-Laws provide for
the indemnification of the directors and officers of the Company to the maximum
extent authorized by Delaware law; and
WHEREAS, Delaware law provides that indemnification under such statutes
shall not be deemed exclusive and thereby contemplates that contracts may be
entered into between the Company and its officers and directors with respect to
indemnification of such persons; and
WHEREAS, the Company believes that it is prudent and in the Company's best
interest to support and augment the protection afforded the Company's officers
and directors in this regard; and
WHEREAS, Indemnitee and other officers and directors may not be willing to
serve as such without adequate protection and the Company desires to attract and
retain the services of highly qualified individuals, such as Indemnitee, to
serve as an officer and/or director of the Company and to indemnify its officers
and directors so as to provide them with the maximum protection permitted by law
as an inducement to their continued service to the Company.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification in General. The Company shall indemnify and hold
harmless Indemnitee to the fullest extent permitted or authorized by Applicable
Law. For purposes hereof the term "Applicable Law" shall mean Section 145 of
the General Corporation Law of the State of Delaware as in effect on the date
hereof and as hereafter amended (but in the case of such amendment, only to the
extent such amendment permits the Company to provide broader indemnification
rights than permitted prior to such amendment).
2. Additional Indemnity. Subject only to the exclusions set forth in
Section 3 hereof, the Company shall further indemnify and hold harmless
Indemnitee:
(a) Against any and all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by Indemnitee in connection with any threatened, pending or
completed action, suit, or proceeding, whether formal or informal, or
civil, criminal, administrative, legislative, arbitrative or investigative
(including without limitation any action by or in the right of the Company)
(hereinafter a "Proceeding") to which Indemnitee is, was or at any time
becomes, a party, or is threatened to be made a party, by reason of the
fact that Indemnitee is, was or at any time becomes, a director, officer,
or agent of the Company or is or was or at any time serves at the request
of the Company (which request need not be in writing) or on behalf of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise (hereinafter an "Enterprise"); and
<PAGE>
(b) Otherwise to the fullest extent as may be contractually provided
to Indemnitee by the Company under Applicable Law consistent with any
public policy limitations applicable thereto.
3. Limitations on Additional Indemnity. No indemnity pursuant to Section
2 hereof shall be paid by the Company:
(a) for amounts indemnified by the Company other than pursuant to
Section 2 of this Agreement;
(b) for amounts, if any, paid pursuant to any policies of directors
and officers liability insurance maintained by the Company for the benefit
of Indemnitee;
(c) with respect to remuneration paid to Indemnitee if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(d) on account of any suit in which judgment is rendered against
Indemnitee for an accounting of profits made from the purchase and sale of
Indemnitee of securities of the Company pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto
or any similar provision of federal, state or local statutory law;
(e) on account of Indemnitee's conduct which is finally adjudged to
have been knowingly fraudulent, deliberately dishonest or willful
misconduct; or
(f) if a final adjudication by a court having jurisdiction in the
matter shall determine that such indemnification is not lawful.
(g) for judgments, fines, and amounts paid in settlement incurred in
a proceeding brought by or in the right of the Company.
4. Notification and Defense of Claims. As soon as reasonably practicable
after the receipt by Indemnitee of notice of the commencement of any Proceeding,
Indemnitee will, if a claim in respect thereof is to be made against the Company
under this Agreement, notify the Company of the commencement of such Proceeding;
provided however that the omission to so notify the Company will not relieve the
Company from any liability which it may have to Indemnitee otherwise than under
this Agreement. With respect to any such Proceeding as to which Indemnitee
notifies the Company of the commencement thereof;
(a) The Company shall be entitled to participate therein at its
expense; and
(b) Except as otherwise provided herein, to the extent it may elect
to do so, the Company (jointly with any other indemnifying party similarly
notified) will be entitled to assume the defense thereof, with counsel of
its own selection reasonably satisfactory to Indemnitee. After notice from
the Company to Indemnitee of its election to assume the defense thereof,
Company will not be liable to Indemnitee under this Agreement for any
legal
2
<PAGE>
or other expenses subsequently incurred by Indemnitee in connection with
the defense of such Proceeding other than as otherwise provided below.
Indemnitee shall have the right to employ separate counsel in such
Proceeding but the fees and expenses of such counsel incurred after notice
from the Company of its assumption of the defense shall be at the expense
of the Indemnitee unless (i) the Company has authorized Indemnitee to
employ separate counsel and has agreed to assume the reasonable fees and
expenses of such counsel; (ii) Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and Indemnitee
in the conduct of the defense of such Proceeding; or (iii) the Company
shall not in fact have employed counsel to assume the defense of such
Proceeding, in each of which cases the reasonable fees and expenses of
counsel shall be at the expense of the Company. The Company shall not be
entitled to assume the defense of any Proceeding brought by or on behalf of
the Company or as to which an Indemnitee shall have made the conclusion
provided for in (ii) above.
(c) The Company shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any Proceedings or
claims effected without its prior written consent. The Company shall not
settle any Proceeding or claim in any manner which might impose any
liability, penalty or limitation on Indemnitee without Indemnitee's prior
written consent. Neither the Company nor Indemnitee will unreasonably
withhold their consent to any proposed settlement.
5. Payment In Advance. The expenses incurred by Indemnitee in defending
any Proceeding shall be advanced by the Company at the request of the
Indemnitee. The term "expenses" as used in this section shall include
attorney's fees and expenses that may be only arguably indemnifiable under the
governing law. Any judgments, fines or amounts to be paid in settlement shall
also be advanced by the Company to Indemnitee upon request. If it shall
ultimately be determined that Indemnitee was not entitled to be indemnified, or
was not entitled to be fully indemnified, Indemnitee shall repay to the Company
all amounts advanced, or the appropriate portion thereof, so advanced.
6. Right of Indemnitee to Bring Suit. If a claim for indemnification or
a claim for an advance under this Agreement is not paid in full by the Company
within 90 or 15 days, respectively, after the Company has received a written
claim therefor by Indemnitee, Indemnitee may bring suit against the Company to
recover the unpaid amount of the claim. If Indemnitee is successful in whole or
in part in such suit, Indemnitee shall also be paid the expense of prosecuting
such claim (including without limitation attorneys' fees).
7. Continuation of Indemnity. All agreements and obligations of the
Company contained herein shall continue during the period Indemnitee is a
director, officer or agent of the Company (or is serving at the request of the
Company or on behalf of the Company, as a director, officer, employee or agent
of another Enterprise) and shall continue thereafter so long as Indemnitee shall
be subject to any possible Proceeding or claim by reason of the fact that
Indemnitee was a director, officer or agent of the Company or serving in any
other capacity referred to herein.
3
<PAGE>
8. Nonexclusivity. The indemnification and other rights provided by this
Agreement shall not be deemed exclusive of any other rights to which Indemnitee
may be entitled under any provision of statutory or common law, the Company's
Certificate of Incorporation, any Company By-Law, other agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
Indemnitee's official capacity and as to action in another capacity while
occupying any of the positions or having any of the relationships referred to in
this Agreement, and shall continue after Indemnitee has ceased to occupy such
position or have such relationship.
9. Severability. If any provision of this Agreement shall be held to be
invalid, illegal or unenforceable: (a) the validity, legality and enforceability
of the remaining provisions of this Agreement shall not be in any way affected
or impaired thereby; and (b) to the fullest extent possible, the provisions of
this Agreement shall be construed so as to give effect to the intent manifested
by the provision(s) held invalid, illegal or unenforceable. Each section of
this Agreement is a separate and independent portion of this Agreement. If the
indemnification to which Indemnitee is entitled as respects any aspect of any
claim varies between two or more sections of this Agreement, that section
providing the most comprehensive indemnification shall apply.
10. Modification and Waiver. No supplement or amendment of this Agreement
shall be binding unless executed in writing by both parties hereto. No waiver
of any of the provisions of this Agreement shall be binding unless executed in
writing by the person making the waiver nor shall such waiver constitute a
continuing waiver.
11. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if:
(a) delivered by hand and receipted for by the party to whom said notice of
other communication shall have been directed; or (b) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(i) If to Indemnitee, to
-------------------------------------
-------------------------------------
-------------------------------------
or to such other address as may be furnished to the Company by Indemnitee;
(ii) If to the Company, to
NetSolve, Incorporated
12331 Riata Trace Parkway
Austin, Texas 78727
Attn: Kenneth C. Kieley, Vice President-Finance,
Chief Financial Officer and Secretary
of to such other address as may be furnished to Indemnitee by the Company.
4
<PAGE>
12. Governing Law. This Agreement is made and entered into pursuant to
Section 145 of the General Corporation Law of the State of Delaware and this
Agreement shall be governed by, and its provisions construed in accordance with,
the laws of the State of Delaware.
13. Heirs, Successors and Assigns. This Agreement shall inure to the
benefit of, and be enforceable by the Indemnitee's personal or legal
representatives, executors, administrators, heirs, devisees and legatees. This
Agreement is binding on the successors and assigns of the Company. The Company
will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place (the assumption by such
successor shall be by written agreement in form and substance reasonably
satisfactory to Indemnitee).
14. Miscellaneous.
(a) This Agreement does not create any right in Indemnitee to
employment or continued employment with the Company or any other
Enterprise.
(b) All references herein in the masculine gender shall, when
appropriate, refer to the feminine gender.
(c) The section headings contained herein are for convenience only
and are not to be considered in construing or interpreting this Agreement.
(d) In the event of any ambiguity, vagueness or other matter
involving the interpretation or meaning of this Agreement, this Agreement
shall be liberally construed so as to provide to Indemnitee the full
benefits set out herein.
ENTERED into as of the day and year first above written.
NETSOLVE, INCORPORATED
By:
-----------------------------------------------
--------------------------------------------------
Indemnitee
5
<PAGE>
EXHIBIT 10.9
NETSOLVE, INCORPORATED
AMENDED AND RESTATED
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.
<PAGE>
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.
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
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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.
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
3
<PAGE>
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.
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
4
<PAGE>
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.
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.
5
<PAGE>
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 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 1,350,000 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,
6
<PAGE>
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.
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
7
<PAGE>
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,
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
8
<PAGE>
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 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
9
<PAGE>
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.
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.
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<PAGE>
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.
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
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<PAGE>
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 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.
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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
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.
13
<PAGE>
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.
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
14
<PAGE>
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 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 as of the 29th day of October, 1998.
NETSOLVE, INCORPORATED
By: /s/ Craig S. Tysdal
-----------------------
Craig S. Tysdal
President and Chief Executive Officer
15
<PAGE>
EXHIBIT 10.16
[NETSOLVE(SM)]
June 17, 1999
Mr. Harry S. Budow
5904 Kensington Drive
Plano, Texas 75093
Dear Harry,
On behalf of NetSolve Incorporated, I am pleased to offer you a position as Vice
President of Marketing, reporting to me. We would like you to commence work no
later than Monday, October 4, 1999, in our offices at 12331 Riata Trace Parkway,
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 $16,667 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.
In addition to salary, the Company also offers certain employee benefits,
including group medical and dental insurance, 401(k) Plan, 125 Cafeteria Plan,
four weeks of paid vacation annually 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. Following your first anniversary, during the time you are employed
by NetSolve or its successors, you will be entitled to receive salary
continuance for 6 months under the same conditions as described immediately
above. 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>
Harry S. Budow 2
June 17, 1999
You will be issued Stock Options, given ratification by the Board of Director's,
to purchase 100,000 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 $100,000. 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
and if you should use the apartment. Should you terminate employment prior to
completing twelve 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 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/ 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
<PAGE>
Harry S. Budow 3
June 17, 1999
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/ Harry S. Budow 6/26/99
- --------------------------------- --------------------------
Harry S. Budow Date
<PAGE>
EXHIBIT 10.17
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "Agreement) is made and
entered into as of this 13th day of April, 1999, by and between NETSOLVE(SM)
INCORPORATED, a Delaware corporation (the "Company"), and
______________________, a director of the Company ("Optionee")
WHEREAS, the Company desires, by affording Optionee an opportunity to
purchase shares of its Common Stock, $.01 par value per share (the "Common
Stock"), as hereinafter provided, to carry out the purposes of the Company's
Long-Term Incentive Compensation Plan, as amended (the "Plan");
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 Plan, the terms and provisions of which are incorporated herein by
reference, an option (the "Option") to purchase all or any part of 15,000 shares
of the Common Stock of the Company on the terms and conditions herein set forth.
2. Option Price. The Option Price of each share of Common Stock
------------
subject to this Option shall be $9.00 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 (not subject to any
security interest or pledge) or partly in cash or such check and partly in such
stock. No shares may be issued until full payment of the Option 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 and in the Plan.
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, is necessary or desirable as a condition of, or in connection with, such
exercise or the delivery or
<PAGE>
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 President
or 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 Committee 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 for any reason other
than Optionee's death, 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 earlier of the date of its expiration or:
(i) thirty (30) days after the date of such termination in the case of
termination for any reason other than retirement, permanent disability or death;
or (ii) three (3) months after the date of such termination, in the case of
termination by reason of retirement or permanent disability.
8. Death of Optionee. If Optionee dies prior to the termination of
-----------------
Optionee's 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.
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, reverse stock
split, share combination, exchange of shares, recapitalization, merger,
consolidation, separation, reorganization, liquidation or the like of or by the
-2-
<PAGE>
Company. Decisions by the Committee 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 stockholder with respect to any shares covered hereby
until the date of the issuance of one (1) 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 right to continue to serve on the board
of directors of the Company for any period or any additional rights other than
as expressly provided for herein.
11. Subject to Plan. This Option is subject to all of the terms and
---------------
conditions of the Plan (as it may be amended from time to time). In the event of
any conflict between such terms and conditions and those set forth herein, the
terms of the Plan shall govern and be determinative. Unless otherwise defined
herein, each of the capitalized terms used herein shall have the meaning given
to such term in the Plan.
12. Nonqualified Stock Option. This Option is not intended to qualify
-------------------------
as an "incentive stock option" under the relevant provision of the Code, and
shall, therefore, not be construed as an incentive stock option. Nothing in this
Agreement nor in the Plan shall be deemed to be or interpreted as a
representation, guarantee or other undertaking on the part of the Company as to
the character of the Option for tax purposes. Optionee understands that he/she
should consent with his or her own tax and/or financial advisor with respect to
the effect of this Option.
13. Amendment. The Company 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 Company, 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 Committee shall be final and binding on
Optionee.
14. Shareholder's Agreement. The exercise of this Option is expressly
-----------------------
conditioned upon the prior or contemporaneous execution by the Optionee and the
Company of a Shareholder's Agreement, as provided in the Plan. All rights of the
Optionee and Optionee's heirs, successors and assigns shall be determined by
such agreement and Optionee and Optionee's heirs, successors and assigns shall
be bound thereby. The shares of Common Stock issued pursuant to the exercise
hereof shall not be deemed to be "fully vested stock options" and shall be
subject to the repurchase rights as provided in such Shareholder's Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Nonqualified Stock
Option Agreement as of the date first above written.
NETSOLVE(SM) INCORPORATED
By:
-------------------------------------------
Kenneth C. Kieley, Vice President-Finance,
Chief Financial Officer and Secretary
OPTIONEE:
----------------------------------------------
-4-
<PAGE>
Executed by each of the following directors:
Joel P. Adams
J. Michael Gullard
C. Richard Kramlich
John S. McCarthy
H. Leland Murphy
Suzanne C. Narducci
Howard D. Wolfe, Jr.
-5-
<PAGE>
EXHIBIT 10.18
SHAREHOLDER'S AGREEMENT
THIS SHAREHOLDER'S AGREEMENT (the "Agreement") is made as of the 13th
day of April, 1999, by and between NETSOLVE(SM) INCORPORATED, a Delaware
corporation (the "Company"), and ______________________ (the "Purchaser").
WHEREAS, the Purchaser has been granted an option to purchase shares
of Common Stock of the Company under the Company's Long-Term Incentive
Compensation Plan (the "Plan"); and
WHEREAS, the Purchaser and the Company acknowledge that they are
entering into this Agreement in accordance with the provisions of the Plan and
that certain Series B Preferred Stock Purchase Agreement (the "Stock Purchase
Agreement"), dated as of October 19, 1992, as amended, by and among the Company
and the Investors (as defined therein);
NOW, THEREFORE, IT IS HEREBY AGREED:
1. Sale and Purchase of Shares. Pursuant to the terms and conditions
---------------------------
of this Agreement, upon exercise of Purchaser's option, the Purchaser shall
purchase, and the Company shall sell to Purchaser, 15,000 shares of Common Stock
of the Company (the "Shares") for a cash consideration of $9.00 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, 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 the date
of this Agreement (the "Vesting Commencement Date").
(b) The percentage of the Shares which are subject to the Repurchase
Right shall be determined as follows:
<PAGE>
Length of Time Vesting Percentage of
Commencement Date Shares Subject to
-------------------------- Repurchase Right
----------------
Less than 4 completed
quarters 100%
4 completed quarters 75%
5 completed quarters 68.75%
6 completed quarters 62.50%
7 completed quarters 56.25%
8 completed quarters 50%
9 completed quarters 43.75%
10 completed quarters 37.50%
11 completed quarters 31.25%
12 completed quarters 25%
13 completed quarters 18.75%
14 completed quarters 12.50%
15 completed quarters 6.25%
16 completed quarters None
(c) Within sixty (60) days after the later of the effective date upon
which 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 this Repurchase Right within such sixty
(60) day period, the Repurchase Right shall expire as to all Shares.
3. Rights as Stockholder; Escrow.
-----------------------------
(a) Subject to the terms and conditions of this Agreement, 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
-2-
<PAGE>
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, Purchaser agrees to vote the Shares in accordance with the terms
of Section 8 of the Stock Purchase Agreement (the terms of which, as
amended from time to time, are incorporated herein by reference) as though
he/she 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. Following 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.
4. Stock Splits, Recapitalizations, Etc. If during the term of the
------------------------------------
Repurchase Right:
(a) there is any stock dividend, stock split, reverse stock split,
reorganization, reclassification, recapitalization, spin-off 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;
-3-
<PAGE>
(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.
(b) At any time within sixty (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.
-4-
<PAGE>
(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 thirty (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 sixty (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 sixty (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 ninety (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 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.
-5-
<PAGE>
(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.
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
-6-
<PAGE>
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. 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. 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.
11. 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.
-7-
<PAGE>
12. 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 Preferred Stock or Common Stock of
the Company into which such Preferred Stock has been converted; and no oral
waiver or amendment shall be effective under any circumstances whatsoever.
13. 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.
14. 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.
NETSOLVE(SM) INCORPORATED
12331 Riata Trace Parkway
Austin, Texas 78727
By:
-----------------------------------------
Kenneth C. Kieley, Vice President-Finance,
Chief Financial Officer and Secretary
PURCHASER:
-------------------------------------------
-8-
<PAGE>
Executed by each of the following directors:
Joel P. Adams
J. Michael Gullard
C. Richard Kramlich
John S. McCarthy
H. Leland Murphy
Suzanne C. Narducci
Howard D. Wolfe, Jr.
-9-
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
April 29, 1999, in Amendment No. 1 to the Registration Statement (Form S-1 No.
333-65691) and related Prospectus of NetSolve, Incorporated for the registration
of its common stock.
/s/ Ernst & Young LLP
Austin, Texas
July 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
MARCH 31, 1999 FINANCIAL STATEMENTS AND THE UNAUDITED 3 MONTHS ENDED JUNE 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-2000
<PERIOD-START> APR-01-1998 APR-01-1999
<PERIOD-END> MAR-31-1999 JUN-30-1999
<CASH> 2,764 6,582
<SECURITIES> 2,000 0
<RECEIVABLES> 2,849 3,701
<ALLOWANCES> 227 260
<INVENTORY> 279 600
<CURRENT-ASSETS> 1,267 1,492
<PP&E> 6,818 7,492
<DEPRECIATION> 3,571 3,922
<TOTAL-ASSETS> 14,936 17,238
<CURRENT-LIABILITIES> 4,292 6,029
<BONDS> 0 0
44,146 44,776
0 0
<COMMON> 33 35
<OTHER-SE> 34,562 34,365
<TOTAL-LIABILITY-AND-EQUITY> 14,936 17,238
<SALES> 26,716 9,076
<TOTAL-REVENUES> 26,716 9,076
<CGS> 18,923 6,208
<TOTAL-COSTS> 18,923 6,208
<OTHER-EXPENSES> 7,113 2,144
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 254 37
<INCOME-PRETAX> 873 770
<INCOME-TAX> 19 15
<INCOME-CONTINUING> 854 755
<DISCONTINUED> 98 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 952 755
<EPS-BASIC> (0.48) (0.04)
<EPS-DILUTED> (0.48) (0.01)
</TABLE>
