-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AyGcKiaqI7iiMhAmWlpDBGOyhwcBYBbVUBDvWFpbSfyQxU0Y2VGtVgPfEHUUXef4 Q6J1ZStpHRblOMlEdN3v3A== 0001053374-07-000016.txt : 20070510 0001053374-07-000016.hdr.sgml : 20070510 20070510155203 ACCESSION NUMBER: 0001053374-07-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20070331 FILED AS OF DATE: 20070510 DATE AS OF CHANGE: 20070510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IPASS INC CENTRAL INDEX KEY: 0001053374 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 931214598 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-50327 FILM NUMBER: 07837598 BUSINESS ADDRESS: STREET 1: 3800 BRIDGE PARKWAY CITY: REDWOOD SHORES STATE: CA ZIP: 94065 BUSINESS PHONE: 6502324115 MAIL ADDRESS: STREET 1: 3800 BRIDGE PARKWAY CITY: REDWOOD SHORES STATE: CA ZIP: 94065 10-Q 1 form10q032007.htm FORM 10-Q 03/31/2007 FORM 10-Q 03/31/2007

     
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
________________
 
FORM 10-Q
________________
 
(Mark One)
 
R
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended March 31, 2007
 
 
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from  to  

000-50327
(Commission File Number)
________________
 
iPass Inc.
(Exact name of Registrant as specified in its charter)
________________

Delaware
93-1214598
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)

3800 Bridge Parkway
Redwood Shores, California 94065
(Address of principal executive offices, including zip code)

(650) 232-4100
(Registrant’s telephone number, including area code)
 
________________
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer. or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act).
Large accelerated filer £  Accelerated filer R  Non-accelerated filer £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R

The number of shares outstanding of the Registrant’s Common Stock, $0.001 par value, as of April 30, 2007 was 63,012,011.
 

  
 
iPASS INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007

TABLE OF CONTENTS

Part I. Financial Information:
 
 
 
Part II. Other Information:
 


1

PART I. FINANCIAL INFORMATION


CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)

 
 
  
March 31, 2007
  
December 31, 2006
  
ASSETS
  
 
  
 
  
Current assets:
  
 
  
 
  
Cash and cash equivalents
  
$
42,484
  
$
15,492
  
Short-term investments
    
45,991
    
83,708
  
Accounts receivable, net of allowance for doubtful accounts of $3,300 and $3,282, respectively
    
31,964
    
28,579
  
Prepaid expenses and other current assets
    
7,344
    
6,341
  
Short-term deferred income tax assets
    
8,335
    
8,070
  
Total current assets
    
136,118
    
142,190
  
Property and equipment, net of accumulated depreciation of $37, 936 and $44,131, respectively
    
10,296
    
10,519
  
Other assets
    
2,842
    
3,344
  
Long-term deferred income tax assets
    
14,952
    
14,952
  
Acquired intangible assets, net
    
12,655
    
13,705
  
Goodwill
    
78,757
    
78,757
  
Total assets
  
$
255,620
  
$
263,467
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
          
Current liabilities:
          
Accounts payable
  
$
15,053
  
$
14,830
  
Accrued liabilities
    
14,886
    
16,482
  
Deferred revenue — short-term
    
5,903
    
5,411
  
Total current liabilities
    
35,842
    
36,723
  
Deferred revenue — long-term
    
873
    
1,468
  
Other long-term liabilities
    
1,651
    
1,969
  
Total liabilities
    
38,366
    
40, 160
  
Stockholders’ equity:
          
Common stock
    
64
    
63
  
Additional paid-in capital
    
244,193
    
249,800
  
Accumulated other comprehensive loss
    
(77
)
  
(98
)
Accumulated deficit
    
(26,926
)
  
(26,458
)
Total stockholders’ equity
    
217,255
    
223,307
  
Total liabilities and stockholders’ equity
  
$
255,620
  
$
263,467
  
 
See Accompanying Notes to the Condensed Consolidated Financial Statements


2


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share amounts)

 
 
  
Three Months Ended March 31,
  
 
  
2007
  
2006
  
Revenues
  
$
46,888
  
$
44,270
  
Operating expenses (1):
          
Network access
    
16,270
    
12,532
  
Network operations
    
8,198
    
6,964
  
Research and development
    
5,456
    
5,531
  
Sales and marketing
    
13,426
    
14,815
  
General and administrative
    
5,776
    
5,862
  
Amortization of intangibles
    
1,050
    
821
  
Total operating expenses
    
50,176
    
46,525
  
Operating loss
    
(3,288
)
  
(2,255
)
Other income, net
    
739
    
1,127
  
Loss before income taxes
    
(2,549
)
  
(1,128
)
Benefit from income taxes
    
(2,081
)
  
(716
)
Net loss before cumulative effect of change in accounting principle
  
$
(468
)
  
(412
)
Cumulative effect of change in accounting principle, net of zero tax effect
    
—
    
347
  
Net loss
  
$
(468
)
$
(65
)
Net loss per share before cumulative effect of change in accounting principle:
          
Basic
  
$
(0.01
)
$
(0.00
)
Diluted
  
$
(0.01
)
$
(0.00
)
Per share effect of cumulative change in accounting principle:
          
Basic
  
$
—
  
$
(0.00
)
Diluted
  
$
—
  
$
(0.00
)
Net loss per share:
          
Basic
  
$
(0.01
)
$
(0.00
)
Diluted
  
$
(0.01
)
$
(0.00
)
Number of shares used in per share calculations:
          
Basic
    
64,094,464
    
64,494,634
  
Diluted
    
64,094,464
    
64,494,634
  

____________
(1) Stock-based compensation is included in the following expense line items:
  
 
  
 
  
Network operations
  
$
135
  
$
207
  
Research and development
    
274
    
301
  
Sales and marketing
    
242
    
532
  
General and administrative
    
546
    
390
  

See Accompanying Notes to the Condensed Consolidated Financial Statements


3


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

 
 
  
Three Months Ended March 31,
  
 
  
2007
  
2006
  
 
  
 
  
 
  
Cash flows from operating activities:
  
 
  
 
  
Net loss
  
$
(468
)
$
(65
)
Adjustments to reconcile net loss to net cash used in operating activities:
          
Amortization of stock-based compensation for employees
    
1,197
    
1,430
  
Amortization of acquired intangibles
    
1,050
    
821
  
Depreciation and amortization
    
1,317
    
1,248
  
Deferred income tax
    
(1,893
)
  
(949
)
Provision for doubtful accounts
    
229
    
100
  
Cumulative effect of change in accounting principle
    
—
    
(347
)
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
          
Accounts receivable
    
(3,614
)
  
(968
)
Prepaid expenses and other current assets
    
(1,003
)
  
(758
)
Other assets
    
502
    
(1,225
)
Accounts payable
    
224
    
(339
)
Deferred revenues
    
(102
)
  
1,272
  
Other liabilities
    
(318
)
  
688
  
Accrued liabilities
    
30
    
(1,447
)
Net cash used in operating activities
    
(2,849
)
  
(539
)
Cash flows from investing activities:
          
Purchases of short-term investments
    
(75,416
)
  
(56,667
)
Maturities of short-term investments
    
113,022
    
111,739
  
Cash used in acquisitions, net of cash acquired
    
—
    
(77,960
)
Purchases of property and equipment
    
(949
)
  
(1,223
)
Net cash provided by (used in) investing activities
    
36,657
    
(24,111
)
Cash flows from financing activities:
          
Proceeds from issuance of common stock
    
204
    
2,405
  
Cash used in repurchase of common stock
    
(7,020
)
  
—
  
Excess tax benefit from employee stock option plans
    
—
    
43
  
Net cash provided by (used in) financing activities
    
(6,816
)
  
2,448
  
Net increase (decrease) in cash and cash equivalents
    
26,992
    
(22,202
)
Cash and cash equivalents at beginning of period
    
15,492
    
37,829
  
Cash and cash equivalents at end of period
  
$
42,484
  
$
15,627
  

See Accompanying Notes to the Condensed Consolidated Financial Statements


4


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Basis of Presentation 

The accompanying financial data has been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The December 31, 2006 Condensed Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. However, the Company believes that the disclosures are adequate to make the information presented not misleading.

On February 15, 2006, the Company acquired GoRemote Internet Communications, Inc. (“GoRemote”). The effects of this transaction as well as the results of operations of GoRemote from February 15, 2006 through March 31, 2007 are included in our results of operations.

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (which include normal recurring adjustments, except as disclosed herein) necessary to present fairly the Company’s financial position, results of operations, and cash flows for the interim periods presented. The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the operating results for the full fiscal year or any future periods.
 
Note 2. Summary of Significant Accounting Policies 

The Company’s significant accounting policies were described in Note 2 of its audited Consolidated Financial Statements for the fiscal year ended December 31, 2006, included in the Annual Report on Form 10-K. These accounting policies have not significantly changed except as noted below.

Recent Accounting Pronouncements
 
With the exception of the financial accounting standards board statement defined below, there have been no significant changes in recent accounting pronouncements during the three months ended March 31, 2007 as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS No. 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Under SFAS No. 159, a company may elect to use fair value to measure eligible items at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Eligible items include, but are not limited to, accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees, issued debt and firm commitments. If elected, SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing whether fair value accounting is appropriate for any of its eligible items and cannot estimate the impact, if any, on its results of operations and financial position.

Note 3. Business Combinations 

On February 15, 2006, the Company completed its acquisition of GoRemote, a publicly-traded company headquartered in Milpitas, California that provided secure managed virtual business network services. The Company plans to expand its product offering to its customers by offering GoRemote’s managed broadband services for branch offices and teleworkers. The Company acquired 100% of the outstanding shares of GoRemote paying approximately $78.9 million in cash, to acquire approximately 43.3 million shares of common stock for $1.71 per share and approximately 541,631 shares of Series A preferred stock for $3.37 per share. The purchase price included approximately $3.1 million in direct transaction costs including legal and valuation fees. In addition, iPass assumed outstanding options to acquire approximately 8.3 million shares of GoRemote common stock, and converted those into options to acquire approximately 1.7 million shares of iPass common stock.

5

The results of operations of GoRemote are included in the Company’s Condensed Consolidated Statement of Operations beginning February 15, 2006, the date of the transaction closing. The following table summarizes the allocation of the purchase price based on the estimated fair values of the tangible assets acquired and the liabilities assumed at the date of acquisition (in thousands):

Cash consideration for common and preferred stock
  
$
75,806
  
Estimated fair value of options assumed
    
5,826
  
Direct transaction costs
    
3,097
  
Total preliminary estimated purchase price
  
$
84,729
  

Under the purchase method of accounting, the total estimated purchase price as shown in the table above is allocated to GoRemote’s net tangible and intangible assets based on their estimated fair values as of February 15, 2006. Management has allocated the purchase price based on various factors. The allocation of the purchase price is as follows (in thousands):

Cash acquired
  
$
6,706
  
Accounts receivable
    
7,138
  
Other tangible assets acquired
    
2,550
  
Deferred tax assets, net
    
11,011
  
Amortizable intangible assets:
      
Customer relationships
    
7,600
  
Supplier contracts
    
950
  
Internally developed software
    
350
  
Goodwill
    
60,578
  
Deferred revenues
    
(1,025
)
Restructuring liabilities
    
(1,249
)
Other liabilities assumed
    
(9,880
)
Total purchase price
  
$
84,729
  

Goodwill represents the excess of the purchase price over the fair value of tangible and identifiable intangible assets. The unaudited condensed consolidated statements of operations do not reflect the amortization of goodwill acquired in the proposed merger, consistent with the guidance in the Financial Accounting Standards Board Statement No. 142, Goodwill and Other Intangible Assets. The Company believes that its purchase of GoRemote resulted in the allocation of considerable amounts to goodwill because of significant synergistic and strategic benefits that it expects to realize from the acquisition. The Company believes that it, unlike other market participants, had unique opportunities to generate revenues and profits through (1) the Company’s ability to convert its existing dial-up customer base to broadband services and (2) its ability to sell expanded services into GoRemote’s existing customer base. Further, the Company acquired an R&D and sales force from GoRemote that was familiar with broadband technologies, a much more significant growth segment than iPass’ current dial-up service. The value of the workforce-in-place was subsumed into goodwill as required by SFAS 141, Business Combinations.

Restructuring costs of $1.2 million relate primarily to costs for abandoned excess facilities. Pursuant to Emerging Issues Task Force Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination, all restructuring charges related to the acquisition are recognized as part of the purchase price allocation. The Company completed the relocation of all employees and vacated the facilities in the second quarter of 2006.

6

Amortization of other intangibles has been provided over the following estimated useful lives: customer relationships (Mobile Office) — 4 years, supplier contracts — 4 years; customer relationships (Fixed Broadband) — 7 years; internally developed software — 7 years. The following represents the estimated annual amortization of acquired intangibles (in thousands):

Fiscal Year
  
 
  
2007
  
$ 
1,834
  
2008
    
1,834
  
2009
    
1,834
  
2010
    
685
  
2011
    
521
  
2012
    
521
  
2013
    
66
  
 
  
$
7,295
  

The following unaudited pro forma information represents the results of operations for iPass and GoRemote for the three months ended March 31, 2006 as if the acquisition had been consummated as of January 1, 2006. This pro forma information does not purport to be indicative of what may occur in the future (in thousands, except per share amounts):

 
  
Three Months Ended March 31, 2006
  
Total revenue
  
$
49,293
  
Net income (loss)
  
$
(4,753
)
Net income (loss) per share:
      
Basic
  
$
(0.07
)
Diluted
  
$
(0.07
)
Number of shares used in per share calculations:
      
Basic
    
64,494,634
  
Diluted
    
64,494,634
  
 
Note 4. Goodwill and Intangibles 

The following table represents a rollforward of goodwill and acquired intangible assets, net (in thousands):

 
 
December 31, 2006 Balance
 
 
Amortization
 
March 31, 2007 Balance
  
Goodwill
  
$
78,757
  
$
—
  
$
78,757
  
Intangibles:
              
Existing technology
    
4,361
    
(403
)
  
3,958
  
Patent/Core technology
    
1,564
    
(141
)
  
1,423
  
Maintenance agreements and certain relationships
    
256
    
(17
)
  
239
  
Customer relationships
    
6,476
    
(418
)
  
6,058
  
Supplier contracts
    
742
    
(59
)
  
683
  
Internally developed software
    
306
    
(12
)
  
294
  
 
  
$
92,462
  
$
(1,050
)
$
91,409
  

7
Total amortization expense related to acquired intangible assets is set forth in the table below (in thousands):

 
  
Three Months Ended March 31,
  
 
  
2007
  
2006
  
Intangibles:
  
 
  
 
  
Existing technology
  
$
(403
)
$
(403
)
Patent/Core technology
    
(141
)
  
(141
)
Maintenance agreements and certain relationships
    
(17
)
  
(17
)
Customer relationships
    
(418
)
  
(224
)
Supplier contracts
    
(59
)
  
(30
)
Internally developed software
    
(12
)
  
(6
)
 
  
$
(1,050
)
$
(821
)

The following tables set forth the carrying amount of other intangible assets that will continue to be amortized (in thousands):

 
  
March 31, 2007
  
 
  
Amortization Life
  
Gross Carrying Amount
  
Accumulated Amortization
  
Net Carrying Amount
  
Intangibles:
  
 
  
 
  
 
  
 
  
Existing technology
    
4-8 yrs
  
$
7,900
  
$
(3,942
)
$
3,958
  
Patent/Core technology
    
4-8 yrs
    
2,800
    
(1,377
)
  
1,423
  
Maintenance agreements and certain relationships
    
5 yrs
    
400
    
(161
)
  
239
  
Customer relationships
    
4-7 yrs
    
8,100
    
(2,042
)
  
6,058
  
Supplier contracts
    
4 yrs
    
950
    
(267
)
  
683
  
Internally developed software
    
7 yrs
    
350
    
(56
)
  
294
  
 
      
$
20,500
  
$
(7,845
)
$
12,655
  
 
   
December 31, 2006
  
 
 
  
Amortization Life
  
Gross Carrying Amount
  
Accumulated Amortization
  
Net Carrying Amount
  
Intangibles:
  
 
  
 
  
 
  
 
  
Existing technology
    
4-8 yrs
  
$
7,900
  
$
(3,539
)
$
4,361
  
Patent/Core technology
    
4-8 yrs
    
2,800
    
(1,236
)
  
1,564
  
Maintenance agreements and certain relationships
    
5 yrs
    
400
    
(144
)
  
256
  
Customer relationships
    
4-7 yrs
    
8,100
    
(1,624
)
  
6,476
  
Supplier contracts
    
4 yrs
    
950
    
(208
)
  
742
  
Internally developed software
    
7 yrs
    
350
    
(44
)
  
306
  
 
      
$
20,500
  
$
(6,795
)
$
13,705
  
 
The following table presents the estimated future amortization of intangible assets (in thousands):

Fiscal Year
  
 
  
Remaining 2007
  
$
3,150
  
2008
    
3,901
  
2009
    
2,401
  
2010
    
1,241
  
2011
    
1,021
  
2012 and thereafter
    
941
  
 
  
$
12,655
  

8

Note 6. Accrued Restructuring
 
In March 2006, the Company recorded a restructuring charge totaling approximately $1.7 million related to the workforce reduction of 58 iPass employees, across all functions. In November 2006, the Company recorded an additional restructuring charge of $3.0 million related to excess iPass facilities. The restructurings were recorded pursuant to FASB No. 146, Accounting for Costs Associated with Exit or Disposal Activities.
 
The following is a summary of restructuring activities for the quarter ended March 31, 2007 (in thousands):
 
 
  
Excess Facility Costs
  
 
Severance Costs
  
Total Restructuring Accrual
  
Balance as of December 31, 2006
  
$
3,045
  
$
403
  
$
3,448
  
Payments
    
(371
)
  
(62
)
  
(433
)
Balance as of March 31, 2007
  
$
2,674
  
$
341
  
$
3,015
  

In February 2006, in connection with the acquisition of GoRemote, the Company recorded an accrual of $1.2 million for the lease costs associated with the acquired GoRemote corporate facilities that were expected to be abandoned. The accrual was recognized as part of the purchase price allocation pursuant to Emerging Issues Task Force Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination. The Company completed the relocation of employees and vacated facilities by April 2006. The accrued costs are expected to be fully utilized by the second quarter of 2008. The following is a summary of the acquisition-related restructuring activities for the quarter ended March 31, 2007 (in thousands):
 
 
  
Excess Facility Costs
  
Balance as of December 31, 2006
  
$
817
  
Payments
    
(135
)
Balance as of March 31, 2007
  
$
682
  

As of March 31, 2007, the Company has classified $2.0 million of the restructuring liability in accrued liabilities and remaining $1.7 million in long-term liabilities based on the Company’s expectation that the remaining lease payments will be paid over the remaining term of the related leases (net of expected sublease income).

Note 7. Income Taxes
 
On July 13, 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes” and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under FIN 48, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006.

The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company did not recognize a change in the liability for unrecognized tax benefits. The total amount of unrecognized tax benefits as of the date of adoption is $3,603,000. If any of these tax benefits that are unrecognized should become recognizable at a future time, it would result in a change in the company’s annual effective tax rate.

The Company recognizes interest accrued related to unrecognized tax benefits in the tax provision. As of adoption of FIN 48 on January 1, 2007, the Company’s liability for unrecognized tax benefits includes an accrual for interest in the amount of $204,000.
 
The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. The Company is under examination by the State of California, which is challenging various tax issues for the years 2002 - 2005. Management has reviewed proposed adjustments and recorded reserves for the estimated liability related to these tax issues. Upon settlement, there could be a change in the total amount of unrecognized tax benefits.  The primary material jurisdictions subject to examination by tax authorities for tax years after 2000 include India, UK and U.S.
 
9
 
Note 8. Stock Repurchase Program 

In May 2006, the Company’s Board of Directors approved a two-year stock repurchase program which authorizes the Company to repurchase up to $30.0 million of outstanding common stock from time to time on the open market or through privately negotiated transactions. The timing and amount of any repurchases will depend upon market conditions and other corporate considerations.

Through March 31, 2007, the Company repurchased and retired a total of approximately 3.3 million shares of common stock for an aggregate purchase price of $18.0 million.  In the three months ended March 31, 2007, the Company repurchased approximately 1.3 million shares for an aggregate purchase price of $7.0 million.   Of the shares repurchased during the quarter, 317,000 shares were retired with the intent to retire the remaining shares by the end of the second quarter of fiscal 2007.

Note 9. Comprehensive Loss

Comprehensive loss is a measure of all changes in equity of an enterprise that result from transactions and other economic events of the period other than transactions with stockholders. Comprehensive loss is the total of net loss and all other non-owner changes in equity. Comprehensive loss includes net income and unrealized losses on available-for-sale securities.

Comprehensive loss is comprised of the following (in thousands):

 
  
Three Months Ended March 31,
  
 
  
2007
  
2006
  
Net loss
  
$
(468
)
$
(65
)
Comprehensive income:
          
Net change in accumulated unrealized loss on available-for- sale securities
    
21
    
32
  
Total comprehensive loss
  
$
(447
)
$
(33
)

Note 10. Net Loss Per Share 

In accordance with SFAS 128, Earnings Per Share, basic net loss per share is computed by dividing net loss by the weighted daily average number of shares of common stock outstanding during the period. Diluted net loss per share is based upon the weighted daily average number of shares of common stock outstanding for the period plus dilutive potential common shares from the issuance of stock options and awards using the treasury-stock method.

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share amounts):

 
  
Three Months Ended March 31,
  
 
  
2007
  
2006
  
Numerator:
  
 
  
 
  
Net loss
  
$
(468
)
$
(65
)
Denominator:
          
Denominator for basic net loss per common share weighted average shares outstanding
    
64,094,464
    
64,494,634
  
Effect of dilutive securities:
          
Stock options
    
—
    
—
  
Restricted stock awards
    
—
    
—
  
Denominator for diluted net loss per common share — adjusted weighted average shares outstanding
    
64,094,464
    
64,494,634
  
Basic net loss per common share
  
$
(0.01
)
$
(0.00
)
Diluted net loss per common share
  
$
(0.01
)
$
(0.00
)
 
10
The following potential shares of common stock have been excluded from the computation of diluted net income (loss) per share because the effect of including these shares would have been anti-dilutive:
 
 
  
Three Months Ended March 31,
  
 
  
2007
  
2006
  
Options to purchase common stock
    
9,782,393
    
10,871,902
  
Restricted stock awards
    
891,446
    
—
  
Total
    
10,673,839
    
10,871,902
  
 
Note 11. Segment Information 

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information establishes standards for the reporting by business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information is reported is based on the way that management organizes the operating segments within the Company for making operational decisions and assessments of financial performance. The Company’s chief executive officer (CEO) is considered to be the Company’s chief operating decision maker. The CEO reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. The consolidated financial information reviewed by the CEO is similar to the information presented in the accompanying condensed consolidated financial statements. Therefore, the Company has determined that it operates in a single reportable segment.

No individual customer represented 10% or more of total revenues for the three months ended March 31, 2007 or 2006.  The only individual country, outside the United States, to account for 10% or more of total revenues for the periods presented was the United Kingdom, which represented approximately 8% and 13% of total revenues for the three months ended March 31, 2007 and 2006, respectively.
 
11

Forward-Looking Statements
 
This quarterly report on Form 10-Q, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding future events and our future results that are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of these words, and similar expressions are intended to identify these forward-looking statements. In addition, any statements which refer to projections of our future financial performance, our anticipated growth and trends in our business, and other characterizations of future events or circumstances, are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions based upon assumptions made that we believed to be reasonable at the time, and are subject to risks and uncertainties. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Readers are directed to risks and uncertainties identified below under “Factors Affecting Operating Results” and elsewhere in this quarterly report, for factors that may cause actual results to be different than those expressed in these forward-looking statements. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements.

Company Overview

We deliver simple, secure and manageable enterprise mobility services, maximizing the productivity of workers as they move between office, home and remote locations. Our device management services close the gaps in protecting computers, network assets, user identities and data whenever users connect over the Internet. Our connectivity services utilize the iPass global virtual network, a unified network of hundreds of dial-up, wireless, and broadband providers in over 160 countries.

Overview of the three months ended March 31, 2007

Our overall revenues increased slightly for the three months ended March 31, 2007 as compared to the same period in 2006. The increase was driven primarily by our customer’s migration from dial-up to broadband as the preferred method of connecting to their corporate networks. Increases in revenues from broadband, software and services fees of $12.8 million were partially offset by a $10.3 million decline in dial-up revenue for the three months ended March 31, 2007.

We increased the number of broadband access points during the quarter, increasing our global broadband footprint. We ended the quarter with approximately 80,000 Wi-Fi and wired hotspots worldwide. This enabled our customers to access remotely their corporate networks from more locations, at higher speeds driving the increases in broadband usage revenues in 2007 over 2006.

Going forward, we will continue to focus on delivering innovative services and solutions for our customers, with the goal of increasing the number of end users of our services as well as to increase fee revenues from device management and other fee based services. We have expanded our product offering to our customers by offering managed broadband services for branch offices and teleworkers. During the second quarter of 2007, we expect to see dial revenues continue to decrease. However, our ability to achieve these goals could be limited by several factors, including the timely release of new products, continued market acceptance of our products and the introduction of new products by existing or new competitors. For a further discussion of these and other risk factors, see the section below entitled “Factors Affecting Operating Results.”

Sources of Revenues

We derive our revenues primarily from providing enterprise connectivity services through our virtual network. We sell these services directly, as well as indirectly through our channel partners. We bill substantially all customers on a time basis for usage based on negotiated rates. We bill the remaining customers based on a fixed charge per active user per month with additional charges for excess time. Substantially all enterprise customers commit to a one to three year contract term. Most of our contracts with enterprise customers contain minimum usage levels. We bill customers for minimum commitments when actual usage is less than their monthly minimum commitment amount. We recognize the difference between the minimum commitment and actual usage as fee revenue once the cash for the fee has been collected. Our usage-based revenues represented 76% and 82% of our revenues for the three months ended March 31, 2007 and 2006, respectively.

We have incurred expenses to expand our broadband coverage and are seeking to generate additional revenues from our broadband wired and wireless coverage. Revenues from usage of our broadband services were 33% and 13% of our total revenues for the three months ended March 31, 2007 and 2006, respectively.

We also provide customers with deployment services and technical support throughout the term of the contract. We typically charge fees for these services on a one-time or annual basis, depending on the service provided and the nature of the relationship. We also offer customers additional services for which we generally bill on a monthly basis. In addition, we generate license and maintenance revenue through software licensing agreements. Revenues generated from license and maintenance fees, together with revenues generated from deployment services and technical support, represented approximately 24% and 18% of our revenues for the three months ended March 31, 2007 and 2006, respectively.
 
12
Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, income taxes, impairment of short-term investments, impairment of goodwill and intangible assets and allowance for doubtful accounts. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis of making judgments about the carrying values of assets and liabilities.

There have been no significant changes in our critical accounting estimates during the three months ended March 31, 2007 as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2006.
 
Accounting for Income Taxes
 
We calculate the effect of income taxes in our consolidated financial statements in accordance with Statement of Financial Accounting Standards, No. 109, Accounting for Income Taxes (SFAS 109) and Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109 (“FIN 48”).  Under SFAS No. 109, income tax expense (benefit) is recognized for the amount of taxes payable or refundable for the current year, and for deferred tax assets and liabilities for the tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Under FIN 48, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.
 
We assess the likelihood that our deferred tax assets will be realized from future taxable income and establish a valuation allowance if we determine that it is more likely than not that some portion of the net deferred tax assets will not be realized. Changes in the valuation allowance are included in our consolidated statements of income as a provision for (benefit from) income taxes. We exercise significant judgment in determining our provisions for income taxes, our deferred tax assets and liabilities and our future taxable income for purposes of assessing our ability to utilize any future tax benefit from our deferred tax assets.

When we assess the likelihood that we will be able to recover our deferred tax assets, we consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If recovery is not likely, we would increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. The available positive evidence at March 31, 2007 included cumulative taxable income during the last three years and a projection of future income limited to three years. We continue to closely monitor available evidence and may adjust our valuation allowance in future periods.

Although we believe it is more likely than not that we will realize our net deferred tax assets, there is no guarantee this will be the case as our ability to use the net operating losses is contingent upon our ability to generate sufficient taxable income in the carryforward period. At each period end, we reassess our ability to realize our net operating losses. If we conclude it is more likely than not that we would not realize the benefit of our net operating losses, we may have to re-establish all or a portion of the valuation allowance and therefore record a significant charge to our results of operations.
 
RESULTS OF OPERATIONS
 
Revenue
 
  
Three Months Ended
  
 
  
March 31,
  
Change
  
 
  
2007
  
2006
    $  
%
  
 
(In thousands, except percentages)
  
Total revenue
$
46,888
  
$
44,270
  
$
2,618
    
5.9
%
 
Total revenue increased in the three months ended March 31, 2007, as compared to the same period in 2006, due to offsetting factors. Revenues were impacted by a continued decline in dial-up revenues for the period as customers continue to migrate from dial-up to broadband as the preferred method of connecting to their corporate networks. Dial-up revenues declined to $20.3 million in the three months ended March 31, 2007, compared to $30.6 million in the three months ended March 31, 2006.  Total broadband revenues were $15.4 million in the three months ended March 31, 2007, compared to $5.7 million in the three months ended March 31, 2006.  Total software and services fee revenues were $11.1 million and $8.0 million in the three months ended March 31, 2007 and 2006, respectively.  No individual customer accounted for 10% or more of total revenues for the three months ended March 31, 2007 and 2006. Revenues from minimum commitments, license and maintenance fees and additional services represented approximately 24% and 18% of our revenues for the three months ended March 31, 2007 and 2006, respectively.
 
International revenues accounted for approximately 35% and 44% of total revenues for the three months ended March 31, 2007 and 2006, respectively. Substantially all of our international revenues are generated in the EMEA (Europe, Middle East and Africa) and Asia Pacific regions. Revenues in the EMEA region represented 24% and 29% of total revenues for the three months ended March 31, 2007 and 2006, respectively. Revenues in the Asia Pacific region represented 8% and 11% of total revenues for the three months ended March 31, 2007 and 2006, respectively. The only individual foreign country to account for 10% or more of total revenues for the periods presented was the United Kingdom, which represented approximately 8% and 13% of total revenues for the three months ended March 31, 2007 and 2006, respectively. Substantially all of our revenues to date have been denominated in U.S. dollars. In the future, some portion of revenues may be denominated in foreign currencies.

Operating Expenses

Network Access

Network access expenses consist of charges for access, principally by the minute or time-based, that we pay to our network service providers and are as follows (in thousands, except percentages):

 
  
Three Months Ended
  
 
  
March 31,
  
Change
  
 
  
2007
  
2006
    $  
%
  
Network access expenses
  
$
16,270
  
$
12,532
  
$
3,738
    
29.8
%
As a percent of revenue
    
34.7
%
  
28.3
%
        

The growth in network access expenses in the three months ended March 31, 2007 as compared to the same period in 2006 was primarily due to increased usage of our virtual network with respect to our broadband services.  While network access costs for broadband access are higher than those for dial, we expect that as broadband revenues continue to increase we will have the ability to negotiate lower rates for access to broadband networks. We expect network access expenses to continue to increase in absolute dollars and increase as a percentage of revenues as usage shifts from higher margin dial to lower margin broadband.
 
13
 
Network Operations

Network operations expenses consist of compensation and benefits for our network engineering, customer support, network access quality and information technology personnel, outside consultants, transaction center fees, depreciation of our network equipment, and certain allocated overhead costs and are as follows (in thousands, except percentages):

 
  
Three Months Ended
  
 
  
March 31,
  
Change
  
 
  
2007
  
2006
   $   
%
  
Network operations expenses
  
$
8,198
  
$
6,964
  
$
1,234
    
17.7
%
As a percent of revenue
    
17.5
%
  
15.7
%
        
 
The increase in network operations expenses for the three months ended March 31, 2007 from the same period of 2006 in absolute dollars was due primarily to $483,000 in additional compensation expense and $323,000 for external consulting and contractor support. To the extent that we continue to expand our operations, we expect that our network operations expenses will increase in absolute dollars, and increase slightly as a percentage of total revenue.

In the first quarter of 2007, we began capitalizing the subsidy of mobile data card costs for cards sold to customers with which we have a history of profitability. Those capitalized costs will be amortized over the remaining contract term for each customer. The total card subsidy costs capitalized for the three months ended March 31, 2007 totaled approximately $100,000.  To the extent that we continue to increase mobile data card sales, we expect that mobile data card subsidies and capitalized costs will increase in absolute dollars.

Research and Development

Research and development expenses consist of compensation and benefits for our research and development personnel, consulting, and certain allocated overhead costs and are as follows (in thousands, except percentages):

 
  
Three Months Ended
  
 
  
March 31,
  
Change
  
 
  
2007
  
2006
    $  
%
  
Research and development expenses
  
$
5,456
  
$
5,531
  
$
(75
)
  
(1.4
)%
As a percent of revenue
    
11.6
%
  
12.5
%
        

Research and development expenses for the three months ended March 31, 2007 was relatively flat as compared to the three months ended March 31, 2006. Decreased external consulting and contractor support expenses of $528,000 was offset by an additional $243,000 of compensation costs and $224,000 of maintenance and support fees. The remaining portion of the increase was due to individually insignificant items. We expect that our research and development expenses will remain relatively constant in absolute dollars as we develop and enhance new and existing service offerings, and to the extent revenues increase, will decrease slightly as a percentage of revenues.

Sales and Marketing

Sales and marketing expenses consist of compensation, benefits, advertising, promotion expenses, and certain allocated overhead costs and are as follows (in thousands, except percentages).

 
  
Three Months Ended
  
 
  
March 31,
  
Change
  
 
  
2007
  
2006
    $  
%
  
Sales and marketing expenses
  
$
13,426
  
$
14,815
  
$
(1,389
)
  
(9.4
)%
As a percent of revenue
    
28.6
%
  
33.5
%
        
 
The decrease in sales and marketing expenses for the three months ended March 31, 2007 as compared to the three months ended March 31, 2006 was due primarily to reduced headcount resulting in a decrease of $444,000 in compensation and benefits expenses and $412,000 reduction in travel expenses. Additionally, stock option cancellations resulted in a $290,000 decrease in stock compensation expense. The remaining portion of the decrease was due to individually insignificant items. We expect that sales and marketing expenses will remain relatively constant in absolute dollars and, to the extent revenues increase, will decrease as a percentage of revenues.

14
 
General and Administrative

General and administrative expenses consist of compensation and benefits of general and administrative personnel, legal and accounting expenses, bad debt expense, and certain allocated overhead costs and are as follows (in thousands, except percentages):

 
  
Three Months Ended
  
 
  
March 31,
  
Change
  
 
  
2007
  
2006
    $  
%
  
General and administrative expenses
  
$
5,776
  
$
5,862
  
$
(86
)
  
(1.5
)%
As a percent of revenue
    
12.3
%
  
13.2
%
        

The minimal decrease in general and administrative expenses for the three months ended March 31, 2007 as compared to the three months ended March 31, 2006 was primarily due to various individually insignificant items. We expect that our general and administrative expenses will decrease slightly, both in absolute dollars and as a percentage of revenues, in the second quarter of 2007.

Amortization of Acquired Intangibles

Amortization of acquired intangibles was approximately $1.1 million and $821,000 for the three months ended March 31, 2007 and 2006, respectively. The increase from 2006 to 2007 was driven by the amortization of intangible assets acquired in 2006 as a result of the acquisition of GoRemote.

Non-Operating Expenses

Interest Income

Interest income includes interest income on cash, cash equivalents, and short-term investment balances. Interest income and other was $739,000 and $1.1 million for the three months ended March 31, 2007 and 2006, respectively. The decrease in interest income was due to the net use of $72.2 million of cash, cash equivalents and short-term investment balances for the acquisition of GoRemote in February 2006 and the repurchase of outstanding common stock over the past three quarters.

Benefit from Income Taxes

The benefit from income taxes was $2.1 million and $716,000 for the three months ended March 31, 2007 and 2006, respectively. The increase in benefit from income taxes is primarily due to an increase in research and development tax credits and tax exempt interest income for the three months ended March 31, 2007 as compared to the same period in 2006. The effective tax rate was (82)% and (63)% for the three months ended March 31, 2007 and 2006, respectively.


15
 
Liquidity and Capital Resources

From our inception in July 1996 through our initial public offering of our common stock in July 2003, we funded our operations primarily through issuances of preferred stock, which provided us with aggregate net proceeds of approximately $86.5 million. In July 2003, we completed the sale of 8,050,000 shares of common stock in an initial public offering, which included the underwriters’ exercise of an over-allotment option, and realized net proceeds of $102.7 million. We used $10.9 million of the net proceeds to pay off all outstanding balances on loans payable and the line of credit.

Net cash used in operating activities was $3.0 million for the three months ended March 31, 2007, compared to net cash used in operating activities of $539,000 for the three months ended March 31, 2006. This change primarily was due to an increase in accounts receivable of $3.6 million resulting from the delayed receipt of customer payments.

Net cash provided by investing activities was $36.7 million for the three months ended March 31, 2007 which was primarily related to net maturities of short-term investments of $37.6 million.  The cash used for investing activities for the three months ended March 31, 2006 of $24.1 million was primarily represented the purchase of GoRemote, which net of cash acquired was $78.0 million offset by net maturities of short-term investments of $55.1 million.

Net cash used in financing activities for the three months ended March 31, 2007 was $6.7 million, as compared to $2.5 million of cash provided by financing activities for the three months ended March 31, 2006. Net cash used in financing activities for the first three months of 2007 was primarily due to $7.0 million for the repurchase of approximately 1.3 million shares of common stock. Net cash provided by financing activities in the first three months of 2006 was primarily due to stock option exercises.

As of March 31, 2007, our principal source of liquidity was $88.5 million of cash, cash equivalents and short-term investments as compared to $99.2 million at December 31, 2006.

Commitments
 
We have signed contracts with some network service providers under which we have minimum purchase commitments that expire on various dates through December 2007. Other than in the approximately 24 countries in which our sole dial-up network service provider is Equant, we have contracted with multiple network service providers to provide alternative access points in a given geographic area. In those geographic areas where we provide access through multiple providers, we are able to direct users to the network of particular service providers.
 
Consequently, we believe we have the ability to fulfill our minimum purchase commitments in these geographic areas. In May 2005, we consolidated several term license agreements that were set to expire into a single, long-term operating lease with a vendor. Future minimum purchase commitments under these agreements as of March 31, 2007 are as follows (in thousands):
 
Year ending December 31:
  
 
  
Remaining 2007
  
$
1,384
  
2008
    
1,066
  
2009
    
266
  
 
  
$
2,716
  

We lease our facilities under non-cancelable operating leases that expire at various dates through October 2016. Future minimum lease payments under these operating leases as of March 31, 2007 are as follows (in thousands):

Year ending December 31:
  
 
  
Remaining 2007
  
$
5,479
  
2008
    
6,113
  
2009
    
5,718
  
2010
    
3,819
  
2011
    
2,789
  
2012 and thereafter
    
8,167
  
 
  
$
32,085
  
 

16


FACTORS AFFECTING OPERATING RESULTS

Set forth below and elsewhere in this report are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report.

Risks Relating to Our Business

Our business is in transition from a business reliant primarily on narrowband connectivity to one reliant primarily on broadband connectivity and services, and if we are unable to effectively manage this transition our business will be impaired.

Historically we have generated the large majority of our revenues from the sale of enterprise connectivity services using narrowband technologies such as modem dial-up. For example, in 2005 we derived $138.1 million, or 82%, of our total revenues from our traditional dial-up business. In the United States as well as many other countries, the use of narrowband as a primary means of enterprise connectivity has declined and is expected to continue to decline at an accelerated rate over time as broadband access technologies, such as cable modem, DSL, Wi-Fi and other wireless technologies, including 3G, become more broadly used. In response to this market shift we have added broadband and services elements to our business and, as a result, in 2006 our revenue derived from the use of narrowband connectivity decreased to $105.7 million or 57.9% of our revenue, and in the first quarter of 2007 had decreased to less than 43% of our revenue.

Because of the declining revenues associated with narrowband connectivity, the growth of our business will depend upon our ability to expand the broadband and services elements of our business at a pace faster than our narrowband connectivity business declines. In February 2006, we acquired GoRemote Internet Communications, Inc. as part of our strategy to grow our broadband business, and are also developing additional broadband products and services internally. To grow our broadband business, we must continue to develop relationships with many providers on terms commercially acceptable to us in order to provide adequate coverage for our customers’ mobile workers and to expand our broadband coverage. We may also be required to develop or acquire additional technologies in order to integrate new broadband and security services into our service offering. If we are unable to develop these relationships or develop or acquire new technologies, or if demand for broadband access does not materially increase, our ability to grow our business could be impaired. In addition, if broadband service providers consolidate, our negotiating leverage with providers may decrease, resulting in increased rates for access or no access, which could harm our operating results.

We face strong competition in our market, which could make it difficult for us to grow our business.

We compete primarily with facilities-based carriers as well as with non-facilities-based software enabled network operators. Some of our competitors have substantially greater resources, larger customer bases, longer operating histories or greater name recognition than we have. Also, as a result of our provision of policy management services, we face competition from companies that provide security and policy-based services and software. In addition, we face the following challenges from our competitors:

Many of our competitors can compete on price. Because many of our facilities-based competitors own and operate physical networks, there may be little incremental cost for them to provide additional hotspot or telephone connections. As a result, they may offer remote access services at little additional cost, and may be willing to discount or subsidize remote access services to capture other sources of revenue. In contrast, we have traditionally purchased network access from facilities-based network service providers to enable our remote access service. As a result, large carriers may sell their remote access services at a lower price. In addition, new non-facilities-based carriers may enter our market and compete on price. In either case, we may lose business or be forced to lower our prices to compete, which could reduce our revenues and operating margins.

Many of our competitors offer additional services that we do not, which enables them to compete favorably against us. Some of our competitors provide services that we do not, such as local exchange and long distance services. Potential customers that desire these services on a bundled basis may choose to obtain remote access and device management services from the competitor that provides these additional services.

Our potential customers may have other business relationships with our competitors and consider those relationships when deciding between our services and those of our competitors. Many of our competitors are large facilities-based carriers that purchase substantial amounts of products and services, or provide other services or goods unrelated to remote access services. As a result, if a potential customer is also a supplier to one of our large competitors, or purchases unrelated services or goods from our competitor, the potential customer may be motivated to purchase its remote access services from our competitor in order to maintain or enhance its business relationship with that competitor.

If our security measures are breached and unauthorized access is obtained to a customer’s internal network, our virtual network may be perceived as not being secure and enterprises may curtail or stop using our services.
 

17

    It is imperative for our customers that access to their mission critical data is secure. A key component of our ability to attract and retain customers is the security measures that we have engineered into our network for the authentication of the end user’s credentials; a key component in this regard is our device management services. These measures are designed to protect against unauthorized access to our customers’ networks. Because techniques used to obtain unauthorized access or to sabotage networks change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures against unauthorized access or sabotage. If an actual or perceived breach of network security occurs, regardless of whether the breach is attributable to our services, the market perception of the effectiveness of our security measures could be harmed. To date, we have not experienced any significant security breaches to our network.

Our customers require a high degree of reliability in our services and, if we cannot meet their expectations, demand for our services will decline.

Any failure to provide reliable network access, uninterrupted operation of our network and software infrastructure, or a satisfactory experience for our customers and their mobile workers, whether or not caused by our own failure, could cause current and potential customers to obtain connectivity services from our competitors, which would reduce demand for our services.

If enterprise connectivity demand does not continue to expand, our revenues and operating results may be negatively impacted.

The growth of our business is dependent, in part, upon the increased use of enterprise connectivity services and our ability to capture a higher proportion of this market. If the demand for enterprise connectivity services does not continue to grow, then we may not be able to grow our business, improve our operating results or meet public market expectations. Increased usage of enterprise connectivity services depends on numerous factors, including:

  • the willingness of enterprises to make additional information technology expenditures;
  • the availability of security products necessary to ensure data privacy over the public networks;
  • the quality, cost and functionality of these services and competing services;
  • the increased adoption of wired and wireless broadband access methods; and
  • the proliferation of electronic devices and related applications.
If we are unable to meet the challenges related to the market acceptance and provision of our policy management services, our ability to grow the business may be harmed.

The growth of our business depends in part upon our ability of our policy management services to achieve and sustain expected levels of demand and market acceptance. If enterprises do not perceive our policy management services to have significant benefits, then we will be unable to grow this aspect of our business, or it will grow more slowly than we expect, either of which could significantly and adversely affect our growth. Key challenges that we face related to our provision of these services include:

  • the risk that we may encounter unexpected technical and other difficulties in further developing our policy management services, which could delay or prevent the enhancement of these services or certain features of these services;
  • the risk that the rate of adoption by enterprises of network security software or integrated secure connectivity solutions will not be as we anticipate, which if slow would reduce or eliminate the purchase of these services; and
  • the risk that security breaches may occur, notwithstanding the use of our policy management services, by hackers that develop new methods of avoiding security software.
    If we do not adequately address these challenges, our growth and operating results may be negatively impacted.
 
Our long sales and service deployment cycles require us to incur substantial sales costs that may not result in related revenues.

Our business is characterized by a long sales cycle between the time a potential customer is contacted and a customer contract is signed. Once a customer contract is signed, there is typically an extended period before the customer’s end users actually begin to use our services, which is when we begin to realize revenues. As a result, we may invest a significant amount of time and effort in attempting to secure a customer which may not result in any revenues. Even if we enter into a contract, we will have incurred substantial sales-related expenses well before we recognize any related revenues. If the expenses associated with sales increase, we are not successful in our sales efforts, or we are unable to generate associated offsetting revenues in a timely manner, our operating results will be harmed.


18

There are approximately 24 countries in which we provide dial-up access only through Equant. The loss of Equant as a dial-up network service provider would substantially diminish our ability to deliver global network access.

In approximately 24 countries, our sole dial-up network service provider is Equant. Network usage from access within these countries accounted for less than 2% of our revenues in each of the years ended December 31, 2006, 2005 and 2004. If we lose access to Equant’s network and are unable to replace this access in some or all of these countries, our ability to market our services as being global would be impaired, which could cause us to lose customers. If Equant were to cease operations or terminate its arrangements with us, we would be required to enter into arrangements with other dial-up network service providers, which may not be available. This process could be costly and time consuming, and we may not be able to enter into these arrangements on terms acceptable to us.

The telecommunications industry has experienced a dramatic decline, which may cause consolidation among network service providers and impair our ability to provide reliable, redundant service coverage and negotiate favorable network access terms.

The telecommunications industry has experienced dramatic technological change and increased competition that have led to significant declines in network access pricing. Service providers have consolidated and may continue to consolidate, which may continue to reduce the number of network service providers from which we are able to obtain network access. As this occurs, while we expect that we will still be able to maintain operations and provide enterprise connectivity services with a small number of network service providers, we would potentially not be able to provide sufficient redundant access points in some geographic areas, which could diminish our ability to provide broad, reliable, redundant coverage. Further, our ability to negotiate favorable access rates from network service providers could be impaired, which could increase our network access expenses and harm our operating results.

If our channel partners do not successfully market our services to their customers or corporate end users, then our revenues and business may be adversely affected.

We sell our services directly through our sales force and indirectly through our channel partners, which include network service providers, systems integrators and value added resellers. Our business depends on the efforts and the success of these channel partners in marketing our services to their customers. Our own ability to promote our services directly to their customers is often limited. Many of our channel partners may offer services to their customers that may be similar to, or competitive with, our services. Therefore, these channel partners may be reluctant to promote our services. If our channel partners fail to market our services effectively, our ability to grow our revenue would be reduced and our business will be impaired.

If we fail to address evolving standards and technological changes in the enterprise connectivity and policy management services industry, our business could be harmed.

The market for enterprise connectivity and policy management services is characterized by evolving industry standards and specifications and rapid technological change, including new access methods, devices, applications and operating systems. In developing and introducing our services, we have made, and will continue to make, assumptions with respect to which features, security standards, performance criteria, access methods, devices, applications and operating systems will be required or desired by enterprises and their mobile workers. If we implement technological changes or specifications that are different from those required or desired, or if we are unable to successfully integrate required or desired technological changes or specifications into our wired or wireless services, market acceptance of our services may be significantly reduced or delayed and our business could be harmed.

Our software is complex and may contain errors that could damage our reputation and decrease usage of our services.

Our software may contain errors that interrupt network access or have other unintended consequences. If network access is disrupted due to a software error, or if any other unintended negative results occur, such as the loss of billing information, a security breach or unauthorized access to our virtual network, our reputation could be harmed and our business may suffer. Although we generally attempt by contract to limit our exposure to incidental and consequential damages, if these contract provisions are not enforced or enforceable for any reason, or if liabilities arise that are not effectively limited, our operating results could be harmed.
 

19
 
Because much of our business is international, we encounter additional risks, which may negatively impact our operating results.

We generate a substantial portion of our revenues from business conducted internationally. Revenues from customers domiciled outside of the United States were 38% of our revenues in 2006, of which approximately 26% and 10% were generated in our EMEA (Europe, Middle East and Africa) and Asia Pacific regions, respectively. Although we currently bill for our services in U.S. dollars, our international operations subject our business to specific risks. These risks include:

  • longer payment cycles for foreign customers, including delays due to currency controls and fluctuations;
  • the impact of changes in foreign currency exchange rates on the attractiveness of our pricing;
  • high taxes in some foreign jurisdictions;
  • difficulty in complying with Internet-related regulations in foreign jurisdictions;
  • difficulty in staffing and managing foreign operations; and
  • difficulty in enforcing intellectual property rights and weaker laws protecting these rights.
    Any of these factors could negatively impact our business.

Acquisitions could cause us to incur significant expenses or harm our operating results, and could dilute the ownership of our existing stockholders.

Part of our growth strategy is to consider and, if we believe it is advantageous to our company, to acquire new businesses, technologies and services. For example, we completed the acquisitions of Safe3w, Inc. in September 2004, Mobile Automation, Inc. in October 2004 and GoRemote in February 2006. Integrating any newly acquired business, technology or service can be expensive and time-consuming. If we are unable to integrate and operate acquired businesses, technologies or services efficiently or otherwise realize the benefits of an acquisition that we envisioned when making the acquisition, the acquisition could have an unanticipated negative effect on our business and operating results. Acquisitions can also result in large and immediate write-offs or assumption of debt and contingent liabilities, any of which could harm our operating results. Further, to finance any acquisitions, it may be necessary for us to raise additional funds through public or private financings. Additional funds may not be available on terms that are favorable to us and, in the case of equity financings, would result in dilution to our stockholders.

If we are unable to effectively manage future expansion, our business may be adversely impacted.

We have experienced, and in the future may continue to experience, rapid growth in operations. This has placed, and could continue to place, a significant strain on our network operations, development of services, internal controls and other managerial, operating and financial resources. If we do not manage future expansion effectively, our business will be harmed. To effectively manage any future expansion, we will need to improve our operational and financial systems and managerial controls and procedures, which include the following:

• managing our research and development efforts for new and evolving technologies;
• expanding the capacity and performance of our network and software infrastructure;
• developing our administrative, accounting and management information systems and controls; and
• effectively maintaining coordination among our various departments, particularly as we expand internationally.

We have been, and in the future may be, subject to securities class action lawsuits due to decreases in our stock price.

We are at risk of being subject to securities class action lawsuits if our stock price declines substantially. Securities class action litigation has often been brought against a company following a decline in the market price of its securities. For example, in June 2004, we announced that we would not meet market expectations regarding our financial performance in the second quarter, and our stock price declined. In 2005, three purported class action complaints, which subsequently were consolidated, and two purported derivative actions, which also were consolidated, were filed against iPass and certain of our executive officers and directors. Although we were successful in our defense of these lawsuits, we may be subject to similar lawsuits in the future if our stock price were to decline substantially, and there is no guarantee that we would be successful in defending any such future lawsuits. Any future securities litigation could result in substantial costs and divert management’s attention and resources, and could seriously harm our business.

Litigation arising from disputes involving third parties could disrupt the conduct of our business.

Because we rely on third parties to help us develop, market and support our service offerings, from time to time we have been, and we may continue to be, involved in disputes with these third parties. If we are unable to resolve these disputes favorably, our development, marketing or support of our services could be delayed or limited, which could materially and adversely affect our business.
 
20

Litigation arising out of intellectual property infringement could be expensive and disrupt our business.

We cannot be certain that our products do not, or will not, infringe upon patents, trademarks, copyrights or other intellectual property rights held by third parties, or that other parties will not assert infringement claims against us. From time to time we have been, and we may continue to be, involved in disputes with these third parties. Any claim of infringement of proprietary rights of others, even if ultimately decided in our favor, could result in substantial costs and diversion of our resources. Successful claims against us may result in an injunction or substantial monetary liability, in either case which could significantly impact our results of operations or materially disrupt the conduct of our business. If we are enjoined from using a technology, we will need to obtain a license to use the technology, but licenses to third-party technology may not be available to us at a reasonable cost, or at all.

If licenses to third party technologies do not continue to be available to us at a reasonable cost, or at all, our business and operations may be adversely affected.

We license technologies from several software providers that are incorporated in our services. We anticipate that we will continue to license technology from third parties in the future. In particular, we license encryption technology from RSA Security. Our license agreement with RSA Security expired in February 2006 and automatically renewed for an additional three-year period. This license will continue to automatically renew for additional three-year periods upon expiration, unless terminated by us or by RSA Security.

Licenses from third party technologies, including our license with RSA Security, may not continue to be available to us at a reasonable cost, or at all. The loss of these technologies or other technologies that we license could have an adverse effect on our services and increase our costs or cause interruptions or delays in our services until substitute technologies, if available, are developed or identified, licensed and successfully integrated into our services.

Risks Relating to Our Industry

Security concerns may delay the widespread adoption of the Internet for enterprise communications, or limit usage of Internet-based services, which would reduce demand for our products and services.

The secure transmission of confidential information over public networks is a significant barrier to further adoption of the Internet as a business medium. The Internet is a public network and information is sent over this network from many sources. Advances in computer capabilities, new discoveries in the field of code breaking or other developments could result in compromised security on our network or the networks of others. Security and authentication concerns with respect to the transmission over the Internet of confidential information, such as corporate access passwords and the ability of hackers to penetrate online security systems may reduce the demand for our services. Further, new access methods, devices, applications and operating systems have also introduced additional vulnerabilities which have been actively exploited by hackers. Internet-based worms and viruses, computer programs that are created to slow Internet traffic or disrupt computer networks or files by replicating through software or operating systems, are examples of events or computer programs that can disrupt users from using our Internet-based services and reduce demand for our services, potentially affecting our business and financial performance. In particular, certain Internet worms and viruses affected some of our customers and their mobile users, which may have negatively impacted our revenues. Furthermore, any well-publicized compromises of confidential information may reduce demand for Internet-based communications, including our services.
 
Government regulation of, and legal uncertainties regarding, the Internet could harm our business.

Internet-based communication services generally are not subject to federal fees or taxes imposed to support programs such as universal telephone service. Changes in the rules or regulations of the U.S. Federal Communications Commission or in applicable federal communications laws relating to the imposition of these fees or taxes could result in significant new operating expenses for us, and could negatively impact our business. Any new law or regulation, U.S. or foreign, pertaining to Internet-based communications services, or changes to the application or interpretation of existing laws, could decrease the demand for our services, increase our cost of doing business or otherwise harm our business. There are an increasing number of laws and regulations pertaining to the Internet. These laws or regulations may relate to taxation and the quality of products and services. Furthermore, the applicability to the Internet of existing laws governing intellectual property ownership and infringement, taxation, encryption, obscenity, libel, employment, personal privacy, export or import matters and other issues is uncertain and developing and we are not certain how the possible application of these laws may affect us. Some of these laws may not contemplate or address the unique issues of the Internet and related technologies. Changes in laws intended to address these issues could create uncertainty in the Internet market, which could reduce demand for our services, increase our operating expenses or increase our litigation costs.

21

Foreign Currency

Although we currently bill substantially all of our services in U.S. dollars, our financial results could be affected by factors such as changes in foreign currency rates or weak economic conditions in foreign markets. A strengthening of the dollar could make our services less competitive in foreign markets and therefore could reduce our revenues. We are billed by and pay the majority of our network service providers in U.S. dollars. In the future, some portion of our revenues and costs may be denominated in foreign currencies. To date, exchange rate fluctuations have had little impact on our operating results.

Interest Rate Sensitivity

As of March 31, 2007, we had cash, cash equivalents, and short-term investments totaling $88.5 million, as compared to $99.2 million as of December 31, 2006 which decreased primarily due to cash outlays to repurchase shares of our outstanding common stock. Our investment portfolio consists of money market funds and securities, asset backed securities, corporate securities, and government securities, generally due within one to two years. All of our instruments are held other than for trading purposes. We place investments with high quality issuers and limit the amount of credit exposure to any one issuer. These securities are subject to interest rate risks. Based on our portfolio content and our ability to hold investments to maturity, we believe that, a hypothetical 10% increase or decrease in current interest rates would not materially affect our interest income, although there can be no assurance of this.
 
The following compares the principal amounts of short-term investments by expected maturity as of March 31, 2007 (in thousands):

 
  
Expected Maturity Date for Par Value Amounts For the Year Ended December 31,
  
As of March 31, 2007
  
 
  
2007
  
2008
  
2009
  
Total Cost Value
  
Total Fair Value
  
U.S. Government agencies
  
$
19,050
  
$
22,990
  
$
1,000
  
$
43,661
  
$
43,539
  
Auction rate and money market securities
    
2,500
    
—
    
—
    
2,452
    
2,452
  
Total
  
$
22,590
  
$
22,990
  
$
1,000
  
$
46,113
  
$
45,991
  

The following compares the principal amounts of short-term investments by expected maturity as of December 31, 2006 (in thousands):
 
 
  
Expected Maturity Date for Par Value Amounts for the Year Ended December 31,
  
As of Dec. 31, 2006
  
 
  
2007
  
2008
  
2009
  
Total Cost Value
  
Total Fair Value
  
Government agencies
  
$
32,205
  
$
23,990
  
$
1,770
  
$
58,818
  
$
58,656
  
Auction rate and money market securities
    
25,100
    
—
    
—
    
25,051
    
25,052
  
Total
  
$
57,305
  
$
23,990
  
$
1,770
  
$
83,869
  
$
83,708
  

Our general policy is to limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. We consider all investments to be short-term investments, which are classified in the balance sheet as current assets, because (1) the investments can be readily converted at any time into cash or into securities with a shorter remaining time to maturity and (2) the investments are selected for yield management purposes only and we are not committed to holding the investments until maturity. We determine the appropriate classification of our investments at the time of purchase and re-evaluate such designations as of each balance sheet date. All short-term investments and cash equivalents in our portfolio are classified as “available-for-sale” and are stated at fair market value, with the unrealized gains and losses reported as a component of accumulated other comprehensive income (loss). The amortized cost of debt securities is adjusted for amortization of premiums and accretion of unrealized discounts to maturity. Such amortization and accretion is included in interest income and other, net. The cost of securities sold is based on the specific identification method.

22

Limitations of Disclosure Controls and Procedures and Internal Control Over Financial Reporting

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within iPass have been detected.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to provide reasonable assurance that that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Our management evaluated (with the participation of our chief executive officer and chief financial officer) our disclosure controls and procedures, and concluded that our disclosure controls and procedures were effective as of March 31, 2007, to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


23


PART II. OTHER INFORMATION


We may be subject to various claims and legal actions arising in the ordinary course of business from time to time.


We include in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting Operating Results” a description of risk factors related to our business in order to enable readers to assess, and be appropriately apprised of, many of the risks and uncertainties applicable to the forward-looking statements made in this Quarterly Report on Form 10-Q. We do not claim that the risks and uncertainties set forth in that section are all of the risks and uncertainties facing our business, but do believe that they reflect the more important ones.

The risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2006, as filed with the SEC on March 29, 2007, have not substantively changed.


24



On May 9, 2006, iPass announced that its Board of Directors approved a two-year stock repurchase program which authorizes iPass to repurchase up to $30.0 million of its outstanding common stock. A total of $7.0 million of stock was repurchased in the first quarter of 2007, leaving approximately $6.8 million that may be used for future repurchases, as set forth in the table below:

 
Total Number of Shares Purchased
  
 
Average Price Paid per Share
  
Total Number of Shares Purchased as Part of Publicly Announced Program
  
Approximate Dollar Value of Shares that May Yet Be Purchased under the Program
  
January 1, 2007 to January 31, 2007
    
317,173
  
$
5.70
    
3,292,647
  
$
12,468
  
February 1, 2007 to February 28, 2007
    
360,000
  
$
5.20
    
3,652,647
  
$
10,596
  
March 1, 2007 to March 31, 2007
    
660,000
  
$
5.06
    
4,312,647
  
$
6,789
  
Total
    
1,337,173
  
$
5.38
    
4,312,647
  
$
6,789
  

 

25

 
Exhibit Number   Description
2.1
  
Agreement of Merger among iPass Inc., Keystone Acquisition Sub, Inc. and GoRemote Internet Communications, Inc. dated December 9, 2005. (3)
3.1
  
Amended and Restated Certificate of Incorporation (1)
3.2
  
Bylaws, as amended (2)
4.1
  
Reference is made to Exhibits 3.1 and 3.2
4.2
  
Specimen stock certificate (2)
 
 
 
 
 
 
 
____________
(1) Filed as an exhibit to iPass’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (Commission No. 000- 50327), filed November 13, 2003, and incorporated herein by reference.

(2) Filed as an exhibit to iPass’ Registration Statement on Form S-1 (No. 333-102715) and incorporated herein by reference.

(3) Filed as an exhibit to the Current Report on Form 8-K filed with the SEC on December 12, 2005, and incorporated by reference here. All schedules and exhibits (other than Exhibit A) to the Agreement of Merger have been omitted. Copies of such schedules and exhibits will be furnished supplementally to the SEC upon request. 

26

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
 
iPass Inc.
  
  
  
Date: May 10, 2007
 
/s/ Frank E. Verdecanna
 
Vice President and Chief Financial Officer (duly authorized officer and principal financial officer)
 


27
 
Exhibit Number   Description
2.1
  
Agreement of Merger among iPass Inc., Keystone Acquisition Sub, Inc. and GoRemote Internet Communications, Inc. dated December 9, 2005. (3)
3.1
  
Amended and Restated Certificate of Incorporation (1)
3.2
  
Bylaws, as amended (2)
4.1
  
Reference is made to Exhibits 3.1 and 3.2
4.2
  
Specimen stock certificate (2)
 
 
 
 
 
 
 
____________
(1) Filed as an exhibit to iPass’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (Commission No. 000- 50327), filed November 13, 2003, and incorporated herein by reference.

(2) Filed as an exhibit to iPass’ Registration Statement on Form S-1 (No. 333-102715) and incorporated herein by reference.

(3) Filed as an exhibit to the Current Report on Form 8-K filed with the SEC on December 12, 2005, and incorporated by reference here. All schedules and exhibits (other than Exhibit A) to the Agreement of Merger have been omitted. Copies of such schedules and exhibits will be furnished supplementally to the SEC upon request. 
 EX-10.1 2 form10q032007ex10p1.htm EXHIBIT 10.1, FORM OF RESTRICTED STOCK GRANT NOTICE FOR VICE PRESIDENTS AND ABOVE EXHIBIT 10.1, FORM OF RESTRICTED STOCK GRANT NOTICE FOR VICE PRESIDENTS AND ABOVE
Exhibit 10.1
 
iPass Inc.
Restricted Stock Grant Notice for Vice Presidents and above
(2003 Equity Incentive Plan)
 
iPass Inc. (the “Company”), pursuant to Section 7(a) of the Company’s 2003 Equity Incentive Plan (the “Plan”), hereby awards to Participant the right to acquire that number of shares of the Company’s Common Stock set forth below (the “Award”). This Award shall be evidenced by a Restricted Stock Award Agreement (the “Award Agreement”). This Award is subject to all of the terms and conditions as set forth herein and in the applicable Award Agreement and the Plan, each of which are attached hereto and incorporated herein in their entirety.
 
Participant:  
Date of Grant:  
Vesting Commencement Date:   
Number of Shares Subject to Award:  
Payment for Common Stock:  
 
Vesting Schedule: [The shares subject to the Award shall vest with respect to [vesting performance metrics for the particular grant to be inserted here]; provided, however, that the Participant’s Continuous Service has not terminated prior to each such vesting date. If shares subject to the Award vest on a day that does not occur during a “window period,” vesting may be delayed as provided in Section 4 of the Award Agreement.  The foregoing notwithstanding, if within eighteen (18) months following the closing of a “Corporate Transaction,” (i) the Participant’s employment by the Company, or an affiliate of the Company, is terminated by the Company without “Cause” or (ii) if the Participant resigns his or her employment for “Good Reason”, then all of the Participant’s then outstanding unvested Performance Shares shall vest in full upon the date of such termination.]
 
Additional Terms/Acknowledgements: Participant acknowledges receipt of, and understands and agrees to, this Restricted Stock Grant Notice, the Award Agreement, and the Plan. Participant further acknowledges that as of the Date of Grant, this Restricted Stock Grant Notice, the Award Agreement and the Plan set forth the entire understanding between Participant and the Company regarding the acquisition of the Common Stock pursuant to the Award specified above and supersede all prior oral and written agreements on that subject with the exception of (i) Awards previously granted and delivered to Participant under the Plan, and (ii) the following agreements only:
 
Other Agreements:  
 
 iPass Inc.      Participant
 
 
By:
    
 
 
By:
Signature
    
Signature
 

Title:

Date:
    
 

Date:
 
Attachments:  Award Agreement, and 2003 Equity Incentive Plan


 


iPass Inc.
2003 Equity Incentive Plan
Restricted Stock Award Agreement


Pursuant to the Restricted Stock Grant Notice (“Grant Notice”) and this Restricted Stock Award Agreement (“Agreement”), iPass Inc. (the “Company”) has awarded you (“Participant”) the right to acquire shares of Common Stock from the Company pursuant to Section 7(a) of the Company’s 2003 Equity Incentive Plan (the “Plan”) for the number of shares indicated in the Grant Notice (collectively, the “Award”). The Award is granted in exchange for past or future services to be rendered by you to the Company or an Affiliate. In the event additional consideration is required by law so that the Common Stock acquired under this Agreement is deemed fully paid and nonassessable, the Board shall determine the amount and character of such additional consideration to be paid. Defined terms not explicitly defined in this Agreement but defined in the Plan shall have the same definitions as in the Plan.
 
The details of your Award, in addition to those set forth in the Grant Notice, are as follows.
 
1.  Acquisition of Shares. By signing the Grant Notice, you hereby agree to acquire from the Company, and the Company hereby agrees to issue to you, the aggregate number of shares of Common Stock specified in your Grant Notice for the consideration set forth in Section 3 and subject to all of the terms and conditions of the Award and the Plan. You may not acquire less than the aggregate number of shares specified in the Grant Notice.
 
2.  Closing. Your acquisition of the shares shall be consummated as follows:
 
(a)  You will acquire the shares by delivering your Grant Notice, executed by you in the manner required by the Company, to the Corporate Secretary of the Company, or to such other person as the Company may designate, during regular business hours, on the date that you have executed the Grant Notice (or at such other time and place as you and the Company may mutually agree upon in writing) (the “Closing Date”) along with any consideration, other than your past or future services, required to be delivered by you by law on the Closing Date and such additional documents as the Company may then require.
 
(b)  The Company will direct the transfer agent for the Company to deliver to the Escrow Agent pursuant to the terms of Section 9 below, the certificate or certificates evidencing the shares of Common Stock being acquired by you. You acknowledge and agree that any such shares may be held in book entry form directly registered with the transfer agent or in such other form as the Company may determine.
 
3.  Consideration. Unless otherwise required by law, the shares of Common Stock to be delivered to you on the Closing Date shall be deemed paid, in whole or in part in exchange for past and future services to be rendered to the Company or an Affiliate in the amounts and to the extent required by law. 
 
4.  Vesting.
 
(a)  The shares will vest as provided in the Vesting Schedule set forth in your Grant Notice, provided that vesting shall cease upon the termination of your Continuous Service. Notwithstanding the foregoing, in the event that you are subject to the Company’s Stock Trading By Officers, Directors, and Access Employees policy (or any successor policy) and any shares covered by your Award vest on a day (the “Original Vest Date”) that does not occur during a “window period” applicable to you as determined by the Company in accordance with such policy, then such shares shall not vest on such Original Vest Date and shall instead vest on the earliest to occur of the following: (i) the first day of the next “window period” applicable to you pursuant to such policy; (ii) your Involuntary Termination Without Cause (as defined in Section 4(b) below) after the Original Vest Date; or (iii) the day that is sixty (60) days after the Original Vest Date. Shares acquired by you that have vested in accordance with the Vesting Schedule set forth in the Grant Notice and this Section 4(a) or any other provision of the Plan are “Vested Shares.” Shares acquired by you pursuant to this Agreement that are not Vested Shares are “Unvested Shares.”
 
(b)  For purposes of this Agreement, “Involuntary Termination Without Cause” shall mean the Company’s termination of your Continuous Service unless such termination was on account of the occurrence of any of the following: (i) your commission of any felony or any crime involving fraud, dishonesty or moral turpitude; (ii) your attempted commission of, or participation in, a fraud or act of dishonesty against the Company or an Affiliate; (iii) your intentional, material violation of any material contract or agreement between you and the Company or an Affiliate or any statutory duty owed to the Company or an Affiliate; (iv) your unauthorized use or disclosure of confidential information or trade secrets of the Company or an Affiliate; or (v) your gross misconduct. The determination that your Continuous Service was terminated due to an Involuntary Termination Without Cause shall be made by the Company in its sole discretion. Any such determination by the Company for the purposes of this Agreement shall have no effect upon any determination of the rights or obligations of you or the Company for any other purpose.
 
5.  Right of Reacquisition. The Company shall simultaneously with the termination of your Continuous Service automatically reacquire (the “Reacquisition Right”) for no consideration all of the Unvested Shares, unless the Company agrees to waive its Reacquisition Right as to some or all of the Unvested Shares. Any such waiver shall be exercised by the Company by written notice to you or your representative (with a copy to the Escrow Agent, as defined below) within ninety (90) days after the termination of your Continuous Service, and the Escrow Agent may then release to you the number of Unvested Shares not being reacquired by the Company. If the Company does not waive its reacquisition right as to all of the Unvested Shares, then upon such termination of your Continuous Service, the Escrow Agent shall transfer to the Company the number of Unvested Shares the Company is reacquiring. The Reacquisition Right shall expire when all of the shares have become Vested Shares. 
 
6.  Capitalization Changes. The number of shares of Common Stock subject to your Award and referenced in your Grant Notice may be adjusted from time to time for changes in capitalization pursuant to Section 11(a) of the Plan.
 
7.  Certain Corporate Transactions. In the event of a Corporate Transaction as defined in the Plan, the Reacquisition Right may be assigned by the Company to the successor of the Company (or such successor’s parent corporation), if any, in connection with such transaction. To the extent the Reacquisition Right remains in effect following such transaction, it shall apply to the new capital stock or other property received in exchange for the Common Stock in consummation of the transaction, but only to the extent the Common Stock was at the time covered by such right.
 
8.  Securities Law Compliance. You may not be issued any Common Stock under your Award unless the shares of Common Stock are either (i) then registered under the Securities Act of 1933, as amended (the “Securities Act”), or (ii) the Company has determined that such issuance would be exempt from the registration requirements of the Securities Act. Your Award must also comply with other applicable laws and regulations governing the Award, and you shall not receive such Common Stock if the Company determines that such receipt would not be in material compliance with such laws and regulations.
 
9.  Escrow of Unvested Common Stock. As security for your faithful performance of the terms of this Agreement and to insure the availability for delivery of your Common Stock upon execution of the Reacquisition Right provided in Section 5, above, you agree to the following “Joint Escrow” and “Joint Escrow Instructions,” and you and the Company hereby authorize and direct the Corporate Secretary of the Company or the Corporate Secretary’s designee (“Escrow Agent”) to hold the documents delivered to Escrow Agent pursuant to the terms of this Agreement and of your Grant Notice, in accordance with the following Joint Escrow Instructions:
 
(a)  In the event you cease your Continuous Service, the Company shall pursuant to the Reacquisition Right, automatically reacquire for no consideration all Unvested Shares, as of the date of such termination, unless the Company elects to waive such right as to some or all of the Unvested Shares. If the Company (or its assignee) elects to waive the Reacquisition Right, the Company or its assignee will give you and Escrow Agent a written notice specifying the number of shares of stock not to be reacquired. You and the Company hereby irrevocably authorize and direct Escrow Agent to close the transaction contemplated by such notice as soon as practicable following the date of termination of service in accordance with the terms of this Agreement and the notice of waiver, if any.
 
(b)  Vested Shares shall be delivered to you upon your request given in the manner provided in Section 19 for providing notice.
 
(c)  At any closing involving the transfer or delivery of some or all of the property subject to the Grant Notice and this Agreement, Escrow Agent is directed (i) to date any stock assignments necessary for the transfer in question, (ii) to fill in the number of shares being transferred, and (iii) to deliver same, together with the certificate, if any, evidencing the shares of Common Stock to be transferred, to you or the Company, as applicable.
 
(d)  You irrevocably authorize the Company to deposit with Escrow Agent the certificates, if any, evidencing shares of Common Stock to be held by Escrow Agent hereunder and any additions and substitutions to said shares as specified in this Agreement. You do hereby irrevocably constitute and appoint Escrow Agent as your attorney-in-fact and agent for the term of this escrow to execute with respect to such securities and other property all documents of assignment and/or transfer and all stock certificates necessary or appropriate to make all securities negotiable and complete any transaction herein contemplated.
 
(e)  This escrow shall terminate upon the expiration or application in full of the Reacquisition Right, whichever occurs first, and the completion of the tasks contemplated by these Joint Escrow Instructions.
 
(f)  If at the time of termination of this escrow, Escrow Agent should have in its possession any documents, securities, or other property belonging to you, Escrow Agent shall deliver all of same to you and shall be discharged of all further obligations hereunder.
 
(g)  Except as otherwise provided in these Joint Escrow Instructions, Escrow Agent’s duties hereunder may be altered, amended, modified, or revoked only by a writing signed by all of the parties hereto.
 
(h)  Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by Escrow Agent to be genuine and to have been signed or presented by the proper party or parties or their assignees. Escrow Agent shall not be personally liable for any act Escrow Agent may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for you while acting in good faith and any act done or omitted by Escrow Agent pursuant to the advice of Escrow Agent’s own attorneys shall be conclusive evidence of such good faith.
 
(i)  Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and is hereby expressly authorized to comply with and obey orders, judgments, or decrees of any court. In case Escrow Agent obeys or complies with any such order, judgment, or decree of any court, Escrow Agent shall not be liable to any of the parties hereto or to any other person, firm, or corporation by reason of such compliance, notwithstanding any such order, judgment, or decree being subsequently reversed, modified, annulled, set aside, vacated, or found to have been entered without jurisdiction.
 
(j)  Escrow Agent shall not be liable in any respect on account of the identity, authority, or rights of the parties executing or delivering or purporting to execute or deliver this Agreement or any documents or papers deposited or called for hereunder.
 
(k)  Escrow Agent shall not be liable for the outlawing of any rights under any statute of limitations with respect to these Joint Escrow Instructions or any documents deposited with Escrow Agent.
 
(l)  Escrow Agent’s responsibilities as Escrow Agent hereunder shall terminate if Escrow Agent shall cease to be the Secretary of the Company or if Escrow Agent shall resign by written notice to each party. In the event of any such termination, the Company may appoint any officer or assistant officer of the Company or other person who in the future assumes the position of Secretary for the Company as successor Escrow Agent and you hereby confirm the appointment of such successor or successors as your attorney-in-fact and agent to the full extent of such successor Escrow Agent’s appointment.
 
(m)  If Escrow Agent reasonably requires other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.
 
(n)  It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities, Escrow Agent is authorized and directed to retain in its possession without liability to anyone all or any part of said securities until such dispute shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree, or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but Escrow Agent shall be under no duty whatsoever to institute or defend any such proceedings.
 
(o)  By signing this Agreement below Escrow Agent becomes a party hereto only for the purpose of said Joint Escrow Instructions in this Section 9; Escrow Agent does not become a party to any other rights and obligations of this Agreement apart from those in this Section 9.
 
(p)  Escrow Agent shall be entitled to employ such legal counsel and other experts as Escrow Agent may deem necessary properly to advise Escrow Agent in connection with Escrow Agent’s obligations hereunder. Escrow Agent may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. The Company shall be responsible for all fees generated by such legal counsel in connection with Escrow Agent’s obligations hereunder.
 
(q)  These Joint Escrow Instructions set forth in this Section 9 shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. It is understood and agreed that references to “Escrow Agent” or “Escrow Agent’s” herein refer to the original Escrow Agent and to any and all successor Escrow Agents. It is understood and agreed that the Company may at any time or from time to time assign its rights under the Agreement and these Joint Escrow Instructions in whole or in part.
 
10.  Execution of Documents. You hereby acknowledge and agree that the manner selected by the Company by which you indicate your consent to your Grant Notice is also deemed to be your execution of your Grant Notice and of this Agreement. You further agree that such manner of indicating consent may be relied upon as your signature for establishing your execution of any documents to be executed in the future in connection with your Award.
 
11.  Irrevocable Power of Attorney. You constitute and appoint the Company’s Secretary as attorney-in-fact and agent to transfer said Common Stock on the books of the Company with full power of substitution in the premises, and to execute with respect to such securities and other property all documents of assignment and/or transfer and all stock certificates necessary or appropriate to make all securities negotiable and complete any transaction herein contemplated. This is a special power of attorney coupled with an interest (specifically, the Company’s underlying security interest in retaining the shares of Common Stock in the event you do not perform the requisite services for the Company), and is irrevocable and shall survive your death or legal incapacity. This power of attorney is limited to the matters specified in this Agreement.
 
12.  Rights as Stockholder. Subject to the provisions of this Agreement, you shall have the right to exercise all rights and privileges of a stockholder of the Company with respect to the shares deposited in the Joint Escrow. You shall be deemed to be the holder of the shares for purposes of receiving any dividends that may be paid with respect to such shares and for purposes of exercising any voting rights relating to such shares, even if some or all of the shares are Unvested Shares.
 
13.  Transfer Restrictions. In addition to any other limitation on transfer created by applicable securities laws, you shall not sell, assign, hypothecate, donate, encumber, or otherwise dispose of any interest in the Common Stock while such shares of Common Stock are Unvested Shares or continue to be held in the Joint Escrow; provided, however, that an interest in such shares may be transferred pursuant to a qualified domestic relations order as defined in the Internal Revenue Code of 1986, as amended (the “Code”) or Title I of the Employee Retirement Income Security Act of 1974, as amended. After any Common Stock has been released from the Joint Escrow, you shall not sell, assign, hypothecate, donate, encumber, or otherwise dispose of any interest in the Common Stock except in compliance with the provisions herein and applicable securities laws. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to receive any distribution of Common Stock pursuant to this Agreement.
 
14.  Non-transferability of the Award. Your Award (except for Vested Shares issued pursuant thereto) is not transferable except by will or by the laws of descent and distribution. In the event of the termination of your Continuous Service prior to the Closing Date, the closing contemplated in this Agreement shall not occur.
 
15.  Restrictive Legends. The Common Stock issued under your Award shall be endorsed with appropriate legends, if any, as determined by the Company.
 
16.  Award not a Service Contract. Your Award is not an employment or service contract, and nothing in your Award shall be deemed to create in any way whatsoever any obligation on your part to continue in the service of the Company or any Affiliate, or on the part of the Company or any Affiliate to continue such service. In addition, nothing in your Award shall obligate the Company or any Affiliate, their respective stockholders, boards of directors, or employees to continue any relationship that you might have as an Employee or Consultant of the Company or any Affiliate.
 
17.  Withholding Obligations. At the time your Award is granted, or at any time thereafter as requested by the Company, you hereby authorize withholding from any amounts payable to you, or otherwise agree to make adequate provision in cash for, any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or any Affiliate, if any, which arise in connection with your Award. In the Company’s sole discretion, the Company may elect, and you hereby authorize the Company, to withhold Vested Shares in such amounts as the Company determines are necessary to satisfy your obligation pursuant to the preceding sentence. Unless the tax withholding obligations of the Company and/or any Affiliate are satisfied, the Company shall have no obligation to deliver to you any Common Stock.
 
18.  Tax Consequences.  You agree to review with your own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. You shall rely solely on such advisors and not on any statements or representations of the Company or any of its agents. You understand that you (and not the Company) shall be responsible for your own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. You understand that Section 83 of the Code taxes as ordinary income to you the fair market value of the shares of Common Stock as of the date any restrictions on the shares lapse (that is, as of the date on which part or all of the shares vest). In this context, “restriction” includes the right of the Company to reacquire the shares pursuant to its Reacquisition Right. You understand that you may elect to be taxed on the fair market value of the shares at the time the shares are acquired rather than when and as the Company’s Reacquisition Right expires by filing an election under Section 83(b) of the Code with the Internal Revenue Service within thirty (30) days after the date you acquire the shares pursuant to your Award. YOU ACKNOWLEDGE THAT IT IS YOUR SOLE RESPONSIBILITY, AND NOT THE COMPANY’S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF YOU REQUEST THE COMPANY OR ITS REPRESENTATIVES TO MAKE THE FILING ON YOUR BEHALF. You further acknowledge that you are aware that should you file an election under Section 83(b) of the Code and then subsequently forfeit the shares, you will not be able to report as a loss the value of any shares forfeited and will not get a refund of any of the tax paid.
 
19.  Notices. Any notice or request required or permitted hereunder shall be given in writing to each of the other parties hereto and shall be deemed effectively given on the earlier of (i) the date of personal delivery, including delivery by express courier, or (ii) the date that is five (5) days after deposit in the United States Post Office (whether or not actually received by the addressee), by registered or certified mail with postage and fees prepaid, addressed at the following addresses, or at such other address(es) as a party may designate by ten (10) days’ advance written notice to each of the other parties hereto: 
 
Company:
iPass Inc.
Attn: General Counsel
3800 Bridge Parkway
Redwood Shores, California 94065
 
Participant:
Your address as on file with the Company at the time notice is given
 
Escrow Agent:
iPass Inc.
Attn: Corporate Secretary
3800 Bridge Parkway
Redwood Shores, California 94065

20.  Headings. The headings of the Sections in this Agreement are inserted for convenience only and shall not be deemed to constitute a part of this Agreement or to affect the meaning of this Agreement.
 
21.  Miscellaneous.
 
(a)  The rights and obligations of the Company under your Award shall be transferable by the Company to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by, the Company’s successors and assigns.
 
(b)  You agree upon request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of your Award.
 
(c)  You acknowledge and agree that you have reviewed your Award in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and accepting your Award and fully understand all provisions of your Award.
 
(d)  This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
 
(e)  All obligations of the Company under the Plan and this Agreement shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
 
22.  Governing Plan Document. Your Award is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your Award, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your Award and those of the Plan, the provisions of the Plan shall control.
 
23.  Effect on Other Employee Benefit Plans. The value of the Award subject to this Agreement shall not be included as compensation, earnings, salaries, or other similar terms used when calculating benefits under any employee benefit plan (other than the Plan) sponsored by the Company or any Affiliate except as such plan otherwise expressly provides. The Company expressly reserves its rights to amend, modify, or terminate any or all of the employee benefit plans of the Company or any Affiliate.
 
24.  Choice of Law. The interpretation, performance and enforcement of this Agreement shall be governed by the law of the state of California without regard to such state’s conflicts of laws rules.
 
25.  Severability. If all or any part of this Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any portion of this Agreement or the Plan not declared to be unlawful or invalid. Any Section of this Agreement (or part of such a Section) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.
 
26.  Other Documents. You hereby acknowledge receipt or the right to receive a document providing the information required by Rule 428(b)(1) promulgated under the Securities Act. In addition, you acknowledge receipt of the Company’s Policy Against Trading on the Basis of Inside Information.
 
* * * * *

This Restricted Stock Award Agreement shall be deemed to be signed by the Company and the Participant upon the signing by the Participant of the Restricted Stock Grant Notice to which it is attached.

The Escrow Agent hereby acknowledges and accepts its rights and responsibilities pursuant to Section 9, above.


___________________________
Escrow Agent

 EX-10.2 3 form10q032007ex10p2.htm EXHIBIT 10.2, FORM OF RESTRICTED STOCK GRANT NOTICE FOR BELOW VICE PRESIDENT EXHIBIT 10.2, FORM OF RESTRICTED STOCK GRANT NOTICE FOR BELOW VICE PRESIDENT
Exhibit 10.2
iPass Inc.
Restricted Stock Grant Notice for Below Vice President
(2003 Equity Incentive Plan)

iPass Inc. (the “Company”), pursuant to Section 7(a) of the Company’s 2003 Equity Incentive Plan (the “Plan”), hereby awards to Participant the right to acquire that number of shares of the Company’s Common Stock set forth below (the “Award”). This Award shall be evidenced by a Restricted Stock Award Agreement (the “Award Agreement”). This Award is subject to all of the terms and conditions as set forth herein and in the applicable Award Agreement and the Plan, each of which are attached hereto and incorporated herein in their entirety.
 
Participant:  
Date of Grant:  
Vesting Commencement Date:   
Number of Shares Subject to Award:  
Payment for Common Stock: 
 
Vesting Schedule: [The shares subject to the Award shall vest with respect to [vesting performance metrics for the particular grant to be inserted here]; provided, however, that the Participant’s Continuous Service has not terminated prior to each such vesting date. If shares subject to the Award vest on a day that does not occur during a “window period,” vesting may be delayed as provided in Section 4 of the Award Agreement.]
 
Additional Terms/Acknowledgements: Participant acknowledges receipt of, and understands and agrees to, this Restricted Stock Grant Notice, the Award Agreement, and the Plan. Participant further acknowledges that as of the Date of Grant, this Restricted Stock Grant Notice, the Award Agreement and the Plan set forth the entire understanding between Participant and the Company regarding the acquisition of the Common Stock pursuant to the Award specified above and supersede all prior oral and written agreements on that subject with the exception of (i) Awards previously granted and delivered to Participant under the Plan, and (ii) the following agreements only:
 
Other Agreements:  
 
 iPass Inc.      Participant
 
 
By:
    
 
 
By:
Signature
    
Signature
 

Title:

Date:
    
 

Date:
 
Attachments:  Award Agreement, and 2003 Equity Incentive Plan


 


iPass Inc.
2003 Equity Incentive Plan
Restricted Stock Award Agreement


Pursuant to the Restricted Stock Grant Notice (“Grant Notice”) and this Restricted Stock Award Agreement (“Agreement”), iPass Inc. (the “Company”) has awarded you (“Participant”) the right to acquire shares of Common Stock from the Company pursuant to Section 7(a) of the Company’s 2003 Equity Incentive Plan (the “Plan”) for the number of shares indicated in the Grant Notice (collectively, the “Award”). The Award is granted in exchange for past or future services to be rendered by you to the Company or an Affiliate. In the event additional consideration is required by law so that the Common Stock acquired under this Agreement is deemed fully paid and nonassessable, the Board shall determine the amount and character of such additional consideration to be paid. Defined terms not explicitly defined in this Agreement but defined in the Plan shall have the same definitions as in the Plan.
 
The details of your Award, in addition to those set forth in the Grant Notice, are as follows.
 
1.  Acquisition of Shares. By signing the Grant Notice, you hereby agree to acquire from the Company, and the Company hereby agrees to issue to you, the aggregate number of shares of Common Stock specified in your Grant Notice for the consideration set forth in Section 3 and subject to all of the terms and conditions of the Award and the Plan. You may not acquire less than the aggregate number of shares specified in the Grant Notice.
 
2.  Closing. Your acquisition of the shares shall be consummated as follows:
 
(a)  You will acquire the shares by delivering your Grant Notice, executed by you in the manner required by the Company, to the Corporate Secretary of the Company, or to such other person as the Company may designate, during regular business hours, on the date that you have executed the Grant Notice (or at such other time and place as you and the Company may mutually agree upon in writing) (the “Closing Date”) along with any consideration, other than your past or future services, required to be delivered by you by law on the Closing Date and such additional documents as the Company may then require.
 
(b)  The Company will direct the transfer agent for the Company to deliver to the Escrow Agent pursuant to the terms of Section 9 below, the certificate or certificates evidencing the shares of Common Stock being acquired by you. You acknowledge and agree that any such shares may be held in book entry form directly registered with the transfer agent or in such other form as the Company may determine.
 
3.  Consideration. Unless otherwise required by law, the shares of Common Stock to be delivered to you on the Closing Date shall be deemed paid, in whole or in part in exchange for past and future services to be rendered to the Company or an Affiliate in the amounts and to the extent required by law. 
 
4.  Vesting.
 
(a)  The shares will vest as provided in the Vesting Schedule set forth in your Grant Notice, provided that vesting shall cease upon the termination of your Continuous Service. Notwithstanding the foregoing, in the event that you are subject to the Company’s Stock Trading By Officers, Directors, and Access Employees policy (or any successor policy) and any shares covered by your Award vest on a day (the “Original Vest Date”) that does not occur during a “window period” applicable to you as determined by the Company in accordance with such policy, then such shares shall not vest on such Original Vest Date and shall instead vest on the earliest to occur of the following: (i) the first day of the next “window period” applicable to you pursuant to such policy; (ii) your Involuntary Termination Without Cause (as defined in Section 4(b) below) after the Original Vest Date; or (iii) the day that is sixty (60) days after the Original Vest Date. Shares acquired by you that have vested in accordance with the Vesting Schedule set forth in the Grant Notice and this Section 4(a) or any other provision of the Plan are “Vested Shares.” Shares acquired by you pursuant to this Agreement that are not Vested Shares are “Unvested Shares.”
 
(b)  For purposes of this Agreement, “Involuntary Termination Without Cause” shall mean the Company’s termination of your Continuous Service unless such termination was on account of the occurrence of any of the following: (i) your commission of any felony or any crime involving fraud, dishonesty or moral turpitude; (ii) your attempted commission of, or participation in, a fraud or act of dishonesty against the Company or an Affiliate; (iii) your intentional, material violation of any material contract or agreement between you and the Company or an Affiliate or any statutory duty owed to the Company or an Affiliate; (iv) your unauthorized use or disclosure of confidential information or trade secrets of the Company or an Affiliate; or (v) your gross misconduct. The determination that your Continuous Service was terminated due to an Involuntary Termination Without Cause shall be made by the Company in its sole discretion. Any such determination by the Company for the purposes of this Agreement shall have no effect upon any determination of the rights or obligations of you or the Company for any other purpose.
 
5.  Right of Reacquisition. The Company shall simultaneously with the termination of your Continuous Service automatically reacquire (the “Reacquisition Right”) for no consideration all of the Unvested Shares, unless the Company agrees to waive its Reacquisition Right as to some or all of the Unvested Shares. Any such waiver shall be exercised by the Company by written notice to you or your representative (with a copy to the Escrow Agent, as defined below) within ninety (90) days after the termination of your Continuous Service, and the Escrow Agent may then release to you the number of Unvested Shares not being reacquired by the Company. If the Company does not waive its reacquisition right as to all of the Unvested Shares, then upon such termination of your Continuous Service, the Escrow Agent shall transfer to the Company the number of Unvested Shares the Company is reacquiring. The Reacquisition Right shall expire when all of the shares have become Vested Shares. 
 
6.  Capitalization Changes. The number of shares of Common Stock subject to your Award and referenced in your Grant Notice may be adjusted from time to time for changes in capitalization pursuant to Section 11(a) of the Plan.
 
7.  Certain Corporate Transactions. In the event of a Corporate Transaction as defined in the Plan, the Reacquisition Right may be assigned by the Company to the successor of the Company (or such successor’s parent corporation), if any, in connection with such transaction. To the extent the Reacquisition Right remains in effect following such transaction, it shall apply to the new capital stock or other property received in exchange for the Common Stock in consummation of the transaction, but only to the extent the Common Stock was at the time covered by such right.
 
8.  Securities Law Compliance. You may not be issued any Common Stock under your Award unless the shares of Common Stock are either (i) then registered under the Securities Act of 1933, as amended (the “Securities Act”), or (ii) the Company has determined that such issuance would be exempt from the registration requirements of the Securities Act. Your Award must also comply with other applicable laws and regulations governing the Award, and you shall not receive such Common Stock if the Company determines that such receipt would not be in material compliance with such laws and regulations.
 
9.  Escrow of Unvested Common Stock. As security for your faithful performance of the terms of this Agreement and to insure the availability for delivery of your Common Stock upon execution of the Reacquisition Right provided in Section 5, above, you agree to the following “Joint Escrow” and “Joint Escrow Instructions,” and you and the Company hereby authorize and direct the Corporate Secretary of the Company or the Corporate Secretary’s designee (“Escrow Agent”) to hold the documents delivered to Escrow Agent pursuant to the terms of this Agreement and of your Grant Notice, in accordance with the following Joint Escrow Instructions:
 
(a)  In the event you cease your Continuous Service, the Company shall pursuant to the Reacquisition Right, automatically reacquire for no consideration all Unvested Shares, as of the date of such termination, unless the Company elects to waive such right as to some or all of the Unvested Shares. If the Company (or its assignee) elects to waive the Reacquisition Right, the Company or its assignee will give you and Escrow Agent a written notice specifying the number of shares of stock not to be reacquired. You and the Company hereby irrevocably authorize and direct Escrow Agent to close the transaction contemplated by such notice as soon as practicable following the date of termination of service in accordance with the terms of this Agreement and the notice of waiver, if any.
 
(b)  Vested Shares shall be delivered to you upon your request given in the manner provided in Section 19 for providing notice.
 
(c)  At any closing involving the transfer or delivery of some or all of the property subject to the Grant Notice and this Agreement, Escrow Agent is directed (i) to date any stock assignments necessary for the transfer in question, (ii) to fill in the number of shares being transferred, and (iii) to deliver same, together with the certificate, if any, evidencing the shares of Common Stock to be transferred, to you or the Company, as applicable.
 
(d)  You irrevocably authorize the Company to deposit with Escrow Agent the certificates, if any, evidencing shares of Common Stock to be held by Escrow Agent hereunder and any additions and substitutions to said shares as specified in this Agreement. You do hereby irrevocably constitute and appoint Escrow Agent as your attorney-in-fact and agent for the term of this escrow to execute with respect to such securities and other property all documents of assignment and/or transfer and all stock certificates necessary or appropriate to make all securities negotiable and complete any transaction herein contemplated.
 
(e)  This escrow shall terminate upon the expiration or application in full of the Reacquisition Right, whichever occurs first, and the completion of the tasks contemplated by these Joint Escrow Instructions.
 
(f)  If at the time of termination of this escrow, Escrow Agent should have in its possession any documents, securities, or other property belonging to you, Escrow Agent shall deliver all of same to you and shall be discharged of all further obligations hereunder.
 
(g)  Except as otherwise provided in these Joint Escrow Instructions, Escrow Agent’s duties hereunder may be altered, amended, modified, or revoked only by a writing signed by all of the parties hereto.
 
(h)  Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by Escrow Agent to be genuine and to have been signed or presented by the proper party or parties or their assignees. Escrow Agent shall not be personally liable for any act Escrow Agent may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for you while acting in good faith and any act done or omitted by Escrow Agent pursuant to the advice of Escrow Agent’s own attorneys shall be conclusive evidence of such good faith.
 
(i)  Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and is hereby expressly authorized to comply with and obey orders, judgments, or decrees of any court. In case Escrow Agent obeys or complies with any such order, judgment, or decree of any court, Escrow Agent shall not be liable to any of the parties hereto or to any other person, firm, or corporation by reason of such compliance, notwithstanding any such order, judgment, or decree being subsequently reversed, modified, annulled, set aside, vacated, or found to have been entered without jurisdiction.
 
(j)  Escrow Agent shall not be liable in any respect on account of the identity, authority, or rights of the parties executing or delivering or purporting to execute or deliver this Agreement or any documents or papers deposited or called for hereunder.
 
(k)  Escrow Agent shall not be liable for the outlawing of any rights under any statute of limitations with respect to these Joint Escrow Instructions or any documents deposited with Escrow Agent.
 
(l)  Escrow Agent’s responsibilities as Escrow Agent hereunder shall terminate if Escrow Agent shall cease to be the Secretary of the Company or if Escrow Agent shall resign by written notice to each party. In the event of any such termination, the Company may appoint any officer or assistant officer of the Company or other person who in the future assumes the position of Secretary for the Company as successor Escrow Agent and you hereby confirm the appointment of such successor or successors as your attorney-in-fact and agent to the full extent of such successor Escrow Agent’s appointment.
 
(m)  If Escrow Agent reasonably requires other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.
 
(n)  It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities, Escrow Agent is authorized and directed to retain in its possession without liability to anyone all or any part of said securities until such dispute shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree, or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but Escrow Agent shall be under no duty whatsoever to institute or defend any such proceedings.
 
(o)  By signing this Agreement below Escrow Agent becomes a party hereto only for the purpose of said Joint Escrow Instructions in this Section 9; Escrow Agent does not become a party to any other rights and obligations of this Agreement apart from those in this Section 9.
 
(p)  Escrow Agent shall be entitled to employ such legal counsel and other experts as Escrow Agent may deem necessary properly to advise Escrow Agent in connection with Escrow Agent’s obligations hereunder. Escrow Agent may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. The Company shall be responsible for all fees generated by such legal counsel in connection with Escrow Agent’s obligations hereunder.
 
(q)  These Joint Escrow Instructions set forth in this Section 9 shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. It is understood and agreed that references to “Escrow Agent” or “Escrow Agent’s” herein refer to the original Escrow Agent and to any and all successor Escrow Agents. It is understood and agreed that the Company may at any time or from time to time assign its rights under the Agreement and these Joint Escrow Instructions in whole or in part.
 
10.  Execution of Documents. You hereby acknowledge and agree that the manner selected by the Company by which you indicate your consent to your Grant Notice is also deemed to be your execution of your Grant Notice and of this Agreement. You further agree that such manner of indicating consent may be relied upon as your signature for establishing your execution of any documents to be executed in the future in connection with your Award.
 
11.  Irrevocable Power of Attorney. You constitute and appoint the Company’s Secretary as attorney-in-fact and agent to transfer said Common Stock on the books of the Company with full power of substitution in the premises, and to execute with respect to such securities and other property all documents of assignment and/or transfer and all stock certificates necessary or appropriate to make all securities negotiable and complete any transaction herein contemplated. This is a special power of attorney coupled with an interest (specifically, the Company’s underlying security interest in retaining the shares of Common Stock in the event you do not perform the requisite services for the Company), and is irrevocable and shall survive your death or legal incapacity. This power of attorney is limited to the matters specified in this Agreement.
 
12.  Rights as Stockholder. Subject to the provisions of this Agreement, you shall have the right to exercise all rights and privileges of a stockholder of the Company with respect to the shares deposited in the Joint Escrow. You shall be deemed to be the holder of the shares for purposes of receiving any dividends that may be paid with respect to such shares and for purposes of exercising any voting rights relating to such shares, even if some or all of the shares are Unvested Shares.
 
13.  Transfer Restrictions. In addition to any other limitation on transfer created by applicable securities laws, you shall not sell, assign, hypothecate, donate, encumber, or otherwise dispose of any interest in the Common Stock while such shares of Common Stock are Unvested Shares or continue to be held in the Joint Escrow; provided, however, that an interest in such shares may be transferred pursuant to a qualified domestic relations order as defined in the Internal Revenue Code of 1986, as amended (the “Code”) or Title I of the Employee Retirement Income Security Act of 1974, as amended. After any Common Stock has been released from the Joint Escrow, you shall not sell, assign, hypothecate, donate, encumber, or otherwise dispose of any interest in the Common Stock except in compliance with the provisions herein and applicable securities laws. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to receive any distribution of Common Stock pursuant to this Agreement.
 
14.  Non-transferability of the Award. Your Award (except for Vested Shares issued pursuant thereto) is not transferable except by will or by the laws of descent and distribution. In the event of the termination of your Continuous Service prior to the Closing Date, the closing contemplated in this Agreement shall not occur.
 
15.  Restrictive Legends. The Common Stock issued under your Award shall be endorsed with appropriate legends, if any, as determined by the Company.
 
16.  Award not a Service Contract. Your Award is not an employment or service contract, and nothing in your Award shall be deemed to create in any way whatsoever any obligation on your part to continue in the service of the Company or any Affiliate, or on the part of the Company or any Affiliate to continue such service. In addition, nothing in your Award shall obligate the Company or any Affiliate, their respective stockholders, boards of directors, or employees to continue any relationship that you might have as an Employee or Consultant of the Company or any Affiliate.
 
17.  Withholding Obligations. At the time your Award is granted, or at any time thereafter as requested by the Company, you hereby authorize withholding from any amounts payable to you, or otherwise agree to make adequate provision in cash for, any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or any Affiliate, if any, which arise in connection with your Award. In the Company’s sole discretion, the Company may elect, and you hereby authorize the Company, to withhold Vested Shares in such amounts as the Company determines are necessary to satisfy your obligation pursuant to the preceding sentence. Unless the tax withholding obligations of the Company and/or any Affiliate are satisfied, the Company shall have no obligation to deliver to you any Common Stock.
 
18.  Tax Consequences.  You agree to review with your own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. You shall rely solely on such advisors and not on any statements or representations of the Company or any of its agents. You understand that you (and not the Company) shall be responsible for your own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. You understand that Section 83 of the Code taxes as ordinary income to you the fair market value of the shares of Common Stock as of the date any restrictions on the shares lapse (that is, as of the date on which part or all of the shares vest). In this context, “restriction” includes the right of the Company to reacquire the shares pursuant to its Reacquisition Right. You understand that you may elect to be taxed on the fair market value of the shares at the time the shares are acquired rather than when and as the Company’s Reacquisition Right expires by filing an election under Section 83(b) of the Code with the Internal Revenue Service within thirty (30) days after the date you acquire the shares pursuant to your Award. YOU ACKNOWLEDGE THAT IT IS YOUR SOLE RESPONSIBILITY, AND NOT THE COMPANY’S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF YOU REQUEST THE COMPANY OR ITS REPRESENTATIVES TO MAKE THE FILING ON YOUR BEHALF. You further acknowledge that you are aware that should you file an election under Section 83(b) of the Code and then subsequently forfeit the shares, you will not be able to report as a loss the value of any shares forfeited and will not get a refund of any of the tax paid.
 
19.  Notices. Any notice or request required or permitted hereunder shall be given in writing to each of the other parties hereto and shall be deemed effectively given on the earlier of (i) the date of personal delivery, including delivery by express courier, or (ii) the date that is five (5) days after deposit in the United States Post Office (whether or not actually received by the addressee), by registered or certified mail with postage and fees prepaid, addressed at the following addresses, or at such other address(es) as a party may designate by ten (10) days’ advance written notice to each of the other parties hereto: 
 
Company:
iPass Inc.
Attn: General Counsel
3800 Bridge Parkway
Redwood Shores, California 94065
 
Participant:
Your address as on file with the Company at the time notice is given
 
Escrow Agent:
iPass Inc.
Attn: Corporate Secretary
3800 Bridge Parkway
Redwood Shores, California 94065
 
20.  Headings. The headings of the Sections in this Agreement are inserted for convenience only and shall not be deemed to constitute a part of this Agreement or to affect the meaning of this Agreement.
 
21.  Miscellaneous.
 
(a)  The rights and obligations of the Company under your Award shall be transferable by the Company to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by, the Company’s successors and assigns.
 
(b)  You agree upon request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of your Award.
 
(c)  You acknowledge and agree that you have reviewed your Award in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and accepting your Award and fully understand all provisions of your Award.
 
(d)  This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
 
(e)  All obligations of the Company under the Plan and this Agreement shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
 
22.  Governing Plan Document. Your Award is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your Award, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your Award and those of the Plan, the provisions of the Plan shall control.
 
23.  Effect on Other Employee Benefit Plans. The value of the Award subject to this Agreement shall not be included as compensation, earnings, salaries, or other similar terms used when calculating benefits under any employee benefit plan (other than the Plan) sponsored by the Company or any Affiliate except as such plan otherwise expressly provides. The Company expressly reserves its rights to amend, modify, or terminate any or all of the employee benefit plans of the Company or any Affiliate.
 
24.  Choice of Law. The interpretation, performance and enforcement of this Agreement shall be governed by the law of the state of California without regard to such state’s conflicts of laws rules.
 
25.  Severability. If all or any part of this Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any portion of this Agreement or the Plan not declared to be unlawful or invalid. Any Section of this Agreement (or part of such a Section) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.
 
26.  Other Documents. You hereby acknowledge receipt or the right to receive a document providing the information required by Rule 428(b)(1) promulgated under the Securities Act. In addition, you acknowledge receipt of the Company’s Policy Against Trading on the Basis of Inside Information.
 
* * * * *

This Restricted Stock Award Agreement shall be deemed to be signed by the Company and the Participant upon the signing by the Participant of the Restricted Stock Grant Notice to which it is attached.

The Escrow Agent hereby acknowledges and accepts its rights and responsibilities pursuant to Section 9, above.


___________________________
Escrow Agent

 EX-10.3 4 form10q032007ex10p3.htm EXHIBIT 10.3, FORM OF PERFORMANCE SHARES GRANT NOTICE EXHIBIT 10.3, FORM OF PERFORMANCE SHARES GRANT NOTICE
Exhibit 10.3
 
iPass Inc.
Performance Shares Grant Notice
(2003 Equity Incentive Plan)
 
iPass Inc. (the “Company”), pursuant to Section 7(b) of the Company’s 2003 Equity Incentive Plan (the “Plan”), hereby grants to Participant the number of shares of phantom stock (the “Performance Shares”) set forth below (the “Award”). This Award shall be evidenced by a Performance Shares Award Agreement (the “Award Agreement”). This Award is subject to all of the terms and conditions as set forth herein and in the applicable Award Agreement and the Plan, each of which are attached hereto and incorporated herein in their entirety.
 
Participant:  
Date of Grant:  
Number of Performance Shares:  
Payment for Common Stock:  
 
Vesting Schedule: [Initially, the Performance Shares shall be unearned and unvested. The Performance Shares shall be earned upon [vesting performance metrics for the particular grant to be inserted here]; provided, however, that the Participant’s Continuous Service has not terminated prior to each such vesting date. If the Performance Shares vest on a day that does not occur during a “window period,” vesting may be delayed as provided in Section 2 of the Award Agreement. The foregoing notwithstanding, if within eighteen (18) months following the closing of a “Corporate Transaction,” (i) the Participant’s employment by the Company, or an affiliate of the Company, is terminated by the Company without “Cause” or (ii) if the Participant resigns his or her employment for “Good Reason”, then all of the Participant’s then outstanding unvested Performance Shares shall vest in full upon the date of such termination. ]
 
Delivery Schedule: Delivery of one share of Common Stock for each Performance Share which vests shall be made on the applicable vesting date.
 
Additional Terms/Acknowledgements: Participant acknowledges receipt of, and understands and agrees to, this Grant Notice, the Award Agreement, and the Plan. Participant further acknowledges that as of the Date of Grant, this Grant Notice, the Award Agreement and the Plan set forth the entire understanding between Participant and the Company regarding the award of the Performance Shares and the underlying Common Stock and supersede all prior oral and written agreements on that subject with the exception of Awards previously granted and delivered to Participant under the Plan.
 
 iPass Inc.      Participant
 
 
By:
    
 
 
By:
Signature
    
Signature
 

Title:

Date:
    
 

Date:
 
Attachments:  Award Agreement, and 2003 Equity Incentive Plan


Definitions:

For the purposes of the Performance Shares:
 
“Cause” shall mean the occurrence of any of the following (and only the following): (i) conviction of the terminated Participant of any felony involving fraud or act of dishonesty against the Company or its parent corporation or subsidiary corporation (whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code (“Affiliates”)); (ii) conduct by the terminated Participant which, based upon good faith and reasonable factual investigation and determination of the Board of Directors of the Company, demonstrates gross unfitness to serve; or (iii) intentional, material violation by the terminated Participant of any statutory or fiduciary duty of the terminated Participant to the Company or its Affiliates;

“Corporate Transaction” shall mean (i) the sale of all or substantially all of the assets of the Company or (ii) a merger of the Company with or into another entity in which the stockholders of the Company immediately prior to the closing of the transaction own less than a majority of the ownership interest of the Company immediately following such closing. For purposes of determining whether the stockholders of the Company prior to the occurrence of a transaction described above own less than fifty percent (50%) of the voting securities of the relevant entity afterwards, only the lesser of the voting power held by a person either before or after the transaction shall be counted in determining that person’s ownership afterwards; and
 
“Good Reason” shall mean resignation by the Participant of his or her employment because (i) the Company requires that such Participant relocate to a worksite that is more than 60 miles from its current principal executive office, unless such Participant agrees in writing to such relocation; or (ii) the Company reduces the Participant’s monthly salary below the gross rate of the then-existing rate at the time of the closing of the Corporate Transaction, unless the Participant agrees in writing to such reduction.



 


iPass Inc.
2003 Equity Incentive Plan
Performance Shares Award Agreement


Pursuant to the Performance Shares Grant Notice (“Grant Notice”), this Performance Shares Award Agreement (“Agreement”), and Section 7(b) of the Company’s 2003 Equity Incentive Plan (the “Plan”), iPass Inc. (the “Company”) has awarded you the number of shares of phantom stock (the “Performance Shares”) indicated in the Grant Notice (collectively, the “Award”). Defined terms not explicitly defined in this Agreement but defined in the Plan shall have the same definitions as in the Plan. Subject to adjustment and the terms and conditions as provided herein and in the Plan, each Performance Share shall represent the right to receive one (1) share of Common Stock.
 
The details of your Award, in addition to those set forth in the Grant Notice, are as follows.
 
1.  Number of Performance Shares and Shares of Common Stock. The number of Performance Shares in your Award is set forth in the Grant Notice.
 
(a)  The number of Performance Shares subject to your Award and the number of shares of Common Stock deliverable with respect to such Performance Shares may be adjusted from time to time for capitalization adjustments as described in Section 11(a) of the Plan. You shall receive no benefit or adjustment to your Award with respect to any cash dividend or other distribution that does not result in a capitalization adjustment pursuant to Section 11(a) of the Plan; provided, however, that this sentence shall not apply with respect to any shares of Common Stock that are delivered to you in connection with your Award after such shares have been delivered to you.
 
(b)  Any additional Performance Shares, shares of Common Stock, cash or other property that becomes subject to the Award pursuant to this Section 1 shall be subject, in a manner determined by the Board, to the same forfeiture restrictions, restrictions on transferability, and time and manner of delivery as applicable to the other Performance Shares and Common Stock covered by your Award.
 
(c)  Notwithstanding the provisions of this Section 1, no fractional Performance Shares or rights for fractional shares of Common Stock shall be created pursuant to this Section 1. The Board shall, in its discretion, determine an equivalent benefit for any fractional Performance Shares or fractional shares that might be created by the adjustments referred to in this Section 1.
 
2.  Vesting.
 
(a)  The Performance Shares shall vest, if at all, as provided in the Vesting Schedule set forth in your Grant Notice, provided that vesting shall cease upon the termination of your Continuous Service. Notwithstanding the foregoing, in the event that you are subject to the Company’s Stock Trading By Officers, Directors, and Access Employees policy (or any successor policy) and any shares covered by your Award vest on a day (the “Original Vest Date”) that does not occur during a “window period” applicable to you as determined by the Company in accordance with such policy, then such shares shall not vest on such Original Vest Date and shall instead vest on the earliest to occur of the following: (i) the first day of the next “window period” applicable to you pursuant to such policy; (ii) your Involuntary Termination Without Cause (as defined in Section 2(b) below) after the Original Vest Date; or (iii) the day that is sixty (60) days after the Original Vest Date.
 
(b)  For purposes of this Agreement, “Involuntary Termination Without Cause” shall mean the Company’s termination of your Continuous Service unless such termination was on account of the occurrence of any of the following: (i) your commission of any felony or any crime involving fraud, dishonesty or moral turpitude; (ii) your attempted commission of, or participation in, a fraud or act of dishonesty against the Company or an Affiliate; (iii) your intentional, material violation of any material contract or agreement between you and the Company or an Affiliate or any statutory duty owed to the Company or an Affiliate; (iv) your unauthorized use or disclosure of confidential information or trade secrets of the Company or an Affiliate; or (v) your gross misconduct. The determination that your Continuous Service was terminated due to an Involuntary Termination Without Cause shall be made by the Company in its sole discretion. Any such determination by the Company for the purposes of this Agreement shall have no effect upon any determination of the rights or obligations of you or the Company for any other purpose.
 
3.  Discretion of Board. In making its determination whether the Company has achieved any performance criteria set forth in the Vesting Schedule of your Grant Notice, the Board shall have the discretion to: (i) exclude exchange rate effects, as applicable, for non-U.S. dollar denominated revenues; (ii) exclude the effects of changes to generally accepted accounting standards required by the Financial Accounting Standards Board; (iii) exclude any unusual or extraordinary corporate items, transactions, events or developments; (iv) exclude the effects of changes in applicable laws, regulations, accounting principles, or business conditions; (v) exclude the dilutive effects of acquisitions or joint ventures; (vi) assume that any business divested by the Company achieved performance objectives at targeted levels during the balance of the period following such divestiture; (vii) exclude the effects of a corporate transaction, such as a merger, consolidation, separation (including a spinoff or other distribution of stock or property by a corporation), or reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code); and (viii) make adjustments to reflect any partial or complete liquidation of the Company.
 
4.  Distribution of Shares of Common Stock. Subject to the provisions of this Agreement and the Plan, in the event one or more Performance Shares vests, the Company shall deliver to you one (1) share of Common Stock for each Performance Share that vests. The delivery to you of the appropriate number of shares of Common Stock shall be made on the applicable vesting date. The form of such delivery (e.g., a stock certificate or electronic entry evidencing such shares) shall be determined by the Company.
 
5.  Payment by You. This Award was granted in consideration of your services to the Company. Subject to Section 11 below, except as otherwise provided in the Grant Notice, you shall not be required to make any payment to the Company (other than your past and future services with the Company) with respect to your receipt of the Award, vesting of the Performance Shares, or the delivery of the shares of Common Stock underlying the Performance Shares.
 
6.  Securities Law Compliance. You may not be issued any Common Stock under your Award unless the shares of Common Stock are either (i) then registered under the Securities Act, or (ii) the Company has determined that such issuance would be exempt from the registration requirements of the Securities Act. Your Award must also comply with other applicable laws and regulations governing the Award, and you shall not receive such Common Stock if the Company determines that such receipt would not be in material compliance with such laws and regulations.
 
7.  Restrictive Legends. The Common Stock issued under your Award shall be endorsed with appropriate legends, if any, determined by the Company.
 
8.  Transfer Restrictions. Prior to the time that shares of Common Stock have been delivered to you, you may not transfer, pledge, sell or otherwise dispose of the shares in respect of your Award. For example, you may not use shares that may be issued in respect of your Performance Shares as security for a loan, nor may you transfer, pledge, sell or otherwise dispose of such shares. This restriction on transfer will lapse upon delivery to you of shares in respect of your Performance Shares. Your Award is not transferable, except by will or by the laws of descent and distribution. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to receive any distribution of Common Stock pursuant to this Agreement.
 
9.  Award not a Service Contract. Your Award is not an employment or service contract, and nothing in your Award shall be deemed to create in any way whatsoever any obligation on your part to continue in the service of the Company or any Affiliate, or on the part of the Company or any Affiliate to continue such service. In addition, nothing in your Award shall obligate the Company or any Affiliate, their respective stockholders, boards of directors or employees to continue any relationship that you might have as an Employee or Consultant of the Company or any Affiliate.
 
10.  Unsecured Obligation. Your Award is unfunded, and even as to any Performance Shares which vest, you shall be considered an unsecured creditor of the Company with respect to the Company’s obligation, if any, to issue Common Stock pursuant to this Agreement. You shall not have voting or any other rights as a stockholder of the Company with respect to the Common Stock acquired pursuant to this Agreement until such Common Stock is issued to you pursuant to Section 4 of this Agreement. Upon such issuance, you will obtain full voting and other rights as a stockholder of the Company with respect to the Common Stock so issued. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind or a fiduciary relationship between you and the Company or any other person.
 
11.  Withholding Obligations.
 
(a)  On or before the time you receive a distribution of Common Stock pursuant to your Award, or at any time thereafter as requested by the Company, you hereby authorize any required withholding from the Common Stock issuable to you and otherwise agree to make adequate provision for any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or any Affiliate which arise in connection with your Award.
 
(b)  Unless the tax withholding obligations of the Company and/or any Affiliate are satisfied, the Company shall have no obligation to deliver to you any Common Stock.
 
(c)  In the event the Company’s obligation to withhold arises prior to the delivery to you of Common Stock or it is determined after the delivery of Common Stock to you that the amount of the Company’s withholding obligation was greater than the amount withheld by the Company, you agree to indemnify and hold the Company harmless from any failure by the Company to withhold the proper amount.
 
12.  Notices. Any notices provided for in your Award or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company.
 
13.  Headings. The headings of the Sections in this Agreement are inserted for convenience only and shall not be deemed to constitute a part of this Agreement or to affect the meaning of this Agreement.
 
14.  Amendment. This Agreement may be amended only by a writing executed by the Company and you which specifically states that it is amending this Agreement. Notwithstanding the foregoing, this Agreement may be amended solely by the Company by a writing which specifically states that it is amending this Agreement, so long as a copy of such amendment is delivered to you, and provided that no such amendment adversely affecting your rights hereunder may be made without your written consent. Without limiting the foregoing, the Company reserves the right to change, by written notice to you, the provisions of this Agreement in any way it may deem necessary or advisable to carry out the purpose of the grant as a result of any change in applicable laws or regulations or any future law, regulation, ruling, or judicial decision, provided that any such change shall be applicable only to rights relating to that portion of the Award which is then subject to restrictions as provided herein.
 
15.  Miscellaneous.
 
(a)  The rights and obligations of the Company under your Award shall be transferable by the Company to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by the Company’s successors and assigns.
 
(b)  You agree upon request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of your Award.
 
(c)  You acknowledge and agree that you have reviewed your Award in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and accepting your Award and fully understand all provisions of your Award.
 
(d)  This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
 
(e)  All obligations of the Company under the Plan and this Agreement shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
 
16.  Governing Plan Document. Your Award is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your Award, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your Award and those of the Plan, the provisions of the Plan shall control; provided, however, that Section 4 of this Agreement shall govern the timing of any distribution of Common Stock under your Award. The Company shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation, and application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Board shall be final and binding upon you, the Company, and all other interested persons. No member of the Board shall be personally liable for any action, determination, or interpretation made in good faith with respect to the Plan or this Agreement.
 
17.  Effect on Other Employee Benefit Plans. The value of the Award subject to this Agreement shall not be included as compensation, earnings, salaries, or other similar terms used when calculating benefits under any employee benefit plan (other than the Plan) sponsored by the Company or any Affiliate except as such plan otherwise expressly provides. The Company expressly reserves its rights to amend, modify, or terminate any or all of the employee benefit plans of the Company or any Affiliate.
 
18.  Choice of Law. The interpretation, performance and enforcement of this Agreement shall be governed by the law of the state of California without regard to that state’s conflicts of laws rules.
 
19.  Severability. If all or any part of this Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any portion of this Agreement or the Plan not declared to be unlawful or invalid. Any Section of this Agreement (or part of such a Section) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.
 
* * * * *
 
This Performance Shares Award Agreement shall be deemed to be signed by the Company and the Participant upon the signing by the Participant of the Performance Shares Grant Notice to which it is attached.
 

 

 EX-31.1 5 form10q032007ex31p1.htm EXHIBIT 31.1, CEO 302 CERTIFICATION
EXHIBIT 31.1

CERTIFICATION

I, Kenneth D. Denman, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of iPass Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
     
 
 		  
 		  
 
Date: May 10, 2007 By:   /s/ Kenneth D. Denman
 
Kenneth D. Denman
 
Chairman and Chief Executive Officer
(Principal Executive Officer)
EX-31.2 6 form10q032007ex31p2.htm EXHIBIT 31.2, CFO 302 CERTIFICATION
EXHIBIT 31.2

CERTIFICATION

I, Frank E. Verdecanna, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of iPass Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
     
 
 		  
 		  
 
Date: May 10, 2007 By:   /s/ Frank E. Verdecanna
 
Frank E. Verdecanna
 
Vice President and Chief Financial Officer
(Principal Financial Officer)
EX-32.1 7 form10q032007ex32p1.htm EXHIBIT 32.1, CEO 906 CERTIFICATION EXHIBIT 32.1, CEO 906 CERTIFICATION
EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 18 U.S.C SECTION 1350

In connection with the Quarterly Report of iPass Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kenneth D. Denman, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

     
 
 		  
 		  
 
Date: May 10, 2007 By:   /s/ Kenneth D. Denman
 
Kenneth D. Denman
 
Chairman and Chief Executive Officer
(Principal Executive Officer)

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of iPass Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
 EX-32.2 8 form10q032007ex32p2.htm EXHIBIT 32.2, CFO 906 CERTIFICATION EXHIBIT 32.2, CFO 906 CERTIFICATION
EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 18 U.S.C SECTION 1350

In connection with the Quarterly Report of iPass Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Frank E. Verdecanna, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

     
 
 		  
 		  
 
Date: May 10, 2007 By:   /s/ Frank E. Verdecanna
 
Frank E. Verdecanna
 
Vice President and Chief Financial Officer
(Principal Financial Officer)

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of iPass Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
 -----END PRIVACY-ENHANCED MESSAGE-----