-----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, KYKVODEeGD4rDASpjVJMlX3IcKOAZWBnswZ+B7gAeQBUSXtRKQX93rYrrdHpF2U0 iBdLMeUsvakM+EurbnwM4g== 0001053374-08-000028.txt : 20080811 0001053374-08-000028.hdr.sgml : 20080811 20080811155535 ACCESSION NUMBER: 0001053374-08-000028 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20080811 FILED AS OF DATE: 20080811 DATE AS OF CHANGE: 20080811 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: 081006174 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 form10q062008.htm FORM 10-Q 06/30/2008 form10q062008.htm
 
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 June 30, 2008
   
£
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 the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act).

Large Accelerated filer o
  
Accelerated filer R
     
Non-accelerated filer o
  
Smaller reporting company o
(Do not check if a smaller reporting company)
    

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 July 31, 2008 was 62,736,284.
 
 
 
 
 
iPASS INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008

TABLE OF CONTENTS

Part I. Financial Information:
  
   
Part II. Other Information:
  
30
31
32

 
2
 

PART I. FINANCIAL INFORMATION


iPASS INC. AND SUBSIDIARIES
(Unaudited, in thousands)

   
June 30, 2008
    
December 31, 2007
  
ASSETS
            
Current assets:
            
Cash and cash equivalents
  
$
52,130
    
$
70,907
  
Short-term investments
    
17,564
      
4,258
  
Accounts receivable, net of allowance for doubtful accounts of $875 and $2,792, respectively
    
37,911
      
35,938
  
Prepaid expenses and other current assets
    
6,888
      
7,116
  
Deferred income tax assets
    
575
      
575
  
Total current assets
    
115,068
      
118,794
  
Property and equipment, net of accumulated depreciation of $32,658 and $41,435, respectively
    
9,739
      
9,272
  
Other assets
    
6,305
      
4,876
  
Acquired intangible assets, net
    
7,404
      
9,504
  
Goodwill
    
79,543
      
79,543
  
Total assets
  
$
218,059
    
$
221,989
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
Accounts payable
  
$
19,152
    
$
15,923
  
Accrued liabilities
    
13,236
      
15,788
  
Deferred revenue — short-term
    
5,749
      
6,606
  
Total current liabilities
    
38,137
      
38,317
  
Deferred tax liability — long-term
    
575
      
575
  
Deferred revenue — long-term
    
1,723
      
949
  
Other long-term liabilities
    
644
      
1,040
  
Total liabilities
    
41,079
      
40,881
  
Stockholders’ equity:
                
Common stock
    
63
      
62
  
Additional paid-in capital
    
240,421
      
241,703
  
Accumulated other comprehensive income (loss)
    
(14
)
    
15
  
Accumulated deficit
    
(63,490
)
    
(60,672
)
Total stockholders’ equity
    
176,980
      
181,108
  
Total liabilities and stockholders’ equity
  
$
218,059
    
$
221,989
  
                 

See Accompanying Notes to the Condensed Consolidated Financial Statements
 
 
3
 

(Unaudited, in thousands, except share and per share amounts)

   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2008
    
2007
    
2008
    
2007
  
Revenues
  
$
48,616
    
$
47,597
    
$
96,728
    
$
94,485
  
Operating expenses (1):
                                
Network access
    
20,941
      
17,273
      
41,441
      
33,543
  
Network operations
    
8,725
      
8,783
      
17,399
      
16,981
  
Research and development
    
3,988
      
5,438
      
8,443
      
10,895
  
Sales and marketing
    
10,371
      
13,868
      
20,680
      
27,294
  
General and administrative
    
5,805
      
5,059
      
11,124
      
10,818
  
Restructuring charges
    
26
      
(169
) 
    
30
      
(152
 )
Amortization of intangibles
    
1,050
      
1,050
      
2,100
      
2,100
  
Total operating expenses
    
50,906
      
51,302
      
101,217
      
101,479
  
Operating loss
    
(2,290
)
    
(3,705
)
    
(4,489
)
    
(6,994
)
Interest income and other, net
    
367
      
851
      
956
      
1,600
  
Loss before income taxes
    
(1,923
)
    
(2,854
)
    
(3,533
)
    
(5,394
)
Benefit from income taxes
    
(478
)
    
(541
)
    
(715
)
    
(2,623
)
Net loss
  
$
(1,445
)
  
$
(2,313
)
  
$
(2,818
)
  
$
(2,771
)
                                 
Net loss per share, basic and diluted:
  
$
(0.02
)
  
$
(0.04
)
  
$
(0.05
)
  
$
(0.04
)
Number of shares used in per share calculations:
    
61,539,722
      
63,097,688
      
61,305,563
      
63,333,332
  

____________
(1)Stock-based compensation is included in the following expense line items:
                        
Network operations
  
$
285
    
$
258
    
$
558
    
$
393
  
Research and development
    
41
      
327
      
230
      
601
  
Sales and marketing
    
(176
 )
    
527
      
161
      
769
  
General and administrative
    
941
      
655
      
1,487
      
1,201
  

See Accompanying Notes to the Condensed Consolidated Financial Statements
 
 
4
 

(Unaudited, in thousands)

   
Six Months Ended June 30,
  
   
2008
    
2007
  
             
Cash flows from operating activities:
            
Net loss
  
$
(2,818
)
  
$
(2,771
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
                
Amortization of stock-based compensation for employees
    
2,436
      
2,963
  
Amortization of acquired intangibles
    
2,100
      
2,100
  
Depreciation and amortization
    
2,930
      
2,612
  
Deferred income tax
    
—
      
(832
)
Provision for doubtful accounts
    
(114
)
    
(407
 )
Realized loss on investments
    
(29
)
    
—
  
Changes in operating assets and liabilities:
                
Accounts receivable
    
(1,859
)
    
(2,750
)
Prepaid expenses and other current assets
    
228
      
(1,645
)
Other assets
    
(1,007
 )
    
80
  
Accounts payable
    
3,229
      
1,071
  
Accrued liabilities
    
(2,982
)
    
(4,456
)
Deferred revenues
    
(192
)
    
—
  
Other liabilities
    
(396
)
    
(48
)
Net cash provided by (used in) operating activities
    
1,526
      
(4,083
)
Cash flows from investing activities:
                
Purchases of short-term investments
    
(137,287
)
    
(238,957
)
Maturities of short-term investments
    
123,969
      
281,265
  
Restricted cash pledged for letter of credit
    
(422
)
    
(1,010
 )
Purchases of property and equipment
    
(3,385
)
    
(2,629
)
  Net cash provided by (used in) investing activities
    
(17,125
 )
    
38,669
  
Cash flows from financing activities:
                
Proceeds from issuance of common stock
    
494
      
1,673
  
Cash used in repurchase of common stock
    
(3,672
 )
    
(12,055
)
Net cash used in financing activities
    
(3,178
)
    
(10,382
)
Net increase (decrease) in cash and cash equivalents
    
(18,777
 )
    
24,204
  
Cash and cash equivalents at beginning of period
    
70,907
      
15,492
  
Cash and cash equivalents at end of period
  
$
52,130
    
$
39,696
  

See Accompanying Notes to the Condensed Consolidated Financial Statements
 
 
5
 

iPASS INC. AND SUBSIDIARIES
(Unaudited)

Note 1. Basis of Presentation

The accompanying financial data has been prepared by iPass Inc. (the “Company” or “iPass”), 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, 2007 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.

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 six months ended June 30, 2008 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 the Company’s audited Consolidated Financial Statements for the fiscal year ended December 31, 2007, included in the Annual Report on Form 10-K. These accounting policies have not significantly changed except as noted below.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157 ("SFAS 157"), Fair Value Measurements, which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements and is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB FSP 157-2 which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. These nonfinancial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination. Effective January 1, 2008, the Company adopted SFAS 157 for financial assets and liabilities recognized at fair value on a recurring basis. The partial adoption of SFAS 157 for financial assets and liabilities did not have a material impact on the condensed consolidated balance sheet, statement of operations or statement of cash flows. See Note 3 for information and related disclosures regarding fair value measurements.

Since adoption of SFAS No. 123 (revised 2004) (“SFAS 123(R)”), Share-Based Payment, the Company has elected to use the simplified method to estimate the expected term as permitted by Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin 107 (“SAB 107”) due to the unknown effect on option holder behavior of the increased liquidity of the underlying options following the Company’s IPO. In December 2007, the SEC released Staff Accounting Bulletin No. 110 (“SAB 110”). SAB 110 amends SAB 107 to allow for the continued use, under certain circumstances, of the “simplified” method in developing an estimate of the expected term of “plain vanilla” stock options accounted for under SFAS 123(R). As a result, the Company will continue to use the simplified method until it has sufficient historical data to provide a reasonable basis to estimate the expected term.

Recent Accounting Pronouncements
 
With the exception of the financial accounting standards board statements defined below, there have been no significant changes in recent accounting pronouncements during the six months ended June 30, 2008 as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133.  Statement 161 requires disclosures of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.  Statement 161 is effective for fiscal years beginning after November 15, 2008, with early adoption permitted.  The Company is currently evaluating the impact of the pending adoption of Statement 161 on its consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of the Useful Life of Intangible Assets.”  FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible Assets.”  This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008.  Early adoption is prohibited.  The impact of FSP 142-3 will depend on the Company’s future acquisition activity.

6
Note 3. Financial Instruments

SFAS 157, Fair Value Measurements, clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, SFAS 157 establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require us to develop our own assumptions. This hierarchy requires the use of observable market data, when available, and the minimization of the use of unobservable inputs when determining fair value.

Certain financial assets and liabilities are measured at fair value on a recurring basis, including available-for-sale fixed income and equity securities. Cash and investment instruments are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.  The fair value of these financial assets was determined using the following inputs at June 30, 2008 (in thousands):

   
Fair Value Measurements at Reporting Date Using
  
   
Total
    
Quoted Prices in Active Markets for Identical Assets (Level 1)
    
Significant Other Observable Inputs (Level 2)
    
Significant Unobservable Inputs (Level 3)
  
Money market funds (1)
   $ 6,549     $ 6,549     $ —     $ —  
Fixed income available-for-sale securities (2)
   $ 50,755     $ —     $ 50,755     $ —  
Total
   $ 57,304     $ 6,549     $ 50,755     $ —  
 
(1)  
Included in cash and cash equivalents on the Company’s consolidated balance sheet.
(2)  
Fixed income available-for-sale securities include commercial paper (92% of total) and bonds of government agencies (8% of total). Included in fixed income available-for-sale securities is approximately $33.1 million of cash equivalents. Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase. The remaining balance of cash equivalents consists primarily of money market funds, for which the carrying amount is a reasonable estimate of fair value.

Note 4. Goodwill and Intangibles

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

   
December 31, 2007 Balance
    
Amortization
    
June 30, 2008 Balance
  
Goodwill
  
$
79,543
    
$
—
    
$
79,543
  
Intangibles:
                        
Existing technology
    
2,749
      
(806
)
    
1,943
  
Patent/Core technology
    
1,001
      
(281
)
    
720
  
Maintenance agreements and certain relationships
    
189
      
(33
)
    
156
  
Customer relationships
    
4,805
      
(836
)
    
3,969
  
Supplier contracts
    
504
      
(119
)
    
385
  
Internally developed software
    
256
      
(25
)
    
231
  
   
$
89,047
    
$
(2,100
)
  
$
86,947
  

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

   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2008
    
2007
    
2008
    
2007
  
Intangibles:
                        
Existing technology
  
$
(403
)
  
$
(403
)
  
$
(806
)
  
$
(806
)
Patent/Core technology
    
(141
)
    
(141
)
    
(281
)
    
(281
)
Maintenance agreements and certain relationships
    
(17
)
    
(17
)
    
(33
)
    
(33
)
Customer relationships
    
(418
)
    
(418
)
    
(836
)
    
(836
)
Supplier contracts
    
(58
)
    
(58
)
    
(119
)
    
(119
)
Internally developed software
    
(13
)
    
(13
)
    
(25
)
    
(25
)
   
$
(1,050
)
  
$
(1,050
)
  
$
(2,100
)
  
$
(2,100
)

7
The following tables set forth the carrying amount of other intangible assets that will continue to be amortized (in thousands):
 

 
June 30, 2008
  
 
 
Amortization Life
  
Gross Carrying Amount
    
Accumulated Amortization
    
Net Carrying Amount
  
Intangibles:
                    
Existing technology
4-8 yrs
  
$
7,900
    
$
(5,957
)
  
$
1,943
  
Patent/Core technology
4-8 yrs
    
2,800
      
(2,080
)
    
720
  
Maintenance agreements and certain relationships
5 yrs
    
400
      
(244
)
    
156
  
Customer relationships
4-7 yrs
    
8,100
      
(4,131
)
    
3,969
  
Supplier contracts
4 yrs
    
950
      
(565
)
    
385
  
Internally developed software
7 yrs
    
350
      
(119
)
    
231
  
     
$
20,500
    
$
(13,096
)
  
$
7,404
  
 
 
December 31, 2007
  
 
Amortization Life
  
Gross Carrying Amount
    
Accumulated Amortization
    
Net Carrying Amount
  
Intangibles:
                    
Existing technology
4-8 yrs
   $ 7,900     $ (5,151 )   $ 2,749  
Patent/Core technology
4-8 yrs
     2,800       (1,799 )     1,001  
Maintenance agreements and certain relationships
5 yrs
     400       (211 )     189  
Customer relationships
4-7 yrs
     8,100       (3,295 )     4,805  
Supplier contracts
4 yrs
     950       (446 )     504  
Internally developed software
7 yrs
     350       (94 )     256  
      $ 20,500     $ (10,996 )   $ 9,504  

The following table presents the estimated future amortization of intangible assets (in thousands):

Fiscal Year
      
Remaining 2008
  
$
1,800
  
2009
    
2,401
  
2010
    
1,241
  
2011
    
1,021
  
2012
    
876
  
2013 and thereafter
    
65
  
   
$
7,404
  

Note 5. Accrued Restructuring and Acquisition Integration Plans

In June and September 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 severance costs were recorded pursuant to SFAS No. 112, Employers' Accounting for Postemployment Benefits—an amendment of FASB Statements No. 5 and 43, and the excess facility costs were recorded pursuant to  SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS No. 146").

8
By June 2007, the Company finalized the aforementioned terminations, settled all negotiations and paid out the remaining severance.  As a result of finalizing all such terminations, the Company adjusted the accrual for the difference between initial estimates of severance liability and the final payments ultimately made.  This adjustment of approximately $179,000 was credited to the restructuring expense in the second quarter of 2007.  SFAS No. 146 requires that the excess facilities liabilities be recorded at fair value.  The difference between the fair value of the liability at the time it was recorded and the total cash liability is accreted ratably over the expected term.  This accretion is reported in the restructuring expense line on the condensed consolidated statements of operations.

In November 2007, the Company recorded an additional restructuring charge of approximately $3.2 million related to (i) a workforce reduction of 72 employees spread across all functions though focused on sales and marketing, (ii) the abandonment of certain facilities and (iii) abandonment of certain capitalized assets totaling $900,000.  As of December 31, 2007, the Company finalized approximately 56 of the aforementioned terminations and had fully vacated the abandoned facilities.

By February 2008, the Company finalized the aforementioned terminations, settled all negotiations and paid out the remaining severance.  As a result of finalizing all such terminations as well as some additional charges related to abandoned facilities, the Company adjusted the accrual for the difference between initial estimates of severance and facility liability and the final payments ultimately made.  This adjustment of approximately $17,000 was credited to the restructuring expense in the first quarter of 2008.

The following is a summary of restructuring activities for the six months ended June 30, 2008 (in thousands):
 
   
Excess Facility Costs
    
Severance Costs
    
Total Restructuring Accrual
  
Balance as of December 31, 2007
   $ 1,966     $ 768     $ 2,734  
Payments
     (681 )     (743 )     (1,424 )
Adjustments
             (25 )     (25 )
Net book value accretion
     47               47  
Balance as of June 30, 2008
   $ 1,332     $ —     $ 1,332  

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 were fully utilized by the first quarter of 2008. The following is a summary of the acquisition-related restructuring activities for the quarter ended March 31, 2008 (in thousands):
 
   
Excess Facility Costs
  
Balance as of December 31, 2007
  
$
100
  
Payments
    
(100
)
Balance as of June 30, 2008
  
$
—
  

As of June 30, 2008, the Company has classified $688,000 of the restructuring liability in accrued liabilities and remaining $644,000 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 6. Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that includes the enactment date. A valuation allowance is recorded against deferred tax assets if it is more likely than not that all or a portion of the deferred tax assets will not be realized.

The Company recorded net deferred tax assets to the extent management believes these assets will more likely than not be realized. In making such determination, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the fourth quarter of 2007, the Company recorded the impact of a full valuation allowance on the remaining net balance of deferred income tax assets.  In the event management were to determine that the Company would be able to realize the deferred income tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the valuation allowance which would reduce the provision for income taxes. To the extent the valuation allowance relates to acquired entities, the recognition of any future tax benefits would first reduce goodwill and then reduce the provision for income taxes.

9
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 purposes of tax positions taken or expected to be taken on a tax return. Under FIN 48, the benefit 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 is not 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.

The total amount of unrecognized tax benefits at June 30, 2008 is $1.9 million, and at December 31, 2007 was $3.8 million. If any of the remaining tax benefits that are unrecognized at June 30, 2008 should become recognizable at a future time, the Company would reverse $1.8 million against the Company’s deferred tax assets, and the remaining balance would be released into net income.

The decrease in unrecognized tax benefits is related to the State of California audit for the years 2002 to 2005, which the Company recently settled.  Management had previously recorded reserves for the estimated liability related to the audit of $2.4 million.  Of these reserves, $676,000 was reversed into net income during the quarter ended June 30, 2008, and $1.1 million will be reversed into deferred tax assets, subject to 100% valuation allowance.

The Company recognizes accrued interest related to unrecognized tax benefits in the tax provision. At June 30, 2008, the Company’s liability for unrecognized tax benefits includes an accrual for interest in the amount of $26,000, and at December 31, 2007 the Company’s liability was $290,000.

The Company is subject to taxation in the United States and various other foreign jurisdictions. The Company records accruals for the estimated outcomes of these audits, and the accruals may change in the future due to new developments in each matter.  Fiscal years 2004 to 2007 remain open to examination by the major taxing jurisdictions to which the Company is subject, with the exception of California which is open from 2003 to 2007. The Company is currently under audit for U.S. federal income tax matters for years 2004 to 2006.  Due to the availability of U.S. federal tax net operating losses, Management does not expect the examination by the IRS will result in material payments.  The Company also has income tax audits in progress in India.  The years under examination by the Indian taxing authorities are 2005 to 2006.  The Indian tax audit is considered a routine audit relating to transfer pricing calculations. Management does not believe the examination in India will result in material payments due to the availability of tax holidays, which effectively reduce the tax rate in India to 0% for tax years ending before March 31, 2007.

Note 7. Stock Repurchase Program

In February 2008, 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 June 30, 2008, the Company repurchased a total of approximately 1.3 million shares of common stock for an aggregate purchase price of $3.7 million.  A total of $3.2 million of stock was repurchased in the first quarter of 2008 and a total of $500,000 of stock was repurchased in the second quarter of 2008, leaving approximately $26.3 million that may be used for future repurchases.  Of the shares repurchased to date, 1.1 million shares were retired during the second quarter of fiscal 2008 and the remainder will be retired by the end of the third quarter of fiscal 2008.

Note 8. 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 loss and unrealized gains (losses) on available-for-sale securities.

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

   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2008
    
2007
    
2008
    
2007
  
                         
Net loss
  
$
(1,445
)
  
$
(2,313
)
  
$
(2,818
)
  
$
(2,771
)
Comprehensive loss:
                                
Net change in accumulated unrealized gain (loss) on available-for- sale securities
    
(19
 )
    
26
      
(29
 )
    
47
  
Total comprehensive loss
  
$
(1, 464
)
  
$
(2,287
)
  
$
(2,847
)
  
$
(2,724
)

10
Note 9. 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 June 30,
    
Six Months Ended June 30,
  
   
2008
    
2007
    
2008
    
2007
  
Numerator:
                        
Net loss
   $ (1,445 )   $ (2,313 )   $ (2,818 )   $ (2,771 )
Denominator:
                                
Denominator for basic net loss per common share weighted average shares outstanding
     61,539,722       63,097,688       61,305,563       63,333,332  
Effect of dilutive securities:
                                
Options to purchase common stock
     —       —       —       —  
Restricted stock awards
     —       —       —       —  
Denominator for diluted net loss per common share — adjusted weighted average shares outstanding
     61,539,722       63,097,688       61,305,563       63,333,332  
Basic net loss per common share
   $ (0.02 )   $ (0.04 )   $ (0.05 )   $ (0.04 )
Diluted net loss per common share
   $ (0.02 )   $ (0.04 )   $ (0.05 )   $ (0.04 )

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 June 30,
  
Six Months Ended June 30,
  
 
2008
    
2007
  
2008
    
2007
  
Options to purchase common stock
     6,983,945       9,083,619       6,983,945       9,083,619  
Restricted stock awards
     1,506,916       855,813       1,506,916       855,813  
Total
     8,490,86       9,939,432       8,490,861,       9,939,432  
 
Note 10. Commitments

The Company has contracts with certain network service and mobile data providers which have minimum purchase commitments that expire on various dates through June 2011.  

Future minimum purchase commitments under these agreements as of June 30, 2008 are as follows (in thousands):

Year ending December 31:
      
Remaining 2008
    
8,030
  
2009
    
12,183
  
2010
    
9,995
  
2011
    
2,550
  
   
$
32,758
  

11
The Company leases facilities under non-cancelable operating leases that expire at various dates through October 2016. Future minimum lease payments under these operating leases as of June 30, 2008 are as follows (in thousands):

Year ending December 31:
      
Remaining 2008
  
$
3,649
  
2009
    
6,785
  
2010
    
4,651
  
2011
    
3,559
  
2012
    
2,728
  
2013 and thereafter
    
6,593
  
   
$
27,965
  

At June 30, 2008, the Company had no material commitments for capital expenditures.

Foreign Currency Forward Contracts

Because the Company conducts business around the world, changes in foreign currency exchange rates can have an effect on the results of operations.  The Company enters into forward contracts with financial institutions to manage currency exposure related to supplier payments and funding the operations of certain foreign subsidiaries. These forward contracts are to purchase British Pounds and Euros and are generally settled monthly.  The derivative financial instruments are not used for trading purposes. The forward contracts do not eliminate but mitigate the impact of currency exchange rate movements. Gains and losses on forward contracts are included in Interest and Other Income (Expense) in our Condensed Consolidated Statements of Operations. As of June 30, 2008, there were nine outstanding forward contracts with total notional amounts totaling $5.3 million, which resulted in a net gain of $63,000.

Note 11. Segment Information

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting operating segments, products and services, geographic areas, and major customers by business entities. 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 or six months ended June 30, 2008 or 2007. 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 10% and 11% of total revenues for the three months ended June 30, 2008 and 2007, respectively, and 10% and 12% of total revenues for the six months ended June 30, 2008 and 2007, respectively.

Note 12. Legal Contingencies

On November 22, 2006, Blue Waters Management, L.L.C., a former iPass reseller, filed a claim against Carlson Companies, Inc. alleging breach of contract and conversion based upon the iPass services and software provided by Blue Waters to Carlson.  Blue Waters has alleged damages of approximately $9 million.  On July 23, 2007, Carlson Companies filed a counter-claim against Blue Waters seeking damages for breach of contract, fraud and unjust enrichment.  Carlson Companies had been a customer of Blue Waters from about December 2002 through September 2006, after which Carlson Companies entered into a contract with iPass in order to continue to use the iPass services and software.  At the same time, Carlson terminated its agreement with Blue Waters.  Blue Waters has claimed that Carlson’s continued use of the iPass software after September 2006 is a violation of Carlson’s agreement with Blue Waters.  Blue Waters has not alleged a specific amount of damages with this portion of its complaint.  In the counterclaim filed by Carlson, Carlson has claimed that iPass is required to indemnify Carlson to the extent Carlson is required to pay any damages to Blue Waters as a result of Carlson’s continued use of the iPass software.  On August 14, iPass filed a response to Carlson’s claim denying any liability to Carlson.  On or about June 12, 2008, iPass, Carlson and Blue Waters entered into a settlement agreement in which iPass agreed to pay Blue Waters $50,000 in exchange for the release and settlement by Blue Waters and Carlson of all claims, known or unknown which either Blue Waters or Carlson has against iPass respecting the claims made by Blue Waters.  As a result of the settlement agreement, Blue Waters and Carlson petitioned the Court to dismiss the causes of action brought by each against the other and against iPass.  On June 26, 2008, the Court ordered the entire case dismissed.

In 2001, GoRemote Internet Communications, Inc. (formerly known as GRIC Communications, Inc., hereinafter, "GoRemote") and certain of its officers and directors were named as defendants in a class action shareholder complaint filed in the United States District Court for the Southern District of New York, now consolidated as In re GRIC Communications, Inc. Initial Public Offering Securities Litigation, Case No. 6771.  In the amended complaint, the plaintiffs allege that GoRemote, certain of its officers and directors and the underwriters of its initial public offering ("IPO") violated Section 11 of the Securities Act of 1933, as amended, based on allegations that GoRemote's registration statement and prospectus failed to disclose material facts regarding the compensation to be received by, and the stock allocation practices of, the IPO underwriters.  The complaint also contains a claim for violation of section 10(b) of the Securities Exchange Act of 1934, as amended, based on allegations that this omission constituted a deceit on investors.  The plaintiffs seek unspecified monetary damages and other relief.  Similar complaints were filed in the same court against hundreds of other public companies ("Issuers") that conducted IPOs of their common stock in the late 1990s and 2000 (the "IPO Lawsuits").

12
In October 2002, GoRemote's officers and directors were dismissed without prejudice pursuant to a stipulated dismissal and tolling agreement with the plaintiffs.  In February 2003, the court dismissed the section 10(b) claim against GoRemote without leave to amend, but declined to dismiss the Section 11 claim.  In June 2004, GoRemote and almost all of the other Issuers executed a settlement agreement with the plaintiffs.  In February 2005, the court certified the litigation as a class action for settlement purposes and granted preliminary approval of the settlement, subject to modification of certain bar orders contemplated by the settlement.  In August 2005, the court reaffirmed class certification and preliminary approval of the modified settlement.  On February 24, 2006, the Court dismissed litigation filed against certain underwriters in connection with the claims to be assigned to the plaintiffs under the settlement.  On April 24, 2006, the Court held a Final Fairness Hearing to determine whether to grant final approval of the settlement.  On December 5, 2006, the Second Circuit Court of Appeals vacated the lower Court's earlier decision certifying as class actions the six IPO Lawsuits designated as "focus cases."  Thereafter, the district court ordered a stay of all proceedings in all of the IPO Cases pending the outcome of plaintiffs’ petition to the Second Circuit for rehearing en banc.  On April 6, 2007, the Second Circuit denied plaintiffs’ rehearing petition, but clarified that the plaintiffs may seek to certify a more limited class in the district court. Accordingly, the settlement was terminated and will not receive final approval.

Plaintiffs filed amended complaints in the six cases designated as “focus cases” on or about August 14, 2007.  GoRemote is not a focus case.  In September 2007, GoRemote's named officers and directors again extended the tolling agreement with plaintiffs.  On or about September 27, 2007, plaintiffs moved to certify the classes alleged in the “focus cases” and to appoint class representatives and class counsel in those cases. The “focus case” issuers filed motions to dismiss the claims against them in November 2007 and an opposition to plaintiffs' motion for class certification in December 2007.  The Court denied the motions to dismiss on March 16, 2008.  The focus case defendants have until August 31, 2008 to answer the amended complaints.  No loss has been accrued as a loss is not probable or estimable as of June 30, 2008.
 
 
13
 


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 550 dial-up, wireless, and broadband providers in over 160 countries.

Overview of the three and six months ended June 30, 2008

Our overall revenues increased slightly for the three and six months ended June 30, 2008 as compared to the same periods in 2007. The increase was driven primarily by our customers’ migration from dial-up to broadband as the preferred method of connecting to their corporate networks. Revenues from broadband, software and services fees increased $10.0 million and $20.0 million for the three and six months ended June 30, 2008, respectively, as compared to the same periods of the prior year.  These increases were partially offset by $8.9 million and $17.7 million decline in dial-up revenue for the three and six months ended June 30, 2008, respectively.

We increased the number of broadband access points during the quarter, increasing our global broadband footprint. We ended the quarter with approximately 107,000 Wi-Fi and wired hotspots worldwide, approximately 105,000 of which were Wi-Fi hotspots and approximately 2,000 of which were wired hotspots. This enabled our customers to access remotely their corporate networks from more locations, at higher speeds driving the increases in broadband usage revenues in 2008 over 2007.

Going forward, we will continue to focus on delivering innovative services and solutions for our customers, increasing the number of end users of our services for both dial-up and broadband access, as well as to continue to increase fee revenues from device management and other fee based services.  Through the remainder of 2008, we expect to see continued growth in our business.  However, our success 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 the majority of our customers on a time basis for usage based on negotiated rates. We bill the remaining customers based on a fixed charge per 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. The difference between the minimum commitment and actual usage is recognized as fee revenue based on our estimate of cash that will ultimately be collected related to the minimum commitment.  Our usage-based revenues represented 73% and 76% of our revenues for the three months ended June 30, 2008 and 2007, respectively, and 74% and 76% for the six months ended June 30, 2008 and 2007, 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 54% and 38% of our total revenues for the three months ended June 30, 2008 and 2007, respectively, and 52% and 35% for the six months ended June 30, 2008 and 2007, respectively.

We 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 27% and 24% of our revenues for the three months ended June 30, 2008 and 2007, respectively, and 26% and 24% for the six months ended June 30, 2008 and 2007, respectively.

14
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 six months ended June 30, 2008 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, 2007.

RESULTS OF OPERATIONS

Revenue

   
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
   
2008
    
2007
    
2008
    
2007
  
   
(In thousands, except percentages)
  
Total Revenue
  
$
48,616
    
$
47,597
    
$
96,728
    
$
94,485
  
Change, period over period
  
$
1,019
            
$
2,243
          
Percentage change, period over period
    
2.1
%
            
2.4
%
        
 
Total revenue increased in the three and six months ended June 30, 2008, as compared to the same periods in 2007, due to an increase in enterprise flat rate fees and revenues from minimum commitment shortfalls.  The increase in broadband revenues from the addition of new customers signed over the last year and the increase in existing customers’ mobile broadband usage was offset by a continued decline in dial-up revenue as customers migrated from dial-up to broadband as the preferred method of connecting to their corporate networks.

A breakdown of revenue by type is as follows:
 
   
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
   
2008
    
2007
    
2008
    
2007
  
   
(In thousands, except percentages)
  
Broadband
  
$
26,234
    
$
17,891
    
$
50,307
    
$
33,326
  
Percentage of total revenue
    
54.0
%
    
37.6
%
    
52.0
%
    
35.3
%
Change, period over period
  
$
8,343
            
$
16,981
          
Percentage change, period over period
    
46.6
%
            
51.0
%
        

Dial Up
  
$
9,429
    
$
18,354
    
$
20,941
    
$
38,689
  
Percentage of total revenue
    
19.4
%
    
38.6
%
    
21.6
%
    
40.9
%
Change, period over period
  
$
(8,925
)
          
$
(17,748
)
        
Percentage change, period over period
    
(48.6
%)
            
(45.9
%)
        

Software and Services Fees
  
$
12,953
    
$
11,352
    
$
25,480
    
$
22,470
  
Percentage of total revenue
    
26.6
%
    
23.9
%
    
26.3
%
    
23.8
%
Change, period over period
  
$
1,601
            
$
3,010
          
Percentage change, period over period
    
14.1
%
            
13.4
%
        

We expect revenue from dial-up usage to continue to decrease in absolute dollars as well as a percentage of total revenue as we expect the use of dial-up as a primary means of enterprise connectivity to continue to decline, but we cannot reasonably estimate if the rate of decline will be consistent with that seen from 2007 to 2008. 

15
International revenues accounted for approximately 38% and 37% of total revenues for the three months ended June 30, 2008 and 2007, respectively, and 38% and 37% of total revenues for the six months ended June 30, 2008 and 2007, 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 28% and 26% of total revenues for the three months ended June 30, 2008 and 2007, respectively, and 27% of our revenues for both the six months ended June 30, 2008 and 2007.  Revenues in the Asia Pacific region represented 8% and 7% of total revenues for the three months ended June 30, 2008 and 2007, respectively, and 7% of total revenues for both the six months ended June 30, 2008 and 2007.  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 10% and 11% of total revenues for the three months ended June 30, 2008 and 2007, respectively, and 10% and 12% of total revenues for the six months ended June 30, 2008 and 2007, 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.  No individual customer accounted for 10% or more of total revenues for the three or six months ended June 30, 2008 and 2007.

Operating Expenses

Network Access

Network access expenses consist of charges for access, principally by the minute or otherwise time-based, that we pay to our network service providers.

   
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
   
2008
    
2007
    
2008
    
2007
  
   
(In thousands, except percentages)
  
Network access expenses
  
$
20,941
    
$
17,273
    
$
41,441
    
$
33,543
  
As a percentage of revenue
    
43.1
%
    
36.3
%
    
42.8
%
    
35.5
%
Change, period over period
  
$
3,668
            
$
7,898
          
Percentage change, period over period
    
21.2
%
            
23.5
%
        

The growth in network access expenses in the three and six months ended June 30, 2008 as compared to the same periods in 2007 was due, primarily, 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 up, we expect that as broadband usage continues to increase we may be in a better position to negotiate lower rates for access to broadband networks. We expect network access expenses to continue to increase in absolute dollars to the extent that revenue increases and remain relatively constant as a percentage of revenues in the third quarter of 2008.

Network Operations

Network operations expenses consist of compensation and benefits for our network engineering, customer support, network access quality and information technology personnel, as well as outside consultants, transaction center fees, depreciation of our network equipment, costs of mobile data cards and certain allocated overhead costs.
 

   
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
   
2008
    
2007
    
2008
    
2007
  
   
(In thousands, except percentages)
  
Network operations expenses
  
$
8,725
    
$
8,783
    
$
17,399
    
$
16,981
  
As a percentage of revenue
    
17.9
%
    
18.5
%
    
18.0
%
    
18.0
%
Change, period over period
  
$
(58
 )           
$
418
          
Percentage change, period over period
    
(0.7
%)
            
2.5
%
        

Network operations expenses decreased slightly for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007.  There were no fluctuations, offsetting or otherwise, significant enough to note.  As we expand our operations, we expect that our network operations expenses will remain relative constant in absolute dollars and as a percentage of revenues in the third quarter of 2008.

Network operations expenses grew slightly in the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. The increase was attributable to various expenses which, individually, are insignificant items.
 
16
Research and Development

Research and development expenses consist of compensation and benefits for our research and development personnel, consulting, and certain allocated overhead costs.
 
   
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
   
2008
    
2007
    
2008
    
2007
  
   
(In thousands, except percentages)
  
Research and development expenses
  
$
3,988
    
$
5,438
    
$
8,443
    
$
10,895
  
As a percentage of revenue
    
8.2
%
    
11.4
%
    
8.7
%
    
11.5
%
Change, period over period
  
$
(1,450
 )           
$
(2,452
 )         
Percentage change, period over period
    
(26.7
%)
            
(22.5
%)
        
 
The decrease in research and development expenses, in both absolute dollars and percent of revenue, for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007 is primarily due to the restructuring plan completed in 2007.  The headcount reductions included as part of the restructuring resulted in a $373,000 reduction in contractor expense and a $935,000 reduction in compensation and benefits expenses.  The remaining portion of the decrease was due to individually insignificant items. We expect that our research and development expenses will remain relatively constant in absolute dollars and as a percentage of revenues in the third quarter of 2008.

The decrease in research and development expenses, in both absolute dollars and percent of revenue, for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007 resulted primarily from a $1.9 million lower compensation and benefits expenses and $371,000 lower stock-based compensation expense due to the headcount reductions in the restructuring plan completed in 2007.  
 
Sales and Marketing

Sales and marketing expenses consist of compensation, benefits, advertising, promotion expenses, and certain allocated overhead costs.
 
   
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
   
2008
    
2007
    
2008
    
2007
  
   
(In thousands, except percentages)
  
Sales and marketing expenses
  
$
10,371
    
$
13,868
    
$
20,680
    
$
27,294
  
As a percentage of revenue
    
21.3
%
    
29.1
%
    
21.4
%
    
28.9
%
Change, period over period
  
$
(3,497
 )           
$
(6,614
 )         
Percentage change, period over period
    
(25.2
%)
            
(24.2
%)
        
 
The decrease in sales and marketing expenses in absolute dollars and percent of revenue for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007 was due primarily to an approximately $3.3 million decrease in compensation, commissions, travel and benefits expenses due to decreased sales personnel resulting from the restructuring plan in 2007. 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 as a percentage of revenues in the third quarter of 2008.

The decrease in sales and marketing expenses in absolute dollars and percent of revenue for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007 was due primarily to an approximately $5.2 million in decreased compensation, commission and benefits expenses due to decreased sales personnel resulting from the restructuring plan in 2007.  Targeted reductions in specific marketing programs further reduced sales and marketing expenses by approximately $921,000.  Additionally, the decreased sales personnel resulted in a $336,000 reduction in travel costs. The remaining portion of the decrease was due to individually insignificant items.

17
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.

   
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
   
2008
    
2007
    
2008
    
2007
  
   
(In thousands, except percentages)
  
General and administrative expenses
  
$
5,805
    
$
5,059
    
$
11,124
    
$
10,818
  
As a percentage of revenue
    
11.9
%
    
10.6
%
    
11.5
%
    
11.4
%
Change, period over period
  
$
746
            
$
306
          
Percentage change, period over period
    
14.7
%
            
2.8
%
        

General and administrative expenses increased for the three months ended June 30, 2008 as compared to the three months ended June 30, 2007. The increase was primarily driven by an increase in bad debt expense of approximately $574,000 and stock-based compensation expense of approximately $286,000.  The increase is offset in part by various individually insignificant items.  We expect that in future periods our general and administrative expenses will remain relatively constant in absolute dollars and as a percentage of revenues in the thrid quarter of 2008.

General and administrative expenses increased slightly for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007.  The increase was driven primarily by approximately $293,000 of bad debt expense.  The remaining portion of the increase was due to individually insignificant items.

Restructuring Charges

In November 2007, we recorded a restructuring charge of approximately $3.2 million related to (i) a workforce reduction of 72 employees spread across all functions though focused on sales and marketing, (ii) the abandonment of certain facilities and (iii) abandonment of certain capitalized assets totaling $900,000.  As of December 31, 2007, we finalized approximately 56 of the employment terminations and had fully vacated the abandoned facilities.

By February 2008, we finalized all of the employment terminations, settled all negotiations and paid out the remaining severance.  As a result of finalizing all such terminations as well as some additional charges related to abandoned facilities, we adjusted the accrual for the difference between initial estimates of severance and facility liability and the final payments ultimately made.  This adjustment of approximately $17,000 was credited to the restructuring expense in the first quarter of 2008.

SFAS No. 146 requires that liabilities recorded related to abandoned facilities be recorded at fair value.  The difference between the fair value of the liability at the time it was recorded and the total cash liability is accreted ratably over the expected term and is reported in the restructuring expense line on the condensed consolidated statements of operations.

Amortization of Acquired Intangibles

Amortization of acquired intangibles was approximately $1.1 million for each of the three months ended June 30, 2008 and June 30, 2007, and $2.1 million for each of the six months ended June 30, 2008 and June 30, 2007.
 
Some of our acquired intangibles will begin reaching the end of their estimated useful lives starting in the fourth quarter of 2008.  The following table presents the estimated future amortization of intangible assets (in thousands):

Fiscal Year
      
Remaining 2008
  
$
1,800
  
2009
    
2,401
  
2010
    
1,241
  
2011
    
1,021
  
2012
    
876
  
2013 and thereafter
    
65
  
   
$
7,404
  
 
18
Non-Operating Expenses

Interest Income and Other, Net

Interest income and other, net includes interest income on cash, cash equivalents, and short-term investment balances and foreign currency gains and losses. Interest income and other was $367,000 and $851,000 for the three months ended June 30, 2008 and June 30, 2007, respectively. Interest income decreased due to a lower short-term investment balance due to funds used for stock repurchases and lower interest rate.  Interest and other income decreased from $1.6 million for the six months ended June 30, 2007 to $956,000 for the six months ended June 30, 2008, respectively, due to lower short-term investment balances due to funds used for stock repurchases.

Benefit from Income Taxes

The benefit from income taxes was $478,000 and $715,000 for the three and six months ended June 30, 2008, respectively, compared to a benefit of $541,000 and $2.6 million for the three and six months ended June 30, 2007, respectively.  The decrease in benefit from income taxes is primarily due to the establishment of a valuation allowance against net deferred tax assets at December 31, 2007 due to continued losses in the US jurisdictions, as compared to the same periods in 2007.  The $478,000 benefit recorded in the six months ended June 30, 2008 primarily relates to the release of both FIN 48 reserves and foreign tax reserves from prior periods, net of foreign and minimum taxes in the current period.  The effective tax rate was (22) % and (19) % for the three months ended June 30, 2008 and 2007, respectively, and (19) % and (49) % for the six months ended June 30, 2008 and 2007, respectively.

Liquidity and Capital Resources

Since our initial public offering of common stock in July 2003, our principal source of funding has been cash from operations. As of June 30, 2008, our principal source of liquidity was $69.7 million of cash, cash equivalents and short-term investments as compared to $75.2 million at December 31, 2007.

Net cash provided by operating activities was $1.1 million for the six months ended June 30, 2008 compared to net cash used in operating activities of $4.1million for the six months ended June 30, 2007.  The primary drivers of the change from net cash used in operating activities in 2007 to cash provided by operating activities in 2008 were increased accounts payable resulting from slower payment of vendor invoices in 2008 and a $3.6 million decrease in corporate taxes payable in 2007 versus a decrease of $1.1 million in 2008.

Net cash used in investing activities was $17.1 million for the six months ended June 30, 2008 compared to net cash provided by investing activities of $38.7 million for the six months ended June 30, 2007.  The change is primarily due to a decrease in net maturities of short-term investments of $55.6 million.  In 2007, the company shifted funds from short-term investments to cash and cash equivalents whereas in 2008 has begun shifting back to short-term securities resulting in net purchases of short-term investments.

Net cash used in financing activities for the six months ended June, 2008 was $3.2 million, as compared to $10.4 million of cash used in financing activities for the six months ended June 30, 2007.  The decrease in net cash used in financing activities is primarily due to the repurchase of approximately 1.3 million shares for $3.7 million in the first six months of 2008 versus the repurchase of approximately 2.2 million shares for $12.1 million in the same period of the prior year.

Commitments

We have signed contracts with certain network service and mobile data providers under which we have minimum purchase commitments that expire on various dates through June 2011. 

In March 2008, we recorded a $323,000 liability for minimum purchase commitment shortfall with a service provider.  Future minimum purchase commitments under these agreements as of June 30, 2008 are as follows (in thousands):

Year ending December 31:
      
Remaining 2008
    
8,030
  
2009
    
12,183
  
2010
    
9,995
  
2011
    
2,550
  
   
$
32,758
  

19
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 June 30, 2008 are as follows (in thousands):

Year ending December 31:
      
Remaining 2008
  
$
3,649
  
2009
    
6,785
  
2010
    
4,651
  
2011
    
3,559
  
2012
    
2,728
  
2013 and thereafter
    
6,593
  
   
$
27,965
  

As a result, our combined purchase and operating lease commitments decreased by $5.4 million from December 31, 2007.  At June 30, 2008, we had no material commitments for capital expenditures.

In addition, in accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109 (“FIN 48”), the remaining reserve balance at June 30, 2008 is $1.9 million compared to $3.8 million at December 31, 2007.  Included in the unrecognized tax benefits at June 30, 2008 is $26,000 for accrued interest.

Liquidity and Capital Resource Requirements

Based on past performance and current expectations, we believe that our cash and cash equivalents, short-term investments, and cash generated from operations will satisfy our working capital needs, capital expenditures, investment requirements, commitments, and other liquidity requirements associated with our existing operations through at least the next 18 months. In addition to our historical working capital needs, we may utilize cash resources to fund acquisitions of complementary businesses, technologies or product lines. However, there are no current or planned transactions, arrangements, and other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of our requirements for capital resources.

 
20
 
 
FACTORS AFFECTING OPERATING RESULTS

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

Risks Relating to Our Business

If we are unable to meet the challenges posed by broadband access, our ability to profitably grow 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. In the United States as well as many other countries, the use of narrowband as a primary means of enterprise connectivity has significantly 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, 3G data, Wi-Max and other wireless technologies, including 3G, become more broadly used. A substantial portion of the growth of our business has depended on, and will continue to depend, in part upon our ability to expand the broadband elements of our virtual network to address these new technologies. Such an expansion may not result in additional revenues to us. Key challenges in expanding the broadband elements of our virtual network include:
 
The broadband access market continues to develop at a rapid pace. Although we derive revenues from wired and wireless broadband “hotspots”, such as particular airports, hotels and convention centers, the broadband access market, particularly for wireless access, continues to develop and demand at levels we anticipate may not develop. In particular, the market for enterprise connectivity services through broadband is characterized by evolving industry standards and specifications and there is currently no uniform standard for wireless access. Furthermore, although the use of wireless frequencies generally does not require a license in the United States and abroad, if Wi-Fi frequencies become subject to licensing requirements, or are otherwise restricted, this would substantially impair the growth of wireless access. Some large telecommunications providers and other stakeholders that pay large sums of money to license other portions of the wireless spectrum may seek to have the Wi-Fi spectrum become subject to licensing restrictions. If the broadband wireless access market does not develop, we will not be able to generate substantial revenues from broadband wireless access.

The broadband service provider market is highly fragmented. There are currently many wired and wireless broadband service providers that provide coverage in only one or a small number of hotspots. We have entered into contractual relationships with numerous broadband service providers. These contracts generally have an initial term of two years or less. 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 additional technologies in order to integrate new broadband services into our service offering. If we are unable to develop these relationships or technologies, 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, which could harm our operating results.

Broadband service provider actions may restrict our ability to sell our services.  Some network providers restrict our ability to sell access to their networks to iPass resellers whom they consider competitive with them.  This can reduce our revenue by limiting the footprint our partners can make available to their customers.  In addition in some geographies the conventional practice is for a mobile data (3G) carrier to provide a device on a subsidized basis.  This device cannot easily be used with any network besides that of the carrier who provides it, which makes it difficult for iPass to replace that carrier in the account and thus may negatively impact our ability to sign new enterprise customers to our Mobile Data service.

If demand for broadband access continues to increase but we do not meet the challenges outlined above, our ability to grow our business may suffer.

If we do not accurately predict usage for our Enterprise Flat Rate price plan, our costs could increase without a corresponding increase in revenue.

We have transitioned a number of our customers to our Enterprise Flat Rate price plan, and are signing new customers to this plan.  In this plan, our customers pay a flat rate price to access our services.  However, we continue to pay our providers based on usage.  The rate we charge in our Enterprise Flat Rate price plan is based on statistical predictions of usage across a pool of users within an enterprise.  If actual usage is higher than expected our profitability will be negatively impacted.

If we do not deliver valuable services for smart-phones and other Internet-connected handheld devices our ability to profitably grow our business may be impaired.

A variety of smart-phone devices are available in the marketplace enabling individuals to, among other things, check email and access the Internet.  There are a number of competing operating systems in use on these smart-phones.  Most of these smart-phones are distributed by mobile operators to their customers for use over their 3G mobile data networks, and the mobile operators subsidize the purchase price of the devices in exchange for a commitment to a long-term service contract.

If the capabilities of smart-phones cause our users to stop using laptops while traveling, or to use them less often, then our operating results may be harmed.  Further, if we do not develop valuable services for these smart-phones in a timely fashion, these devices may access the internet and or be managed without our services, impairing our ability to grow profitably.

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 reduce demand for our services. If outages occur, or if we experience hardware or software problems, our business could be harmed.

21
 We face strong competition in our market, which could make it difficult for us to succeed.

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

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.

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, voicemail and digital subscriber line, or DSL, 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.  In addition, telecommunications providers may also offer Wi-Fi for free as part of a home broadband or other service contract, which also may force down the prices which the market will bear for our services.
 
Users may adopt free Wi-Fi networks for internet and corporate access.  Some venues such as cafes and hotels offer Wi-Fi internet access as a free amenity for their customers.  Use at these venues may replace iPass “for charge” sessions and put downward pressure on flat rate prices iPass charges enterprises for its Wi-Fi remote access services.  In addition, if home users allow others to use their Wi-Fi networks in exchange for free access to other home networks, this may force down the prices which the market will bear for our services.

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.

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. 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.

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 model has changed to rely more on our channel partners.  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 demand for enterprise remote and mobile connectivity does not continue to expand, we may experience a shortfall in revenues or earnings or otherwise fail to meet public market expectations.

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, or grows in ways that do not use our services, then we may not be able to grow our business, maintain profitability 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 such as handhelds and smartphones and related applications.

22
If we are unable to meet the challenges related to the market acceptance and provision of our device management services, our ability to grow the business may be harmed.

We expect that the growth of our business may depend in part upon whether our device management services will achieve and sustain expected levels of demand and market acceptance. If enterprises do not perceive the benefits of our device management services, then the market for these services may not develop at all, or it may develop 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 developing our device management services which could delay or prevent the development 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 device 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.

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 1% of our revenues in the years ended December 31, 2007, 2006 and 2005.  If we lose access to Equant’s network and are unable to replace this access in some or all of these countries, our revenues would decline. In addition, our ability to market our services as being global would be impaired, which could cause us to lose customers. Our agreement with Equant expires in February 2009, but Equant may terminate the agreement earlier if we materially breach the contract and fail to cure the breach, or if we become insolvent. In addition, Equant has no obligation to continue to provide us with access to its network after February 2009. 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 decline, which has caused further consolidation among network service providers and which may impair our ability to provide reliable, redundant service coverage and negotiate favorable network access terms.

The telecommunications industry has experienced significant technological change and increased competition that have led to significant declines in network access pricing. In addition, the revenues of network service providers have declined as a result of the general economic slowdown. As a result, network service providers have experienced operating difficulties in the last several years, resulting in poor operating results and a number of these providers declaring bankruptcy. As these conditions have continued, some of these service providers have consolidated and are working to consolidate or otherwise cease operations, which would 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 we fail to address evolving standards and technological changes in the enterprise connectivity and device management services industry, our business could be harmed.

The market for enterprise connectivity, devices (laptops, handhelds, smart-phones) and device 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.

Because much of our business is international, we encounter additional risks, which may reduce our profitability.

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 for the first six months of 2008, of which approximately 27% and 7% were generated in our EMEA (Europe, Middle East and Africa) and Asia Pacific regions.  Revenues from customers domiciled outside of the United States were 38% of our revenues in 2007, of which approximately 27% and 7% 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.

23
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, if the contract is not a flat-rate contract 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 may 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.
 
 Completed or future acquisitions or investments could dilute the ownership of our existing stockholders, cause us to incur significant expenses or harm our operating results.

Integrating any newly acquired businesses, technologies or services may be expensive and time-consuming. For example, we completed the acquisitions of Safe3w, Inc. in September 2004, Mobile Automation, Inc. in October 2004 and GoRemote in February 2006. 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. In the case of completed or future acquisitions, we may be unable to operate any acquired businesses profitably or otherwise implement our strategy successfully. If we are unable to integrate any newly acquired entities, such as GoRemote, or technologies effectively, our operating results could suffer. Completed acquisitions by us, such as the aforementioned Safe3w, Inc., Mobile Automation, Inc. and GoRemote transactions, or future acquisitions by us could also result in large and immediate write-offs or assumption of debt and contingent liabilities, either of which could harm our operating results.

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 which 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.

If we are unable to effectively manage our India-based research and development operation, our business may be adversely impacted.  Much of our research and development activity occurs in India.  The remoteness of our India operation to corporate headquarters, as well as difficulty of acquiring and retaining talent in India, could impact our ability to release planned new products on time, which could adversely impact our business.

We currently are, 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. Beginning on January 14, 2005, three purported class action complaints, which were subsequently consolidated, were filed against iPass and certain of our executive officers, purportedly on behalf of a class of investors who purchased iPass stock between April 22, 2004 and June 30, 2004. If our stock price declines substantially in the future, we may be the target of similar litigation. The current, and 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.
 
If licenses to third party technologies, including our license with RSA Security, 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.

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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.

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.

Financial, political or economic conditions could adversely affect our revenues.

Our revenues and profitability depend on the overall demand for enterprise connectivity services. The weakening of the global economy may lead to decreased trade and corporate spending on Internet infrastructure. In addition, in the past, terrorist attacks, including the attacks on the United States and internationally, have had a significant impact on global economic conditions and our operations. If there are further acts of terrorism, if hostilities involving the United States and other countries continue or escalate, or if other future financial, political, economic and other uncertainties or natural disasters arise, this could lead to a reduction in travel, including by business travelers who are substantial users of our services, and continue to contribute to a climate of economic and political uncertainty that could adversely affect our revenue growth and financial results.

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.

 
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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 June 30, 2008, we had cash, cash equivalents, and short-term investments totaling $69.7 million, as compared to $75.2 million as of December 31, 2007 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 June 30, 2008 (in thousands):

   
Expected Maturity Date for Par Value Amounts For the Year Ended December 31,
    
As of June 30, 2008
  
   
2008
    
2009
    
2010
    
Total Cost Value
    
Total Fair Value
  
Government agencies
  
$
—
    
$
4,500
    
$
—
    
$
4,533
    
$
4,524
  
Money market securities
    
8,950
      
4,200
      
—
      
13,045
    
$
13,040
  
Total
  
$
8,950
    
$
8,700
    
$
—
    
$
17,578
    
$
17,564
  

The following compares the principal amounts of short-term investments by expected maturity as of December 31, 2007 (in thousands):
 
   
Expected Maturity Date for Par Value Amounts for the Year Ended December 31,
    
As of December 31, 2007
  
   
2008
    
2009
    
2010
    
Total Cost Value
    
Total Fair Value
  
Government agencies
  
$
4,250
    
$
—
    
$
—
    
$
4,256
    
$
4,258
  
Total
  
$
4,250
    
$
—
    
$
—
    
$
4,256
    
$
4,258
  

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.
 
 
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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 June 30, 2008, 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 June 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Not applicable.
 
 
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PART II. OTHER INFORMATION


We include in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risks Related to Our Operations” 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, 2007, as filed with the SEC on March 17, 2008, have not substantively changed.


On February 12, 2008, our 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 $3.2 million of stock was repurchased in the first quarter of 2008 and a total of $500,000 of stock was repurchased in the second quarter of 2008, leaving approximately $26.3 million that may be used for future repurchases.  Repurchases for the second quarter of 2008 were as set forth in the table below:

Issuer Purchases of Equity Securities (1)

 
(In thousands, except share and per share amounts)
  
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 (in thousands)
  
April 1, 2008 to April 30, 2008
    
0
    
$
0
      
1,083,559
    
$
26,828
  
May 1, 2008 to May 31, 2008
    
11,000
      
2.17
      
1,094,559
      
26,804
  
June 1, 2008 to June 30, 2008
    
218,252
      
2.18
      
1,312,811
      
26,328
  
Total
    
229,252
    
$
2.18
      
1,312,811
    
$
26,328
  
(1)  See first paragraph of this section for the information required to be described in the footnote to this table.


Our annual meeting of stockholders was held on May 29, 2008 in Redwood Shores, California. At the meeting, the following three proposals were voted on and approved as follows:

Proposal I

The following persons were elected as directors to serve for a three-year term:

   
Total Votes “For” Each Director
    
Total Votes “Withheld” from Each Director
  
A. Gary Ames
    
39,833,520
      
14,627,173
  
John D. Beletic
    
39,823,170
      
14,637,523
  
Peter C. Clapman
    
48,150,349
      
6,310,344
  
Stanley Gold
    
52,538,086
      
1,922,607
  

The following directors’ terms of office continued after the annual meeting: Kenneth D. Denman, Michael J. McConnell, Peter G. Bodine, Allan R. Spies, Olof Pripp and Arthur C. Patterson.

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Proposal II

The stockholders also ratified the amendments to the bylaws, as follows:

For
    
Against
    
Abstain
    
Broker Non-Votes
  
 
50,189,813
       4,208,312       62,568       0  

Proposal III

The stockholders also ratified the selection by the Audit Committee of our Board of Directors of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008, as follows:

For
    
Against
    
Abstain
    
Broker Non-Votes
  
  54,267,401       104,065       89,227       0  
 
 
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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
  
Amended and Restated Bylaws
 
4.1
  
Reference is made to Exhibits 3.1 and 3.2
 
4.2
  
Specimen stock certificate (2)
 
31.1
  
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
31.2
  
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
32.1
  
Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
32.2
  
Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
____________
(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/A (No. 333-102715), filed July 1, 2003 and incorporated herein by reference.

(3) Filed as an exhibit to the Current Report on Form 8-K (Commission No 000-50327), filed with the SEC on December 12, 2005, and incorporated herein by reference.  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. 

 
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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: August 11, 2008
By:
/s/ FRANK E. VERDECANNA
  
   
Frank E. Verdecanna
  
   
Vice President and Chief Financial Officer (duly authorized officer and principal financial officer)
  
       

 
31
 


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
  
Amended and Restated Bylaws
 
4.1
  
Reference is made to Exhibits 3.1 and 3.2
 
4.2
  
Specimen stock certificate (2)
 
31.1
  
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
31.2
  
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
32.1
  
Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
32.2
  
Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
____________
(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/A (No. 333-102715), filed July 1, 2003 and incorporated herein by reference.

(3) Filed as an exhibit to the Current Report on Form 8-K (Commission No 000-50327), filed with the SEC on December 12, 2005, and incorporated herein by reference.  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-3.2 2 form10q062008ex3p2.htm BYLAWS form10q062008ex3p2.htm
Exhibit 3.2
 
 
 
 

 
 
 
 
 
BYLAWS
 

 
OF
 

 
iPASS INC.
 
(A DELAWARE CORPORATION)
 
 
 

 
 
 
BYLAWS
 

 
OF
 

 
iPASS INC.
 
(A DELAWARE CORPORATION)
 
ARTICLE I                                
 
OFFICES
 
Section 1. Registered Office.  The registered office of the corporation in the State of Delaware shall be in the City of Dover, County of Kent.
 
Section 2. Other Offices.  The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.
 
ARTICLE II                                
 
CORPORATE SEAL
 
Section 3. Corporate Seal.  The Board of Directors may adopt a corporate seal.  The corporate seal shall consist of a die bearing the name of the corporation and the inscription, “Corporate Seal-Delaware.”  Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
 
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ARTICLE III                                
 
STOCKHOLDERS’ MEETINGS
 
Section 4. Place Of Meetings.  Meetings of the stockholders of the corporation may be held at such place, either within or without the State of Delaware, as may be determined from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law (“DGCL”).
 
Section 5. Annual Meetings.
 
(a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors.  Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders:  (i) pursuant to the corporation’s notice of meeting of stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the time of giving the stockholder’s notice provided for in the following paragraph, who is entitled to vote at the meeting and who complied with the notice procedures set forth in Section 5.
 
(b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting.  For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, (i) the stockholder must have given timely notice thereof in writing to the Secretary of the corporation, (ii) such other business must be a proper matter for stockholder action under DGCL, (iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the corporation with a Solicitation Notice (as defined in clause (iii) of the last sentence of this Section 5(b)), such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the corporation’s voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the corporation’s voting shares reasonably believed by such stockholder or beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section 5.  To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year’s annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made.  In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above.  Such stockholder’s notice shall set forth:  (A) as to each person whom the stockholder proposed to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “1934 Act”) and Rule 14a-4(d) thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation’s books, and of such beneficial owner, (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, and (iii) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of the proposal, at least the percentage of the corporation’s voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the corporation’s voting shares to elect such nominee or nominees (an affirmative statement of such intent, a “Solicitation Notice”).
 
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(c) Notwithstanding anything in the third sentence of Section 5(b) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least one hundred (100) days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Section 5 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the corporation.
 
(d) Only such persons who are nominated in accordance with the procedures set forth in this Section 5 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 5.  Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded.
 
(e) Notwithstanding the foregoing provisions of this Section 5, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders’ meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act.  Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation proxy statement pursuant to Rule 14a-8 under the 1934 Act.
 
(f) For purposes of this Section 5, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act.
 
Section 6. Special Meetings.
 
(a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption).  At any time or times that the corporation is subject to Section 2115(b) of the California General Corporation Law (“CGCL”), stockholders holding five percent (5%) or more of the outstanding shares shall have the right to call a meeting of stockholders only as set forth in Section 18(c) herein.
 
(b) If a special meeting is properly called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by certified or registered mail, return receipt requested, to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the corporation.  No business may be transacted at such special meeting otherwise than specified in such notice.  The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request.  Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws.  If the notice is not given within one hundred (100) days after the receipt of the request, the person or persons properly requesting the meeting may set the time and place of the meeting and give the notice.  Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.
 
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(c) Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation’s notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the corporation who is a stockholder of record at the time of giving notice provided for in these Bylaws who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 6(c).  In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the corporation’s notice of meeting, if the stockholder’s notice required by Section 5(b) of these Bylaws shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the one hundred twentieth (120th) day prior to such special meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting.  In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder’s notice as described above.
 
Section 7. Notice Of Meetings.  Except as otherwise provided by law, notice, given in writing or by electronic transmission, of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, if any, date and hour, in the case of special meetings, the purpose or purposes of the meeting, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at any such meeting.  If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the corporation.  Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, or by electronic transmission by such person, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person, by remote communication, if applicable, or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.  Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.
 
Section 8. Quorum.
 
(a) At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person, by remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business.  In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting.  The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.  Except as otherwise provided by statute or by applicable stock exchange or Nasdaq rules, or by the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of the majority of shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the subject matter shall be the act of the stockholders.
 
(b) Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, (i) in a contested election of directors (i.e. an election in which there are more nominees for director than there are open positions for directors), directors shall be elected by a plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the election of directors, and (ii) in any uncontested election of directors, directors shall be elected if they shall receive more “for” votes than “withheld” votes of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the election of directors.  The Board of Directors (or any committee thereof) shall nominate for re-election as director only those candidates who have tendered an irrevocable resignation as a director, which resignation shall be conditioned upon both (A) such director failing to have received more “for” votes than “withheld” votes in an election and (B) acceptance by the Board of Directors of such resignation. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person, by remote communication, if applicable, or represented by proxy duly authorized, shall constitute a quorum entitled to take action with respect to that vote on that matter. Except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (except in the case of the election of directors, which is as provided above) of shares of such class or classes or series present in person, by remote communication, if applicable, or represented by proxy at the meeting shall be the act of such class or classes or series.
 
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Section 9. Adjournment And Notice Of Adjourned Meetings.  Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting.  When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken.  At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting.  If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
 
Section 10. Voting Rights.  For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders.  Every person entitled to vote shall have the right to do so either in person, by remote communication, if applicable, or by an agent or agents authorized by a proxy granted in accordance with Delaware law.  An agent so appointed need not be a stockholder.  No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period.
 
Section 11. Joint Owners Of Stock.  If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect:  (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the DGCL, Section 217(b).  If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest.
 
Section 12. List Of Stockholders.  The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder.  Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the corporation.  In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation.  The list shall be open to examination of any stockholder during the time of the meeting as provided by law.
 
Section 13. Action Without Meeting.
 
(a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
 
(b) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the corporation in the manner herein required, written consents signed by a sufficient number of stockholders to take action are delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded.  Delivery made to a corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested.
 
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(c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take action were delivered to the corporation as provided in Section 228(c) of the DGCL.  If the action which is consented to is such as would have required the filing of a certificate under any section of the DGCL if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the DGCL.
 
Notwithstanding the foregoing, no such action by written consent  or electronic transmission may be taken following the closing of the initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “1933 Act”), covering the offer and sale of Common Stock of the corporation (the “Initial Public Offering”).
 
Section 14. Organization.
 
(a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman.  The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
 
(b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient.  Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot.  The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.  Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.
 
ARTICLE IV                                
 
DIRECTORS
 
Section 15. Number And Term Of Office.  The authorized number of directors of the corporation shall be fixed in accordance with the Certificate of Incorporation.  Directors need not be stockholders unless so required by the Certificate of Incorporation.  If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.
 
Section 16. Powers.  The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation.
 
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Section 17. Board of Directors. 
 
(a) Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, following the closing of the Initial Public Offering, the directors shall be divided into three classes designated as Class I, Class II and Class III, respectively.  Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors.  At the first annual meeting of stockholders following the initial classification of the Board of Directors, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years.  At the second annual meeting of stockholders following such initial classification, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years.  At the third annual meeting of stockholders following such initial classification, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years.  At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting.  During such time or times that the corporation is subject to Section 2115(b) of the CGCL, this Section 17(a) shall become effective and apply only when the corporation is a “listed” corporation within the meaning of Section 301.5 of the CGCL.
 
(b) In the event that the corporation is unable to have a classified Board of Directors under applicable law, Section 17(a) of these Bylaws shall not apply and all directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting.
 
(c) No stockholder entitled to vote at an election for directors may cumulate votes to which such stockholder is entitled, unless, at the time of the election, the corporation (i) is subject to §2115(b) of the CGCL and (ii) is not or ceases to be a “listed” corporation under Section 301.5 of the CGCL.  During this time, every stockholder entitled to vote at an election for directors may cumulate such stockholder’s votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholder’s shares are otherwise entitled, or distribute the stockholder’s votes on the same principle among as many candidates as such stockholder thinks fit.  No stockholder, however, shall be entitled to so cumulate such stockholder’s votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholder’s intention to cumulate such stockholder’s votes.  If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination.  Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected.
 
Notwithstanding the foregoing provisions of this section, each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal.  No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
 
Section 18. Vacancies.
 
(a) Unless otherwise provided in the Certificate of Incorporation and subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors.  Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified.  A vacancy in the Board of Directors shall be deemed to exist under this Section 18 in the case of the death, removal or resignation of any director.
 
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(b) If at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Delaware Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in offices as aforesaid, which election shall be governed by Section 211 of the DGCL.
 
(c) At any time or times that the corporation is subject to Section 2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in office who have been elected by stockholders shall constitute less than a majority of the directors then in office, then
 
(1) Any holder or holders of an aggregate of five percent (5%) or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of stockholders; or
 
(2) The Superior Court of the proper county shall, upon application of such stockholder or stockholders, summarily order a special meeting of stockholders, to be held to elect the entire board, all in accordance with Section 305(c) of the CGCL.  The term of office of any director shall terminate upon that election of a successor.
 
Section 19. Resignation.  Any director may resign at any time by delivering his or her notice in writing or by electronic transmission to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors.  If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors.  When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified.  
 
Section 20. Removal.  
 
(a) During such time or times that the corporation is subject to Section 2115(b) of the CGCL, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director’s removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director’s most recent election were then being elected.
 
(b) Following any date on which the corporation is no longer subject to Section 2115(b) of the CGCL and subject to any limitations imposed by law, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal.
 
Section 21. Meetings.
 
(a) Regular Meetings.  Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors, either orally or in writing, by telephone, including a voice-messaging system or other system designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means.  No further notice shall be required for regular meetings of the Board of Directors.
 
(b) Special Meetings.  Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the President or a majority of the authorized number of directors.
 
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(c) Meetings by Electronic Communications Equipment.  Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.
 
(d) Notice of Special Meetings.  Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting. If notice is sent by US mail, it shall be sent by first class mail, charges prepaid, at least three (3) days before the date of the meeting.  Notice of any meeting may be waived in writing, or by electronic transmission, at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
 
(e) Waiver of Notice.  The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present who did not receive notice shall sign a written waiver of notice or shall waive notice by electronic transmission.  All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting.
 
Section 22. Quorum And Voting.
 
(a) Unless the Certificate of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 43 hereof, for which a quorum shall be one-third of the exact number of directors fixed from time to time in accordance with the Certificate of Incorporation, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.
 
(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws.
 
Section 23. Action Without Meeting.  Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee.  Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
 
Section 24. Fees And Compensation.  Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors.  Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.
 
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Section 25. Committees.
 
(a) Executive Committee.  The Board of Directors may appoint an Executive Committee to consist of one (1) or more members of the Board of Directors.  The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any bylaw of the corporation.
 
(b) Other Committees.  The Board of Directors may, from time to time, appoint such other committees as may be permitted by law.  Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws.
 
(c) Term.  The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock and the provisions of subsections (a) or (b) of this Bylaw, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee.  The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors.  The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee.  The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
 
(d) Meetings.  Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter.  Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors.  Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.  Unless otherwise provided by the Board of Directors in the resolutions authorizing the creation of the committee, a majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.
 
Section 26. Organization.  At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President (if a director), or if the President is absent, the most senior Vice President (if a director), or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting.  The Secretary, or in his absence, any Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
 
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ARTICLE V                                
 
OFFICERS
 
Section 27. Officers Designated.  The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors.  The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary.  The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate.  Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law.  The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors.
 
Section 28. Tenure And Duties Of Officers.
 
(a) General.  All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed.  Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors.  If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.
 
(b) Duties of Chairman of the Board of Directors.  The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors.  The Chairman of the Board of Directors shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.  If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 28.
 
(c) Duties of President.  The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present.  Unless some other officer has been elected Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.
 
(d) Duties of Vice Presidents.  The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant.  The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
 
(e) Duties of Secretary.  The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation.  The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice.  The Secretary shall perform all other duties provided for in these Bylaws and other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.  The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
 
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(f) Duties of Chief Financial Officer.  The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President.  The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation.  The Chief Financial Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.  The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
 
Section 29. Delegation Of Authority.  The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.
 
Section 30. Resignations.  Any officer may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors or to the President or to the Secretary.  Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time.  Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective.  Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer.
 
Section 31. Removal.  Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors.
 
ARTICLE VI                                
 
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION
 
Section 32. Execution Of Corporate Instruments.  The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation.
 
All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.
 
Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
 
Section 33. Voting Of Securities Owned By The Corporation.  All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President.
 
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ARTICLE VII                                           
 
SHARES OF STOCK
 
Section 34. Form And Execution Of Certificates.  The shares of the corporation shall be represented by certificates, or shall be uncertificated.  Certificates for the shares of stock, if any, shall be in such form as is consistent with the Certificate of Incorporation and applicable law.  Every holder of stock represented by certificate in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by such holder in the corporation.  Any or all of the signatures on the certificate may be facsimiles.  In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue.  
 
Section 35. Lost Certificates.  A new certificate or certificates may be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed.  The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or the owner’s legal representative, to agree to indemnify the corporation in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.
 
Section 36. Transfers.
 
(a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and in the case of stock represented by certificate, upon the surrender of a properly endorsed certificate or certificates for a like number of shares.
 
(b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.
 
Section 37. Fixing Record Dates.
 
(a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, subject to applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting.  If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.  A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
 
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(b) Prior to the Initial Public Offering, in order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors.  Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date.  The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date.  If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded.  Delivery made to the corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested.  If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
 
(c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action.  If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
 
Section 38. Registered Stockholders.  The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
 
ARTICLE VIII                                           
 
OTHER SECURITIES OF THE CORPORATION
 
Section 39. Execution Of Other Securities.  All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons.  Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person.  In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.
 
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ARTICLE IX                                

DIVIDENDS
 
Section 40. Declaration Of Dividends.  Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting.  Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law.
 
Section 41. Dividend Reserve.  Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
 
ARTICLE X                                
 
FISCAL YEAR
 
Section 42. Fiscal Year.  The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.
 
ARTICLE XI                                
 
INDEMNIFICATION
 
Section 43. Indemnification Of Directors, Executive Officers, Other Officers, Employees And Other Agents.
 
(a) Directors and Executive Officers. The corporation shall indemnify its directors and executive officers (For the purposes of this Article XI, “Executive Officers” shall have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) to the fullest extent not prohibited by the DGCL or any other applicable law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers; and, provided, further, that the corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the DGCL or any other applicable law or (iv) such indemnification is required to be made under subsection (d).
 
 
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(c) Expenses.  The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or executive officer, of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding provided, however, that if the DGCL requires, an advancement of expenses incurred by a director or executive officer in his or her capacity as a director or executive officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the corporation of an undertaking (hereinafter an “Undertaking”), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “final adjudication”) that such indemnitee is not entitled to be indemnified for such expenses under this Section 43 or otherwise.
 
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Section 43, no advance shall be made by the corporation to an executive officer of the corporation (except by reason of the fact that such executive officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by a majority vote of directors who were not parties to the proceeding, even if not a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or such directors so direct, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.
 
(d) Enforcement.  Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or executive officer.  Any right to indemnification or advances granted by this Section 43 to a director or executive officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor.  The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim.  In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the corporation to indemnify the claimant for the amount claimed.  In connection with any claim by an executive officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful.  Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or executive officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or executive officer is not entitled to be indemnified, or to such advancement of expenses, under this section 43 or otherwise shall be on the corporation.
 
(e) Non-Exclusivity of Rights.  The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office.  The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL, or by any other applicable law.
 
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(f) Survival of Rights.  The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director or executive officer and shall inure to the benefit of the heirs, executors and administrators of such a person.
 
(g) Insurance.  To the fullest extent permitted by the DGCL or any other applicable law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Section 43.
 
(h) Amendments.  Any repeal or modification of this Section 43 shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.
 
(i) Saving Clause.  If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this Section 43 that shall not have been invalidated, or by any other applicable law.  If this Section 43 shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation shall indemnify each director and executive officer to the full extent under any other applicable law.
 
(j) Certain Definitions.  For the purposes of this Bylaw, the following definitions shall apply:
 
(1) The term “proceeding” shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.
 
(2) The term “expenses” shall be broadly construed and shall include, without limitation, court costs, attorneys’ fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.
 
(3) The term the “corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section 43 with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
 
(4) References to a “director,” “executive officer,” “officer,” “employee,” or “agent” of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.
 
(5) References to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the corporation” shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred to in this Section 43.
 
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ARTICLE XII                                           
 
NOTICES
 
Section 44. Notices.
 
(a) Notice To Stockholders. Written notice to stockholders of stockholder meetings shall be given as provided in Section 7 herein.  Without limiting the manner by which notice may otherwise be given effectively to stockholders under any agreement or contract with such stockholder, and except as otherwise required by law, written notice to stockholders for purposes other than stockholder meetings may be sent by US mail or nationally recognized overnight courier, or by facsimile, telegraph or telex or by electronic mail or other electronic means.
 
(b) Notice To Directors.  Any notice required to be given to any director may be given by the method stated in subsection (a), as otherwise provided in these Bylaws, or by overnight delivery service, facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.
 
(c) Affidavit Of Mailing.  An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, or other agent, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained.
 
(d) Methods of Notice.  It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.
 
(e) Notice To Person With Whom Communication Is Unlawful.  Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person.  Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given.  In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
 
(f) Notice To Person With Undeliverable Address.  Whenever notice is required to be given, under any provision of law or the Certificate of Incorporation or Bylaws of the corporation, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve-month period, have been mailed addressed to such person at his address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required.  Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given.  If any such person shall deliver to the corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated.  In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this paragraph.
 
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ARTICLE XIII                                           
 
AMENDMENTS
 
Section 45. The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the corporation.  Any adoption, amendment or repeal of the Bylaws of the corporation by the Board of Directors shall require the approval of a majority of the authorized number of directors.  The stockholders shall also have power to adopt, amend or repeal the Bylaws of the corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the corporation required by law or by the Certificate of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the corporation.
 
ARTICLE XIV                                           
 
LOANS TO OFFICERS
 
Section 46. Loans To Officers.  Except as prohibited by law, the corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation.  The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation.  Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.
 
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Table Of Contents
 
   
Page 
ARTICLE I
Offices
1
Section 1.
Registered Office
1
Section 2.
Other Offices
1
ARTICLE II
Corporate Seal
1
Section 3.
Corporate Seal
1
ARTICLE III
Stockholders’ Meetings
2
Section 4.
Place Of Meetings
2
Section 5.
Annual Meetings
2
Section 6.
Special Meetings
3
Section 7.
Notice Of Meetings
4
Section 8.
Quorum
4
Section 9.
Adjournment And Notice Of Adjourned Meetings
5
Section 10.
Voting Rights
5
Section 11.
Joint Owners Of Stock
5
Section 12.
List Of Stockholders
5
Section 13.
Action Without Meeting
5
Section 14.
Organization
6
ARTICLE IV
Directors
6
Section 15.
Number And Term Of Office
6
Section 16.
Powers
6
Section 17.
Board of Directors
7
Section 18.
Vacancies
7
Section 19.
Resignation
8
Section 20.
Removal
8
Section 21.
Meetings
8
Section 22.
Quorum And Voting
9
Section 23.
Action Without Meeting
9
Section 24.
Fees And Compensation
9
Section 25.
Committees
10
Section 26.
Organization
10
ARTICLE V
Officers
11
Section 27.
Officers Designated
11
Section 28.
Tenure And Duties Of Officers
11
Section 29.
Delegation Of Authority
12
Section 30.
Resignations
12
Section 31.
Removal
12
ARTICLE VI
Execution Of Corporate Instruments And Voting Of Securities Owned By The Corporation
12
Section 32.
Execution Of Corporate Instruments
12
Section 33.
Voting Of Securities Owned By The Corporation
12
ARTICLE VII
Shares Of Stock
13
Section 34.
Form And Execution Of Certificates
13
Section 35.
Lost Certificates
13
Section 36.
Transfers
13
Section 37.
Fixing Record Dates
13
Section 38.
Registered Stockholders
14
ARTICLE VIII
Other Securities Of The Corporation
14
Section 39.
Execution Of Other Securities
14
ARTICLE IX
Dividends
15
Section 40.
Declaration Of Dividends
15
Section 41.
Dividend Reserve
15
ARTICLE X
Fiscal Year
15
Section 42.
Fiscal Year
15
ARTICLE XI
Indemnification
15
Section 43.
Indemnification Of Directors, Executive Officers, Other Officers, Employees And Other Agents
15
ARTICLE XII
Notices
18
Section 44.
Notices
18
ARTICLE XIII
Amendments
19
Section 45.
The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the corporation
19
ARTICLE XIV
Loans To Officers
19
Section 46.
Loans To Officers
19
 
i
 EX-31.1 3 form10q062008ex31p1.htm CEO 302 CERTIFICATION form10q062008ex31p1.htm
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.
 
 
iPass Inc.
  
       
August 11, 2008
By:
/s/ Kenneth D. Denman
  
   
Kenneth D. Denman
  
   
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
  
       
 
 EX-31.2 4 form10q062008ex31p2.htm CFO 302 CERTIFICATION form10q062008ex31p2.htm
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.
 
 
iPass Inc.
  
       
August 11, 2008
By:
    
   
Frank E. Verdecanna
  
   
Vice President and Chief Financial Officer
(Principal Financial Officer)
  
       
 
 EX-32.1 5 form10q062008ex32p1.htm CEO 906 CERTIFICATION form10q062008ex32p1.htm
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 June 30, 2008 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.
 
 
iPass Inc.
  
       
August 11, 2008                                                       
By:
    
   
Kenneth D. Denman
  
   
Chairman, President 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 6 form10q062008ex32p2.htm CFO 906 CERTIFICATION form10q062008ex32p2.htm
EXHIBIT 32.2
 
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 June 30, 2008 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.
 
 
iPass Inc.
  
       
August 11, 2008
By:
    
   
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.
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