<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 22, 1999
REGISTRATION NO. 333-87497
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GRIC COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
--------------------------
<TABLE>
<S> <C> <C>
DELAWARE 334410 77-0368092
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
</TABLE>
GRIC COMMUNICATIONS, INC.
1421 MCCARTHY BOULEVARD
MILPITAS, CALIFORNIA 95035
(408) 955-1920
(Address and telephone number of Registrant's principal executive offices)
JOSEPH M. ZAELIT
SENIOR VICE PRESIDENT, FINANCE & ADMINISTRATION
AND CHIEF FINANCIAL OFFICER
GRIC COMMUNICATIONS, INC.
1421 MCCARTHY BOULEVARD
MILPITAS, CALIFORNIA 95035
(408) 955-1920
(Name, address and telephone number of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID W. HEALY, ESQ. KENNETH LAMB, ESQ.
HORACE L. NASH, ESQ. RICHARD A. STRONG, ESQ.
WILLIAM R. SCHREIBER, ESQ. STANLEY SZE, ESQ.
THOMAS J. HALL, ESQ. TILDA CHO, ESQ.
JOSHUA N. SUN, ESQ. JOHN Z. CHEN, ESQ.
H. DANIEL KIM, ESQ. GIBSON, DUNN & CRUTCHER LLP
FENWICK & WEST LLP ONE MONTGOMERY STREET
TWO PALO ALTO SQUARE SAN FRANCISCO, CALIFORNIA 94104
PALO ALTO, CALIFORNIA 94306 (415) 393-8200
(650) 494-0600
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 22, 1999
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
4,600,000 SHARES
[LOGO]
COMMON STOCK
$ PER SHARE
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This is an initial public offering of common stock of GRIC Communications, Inc.
This is a firm commitment underwriting.
GRIC expects that the price to the public in the offering will be between $10.00
and $12.00 per share.
We have applied to include the common stock on the Nasdaq National Market under
the symbol "GRIC."
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Price to the public............................ $ $
Underwriting discount..........................
Proceeds to GRIC...............................
</TABLE>
GRIC has granted an over-allotment option to the underwriters. Under this
option, the underwriters may elect to purchase a maximum of 690,000 additional
shares from GRIC within 30 days following the date of this prospectus to cover
over-allotments.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CIBC WORLD MARKETS
U.S. BANCORP PIPER JAFFRAY
VOLPE BROWN WHELAN & COMPANY
The date of this prospectus is , 1999.
<PAGE>
INSIDE FRONT COVER:
[GRIC logo]
Headline: GRIC Alliance Network
[picture of our network footprint for Internet roaming and telephony showing
countries covered by Internet roaming points of presence, and Internet telephony
gateway locations]
INSIDE FRONT SPREAD:
[GRIC logo]
Headline: Multiple Internet Services. One Global Solution.
[picture shows how we operate our network and GRIC CSP to manage the GRIC
Alliance, and how service providers in the GRIC Alliance provide Internet
services to their end users]
Text:
WE CREATE software and technology known as GRIC Convergent Services Platform, to
facilitate delivery of multiple Internet-based services by our customers.
WE MANAGE the GRIC Alliance, our global network of relationships that allow our
customers to share their communications networks, expand their global presence
and sell our products to their end users.
INSIDE BACK COVER:
[GRIC logo]
[picture of a globe]
Text: Multiple Internet services
One global solution
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 7
Forward-Looking Statements.................................. 16
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Dilution.................................................... 18
Selected Consolidated Financial Data........................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 32
Management.................................................. 49
Related Party Transactions.................................. 59
Principal Stockholders...................................... 60
Description of Capital Stock................................ 62
Shares Eligible for Future Sale............................. 65
Underwriting................................................ 67
Legal Matters............................................... 69
Experts..................................................... 69
Where You Can Find Additional Information................... 69
Index to Consolidated Financial Statements.................. F-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED IN OTHER PARTS OF THIS PROSPECTUS.
BECAUSE IT IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE INVESTING IN THE SHARES. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY. GRIC COMMUNICATIONS IS A START-UP COMPANY WITH A HISTORY
OF LOSSES, AN ACCUMULATED DEFICIT OF APPROXIMATELY $40.5 MILLION AS OF
SEPTEMBER 30, 1999 AND AN EXPECTATION OF CONTINUED LOSSES.
GRIC COMMUNICATIONS, INC.
OVERVIEW
We provide services and software that enable our customers to offer
Internet-based products and services, such as Internet telephony and Internet
roaming, to their end users worldwide. We also provide settlement services to
our customers, from which we generate a majority of our revenues. Our customers
include telecommunications companies, Internet service providers and
newly-emerging communications service providers. We provide our services and
software through a global network of our customers that we call the GRIC
Alliance. We created this alliance by forming contractual relationships with our
customers that allow them to share their communications networks. We use our
internally-developed software platform, which we call GRIC Convergent Services
Platform or GRIC CSP, to manage this shared network and to provide settlement
services. As a settlement services clearinghouse we have established common
technical, service and payment standards to settle charges that our customers
incur when their end users access the networks of other GRIC Alliance members to
initiate Internet access outside their home territory (Internet roaming) or to
place a telephone call through the Internet (Internet telephony).
As of September 30, 1999, the GRIC Alliance included the communications networks
of over 300 GRIC Alliance members and more than 4,000 Internet access points
located in over 140 countries.
GRIC CSP is a software platform that we designed and created to facilitate the
introduction, deployment and management of new Internet-based services across
the disparate networks that form the GRIC Alliance. Through GRIC CSP, which
operates in multiple hardware and software environments, we provide our
customers with transaction management services, end user authentication and
authorization, route termination and settlement services.
A number of factors have combined to create new opportunities for providers of
Internet-based services. These factors include improvements in technology,
greater efficiency of Internet-based communications, global deregulation of the
communications industry and the convergence of Internet-based communications and
traditional telecommunications markets. For example, according to International
Data Corporation, voice minutes transmitted over Internet-based networks are
expected to increase from 300 million minutes in 1998 to 135 billion minutes in
2004. In addition, the Yankee Group estimates that the worldwide market for
remote access services, including Internet roaming, will increase from
approximately $460 million in 1998 to approximately $1.98 billion in 2002.
STRATEGY
Our goal is to become the preferred global provider of Internet-based
communications infrastructure and clearinghouse services. In order to achieve
this goal, we intend to:
- continue to add members to the GRIC Alliance;
- cross-sell products and services to GRIC Alliance members;
- enhance our technology leadership;
- promote the adoption of GRIC CSP;
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<PAGE>
- leverage strategic relationships; and
- increase transaction-based revenue.
PRODUCTS AND SERVICES
Our Internet telephony service enables our customers to offer their end users
the opportunity to make low-cost, high quality, Internet-based phone calls. Our
Internet roaming solution, which includes GRICtraveler and GRICdial software,
allows our customers to provide their end users with low cost access to the
Internet throughout the world by dialing a local number, eliminating the need
for costly international calls to their "home" Internet service provider. We
generate settlement revenues when we provide settlement services to customers
whose end users initiate Internet roaming services or place Internet telephone
calls. We intend to make significant investments to enhance GRIC CSP and to
develop and market additional Internet-based products and services.
----------------------------
RECENT EVENT
On November 12, 1999 we issued 600,240 shares of our Series E Preferred Stock,
convertible into 600,240 shares of common stock, to Nokia Holdings, Inc. for an
aggregate purchase price of $6.0 million.
----------------------------
Our principal executive offices are located at 1421 McCarthy Blvd., Milpitas,
California 95035 and our telephone number is (408) 955-1920.
GRIC is our registered trademark and GRIC Alliance, GRIC Network, GRIC Alliance
Network, Global Reach Internet Connection, GRICprepaid, GRICtraveler, GRICphone,
GRICfax, GRIC CSP, GRIC Convergent Services Platform, the GRIC logo and
"Technology that brings intelligence to the Internet" are our trademarks. This
prospectus also contains trademarks of other companies and organizations.
UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS
ASSUMES:
- OUR REINCORPORATION IN DELAWARE PRIOR TO COMPLETION OF THIS OFFERING AND THE
ASSOCIATED EXCHANGE OF SHARES OF COMMON STOCK AND PREFERRED STOCK IN THE
CALIFORNIA PREDECESSOR FOR SHARES OF COMMON STOCK AND PREFERRED STOCK IN THE
DELAWARE CORPORATION THAT HAS THE EFFECT OF A 1-FOR-2.8 REVERSE STOCK SPLIT;
- THE CONVERSION OF EACH OUTSTANDING SHARE OF PREFERRED STOCK INTO ONE SHARE
OF COMMON STOCK;
- THE ADOPTION OF A 1999 EQUITY INCENTIVE PLAN AND A 1999 EMPLOYEE STOCK
PURCHASE PLAN;
- THAT THE UNDERWRITERS WILL NOT EXERCISE THEIR OVER-ALLOTMENT OPTION;
- EXERCISE OF WARRANTS TO PURCHASE 223,206 SHARES OF COMMON STOCK, WHICH WOULD
OTHERWISE EXPIRE UPON THE COMPLETION OF THIS OFFERING; AND
- NO EXERCISE OF WARRANTS TO PURCHASE 132,208 SHARES OF COMMON STOCK WHICH
SURVIVE THE COMPLETION OF THIS OFFERING.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered..................................... 4,600,000 shares
Common stock to be outstanding after the offering........ 17,723,311 shares
Use of proceeds.......................................... For general corporate purposes, capital
expenditures and working capital. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol................... GRIC
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on the number of shares outstanding as of September 30, 1999. This number
does not include 600,240 shares of our Series E Preferred Stock (convertible
into 600,240 shares of common stock) that were issued on November 12, 1999.
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Total revenues............ $ -- $ -- $ 403 $ 1,534 $ 2,549 $ 1,713 $ 5,437
Operating loss............ -- -- (1,035) (8,206) (17,487) (11,105) (14,255)
Loss from discontinued
operations.............. (93) (726) (1,683) (774) -- -- --
Net loss.................. $ (93) $ (726) $ (2,614) $ (3,842) $ (17,902) $ (11,013) $ (15,287)
Basic and diluted net
loss per share from
continuing
operations............ $ -- $ -- $ (0.52) $ (4.42) $ (9.19) $ (5.66) $ (7.61)
========== ========== ========== ========== ========== ========== ===========
Shares used to compute
basic and diluted net
loss per share.......... 1,925,636 1,998,043 1,788,684 1,851,140 1,948,424 1,946,870 2,009,596
Pro forma basic and
diluted net loss per
share from continuing
operations(1)........... $ (2.27) $ (1.42)
========== ===========
Shares used to compute pro
forma basic and diluted
net loss per share(1)... 7,889,323 10,782,381
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $10,181 $58,563
Working capital............................................. 6,013 54,395
Total assets................................................ 16,438 64,820
Long-term debt and capital lease obligations, less current
portion................................................... 1,116 1,116
Redeemable convertible preferred stock...................... 8,590 --
Total stockholders' equity (deficit)........................ (260) 56,712
</TABLE>
- ---------------------------
(1) The pro forma information gives effect to the conversion of all outstanding
shares of preferred stock on September 30, 1999 into 10,673,854 shares of
common stock and the exercise of warrants to purchase 223,206 shares of
common stock upon the closing of this offering at a price per share of
$7.00.
(2) The as adjusted information gives effect to (i) the sale of the
4,600,000 shares of common stock that we are offering under this prospectus
at an assumed initial public offering price of $11.00 per share after
deducting the estimated underwriting discounts and estimated offering
expenses and (ii) the pro forma adjustments mentioned in footnote
(1) above. See "Capitalization."
6
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS BEFORE DECIDING TO INVEST IN THE SHARES. THESE RISKS ARE THE
ONES WE CONSIDER TO BE SIGNIFICANT TO YOUR DECISION WHETHER TO INVEST IN OUR
COMMON STOCK AT THIS TIME.
RISKS RELATED TO OUR BUSINESS
OUR OPERATING HISTORY IS MORE LIMITED THAN THAT OF MANY OTHER COMPANIES, SO YOU
MAY FIND IT DIFFICULT TO EVALUATE OUR BUSINESS IN MAKING AN INVESTMENT DECISION.
We have limited experience in developing and providing our products and
services. Since our inception, we have had limited revenues from our current
Internet-based communications software products and services, and have never
generated revenues from licensing our GRIC Convergent Services Platform
software, or GRIC CSP software, as a separately licensed product. Many members
of our senior management team and other employees have worked with us for only a
short period of time. Consequently, we have not demonstrated that our business
can succeed.
WE HAVE NOT BEEN PROFITABLE TO DATE, WE MAY NEVER BE PROFITABLE AND WE
ANTICIPATE CONTINUED LOSSES FOR THE FORESEEABLE FUTURE.
To date, we have not been profitable. We cannot assure you that we will ever
achieve or sustain profitability. We reported operating losses of $14.3 million
for the first nine months of 1999, $17.5 million for 1998 and $8.2 million for
1997. As of September 30, 1999, our accumulated deficit was $40.5 million. We
expect to incur operating losses for the foreseeable future. In particular, we
expect to continue to invest heavily in research and development and sales and
marketing, and we expect to face pressure to adopt new pricing arrangements,
including volume discounts, that may lower our gross margins. If revenues do not
meet levels we anticipate, or if our costs and expenses exceed our expectations,
we will continue to sustain losses, and our business and the price of our common
stock may be harmed. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for detailed information on our history of losses and anticipation
of continued losses.
IF WE FAIL TO DEVELOP GRIC CSP SOFTWARE PRODUCTS OR WE OR OTHERS FAIL TO DEVISE
AN APPROPRIATE PRICING MODEL FOR THESE PRODUCTS, WE ARE UNLIKELY TO ACHIEVE OUR
REVENUE GOALS.
Our future growth and profitability, if any, depend, to a great extent, on our
being able to develop and market future versions of our GRIC CSP software that
can be licensed to current and potential customers as a separate product. This
is a complex, long-term development effort in a rapidly changing and competitive
arena. We may not be able to complete the effort successfully or in a timely
fashion, particularly given our lack of experience in development projects of
this magnitude.
Even if we succeed in developing future versions of our GRIC CSP software, we do
not know whether they will achieve market acceptance at all or, if they do, that
they will support the pricing levels or generate the revenues we anticipate. We
have not yet established pricing for any GRIC CSP software products or related
services. We have limited experience with the transaction-based revenue models
that we hope to use with our GRIC CSP software. If we fail to establish a
pricing model acceptable to our customers, our GRIC CSP software products will
not be commercially successful. Further, we do not know whether third-party
developers of Internet communications applications will be willing to develop
new applications that interface with our GRIC CSP software platform, or that we
will be able to develop any applications of this type ourselves. If no such
applications are developed, our GRIC CSP software will not achieve market
acceptance. These uncertainties make it difficult to make any judgment about our
future business prospects.
7
<PAGE>
OUR SUCCESS DEPENDS ON OUR ABILITY TO MAINTAIN AND INCREASE OUR CUSTOMER BASE.
Our goal of achieving profitability depends on our ability to maintain and
expand our customer base. However, our customers are generally free to use
competing products and services, and the costs of switching are low, so we could
face significant customer losses. Our customers are generally not obligated to
generate minimum revenues, and some generate very little revenue for us. These
factors make it difficult to anticipate what our future revenues from existing
customers will be. In addition, our success depends on our ability to expand our
customer base. World Access Telecommunications accounted for approximately 10.8%
of our total revenues for the nine months ended September 30, 1999. If we lose
any significant customer or are unable to expand our customer base and to
increase our average revenues per customer, our business will be harmed.
WE DEPEND ON OUR CUSTOMERS TO MARKET NEW INTERNET-BASED SERVICES TO THEIR END
USERS, SO OUR REVENUES DEPEND ON THE ACTIVITIES OF OTHERS AND THE MARKET
ACCEPTANCE OF THOSE NEW SERVICES.
Our business depends on the efforts and success of our customers in marketing
Internet-based services to their end users. Our ability to promote those
services is limited. Many Internet-based services, such as Internet telephony,
are new and have not achieved widespread acceptance in the marketplace. As a
result, our customers may be reluctant to promote these services until they gain
greater commercial acceptance, which may never occur. If our customers fail to
market Internet-based services effectively, for any reason, our revenues would
be reduced.
WE FACE SIGNIFICANT COMPETITION IN THE MARKETS IN WHICH WE OPERATE, INCLUDING
COMPETITION FROM LARGE TELEPHONE COMPANIES, WHICH COULD MAKE IT MORE DIFFICULT
FOR US TO SUCCEED.
There are low barriers to entry by new or existing businesses seeking to offer
services on the Internet. As a result, our business environment is intensely
competitive, highly fragmented and rapidly changing. Competition can come from
many sources and may be focused on different segments of our business. For
example, we compete directly with iPass in the market for Internet roaming and
related settlement services, and iPass has a network that competes with the GRIC
Alliance. Our competitor, Transnexus, offers a clearinghouse service for
Internet telephony and, like us, their service operates in multiple hardware and
software environments. Providers of Internet telephony services, such as iBasis
(formerly VIP Calling) and ITXC, compete with our Internet telephony offerings.
Potential competitors to future stand-alone products based on GRIC CSP software
may include independent software vendors and vendors of operations support
system software, such as CAP Gemini, EDS and Lucent Technologies. Large
telephone companies such as AT&T and MCI Worldcom have the ability and resources
to compete in any or all of our markets or future markets if they choose to do
so.
Many of our competitors have substantially greater resources, larger customer
bases, longer operating histories, greater name recognition and more established
relationships in the industry than we have. Any of these competitors may combine
or form strategic partnerships, gaining competitive advantages as a result. Our
competitors may be able to develop and market products and services that are
superior to our own in terms of features, quality, pricing or other factors. In
that event, our products and services may not achieve the market acceptance
necessary for us to achieve success. See "Business--Competition."
IF WE ARE UNABLE TO MANAGE RAPID GROWTH, THE GRIC ALLIANCE AND OUR PRODUCT
DEVELOPMENT EFFORTS EFFECTIVELY, OUR BUSINESS AND THE PRICE OF OUR STOCK WILL BE
HARMED.
In recent periods, rapid growth of the GRIC Alliance and acceleration of our
product development efforts have strained our network operations, product
development and other managerial, operating and financial resources. We expect
these strains to continue if we continue our growth, and our
8
<PAGE>
financial performance and our ability to compete effectively will depend, in
part, on our ability to manage any future growth effectively. To that end, we
must:
- manage our research and development efforts;
- expand the capacity, scalability and performance of our network and software
infrastructure;
- develop our administrative, accounting and management information systems
and controls;
- improve coordination among our engineering, accounting, finance, marketing
and operations personnel; and
- hire and train additional qualified personnel.
We may not be able to accomplish these tasks, which would harm our business and
the price of our stock.
INTERNET TELEPHONY HAS NOT ACHIEVED, AND MAY NEVER ACHIEVE, WIDESPREAD MARKET
ACCEPTANCE.
Using Internet telephony for voice traffic may never achieve widespread
acceptance. The Internet telephony market is relatively new; less than 1% of all
voice calls worldwide are currently transmitted over Internet-based networks. We
expect both telecommunications companies and telephone users to resist changing
to Internet-based telephony unless it offers clear benefits. Historically, the
sound quality of Internet telephone calls has been poor. Due to capacity
constraints on the Internet over which Internet telephone calls travel, callers
sometimes experience transmission delays or transmission errors. If Internet
telephone calls do not achieve commercial acceptance at all or as soon as
anticipated, our efforts to increase our Internet telephone call business, which
is key to our business strategy, could suffer.
THE SUCCESS OF OUR INTERNET TELEPHONY BUSINESS DEPENDS ON RELATIONSHIPS WITH
THIRD PARTIES, WHICH MAY BE DIFFICULT TO ESTABLISH AND MAINTAIN.
The development of our Internet telephony business will depend on our ability to
establish and maintain strategic relationships with technology leaders. For
example, we must maintain compatibility of our products with the Internet
telephony equipment of Lucent Technologies and Cisco Systems since they are
currently the most significant manufacturers of Internet telephony equipment. We
must also remain compliant with industry standards set by third parties.
Further, to increase traffic for our Internet telephony service, we must
continue to make arrangements with third parties to originate and terminate
customer calls and to expand our network. If we fail to develop and maintain
relationships of this sort, we will be unable to increase our Internet telephony
business, which is key to our business strategy.
WE EXPECT THE PRICING ADVANTAGE OF INTERNET TELEPHONY TO DECLINE, WHICH WOULD
HAMPER OUR EFFORTS TO EXPAND THIS KEY COMPONENT OF OUR BUSINESS.
Today, Internet telephony generally enjoys a price advantage over traditional
international long distance rates. We expect this price differential to decline,
and it may decline more rapidly than we expect. If prices of traditional
international long distance calls decline to a point where Internet telephony no
longer offers a price advantage, Internet telephony will lose an important
competitive advantage and the prospects for this key component of our business
will decline.
OUR INTERNET TELEPHONY REVENUE IS CONCENTRATED IN ONLY A SMALL NUMBER OF
CUSTOMERS, THE LOSS OF ANY ONE OF WHICH COULD HARM OUR REVENUES AND
PROFITABILITY.
Only a small number of customers have end users that originate or terminate
Internet telephone calls using our Internet telephony services. The loss of any
of these customers could have a material adverse effect on our Internet
telephony business because it would be difficult to replace that
9
<PAGE>
business. Any future growth depends in large part on our ability to establish
relationships with new customers wishing to originate or terminate Internet
telephone calls.
OUR CUSTOMERS REQUIRE A HIGH DEGREE OF RELIABILITY IN THE DELIVERY OF OUR
SERVICES, AND IF WE CANNOT MEET THEIR EXPECTATIONS FOR ANY REASON, DEMAND FOR
OUR PRODUCTS AND SERVICES WILL SUFFER.
Our success depends in large part on our ability to assure generally error-free
clearinghouse services, uninterrupted operation of our network and software
infrastructure, and a satisfactory experience for our customers' end users when
they use Internet-based communications services. To achieve these objectives, we
depend on the quality, performance and scalability of our products and services,
the responsiveness of our technical support and the capacity, reliability and
security of our network operations. We also depend on third parties over which
we have no control. For example, our ability to serve approximately
66 countries is based solely on our network access agreement with one service
provider and on that service provider's ability to provide reliable Internet
access points in those countries. In the past, we have experienced problems due
to our inability to detect system malfunctions and due to errors in collecting
or processing account usage and settlement data. Due to the high level of
performance required for critical communications traffic, any failure to deliver
a satisfactory experience to end users, whether or not caused by our own
failures, and any failure to provide accurate settlement data in connection with
acting as a clearinghouse, could reduce demand for our products and services.
AS A CLEARINGHOUSE, WE HAVE GREATER COLLECTION RISKS THAN MOST COMPANIES.
Difficulties in collecting accounts receivable will harm our financial results,
and this collection risk is inherently greater for us as a clearinghouse service
provider because we are obligated to pay amounts owed to each customer whether
or not we have collected all the amounts due to us from other customers. In
addition, if end users or unauthorized third parties engage in unauthorized or
otherwise fraudulent roaming or telephony activity, we may face difficulty
collecting the resulting accounts receivable. If we are not able to manage this
problem, our financial results will suffer.
IF WE ARE UNABLE TO DEVELOP AND INTRODUCE NEW PRODUCTS AND SERVICES, WE WILL BE
LESS LIKELY TO ATTRACT OR RETAIN CUSTOMERS.
We expect the market for Internet communications products and services to
continue to change rapidly. To succeed, we will be required to adapt to those
changes by improving and enhancing our existing products and services, and
developing and introducing new products and services. We have not demonstrated
that we can consistently develop and market product enhancements and new
products or services on a timely or on a cost-effective basis. On several
occasions, we have altered the course of our product development efforts or
discontinued products after their introduction, which has resulted in delays and
increased research and development expenses. If we fail to produce
technologically competitive products and services in a cost-effective manner and
on a timely basis, our business will be harmed.
OUR OPERATING RESULTS FLUCTUATE AND ARE DIFFICULT TO PREDICT, SO WE MAY FAIL TO
SATISFY THE EXPECTATIONS OF INVESTORS OR MARKET ANALYSTS AND OUR STOCK PRICE MAY
DECLINE.
Our quarterly operating results have fluctuated in the past, and we expect them
to continue to fluctuate in the future. Factors that cause these fluctuations,
many of which are beyond our control, include:
- the volume of transaction-based revenues;
- management of growth;
- the rate at which customers use our services;
10
<PAGE>
- our dependence on the timely and successful launch of future products,
including future versions of our stand-alone GRIC CSP software products;
- the mix of services used by our customers' end users;
- economic conditions specific to the Internet, as well as general economic
and market conditions;
- our ability to avoid problems in managing the GRIC Alliance network;
- intense competition;
- our ability to collect accounts receivable; and
- the international regulatory environment.
Business models relying on the Internet to provide Internet-based communications
services are still evolving. As a result, we believe that period-to-period
comparisons of our historical operating results are not meaningful.
Additionally, if our operating results in one or more quarters do not meet or
exceed securities analysts' or market expectations, the price of our common
stock is likely to decline.
OUR LONG SALES CYCLE MAKES IT PARTICULARLY DIFFICULT FOR US TO FORECAST
REVENUES, REQUIRES US TO INCUR HIGH COSTS OF SALES, AND AGGRAVATES FLUCTUATIONS
IN QUARTERLY FINANCIAL RESULTS.
Our business is characterized by a long sales cycle between the time a potential
customer is contacted and a new customer relationship is established, and
between the time the new customer is won and when we begin to realize
significant transaction-based revenues. In part this is because the markets for
Internet-based communications services are new and demand is uncertain. This
makes it difficult for us to predict future revenues. In addition, we incur
substantial sales costs before we win a customer or recognize any related
revenues, which increases the volatility of our results because we may have high
costs without associated offsetting revenues.
BECAUSE MUCH OF OUR BUSINESS IS INTERNATIONAL, WE ENCOUNTER SPECIAL PAYMENT AND
REGULATORY DIFFICULTIES, WHICH MAY REDUCE OUR PROFITABILITY AND HARM THE PRICE
OF OUR COMMON STOCK.
Because we generate most of our revenues from business conducted
internationally, we are subject to special risks. Those risks include:
- longer payment cycles for foreign customers, including delays due to
currency controls and fluctuations;
- negative impacts of changes in foreign currency exchange rates;
- potentially high taxes in foreign countries;
- difficulties complying with a variety of foreign laws, trade standards and
tariffs and of overcoming trade barriers; and
- difficulties complying with telecommunications and other Internet-related
regulations in many foreign jurisdictions.
We are also exposed to general geopolitical risks, such as political and
economic instability and changes in diplomatic and trade relationships. Any of
these factors may reduce our profitability and harm the price of our common
stock.
11
<PAGE>
WE NEED TO HIRE AND RETAIN QUALIFIED PERSONNEL TO SUSTAIN THE GROWTH OF OUR
BUSINESS, WHICH IS PARTICULARLY DIFFICULT FOR US BECAUSE WE COMPETE WITH OTHER
INTERNET-RELATED COMPANIES IN THE SAN FRANCISCO BAY AREA WHERE WE ARE BASED.
Our future success depends, in part, on the continued service of our key
executive, management and technical personnel, many of whom we hired only
recently, and our ability to attract new skilled employees. From time to time we
have experienced difficulty in hiring and retaining highly skilled employees,
and we expect to continue to experience this sort of difficulty. Competition for
employees in our industry is intense, particularly in the San Francisco Bay area
where we are located, and we have experienced significant attrition. Declines in
the market price of our common stock could also hurt employee morale and
retention. If we are not able to retain our key employees or to attract,
assimilate or retain other highly qualified employees in the future, our
business could be harmed because our growth might be slowed or executive
leadership might be disrupted.
LITIGATION ARISING OUT OF INTELLECTUAL PROPERTY INFRINGEMENT OR OTHER COMMERCIAL
DISPUTES 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. See "Business--Intellectual Property." In addition, since we rely
on third parties to help us develop, market and support our product and service
offerings, we cannot assure you that litigation will not arise from disputes
involving those third parties. From time to time we have been, and we expect to
continue to be, parties to disputes with these third parties. We may incur
substantial expenses in defending against these claims, regardless of their
merit. Successful claims against us may result in substantial monetary
liability, significantly impact our results of operations in one or more
quarters or materially disrupt the conduct of our business. See Note 5 of notes
to consolidated financial statements.
WE ANTICIPATE THE NEED FOR ADDITIONAL CAPITAL TO FUND OUR OPERATIONS AND GROWTH;
IF FINANCING IS NOT AVAILABLE ON ACCEPTABLE TERMS, OUR ABILITY TO SUCCEED WILL
BE HAMPERED.
We expect to be required to raise additional capital to fund our operations, to
finance investments in the equipment and corporate infrastructure needed for the
expansion of our network, to enhance and expand the range of products and
services we offer and to respond to competitive pressures and perceived
opportunities. To date, our cash flow from operations has not been sufficient to
cover our expenses and capital needs, and we cannot assure you that it will be
sufficient in the future. We also cannot assure you that any financing will be
available on terms favorable to us or at all. If adequate funds are not
available on acceptable terms or at all, we may be forced to curtail or cease
our operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
OUR EXECUTIVE OFFICERS AND DIRECTORS HOLD A SIGNIFICANT PERCENTAGE OF OUR STOCK
AND WILL BE ABLE TO CONTROL MATTERS REQUIRING STOCKHOLDER APPROVAL.
Immediately after the closing of the offering, our executive officers and
directors and their affiliated entities will own approximately 35.0% of our
outstanding common stock. Accordingly, these stockholders, acting together, will
have a substantial influence on all matters requiring approval by our
stockholders, including the election of directors and the approval of
significant corporate transactions. This concentration could also have the
effect of delaying or preventing a change in control of our company.
12
<PAGE>
OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS
THAT COULD DISCOURAGE A TAKEOVER AND DEPRESS OUR STOCK PRICE.
Provisions of our certificate of incorporation, bylaws and Delaware law make it
difficult for a third party to acquire us, despite the possible benefit to our
stockholders, and this may potentially lower the price of our common stock.
These provisions of our certificate of incorporation and bylaws:
- authorize the board to issue preferred stock without stockholder approval;
- prohibit cumulative voting in the election of directors;
- limit the persons who may call special meetings of stockholders; and
- establish advance notice requirements for nominations for the election of
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
In addition, we may adopt a shareholder rights plan, or "poison pill," and we
have elected to remain subject to the anti-takeover provisions of the Delaware
General Corporation Law. These factors may discourage takeover attempts.
THE YEAR 2000 RISKS WE FACE ARE PARTICULARLY COMPLEX AND UNPREDICTABLE BECAUSE
WE INTERFACE WITH MANY OTHER SYSTEMS, WHICH INCREASES THE RISK OF LOSS FROM
INTERRUPTIONS OF OUR BUSINESS OR FROM YEAR 2000 LITIGATION.
Computer systems and software used by many companies in a wide variety of
industries may produce erroneous results or fail unless they correctly process
date information associated with the millennium. We may face claims based on
year 2000 issues arising from the integration of multiple products or services,
including ours, within an overall system or network. In addition, we rely on
networks, including the Internet, the circuit-switched telephone network and
private data networks, and computer hardware and software, owned and maintained
by third parties, some of which may not be year 2000 compliant. We have not
assessed the year 2000 compliance of the many parties with which we interface.
Failure of any of these parties' systems or software to process date information
related to year 2000 could detract from our ability to deliver services, or
involve us in expensive litigation. We do not currently have a contingency plan
to deal with the worst-case scenario that might occur if technologies upon which
we depend are not year 2000 compliant and fail to operate effectively as a
result. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Compliance."
RISKS RELATED TO OUR INDUSTRY
FUTURE DEVELOPMENTS IN INTERNET-BASED COMMUNICATIONS SERVICES, WHICH ARE
CRITICAL TO OUR SUCCESS, ARE UNCERTAIN.
For us to increase our revenues, the Internet must be validated as an effective
medium for the delivery of Internet roaming, Internet telephony and other
Internet-based communications services. The infrastructure of the public
Internet may not be able to support increased demands placed on it, and the
performance of the Internet may be adversely affected. Our business will be
harmed if the Internet does not continue to grow as a telecommunications medium,
and that growth may be inhibited by factors such as:
- unreliability of the Internet infrastructure;
- inability of vendors to develop Internet networking equipment that offers
telecommunications-grade communications services over the Internet;
- security concerns;
- new regulatory requirements;
13
<PAGE>
- inconsistent quality of service; and
- lack of availability of cost-effective service.
SECURITY CONCERNS MAY DETER THE USE OF THE INTERNET FOR INTERNET-BASED
COMMUNICATIONS WHICH WOULD REDUCE DEMAND FOR OUR PRODUCTS AND SERVICES.
The secure transmission of confidential information over public networks is a
significant barrier to widespread adoption of electronic commerce and
communications. 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 cryptography or other developments could result in
compromised security on our network or the networks of others. If any
well-publicized compromises of confidential information were to occur, it could
reduce demand for Internet-based communications and our products and services.
U.S. OR FOREIGN GOVERNMENTAL REGULATIONS REGARDING INTERNET TELEPHONY OR THE
INTERNET GENERALLY MAY BE ENACTED, WHICH COULD IMPEDE OUR BUSINESS.
To date, governmental laws and regulations applicable to access to or commerce
on the Internet or use of the Internet to provide telephone service have not
materially restricted use of the Internet in our markets. However, the legal and
regulatory environment that pertains to the Internet is uncertain and may
change. For example, the Federal Communications Commission has at times
considered proposals to impose surcharges or other common carrier regulations
upon direct providers of Internet telephony to end users located within the U.S.
It is also possible that the FCC may adopt a regulatory framework, other than
traditional common carrier regulation, that would apply to Internet telephony
providers. In addition, Congress and other federal entities have adopted or are
considering other legislative and regulatory proposals that would further
regulate the Internet. Further, a number of foreign countries prohibit Internet
telephony or permit but regulate Internet telephony. Other foreign countries
have considered or are considering whether to regulate Internet telephony. The
European Union has also enacted several directives relating to the Internet,
including one which affects U.S. companies that collect or transmit information
over the Internet from individuals in European Union Member States. New domestic
or foreign taxes could also be adopted that would apply to the delivery or use
of communications services over the Internet. Uncertainty about and adoption of
new regulations could increase our costs of doing business, or prevent us from
delivering our products and services over the Internet or significantly slow the
growth of the Internet. This could delay growth in demand for our products and
services and harm our business. See "Business--Government Regulation."
RISKS RELATED TO THIS OFFERING
THE MARKET FOR OUR COMMON STOCK MAY BE ILLIQUID AND VOLATILE, WHICH INCREASES
YOUR RISK OF OWNING OUR STOCK.
Prior to this offering, there has been no public market for our common stock. We
cannot predict the extent to which investor interest in us will lead to the
development of an active trading market in our common stock or how liquid that
market might become. Illiquidity in that market may make it more difficult for
you to sell your shares. The initial public offering price for our shares,
determined by negotiations between us and the representatives of the
underwriters, may not be indicative of prices that will prevail in any future
trading market.
The stock market frequently experiences extreme price and volume fluctuations.
In particular, the market prices of the securities of Internet-related companies
have been especially volatile recently, and often these fluctuations have been
unrelated or disproportionate to operating performance. This increases the risk
that if you wish to sell our stock the market price may be lower than the price
to the public in this offering. If the market value of our stock experiences
adverse fluctuations and we
14
<PAGE>
become involved in class actions lawsuits by security holders, we could incur
substantial legal costs and management's attention could be diverted, to the
detriment of our operations and results.
OUR STOCK PRICE MAY BE SUBJECT TO WIDE FLUCTUATIONS DUE TO BUSINESS OR MARKET
DEVELOPMENTS OR STOCK SALES BY CURRENT STOCKHOLDERS WHICH INCREASES YOUR RISKS
OF HOLDING OUR STOCK.
We expect the market price for our common stock to be subject to wide
fluctuations as a result of factors including:
- quarterly variations in our operating results;
- announcements of technological innovations by us or our competitors;
- announcements of new products or services by us or our competitors;
- investor perception of us, the market for Internet-based communications
services or the Internet in general;
- changes in financial estimates by securities analysts; and
- general economic and market conditions.
In addition, the market price of our common stock could decrease as a result of
sales of substantial amounts of common stock in the public market after the
closing of this offering or the perception that substantial sales could occur.
The risk of sales will increase substantially when the underwriter lockup
agreements or equivalent contractual restrictions expire 180 days after closing
of this offering and approximately 12,277,294 shares will then become eligible
for public sale. See "Shares Eligible for Future Sale."
DILUTION INHERENT IN INVESTORS' PURCHASE OF SHARES IN THIS OFFERING MEANS THAT
THEY ARE GIVING UP VALUE THAT MAY NEVER BE RETURNED.
Purchasers of shares of our common stock in this offering will incur immediate
and substantial dilution in the net tangible book value of their shares. There
can be no assurance that net tangible book value of the shares will increase.
See "Dilution."
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<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and elsewhere in this prospectus constitute forward-looking
statements that involve substantial uncertainties. These statements include,
among others, statements concerning the following:
- use of proceeds;
- projected increases in sales and marketing, research and development and
capital expenditures;
- liquidity;
- the expansion of the GRIC Alliance;
- our strategy of enhancing our current products and services and expanding
into new products and services;
- our efforts to increase brand awareness;
- our development of strategic relationships; and
- our strategy to encourage widespread adoption of GRIC CSP and to make GRIC
CSP a preferred platform.
We have based these forward-looking statements on our current expectations and
projections about future events. In some cases, you can identify forward-looking
statements by terms such as "may," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue," the
negative of these terms or other comparable terminology. The forward-looking
statements contained in this prospectus involve known and unknown risks,
uncertainties and other factors that may cause industry trends or our actual
results, level of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these statements. These factors include,
among others, those listed under "Risk Factors" and elsewhere in this
prospectus.
In addition, this prospectus includes data relating to the long-distance
telephone, Internet telephony, remote access services and Internet-based
communications markets. Some of this data was obtained from industry
publications and reports, such as reports by TeleGeography, International Data
Corporation and the Yankee Group. These reports assume certain events, trends
and activities will occur and they project information based on those
assumptions. We have not independently verified this data.
We cannot guarantee future results, levels of activity, performance or
achievements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus.
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $46.8 million
from the exercise of certain outstanding preferred stock warrants and the sale
of the shares of our common stock that we are offering under this prospectus
($53.9 million if the underwriters' over-allotment option is exercised in full)
at an assumed initial public offering price of $11.00 per share and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses.
We currently intend to use approximately $15.0 million of the proceeds from this
offering for capital expenditures to continue the expansion of our network
infrastructure as well as our increasing employee base. We currently intend to
use the remaining proceeds to fund operations, including working capital and
general corporate requirements. We may use the proceeds for acquisitions of
technologies, product lines or businesses that are complementary to our
business. We have no current acquisition plans. Pending these uses, we plan to
invest the net proceeds in interest-bearing, investment grade securities.
Management will have broad discretion over the allocation of the net proceeds
from this offering.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock or other
securities. A current equipment financing arrangement prohibits us from paying
cash dividends. We do not anticipate paying a cash dividend in the foreseeable
future.
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<PAGE>
CAPITALIZATION
The following table sets forth the following information, as of September 30,
1999:
- our actual capitalization;
- our pro forma capitalization after giving effect to the conversion of all
outstanding shares of preferred stock into shares of common stock upon the
closing of this offering; and
- our pro forma as adjusted capitalization to give effect to the sale of the
4,600,000 shares of common stock that we are offering under this prospectus
at an assumed initial public offering price of $11.00 per share, after
deducting the estimated underwriting discount and estimated offering
expenses, and the exercise of warrants to purchase 223,206 shares of common
stock upon the closing of this offering at an exercise price of $7.00 per
share.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Current portion of long-term debt..................... $ 513 $ 513 $ 513
-------- -------- --------
Long-term debt and capital lease obligations.......... 1,116 1,116 1,116
-------- -------- --------
Redeemable convertible preferred stock, $0.001 par
value, 6,025,000 shares authorized, 5,213,109 shares
issued and outstanding, actual; no shares
authorized, issued or outstanding, pro forma or pro
forma as adjusted................................... 8,590 -- --
-------- -------- --------
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par value,
6,250,000 shares authorized, actual; 5,460,745
shares issued and outstanding, actual; 5,000,000
shares of preferred stock authorized, none issued
and outstanding, pro forma and pro forma as
adjusted.......................................... 5 -- --
Common stock, $0.001 par value, 21,428,571 shares
authorized, 2,226,251 shares issued and
outstanding, actual; 50,000,000 shares authorized,
12,900,105 shares issued and outstanding, pro
forma; 50,000,000 shares authorized, 17,723,311
shares issued and outstanding, pro forma as
adjusted.......................................... 2 13 18
Additional paid-in capital.......................... 41,784 50,368 98,745
Deferred stock-based compensation................... (1,586) (1,586) (1,586)
Accumulated deficit................................. (40,465) (40,465) (40,465)
-------- -------- --------
Total stockholders' equity (deficit).............. (260) 8,330 56,712
-------- -------- --------
Total capitalization............................ $ 9,959 $ 9,959 $ 58,341
======== ======== ========
</TABLE>
The shares outstanding in the actual, pro forma and pro forma as adjusted
columns exclude:
- 2,051,859 shares of common stock issuable upon the exercise of options
outstanding at September 30, 1999 under our stock option plans;
- 102,699 shares of common stock and 29,509 shares of Series D Preferred Stock
issuable upon the exercise of outstanding warrants as of September 30, 1999;
and
- 600,240 shares of Series E Preferred Stock that were issued on November 12,
1999 for an aggregate purchase price of $6.0 million.
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<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of September 30,
1999, after giving effect to the exercise of warrants to purchase 223,206 shares
of preferred stock and the conversion of all outstanding shares of preferred
stock into common stock, was $8,887,000, or approximately $0.68 per share. Pro
forma net tangible book value per share represents the amount of our total
tangible assets less total liabilities, divided by 13,123,311 shares of common
stock outstanding (pro forma to reflect the conversion of all outstanding shares
of preferred into common stock upon the closing of this offering and the assumed
exercise and conversion of preferred stock warrants for 223,206 shares) before
the offering. Dilution per share represents the difference between the amount
per share paid by investors in this offering and the pro forma net tangible book
value per share after the offering. After giving effect to this offering, our
pro forma net tangible book value as of September 30, 1999 would have been
$55,707,000, or $3.14 per share. This represents an immediate increase in pro
forma net tangible book value of $2.46 per share to existing stockholders and an
immediate dilution in net tangible book value of $7.86 per share to new
investors purchasing shares at the initial public offering price. Investors
participating in this offering will incur immediate, substantial dilution. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Pro forma net tangible book value per share as of
September 30, 1999...................................... $0.68
Increase in pro forma net tangible book value per share
attributable to new investors........................... $2.46
-----
Pro forma net tangible book value per share after
offering.................................................. $ 3.14
------
Dilution per share to new investors......................... $ 7.86
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30, 1999,
the differences between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by the new investors purchasing shares in this offering. We
have assumed an initial public offering price of $11.00 per share before
deducting the estimated underwriting discount and estimated offering expenses in
our calculations.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 13,123,311 74.0% $47,300,000 48.3% $ 3.60
New investors..................... 4,600,000 26.0 50,600,000 51.7 11.00
---------- ----- ----------- -----
Total........................... 17,723,311 100.0% $97,900,000 100.0%
========== ===== =========== =====
</TABLE>
The discussion and tables above exclude:
- 2,051,859 shares of common stock issuable upon the exercise of options
outstanding at September 30, 1999 under our stock option plans;
- 102,699 shares of common stock and 29,509 shares of Series D Preferred Stock
issuable upon the exercise of outstanding warrants as of September 30, 1999;
and
- 600,240 shares of Series E Preferred Stock that were issued on November 12,
1999 for an aggregate purchase price of $6.0 million.
The exercise of outstanding stock options or warrants would increase the
dilutive effect to new investors.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with, and is qualified by reference to, the consolidated financial statements
and notes thereto "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and other financial data included elsewhere in this
prospectus.
The statements of operations data for the years ended December 31, 1996, 1997
and 1998, and for the nine months ended September 30, 1999, and the balance
sheet data at December 31, 1997 and 1998 and at September 30, 1999, are derived
from our consolidated financial statements that have been audited by Ernst &
Young LLP, independent auditors, which are included elsewhere in this
prospectus. The balance sheet data at December 31, 1996 is derived from our
audited balance sheet not included in this prospectus. The statements of
operations data for the nine months ended September 30, 1998, are derived from
unaudited consolidated financial statements included elsewhere in this
prospectus and, in our opinion, include all adjustments, consisting solely of
normal recurring accruals, which are necessary to present fairly the data for
such periods. The statements of operations data for the years ended
December 31, 1994 and 1995 and the balance sheet data at December 31, 1994 and
1995 are derived from unaudited consolidated financial statements not included
in this prospectus and, in our opinion, include all adjustments, consisting of
normal recurring accruals, that are necessary to present fairly the data for
such periods. Historical results are not necessarily indicative of future
results, and the results for interim periods are not necessarily indicative of
results to be expected for the entire year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
Revenues:
Settlement................................. $ -- $ -- $ -- $ 254 $ 1,666 $ 1,073 $ 4,122
Software................................... -- -- 387 719 186 161 517
Hardware................................... -- -- -- 226 416 294 160
Maintenance and services................... -- -- 16 335 281 185 638
--------- --------- --------- --------- --------- --------- ----------
Total revenues........................... -- -- 403 1,534 2,549 1,713 5,437
Costs and expenses:
Cost of settlement revenues................ -- -- -- 156 1,444 872 3,329
Cost of software revenues.................. -- -- -- 458 251 129 5
Cost of hardware revenues.................. -- -- -- 250 588 350 44
Cost of maintenance and services revenue... -- -- -- -- 143 10 47
Network and operations..................... -- -- -- 837 1,117 729 2,027
Research and development................... -- -- 998 2,314 5,080 3,718 5,852
Sales and marketing........................ -- -- 49 3,723 6,373 4,524 5,844
General and administrative................. -- -- 391 2,002 3,540 2,486 3,276
Other operating expenses (expense
reversals)............................... -- -- -- -- 1,500 -- (925)
Amortization of stock-based compensation... -- -- -- -- -- -- 193
--------- --------- --------- --------- --------- --------- ----------
Total costs and expenses................. -- -- 1,438 9,740 20,036 12,818 19,692
--------- --------- --------- --------- --------- --------- ----------
Operating loss............................... -- -- (1,035) (8,206) (17,487) (11,105) (14,255)
Interest income and other, net............... -- -- 104 79 192 153 298
Interest expense............................. -- -- -- -- (575) (33) (1,292)
--------- --------- --------- --------- --------- --------- ----------
Loss from continuing operations before income
taxes...................................... -- -- (931) (8,127) (17,870) (10,985) (15,249)
Provision for income taxes from continuing
operations................................. -- -- -- 59 32 28 38
--------- --------- --------- --------- --------- --------- ----------
Net loss from continuing operations.......... -- -- (931) (8,186) (17,902) (11,013) (15,287)
Discontinued operations:
Loss from discontinued operations.......... (93) (726) (1,683) (774) -- -- --
Gain on disposal of discontinued
operations............................... -- -- -- 5,118 -- -- --
--------- --------- --------- --------- --------- --------- ----------
Net loss..................................... $ (93) $ (726) $ (2,614) $ (3,842) $ (17,902) $ (11,013) $ (15,287)
========= ========= ========= ========= ========= ========= ==========
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Basic and diluted net loss per share from
continuing operations...................... $ -- $ -- $ (0.52) $ (4.42) $ (9.19) $ (5.66) $ (7.61)
========= ========= ========= ========= ========= ========= ==========
Basic and diluted net loss per share......... $ (0.05) $ (0.36) $ (1.46) $ (2.08) $ (9.19) $ (5.66) $ (7.61)
========= ========= ========= ========= ========= ========= ==========
Shares used to compute basic and diluted net
loss per share............................. 1,925,636 1,998,043 1,788,684 1,851,140 1,948,424 1,946,870 2,009,596
Pro forma basic and diluted net loss per
share from continuing operations(1)(2)..... $ (2.27) $ (1.42)
========= ==========
Shares used to compute pro forma basic and
diluted net loss per share(1)(2)........... 7,889,323 10,782,381
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, -------------
--------------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1997 1998 1999 1999(2)
--------- --------- --------- --------- --------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.............. $ -- $ -- $ 3,342 $ 8,481 $ 1,362 $ 10,181 $ 10,181
Working capital
(deficit)................ -- -- 3,368 7,839 (7,509) 6,013 6,013
Net assets of discontinued
operations............... 367 3,100 1,563 -- -- -- --
Total assets............... 367 3,100 5,796 9,855 4,740 16,438 16,438
Long-term debt and capital
lease obligations, less
current portion.......... -- -- -- 19 1,069 1,116 1,116
Redeemable convertible
preferred stock.......... 430 3,888 8,590 8,590 8,590 8,590 --
Total stockholders' equity
(deficit)................ 367 3,100 (3,402) 61 (14,806) (260) 8,330
</TABLE>
- ---------------------------
(1) See Note 2 of notes to consolidated financial statements for information
concerning the calculation of pro forma basic and diluted net loss per
share.
(2) The pro forma information gives effect to the conversion of all outstanding
shares of preferred stock outstanding on September 30, 1999 into 10,673,854
shares of common stock and the exercise of warrants to purchase
223,206 shares of common stock upon the closing of this offering.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THIS DISCUSSION TOGETHER WITH THE FINANCIAL STATEMENTS AND OTHER
FINANCIAL INFORMATION INCLUDED IN THIS PROSPECTUS. THIS DISCUSSION AND ANALYSIS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS, UNCERTAINTIES AND
ASSUMPTIONS. SEE "FORWARD-LOOKING STATEMENTS." OUR ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF A NUMBER OF FACTORS, INCLUDING THOSE DESCRIBED UNDER "RISK FACTORS"
AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We provide services and software that enable our customers to offer
Internet-based products and services. Our customers include telecommunications
companies, Internet service providers and newly-emerging communication service
providers.
Settlement revenues are generated when we provide settlement services to
customers whose end users initiate Internet communications. For each global
Internet roaming transaction, we use our software to track the usage, collect
the amount that a roamer's "home" service provider owes us, pay the appropriate
amount to the service provider enabling local access, and provide the underlying
usage data to our customer to enable billing of its end user. For each Internet
telephony call, we use our software to track the usage, settle the amounts owed
to GRIC and owed by GRIC as a result of the transaction, and provide the
underlying usage data to our customers to enable billing of their end users.
We have incurred substantial losses since our inception as a result of expenses
associated with building our GRIC Alliance and related network infrastructure
and developing our software products. As of September 30, 1999, we had an
accumulated deficit of approximately $40.5 million. We anticipate that our
operating expenses will increase substantially in the future as we continue to
expand our network and develop our software products. Accordingly, we expect to
incur additional losses for the foreseeable future, and we cannot assure you
that we will achieve or sustain profitability. See "Risk Factors--We have not
been profitable to date, we may never be profitable and we anticipate continued
losses for the foreseeable future."
From our inception until 1997 we were both an Internet service provider in
Northern California and an independent software developer for the Internet
service provider community. In 1997, we sold our local Internet service provider
business and related assets. Operations through 1997 that related to our
Internet service provider business are reflected as discontinued operations. We
first recognized clearinghouse settlement revenues in 1997, and since 1998 we
have derived our revenues primarily from clearinghouse settlement services.
Our business model has evolved in the course of our development and we believe
that period-to-period comparisons of our operating results should not be relied
upon as indicative of future performance. Our prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in early stages of development, particularly companies in new and
rapidly evolving markets. See "Risk Factors--Our operating history is more
limited than that of many other companies, so you may find it difficult to
evaluate our business in making an investment decision."
RECENT EVENT
On November 12, 1999, we issued 600,240 shares of our Series E Preferred Stock
to Nokia Holdings, Inc. for an aggregate purchase price of $6.0 million.
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations data as a
percentage of total revenues for the periods indicated. Data for 1994 and 1995
have not been presented as no revenues were generated from continuing operations
during these periods.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Settlement............................... --% 16.6% 65.4% 62.6% 75.8%
Software................................. 96.0 46.9 7.3 9.4 9.5
Hardware................................. -- 14.7 16.3 17.2 3.0
Maintenance and services................. 4.0 21.8 11.0 10.8 11.7
------ ------ ------ ------ ------
Total revenues......................... 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------
Costs and expenses:
Cost of settlement revenues.............. --% 10.2% 56.7% 50.9% 61.2%
Cost of software revenue................. -- 29.8 9.8 7.5 0.1
Cost of hardware revenue................. -- 16.3 23.1 20.4 0.8
Cost of maintenance and services
revenue................................ -- -- 5.6 0.7 0.9
Network and operations................... -- 54.6 43.8 42.6 37.3
Research and development................. 247.6 150.8 199.3 217.0 107.6
Sales and marketing...................... 12.2 242.7 250.0 264.1 107.5
General and administrative............... 97.0 130.5 138.9 145.1 60.3
Other operating expenses (expense
reversals)............................. -- -- 58.8 -- (17.0)
Amortization of stock-based
compensation........................... -- -- -- -- 3.5
------ ------ ------ ------ ------
Total costs and expenses............... 356.8% 634.9% 786.0% 748.3% 362.2%
------ ------ ------ ------ ------
Operating loss........................... (256.8)% (534.9)% (686.0)% (648.3)% (262.2)%
====== ====== ====== ====== ======
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES
Total revenues increased to $5.4 million for the first nine months of 1999 from
$1.7 million for the first nine months of 1998, representing an increase of
217.4%. Both settlement revenues and software, hardware and maintenance and
services revenue grew significantly during these periods.
SETTLEMENT REVENUES. Settlement revenues increased to $4.1 million for the first
nine months of 1999 from $1.1 million for the first nine months of 1998, an
increase of 284.2%. This increase reflects higher volumes of both Internet
roaming and Internet telephony transactions. We expect settlement revenues from
Internet telephony to increase in the future at a faster rate than revenues from
Internet roaming.
SOFTWARE, HARDWARE AND MAINTENANCE AND SERVICES REVENUE. Software, hardware and
maintenance and services revenue increased to $1.3 million for the first nine
months of 1999 from $640,000 for the first nine months of 1998, representing an
increase of 105.5%. This increase is primarily due to higher sales of our
prepaid Internet telephony software and related services, which we introduced in
February 1999, and higher sales of our Internet roaming software and related
services, offset by a reduction of hardware sales which were discontinued in
June 1999.
COSTS AND EXPENSES
COST OF SETTLEMENT REVENUES. Cost of settlement revenues represents the amounts
we pay to access the Internet for Internet roaming services for our customers,
and to terminate Internet telephony services
22
<PAGE>
for our customers. Cost of settlement revenues increased to $3.3 million for the
first nine months of 1999 from $872,000 for the first nine months of 1998, an
increase of 281.8%. The increase was due to higher sales volumes, primarily for
our Internet roaming and Internet telephony services.
COST OF SOFTWARE, HARDWARE AND MAINTENANCE AND SERVICES REVENUE. Cost of
software, hardware and maintenance and services revenue represents license fees
for third-party software that is incorporated into our software products, and
the cost of Internet telephony equipment. Cost of software, hardware and
maintenance and services revenue decreased to $96,000 for the first nine months
of 1999 from $489,000 for the first nine months of 1998, a decrease of 80.4%.
This decrease is primarily attributable to our decision no longer to sell
certain software and hardware products.
NETWORK AND OPERATIONS. Network and operations expenses include salaries,
benefits, allocated facility and management information systems costs associated
with operating our network, costs of co-location of network equipment and leased
telecommunication lines, and depreciation on network equipment. Network and
operations expenses increased to $2.0 million for the first nine months of 1999
from $729,000 for the first nine months of 1998, representing an increase of
178.1%. This increase was due to higher business activity and higher costs
associated with the expansion of our customer support and network operation
centers to a 24 hours-a-day, seven days-a-week basis. We expect that network and
operations expenses will continue to increase in absolute dollars as we expand
our network infrastructure to meet anticipated increases in transaction
processing volume.
RESEARCH AND DEVELOPMENT. Research and development expenses include salaries,
benefits and recruiting costs of employees and outside consultants and quality
assurance and allocated facility, management information systems and
depreciation costs. Research and development increased to $5.9 million for the
first nine months of 1999 from $3.7 million for the first nine months of 1998,
representing an increase of 57.4%. This increase was primarily due to the
development of our GRIC CSP software. To date, all software development costs
have been expensed in the period incurred. We believe that continued investment
in research and development is critical to achieving our strategic objectives,
and we expect that research and development expenses will increase significantly
in absolute dollars in the future.
SALES AND MARKETING. Sales and marketing expenses include salaries, benefits and
commissions earned by sales and marketing personnel, allocated facility,
management information systems and depreciation costs, cost for marketing and
promotional programs, and costs associated with our domestic and international
sales offices. Sales and marketing expenses increased to $5.8 million for the
first nine months of 1999 from $4.5 million for the first nine months of 1998,
representing an increase of 29.2%. This increase reflects the hiring of
additional personnel to expand the geographic coverage of and support Internet
telephony, which was introduced in the fourth quarter of 1998. We expect that
sales and marketing expenses will increase significantly in absolute dollars in
the future as we seek to expand our customer base and increase brand awareness.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of
general corporate and facility costs as well as salary, benefits and related
costs for executive, finance, legal, administrative, human resources and
management information systems functions, as well as provisions for
uncollectible receivables. General and administrative expenses increased to $3.3
million for the first nine months of 1999 from $2.5 million for the first nine
months of 1998, representing an increase of 31.8%. This increase reflects the
hiring of additional personnel, including key executives, to provide the
infrastructure to support future growth. We expect that general and
administrative expenses will continue to increase in absolute dollars in the
future as a result of the continued expansion of our administrative staff and
the expenses associated with becoming a public company, including annual and
other public reporting costs, directors' and officers' liability insurance,
investor relations programs and professional services fees.
23
<PAGE>
OTHER OPERATING EXPENSES (EXPENSE REVERSALS). Other operating expenses (expense
reversals) of $925,000 reflects a reduction of a previously expensed commitment
to purchase software, as a result of the completion of a settlement agreement
with the software vendor. The previous expense was recorded in the fourth
quarter of 1998 when we determined that the software product was not salable and
expensed $1.5 million.
AMORTIZATION OF STOCK-BASED COMPENSATION. Some stock options granted during the
last 12 months are considered compensatory, as the estimated fair value for
accounting purposes was greater than the stock exercise price as determined by
the board of directors on the date of grant. As a result, we have recorded in
general and administrative, expenses of $193,000 for the nine months ended
September 30, 1999 relating to the amortization of deferred compensation expense
and had an aggregate of $1,586,000 of deferred compensation remaining to be
amortized as of that date. Deferred compensation is amortized on a straight-line
basis over the vesting period of the options. We expect amortization of
approximately $107,000 in the three months ending December 31, 1999, and
$427,000 in fiscal 2000, $427,000 in fiscal 2001, $427,000 in fiscal 2002 and
$198,000 in fiscal 2003.
INTEREST INCOME AND OTHER, NET
Interest income and other, net primarily represents interest income on cash
balances. Interest income and other, net increased to $298,000 for the first
nine months of 1999 from $153,000 for the first nine months of 1998, an increase
of 94.8%. This increase was primarily due to higher average cash balances during
the first nine months of 1999.
INTEREST EXPENSE
Interest expense consists of amortization of warrant expense associated with the
fair value of warrants issued in connection with our financing activities and
interest expense associated with capital leases and bridge financing. Interest
expense increased to $1.3 million for the first nine months of 1999 from $33,000
for the first nine months of 1998.
INCOME TAXES
The provision for income taxes consists of foreign taxes. FASB Statement No. 109
provides for the recognition of deferred tax assets if realization of these
assets is more likely than not. We intend to evaluate the ability to realize the
deferred tax assets on a quarterly basis.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 COMPARED
TO YEAR ENDED DECEMBER 31, 1996
REVENUES
Total revenues increased to $2.5 million in 1998 from $1.5 million in 1997, an
increase of 66.2%, and to $1.5 million in 1997 from $403,000 in 1996, an
increase of 280.6%.
SETTLEMENT REVENUES. Settlement revenues increased to $1.7 million in 1998 from
$254,000 in 1997, an increase of 555.9%. We recognized no settlement revenues in
1996. These increases were due to higher volumes of transactions.
SOFTWARE, HARDWARE AND MAINTENANCE AND SERVICES REVENUE. Software, hardware and
maintenance and services revenue decreased to $883,000 in 1998 from
$1.3 million in 1997, a decrease of 31.0%, and increased to $1.3 million in 1997
from $403,000 in 1996, an increase of 217.6%. The decrease in 1998 from 1997 was
primarily attributable to our decision no longer to sell certain customized
software, offset by an increase in sales of telecommunications equipment. The
increase in 1997 from 1996 was primarily due to increased sales of Internet fax
hardware and software and, to a lesser extent, increased sales of Internet
roaming software and related services.
24
<PAGE>
COSTS AND EXPENSES
COST OF SETTLEMENT REVENUES. Cost of settlement revenues increased to $1.4
million in 1998 from $156,000 in 1997, an increase of 825.6%. We incurred no
cost of settlement revenues in 1996. The increases during these periods were due
to higher volumes of transactions, primarily for Internet roaming.
COST OF SOFTWARE, HARDWARE AND MAINTENANCE AND SERVICES REVENUE. The cost of
software, hardware and maintenance and services revenue increased to $982,000 in
1998 from $708,000 in 1997, an increase of 38.7%. We incurred no cost of
software and other revenues in 1996. The increase in 1998 from 1997 was
primarily due to costs related to Internet telephony hardware. The increase in
1997 from 1996 was primarily due to higher volumes of fax software licenses.
NETWORK AND OPERATIONS. Network and operations expenses increased to $1.1
million in 1998 from $837,000 in 1997, an increase of 33.5%. We incurred no
network and operations expenses in 1996. The increases during the periods were
due to an expansion of our network operations centers.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to $5.1
million in 1998 from $2.3 million in 1997, an increase of 119.5%, and to $2.3
million in 1997 from $998,000 in 1996, an increase of 131.9%. The increases are
primarily due to increased spending on development of our GRIC CSP software.
SALES AND MARKETING. Sales and marketing expenses increased to $6.4 million in
1998 from $3.7 million in 1997, an increase of 71.2%. We incurred sales and
marketing expenses of $49,000 in 1996. These increases are due to the costs of
establishing and expanding our sales and marketing departments.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased to
$3.5 million in 1998 from $2.0 million in 1997, an increase of 76.8%, and to
$2.0 million in 1997 from $391,000 in 1996, representing an increase of 412.0%.
These increases were primarily due to the recruiting and hiring of additional
personnel, including key executives.
OTHER OPERATING EXPENSES (EXPENSE REVERSALS). Other operating expenses (expense
reversals) of $1.5 million reflects a charge for a commitment to purchase
software that we do not expect to utilize. In the fourth quarter of 1998, we
determined that a recently delivered software product from a third party was not
salable and accordingly we expensed the contractual minimum purchase commitment.
INTEREST INCOME AND OTHER, NET
Interest income and other, net, increased to $192,000 in 1998 from $79,000 in
1997, an increase of 143.0%, and decreased to $79,000 in 1997 from $104,000 in
1996, a decrease of 24.0%. These fluctuations were due to changes in our average
cash balances during these years.
INTEREST EXPENSE
Interest expense of $575,000 in 1998 primarily represents amortization of
warrants. We had no interest expense in 1997 and 1996.
INCOME TAXES
Income taxes decreased to $32,000 in 1998 from $59,000 in 1997, representing a
decrease of 45.8%. We incurred no income taxes in 1996.
DISCONTINUED OPERATIONS
In 1997, we sold our interest in our Internet service provider business and
related assets that we operated as a separate segment of the business. The sale
has been accounted for as discontinued operations. Losses from discontinued
operations were $774,000 in 1997 and $1.7 million in 1996. Gain on disposal of
this operation was $5.1 million in 1997.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statement of
operations data for the seven quarters ended September 30, 1999. This data is
also expressed as a percentage of our total revenues for the relevant quarter.
This data has been derived from unaudited consolidated financial statements that
have been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the information when read in conjunction with the consolidated financial
statements and notes thereto. Our quarterly results have in the past been and
may in the future be subject to significant fluctuations. As a result, we
believe that results of operations for interim periods should not be relied upon
as an indication of the results to be expected in future periods.
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT 30, DEC 31, MARCH 31, JUNE 30, SEPT 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- -------- -------- --------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Settlement..................................... $ 284 $ 345 $ 444 $ 593 $ 736 $ 1,230 $ 2,156
Software, hardware, maintenance and services... 176 134 330 243 431 561 323
------- ------- ------- ------- ------- ------- -------
Total revenues............................... 460 479 774 836 1,167 1,791 2,479
------- ------- ------- ------- ------- ------- -------
Costs and Expenses:
Cost of settlement revenues.................... 171 220 481 572 631 892 1,806
Cost of software, hardware, maintenance and
services revenue............................. 88 131 270 493 25 50 21
Network and operations......................... 195 216 318 388 561 602 864
Research and development....................... 1,047 1,350 1,321 1,362 1,458 1,969 2,425
Sales and marketing............................ 1,430 1,502 1,592 1,849 1,645 1,917 2,282
General and administrative..................... 617 871 998 1,054 924 942 1,410
Other operating expenses (expense reversals)... -- -- -- 1,500 -- -- (925)
Amortization of stock-based compensation....... -- -- -- -- 24 62 107
------- ------- ------- ------- ------- ------- -------
Total costs and expenses..................... 3,548 4,290 4,980 7,218 5,268 6,434 7,990
------- ------- ------- ------- ------- ------- -------
Operating loss................................... (3,088) (3,811) (4,206) (6,382) (4,101) (4,643) (5,511)
Interest income and other, net................... 75 62 16 39 40 119 139
Interest expense................................. -- -- (33) (542) (391) (850) (51)
------- ------- ------- ------- ------- ------- -------
Loss from before income taxes.................... (3,013) (3,749) (4,223) (6,885) (4,452) (5,374) (5,423)
Provision for income taxes....................... 5 12 11 4 8 10 20
------- ------- ------- ------- ------- ------- -------
Net loss......................................... $(3,018) $(3,761) $(4,234) $(6,889) $(4,460) $(5,384) $(5,443)
======= ======= ======= ======= ======= ======= =======
Percentage of Revenue:
Revenues:
Settlement..................................... 61.7% 72.0% 57.4% 70.9% 63.1% 68.7% 87.0%
Software, hardware, maintenance and services... 38.3 28.0 42.6 29.1 36.9 31.3 13.0
------- ------- ------- ------- ------- ------- -------
Total revenues............................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------- ------- ------- -------
Costs and Expenses:
Cost of settlement revenues.................... 37.2 45.9 62.1 68.4 54.1 49.8 72.9
Cost of software, hardware, maintenance and
services revenue............................. 19.1 27.3 34.9 59.0 2.1 2.8 0.8
Network and operations......................... 42.4 45.1 41.1 46.4 48.1 33.6 34.9
Research and development....................... 227.6 281.8 170.7 162.9 124.9 109.9 97.8
Sales and marketing............................ 310.9 313.6 205.7 221.2 141.0 107.0 92.1
General and administrative..................... 134.1 181.8 128.9 126.1 79.2 52.6 56.9
Other operating expenses (expense reversals)... -- -- -- 179.4 -- -- (37.3)
Amortization of stock-based compensation....... -- -- -- -- 2.1 3.5 4.3
------- ------- ------- ------- ------- ------- -------
Total costs and expenses..................... 771.3 895.5 643.4 863.4 451.5 359.2 322.4
------- ------- ------- ------- ------- ------- -------
Operating loss................................... (671.3)% (795.5)% (543.4)% (763.4)% (351.5)% (259.2)% (222.4)%
======= ======= ======= ======= ======= ======= =======
</TABLE>
26
<PAGE>
The discussions of the annual and nine-month operating results for the periods
ended September 30, 1999 apply generally to the comparisons of results of
operations for the seven quarters ended September 30, 1999.
Our quarterly operating results have fluctuated significantly in the past, and
will continue to fluctuate in the future, as a result of a number of factors,
many of which are outside our control. These factors include:
- changes in the number of the GRIC Alliance members;
- our ability to establish and maintain relationships with service providers
and strategic partners;
- the demand for our products and services;
- software defects and other product quality problems;
- the size and timing of specific sales;
- the length of our sales cycles;
- budgeting cycles of our customers;
- the delay of customer purchases caused by the announcement of new hardware
or software platforms;
- the level of product and price competition;
- changes in our pricing policies;
- the timing and market acceptance of our new product and service
introductions and enhancements;
- our ability to hire, train and retain sales and consulting personnel to meet
demand;
- personnel changes;
- the mix of international and domestic revenues;
- changes in our sales force incentives;
- changes in our strategy; and
- general domestic and international economic and political conditions.
We have in the past experienced delays in the planned release dates of new
software products or upgrades, have discovered software defects in new products
after their introduction and have discontinued products after introduction. We
cannot assure you that new products or upgrades will be released according to
schedule or that, when released, they will not contain defects or be
discontinued. Any of these situations could result in adverse publicity, loss of
revenues, delay in market acceptance or claims by customers brought against us,
any of which could have a material adverse effect on our business, results of
operations and financial condition.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 8,481 $ 1,362 $10,181
Net cash used in operating activities....................... (6,815) (12,806) (13,260)
Net cash provided by (used in) investing activities......... 4,649 (2,283) (1,739)
Net cash provided by financing activities................... 7,305 7,970 23,818
</TABLE>
27
<PAGE>
OPERATING ACTIVITIES. Net cash used in operating activities was $13.3 million
for the nine months ended September 30, 1999, $12.8 million in 1998 and $6.8
million in 1997. Net cash used in operating activities for the first nine months
of 1999, and for the years ended December 31, 1998 and 1997, respectively, was
primarily a result of net operating losses.
INVESTING ACTIVITIES. Our recent investing activities have consisted primarily
of capital expenditures for computer hardware relating to the network
infrastructure and computer hardware and software for our increasing employee
base. Net cash used in investing activities was $1.7 million for the nine months
ended September 30, 1999 and $2.3 million in 1998. Net cash provided by
investing activities totaled $4.6 million in 1997 primarily due to the sale for
$5.4 million of our interest in our Internet service provider business and
related assets that we operated as a separate segment of the business. We expect
that capital expenditures will increase due to continued expansion of our
network infrastructure as well as our increasing employee base.
FINANCING ACTIVITIES. Net cash provided by financing activities was $23.8
million in the first nine months of 1999, $8.0 million in 1998 and $7.3 million
in 1997. We have funded our operations primarily through private placement of
our preferred stock, through which we have raised net proceeds of approximately
$47.0 million since inception. We have also financed our operations through
equipment promissory notes.
COMMITMENTS. We lease all of our facilities under operating leases that expire
at various dates through 2003. As of September 30, 1999, we had $2.9 million in
future operating lease commitments. As of September 30, 1999, we had
$1.6 million of capital lease obligations and equipment promissory notes. In the
future we expect to continue to finance the acquisition of computer and network
equipment through additional capital lease arrangements.
At September 30, 1999, our principal source of liquidity was approximately $10.2
million of cash and cash equivalents.
We believe that the net proceeds of this offering, together with existing cash
and cash equivalents, and funds available under existing credit facilities, will
be sufficient to meet our working capital requirements for at least the next 12
months. Thereafter, we may require additional funds to support our working
capital requirements or for other purposes and may seek to raise these
additional funds through public or private debt or equity financing or from
other sources. We cannot assure you that additional financing will be available
on acceptable terms, if at all. If adequate funds are not available or are not
available on acceptable terms, we may be unable to develop or enhance our
products, take advantage of future opportunities, or respond to competitive
pressures or unanticipated requirements, which could have a material adverse
effect on our business, financial condition and operating results.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued SOP No. 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP No. 98-1 requires
entities to capitalize selected costs related to internal-use software once
specified criteria have been met. We expect that the adoption of SOP No. 98-1
will not have a material impact on our financial position or operating results.
We will be required to implement SOP No. 98-1 for the year ending December 31,
1999.
In April 1998, the AICPA issued SOP No. 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES. SOP No. 98-5 requires that all start-up costs related to new
operations must be expensed as incurred. In addition, all start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
We expect that the adoption of SOP No. 98-5 will not have a material impact on
our financial position or results of operations. We will be required to
implement SOP No. 98-5 for the year ending December 31, 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133
establishes methods for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities.
28
<PAGE>
Because we do not currently hold any derivative instruments and do not engage in
hedging activities, we expect that the adoption of SFAS No. 133 will not have a
material impact on our financial position or results of operations. We will be
required to implement SFAS No. 133 for the year ending December 31, 2000.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS
We have limited exposure to financial market risks, including changes in foreign
currency exchange rates and interest rates. We have foreign operations in Europe
and Asia. To date, our exposure to foreign currency fluctuations has not been
significant.
Our interest income and interest expense is sensitive to changes in the general
level of U.S. interest rates. An increase or decrease in interest rates would
not significantly increase or decrease interest income on cash balances due to
our cash being primarily invested in demand deposits.
Due to the short-term nature of our investments and the immaterial amount of our
debt obligations, we believe that there is no material exposure to interest rate
fluctuation. Therefore, no accompanying table has been provided.
YEAR 2000 COMPLIANCE
BACKGROUND OF YEAR 2000 ISSUES.
The "year 2000" issue refers generally to the problems that some date-sensitive
computer systems and software may have in recognizing and processing date
information beyond the year 1999, and in particular distinguishing whether "00"
means 1900 or 2000, which may result in failures or the creation of erroneous
results. As a result, many companies' computer and communications systems and
software may need to be upgraded or replaced to become "year 2000 compliant."
We have defined "year 2000 compliant" as the ability to:
- correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
- function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
- respond to two-digit date input in a way that resolves the ambiguity as to
century in a disclosed, defined and predetermined manner;
- store and provide output of date information in ways that are unambiguous
regarding century if the date elements in interfaces and data storage
specify the century; and
- recognize year 2000 as a leap year.
STATE OF READINESS
OUR SOFTWARE. We have conducted a review regarding year 2000 compliance for the
current generally available and immediately preceding versions of our software.
The review included assessment, validation testing, contingency planning and
implementation, including remediation, upgrading and replacement of some
software versions.
We have substantially completed all phases of our review, except for contingency
planning, with respect to the current generally available and immediately
preceding versions of our software. We believe that, as a result, the current
generally available and immediately preceding versions of our software are year
2000 compliant when configured and used in accordance with the related
documentation, provided that the underlying operating system of the host machine
and any other software used with or in the host machine or our software are also
year 2000 compliant and assuming any data received from third parties has been
properly processed by that party's hardware and
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software. We have not tested our software on all platforms or all versions of
operating systems that it currently supports.
THIRD-PARTY SOFTWARE. We are currently either testing software obtained from
third parties (licensed software, shareware, and freeware) that is incorporated
into our products or sold in conjunction with our products or seeking to confirm
that this software is year 2000 compliant. We have not yet received confirmation
that all of our vendors' licensed software is year 2000 compliant. Despite our
testing, our products may contain undetected errors or defects associated with
year 2000 date functions. Known or unknown errors or defects in our products
could result in delay or loss of revenue, diversion of development resources,
damage to our reputation increased service and warranty costs, or liability from
our customers, any of which could seriously harm our business.
THE NETWORKS INCLUDED IN THE GRIC ALLIANCE. We have initiated a year 2000
assessment of those components of the networks included in the GRIC Alliance
that are under our control. We expect to complete this assessment in the fourth
quarter of 1999. Although we are not currently aware of any material operational
issues or costs associated with making our internal systems year 2000 compliant,
we may experience unanticipated problems and costs caused by undetected errors
or defects in the technology used in our internal systems.
We may experience problems to the extent that members of the GRIC Alliance and
other telecommunications carriers whose networks connect with or are a part of
the networks included in the GRIC Alliance are not year 2000 compliant. Our
ability to determine the year 2000 compliance of GRIC Alliance members and
telecommunications carriers that are not members of the GRIC Alliance is
limited. Even if we receive assurances, these third parties may still experience
year 2000 problems with their software or systems, and these problems could have
a materially harmful effect on our business.
END USERS. We currently have only limited information concerning the year 2000
compliance status of our end users. As is the case with other similarly situated
companies, if our current or future end users fail to achieve year 2000
compliance, our business could be harmed.
OUR INTERNAL BUSINESS SYSTEMS. We have initiated an assessment of all of our
business critical internal systems. We expect to complete testing of our
internal systems in the fourth quarter of 1999. To the extent that we are not
able to test the technology provided by third-party vendors, we are seeking
assurances from these vendors that their systems are year 2000 compliant.
Although we are not currently aware of any material operational issues or costs
associated with making our internal systems year 2000 compliant, we may
experience unanticipated problems and costs caused by undetected errors or
defects in the technology used in our internal systems.
RISKS RELATED TO YEAR 2000 ISSUES
Although we are taking steps to make our private managed network and our
software and internal systems year 2000 compliant and to evaluate the year 2000
compliance of telecommunications providers on which our business depends, the
most reasonably likely worst-case year 2000 scenario is that our settlement,
authentication and other services, or the Internet communications services we
enable, may not operate properly or at all. If these disruptions occur and are
frequent or lengthy in duration, we could lose settlement revenues and customer
confidence, we may have to refund amounts paid by customers and we may lose
members of the GRIC Alliance. Other potential year 2000 risks include the
following:
- the loss or alteration of data regarding usage of the Internet
communications services we enable, with resulting inaccuracy of information
used in connection with our settlement revenues;
- an inability to properly authenticate or connect end users desiring to
engage in Internet roaming; and
- the inability to properly originate or terminate Internet telephony calls.
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In addition, our future business depends on the successful operation of the
Internet following the commencement of the year 2000. If the Internet is
inaccessible for an appreciable period of time, our business and revenues could
be materially harmed. We are also subject to external forces that might
generally affect industry and commerce, such as telecommunications, utility or
transportation company year 2000 compliance failures, related service
interruptions and the economic impact that these failures could have on GRIC
Alliance members and end users.
Some commentators have predicted significant litigation regarding year 2000
compliance issues, and we are aware of these lawsuits against other Internet and
software-related companies. Because of the unprecedented nature of this
litigation, we are uncertain whether, or to what extent, we may be affected by
it.
CONTINGENCY PLAN
The year 2000 compliance of third-party global, national and local
communications networks and the compliance of individual Internet service
providers is not within our control. Accordingly, a contingency plan for this
worst-case scenario does not exist and we do not believe we will be able to
develop one.
COSTS
Costs related to our efforts to address year 2000 issues have been expensed as
incurred and have not been material to date. We expect to incur additional costs
related to the year 2000 plan for administrative personnel to manage the
project, outside contractor assistance, technical support for our software,
product engineering and customer satisfaction. We do not expect year
2000-related costs to have a materially harmful effect on our liquidity or
results of operations. Our estimates of the cost of these efforts are partially
based on numerous assumptions about future events. We cannot assure you that
these estimates will be correct. Actual costs could differ materially from these
estimates.
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BUSINESS
OVERVIEW
We provide services and software that enable our customers to offer
Internet-based products and services, such as Internet telephony and Internet
roaming, to their end users worldwide. Our customers include telecommunications
companies, Internet service providers and newly-emerging communications service
providers. We provide our services and software through a global network of our
customers that we call the GRIC Alliance. We created this alliance by forming
contractual relationships with our customers that allow them to share their
communications networks. We use our internally-developed software platform,
which we call GRIC Convergent Services Platform or GRIC CSP, to manage this
shared network of our customers and to provide settlement services. As a
settlement services clearinghouse we have established common technical, service
and payment standards to settle charges that our customers incur when their end
users access the networks of other GRIC Alliance members. These end users access
these networks in order to initiate Internet communications, such as Internet
roaming and Internet telephony. Internet roaming is a method by which end users
access the Internet using the network facilities of a provider other than the
Internet service provider with which they have established an access account.
Internet telephony is a method of transmitting telephone calls over the Internet
rather than through traditional telephone networks.
As of September 30, 1999, the GRIC Alliance included the communications networks
of over 300 GRIC Alliance members and over 4,000 Internet access points located
in over 140 countries. By joining the GRIC Alliance, members allow their end
users to access a global network consisting of the local, regional and
international networks of the GRIC Alliance members. Through our strategic
relationships with Internet telephony equipment vendors, such as Lucent
Technologies and Cisco Systems, we help ensure that members can readily adopt
and deploy new technology across the networks in the GRIC Alliance. Current
members of the GRIC Alliance include Chunghwa Telecom, Fujitsu Nifty, Globus,
MindSpring, Primus Telecommunications, Singapore Telecommunications and
Telstra's On Australia subsidiary, as well as America Online, which recently
began offering our Internet roaming service to its subscribers.
GRIC CSP is a software platform that we developed to operate in multiple
hardware and software environments. We use GRIC CSP to manage our global
infrastructure and to provide our customers with transaction management
services, end user authentication and authorization, route termination and
settlement services. GRIC CSP is designed to facilitate the introduction,
deployment and management of new Internet-based services on a global scale
across the multiple networks that constitute the GRIC Alliance.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET-BASED SERVICES MARKET.
Improvements in technology, the efficiency of Internet-based communications,
global deregulation of the communications industry and the convergence of the
Internet-based communications and traditional telecommunications markets all
have combined to create significant new opportunities for providers of
Internet-based services including the opportunity to address the large and
growing telecommunications market. TeleGeography, a market research firm,
estimates the amount of international long distance traffic is expected to grow
from approximately 94 billion minutes in 1998 to approximately 143 billion
minutes in 2001.
The convergence of the Internet-based communications and traditional
telecommunications markets is gaining momentum because technological
improvements have recently made it more practical to utilize Internet protocol
technology for telephone connections, particularly international calls, and not
just to transmit data over the Internet. It is now possible to transmit
phone-to-phone calls over Internet-based networks with quality approaching that
of traditional, switch-based voice networks.
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Transmitting voice over the Internet, or "Internet telephony," presents a
significant opportunity because it allows telecommunications providers to bypass
incumbent long distance telephone tariff and rate structures and greatly reduces
the cost of connecting international calls. Internet telephony is also more
cost-effective and efficient than traditional switched telephony because
Internet-based networks allow voice and data calls to be pooled, enabling
telecommunications providers to carry more calls over lines with the same amount
of bandwidth. As a result of these factors, Internet telephony is expected to
capture an increasing share of the international long distance telephone market.
According to International Data Corporation, voice minutes transmitted over
Internet-based networks are expected to increase from 300 million minutes in
1998 to 135 billion minutes in 2004.
Demand for a wide variety of other Internet-based communications services, such
as Internet roaming, is also expected to increase. Internet roaming enables end
users to access the Internet by using the network facilities and services of a
provider other than their "home provider" or provider with whom they have an
Internet access account. This demand for Internet roaming services is being
driven by a number of factors including the rapid growth of Internet users
worldwide, the increase in global consumer and business travel and the
prevalence of e-mail as a medium for the exchange of information. According to
the Yankee Group, the worldwide market for remote access services, including
Internet roaming, will increase from approximately $430 million in 1998 to
approximately $1.98 billion in 2002.
Finally, we believe demand for all Internet-based services, including Internet
telephony and Internet roaming, will increase as a result of deregulation in
global telecommunications markets. Global deregulation has also compelled
communications service providers to offer additional services as a means to
differentiate themselves from their competitors and to generate increased
revenues.
CHALLENGES ASSOCIATED WITH PROVIDING INTERNET-BASED COMMUNICATIONS SERVICES.
In order for providers of communications services to offer Internet-based
communications services on a commercial basis, a number of needs must be met.
ACCESS TO GLOBAL INTERNET-BASED NETWORK. Access to, or ownership of, an
Internet-based network with Internet access points around the world is required
to enable the global delivery of multiple Internet-based services. The capital
and lead time required for any one service provider to establish such a global
network can be significant. Legal and regulatory impediments can create further
barriers. Therefore, many individual providers must partner and share networks
with multiple providers in order to enable a broad range of Internet-based
services on a global basis.
NUMEROUS GLOBAL RELATIONSHIPS. As more service providers attempt to provide
global services, the number and complexity of relationships among such providers
will likely increase. Establishing the necessary contracts, service and payment
standards, cross-marketing rights and access rights can be a costly and time
consuming process.
INTERNET COMMUNICATIONS INFRASTRUCTURE. Traditional telecommunications companies
require software, hardware and network management solutions, known as Operations
Support System solutions, to enable them to provide their services. The market
for Operations Support System solutions in the telecommunications industry is
large and is currently addressed by numerous vendors. We believe that as
Internet communications services become more widespread and continue to converge
with traditional telecommunication services, a similar need for an Internet
Operations Support System infrastructure is emerging. We believe this Internet
communications infrastructure will need to include the following key functions:
- CONFIGURATION--assigning a user name and password to establish a person's
account;
- PROVISIONING--designating one or more Internet-based services that a person
is authorized to use once an account is established;
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- AUTHENTICATION--determining whether a person is authorized to use a
particular service and then connecting that person to the appropriate
authorized service;
- ROUTE ORIGINATION AND TERMINATION--determining the appropriate network
routing of an Internet connection, including the point from which it is
initiated and the point it is received, based on applicable cost and quality
of service parameters;
- TRACKING--tracking each end user's individual Internet communication and
service quality and collecting the corresponding accounting data necessary
to bill customers; and
- CLEARINGHOUSE SETTLEMENT--billing and collecting amounts owed by one
communications service provider whose end users access a second provider's
facilities or services, and paying that second provider for that access.
Settlement becomes more complex as the number of parties involved increases,
because all parties must agree on common rules for settlement and payment. A
settlement clearinghouse is important because it establishes these common
rules and provides settlement services.
Until recently no single company has had the combined expertise as an
infrastructure and service provider to successfully address each of these
challenges.
THE GRIC SOLUTION
We are a leading provider of Internet-based communications infrastructure
products and services, including settlement services, that enable
telecommunications service providers, Internet service providers, and
newly-emerging communications providers to offer Internet-based products and
services to their customers worldwide. Our Internet-based platform consists of a
global network, our GRIC CSP software and the GRIC Alliance. We use this
Internet-based platform to offer transaction management and settlement services
to our customers. Our combination of software, network infrastructure and
business relationships allows our customers to provide to their end users, on a
global basis, Internet-based services such as global Internet roaming, including
secure corporate remote access capability, and Internet telephony, including
voice, fax and prepaid capabilities. As a settlement services clearinghouse
managing a global alliance, we establish critical business relationships and
processes and implement common technical, service and payment standards needed
to enable our customers to provide services through a shared global network.
Our infrastructure platform enhances our customers' service offerings and end
user relationships in several ways:
- ENABLES BUNDLING OF MULTIPLE INTERNET-BASED SERVICES. Our solution enables
new Internet-based communications services, either alone or in bundled
offerings, such as global Internet roaming, including secure corporate
remote access capability, and Internet telephony. We believe the ability to
bundle services will also allow our customers to more easily cross-sell
other Internet-based services to each end user and reduce end user turnover.
- PROVIDES GLOBAL NETWORK TO EXPAND GEOGRAPHIC REACH. Each of our customers
gains an immediate global presence for the benefit of its end users. By
accessing an existing network, each customer avoids the cost and time
required to negotiate, build and maintain its own network of relationships,
becoming a global service provider through the GRIC Alliance.
- LOWERS COSTS. Our customers can gain a competitive advantage or maintain
competitive parity by expanding their end user service offerings without
incurring the substantial capital investments and operating costs that would
otherwise be required to build and deploy their own global Internet-based
multiple-service network.
- FACILITATES COMMUNICATION AMONG MANY NETWORKS. We have designed our
software, structured our business and formed the GRIC Alliance to allow our
customers, the members of the GRIC Alliance, to share their network
facilities. Our technical, service and payment standards facilitate this
network sharing by enhancing business and technical interoperability.
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Utilizing our GRIC CSP software, we administer and monitor the GRIC Alliance
network and provide transaction management and settlement services to our
customers. We believe GRIC CSP benefits our customers in the following ways:
- PROVIDES FUNCTIONALITY NECESSARY TO MANAGE A GLOBAL NETWORK. GRIC CSP
provides configuration, authentication, route origination and termination,
tracking, and settlement services, which are essential to integrate the
dispersed networks of the GRIC Alliance members into a global interconnected
network which we manage.
- SUPPORTS EFFICIENT BILLING AND TRANSACTION MANAGEMENT. By tracking usage
data through the networks in the GRIC Alliance, we use GRIC CSP to provide
the information necessary for our members to bill their end users with the
convenience of a single bill.
- FACILITATES ADDITION OF NEW INTERNET-BASED SERVICES. GRIC CSP is designed to
enable the introduction of new Internet-based services. This ensures that
our customers can develop and quickly deploy new service offerings to their
end users.
STRATEGY
Our goal is to become the preferred global provider of Internet-based
communications infrastructure and clearinghouse services. In order to achieve
this goal, we intend to:
- CONTINUE TO ADD GRIC ALLIANCE MEMBERS. We believe that the benefits of the
GRIC Alliance increase as the number and quality of GRIC Alliance members
increase. Accordingly, we will continue to focus our efforts on identifying
new GRIC Alliance members with attributes that enhance the GRIC Alliance,
such as extensive network facilities, a diverse array of Internet-based
service offerings and large subscriber bases, particularly those with a high
percentage of roaming and telephony subscribers.
- CROSS-SELL TO GRIC ALLIANCE MEMBERS. We intend to focus on opportunities to
cross-sell our products and services to GRIC Alliance members that do not
currently offer the full range of services that we enable. We are well
positioned for such cross-selling because our infrastructure readily enables
and supports the delivery of bundled and new Internet-based services. Our
existing Internet telephony infrastructure should make it easier for us to
offer new Internet telephony services, such as personal
computer-to-telephone, video conferencing and collaboration, as they become
available.
- ENHANCE OUR TECHNOLOGY LEADERSHIP. We intend to continue to enhance our
technology leadership by devoting significant resources to developing GRIC
CSP's features and functionality, enhancing our existing Internet-based
service offerings and introducing new Internet-based services. We expect
that new enhancements of GRIC CSP will offer integration with third party
provisioning and billing systems and the ability to allow future proprietary
and third-party Internet-based services to operate on the GRIC CSP platform.
We also plan to increase functionality of GRIC CSP to enable it to operate
with a greater range of computing devices as well as offering fault
tolerance, remote network management capabilities and improved scalability.
- PROMOTE THE ADOPTION OF GRIC CSP. We intend to encourage the adoption of
GRIC CSP as the preferred platform worldwide for delivery of multiple
Internet-based services. We expect this to lead to increased settlement
revenues. In addition to continuing to use GRIC CSP to manage the GRIC
Alliance and provide our settlement services, we intend to license future
versions of GRIC CSP directly to our customers. By licensing to our
customers an enhanced GRIC CSP solution with a broader range of
functionality, we hope to enable them to provide better service to their
customers and to increase their transaction volume. We plan to create and
market a software developer kit for GRIC CSP. Future GRIC CSP-compatible
Internet-based services may include e-commerce, personal
computer-to-telephone, unified messaging, multimedia, wireless and customer
management software and services.
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- LEVERAGE STRATEGIC RELATIONSHIPS. To expand our sales channels we intend to
leverage the capabilities, resources, expertise and market presence of our
customers and strategic partners through joint marketing and original
equipment manufacturer arrangements. For example, we intend to bundle our
products and services with the offerings of hardware vendors such as Cisco
Systems, Hewlett-Packard Company and Lucent Technologies, or integrate GRIC
CSP with third-party billing, Internet telephony or e-commerce software
solutions. We also intend to work with system integrators, who could
integrate GRIC CSP into a complete Internet communications solution, and
network computer system vendors, who could serve as an original equipment
manufacturer or sales channel to deliver settlement services to corporate
enterprises and large organizations.
- INCREASE TRANSACTION-BASED REVENUE. By supporting and promoting the
development of new Internet-based products and services, we expect to
facilitate the growth of Internet transactions generated by our customers.
We intend to adopt flexible pricing models to include transaction-based fees
and transaction revenue sharing. For example, we are designing GRIC CSP to
enable settlement of e-commerce micropayments, so as to allow content
providers who operate Internet Web sites to charge very small amounts for
Web site services and collect these charges using our clearinghouse service.
PRODUCTS AND SERVICES
OVERVIEW
Our products and services enable our customers to offer multiple Internet-based
services, such as global Internet roaming and Internet telephony, to their
customers worldwide. Our infrastructure includes our GRIC CSP software, our
worldwide managed network and the GRIC Alliance. The GRIC Alliance functions
because its members generally operate in accordance with technical, quality,
payment and business rules and procedures that we establish and implement
through contracts and our role as a global settlement services clearinghouse. In
addition to enabling our customers to expand their service offerings to include
multiple Internet-based services, we also provide comprehensive clearinghouse
services to our customers.
The table below summarizes our current products and services.
<TABLE>
<CAPTION>
INTERNET-BASED SERVICE GRIC PRODUCTS AND SERVICES FEATURES
<S> <C> <C>
Global Internet Roaming - GRICtraveler software - Over 4,000 Internet access points in over 140 countries
- GRICdial software - Worldwide private backbone network for enhanced quality
- Settlement services of service
- 82% of Internet access points offer 56k access speed
- Easy to use
- Automatic update feature
- Network quality monitored by dialer software and 24x7
network operations centers
- Secure corporate remote access
Internet Telephony - GRICphone service - Allows phone-to-phone Internet telephony, including
- GRICprepaid software voice, prepaid and fax
- Settlement services - Provides worldwide termination
- Supports Lucent and Cisco gateways
- Worldwide private backbone network for enhanced quality
of service
- Network quality monitored by 24x7 network operations
centers
</TABLE>
GLOBAL INTERNET ROAMING
We enable our customers to offer global Internet roaming through the combination
of our GRICtraveler, GRICdial and GRIC CSP software. Our global Internet roaming
solution allows our customers to provide their end users with low cost access to
the Internet throughout the world by dialing a local number, thereby eliminating
the need for costly international calls to their "home" Internet service
provider.
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GRICTRAVELER. Our GRICtraveler software normally resides on our customer's
server and enables the customer to provide global Internet roaming to end users
who have installed GRICdial software. We can also host the GRICtraveler software
at our facilities, enabling a customer to offer global Internet roaming to its
end users as a virtual service provider. GRICtraveler authenticates end users'
access to the networks included in the GRIC Alliance, enables access to services
offered by other GRIC Alliance members and sends a record of the transaction to
our central clearinghouse server for settlement. Settlement records may be
reviewed by our customers at any time using our Web site.
GRICDIAL. After our customers' end users install our GRICdial software on their
computer, they are able to use the global Internet roaming service to access the
Internet through the networks included in the GRIC Alliance. GRICdial can be
customized for branding purposes, which benefits our customers by allowing them
to create special or premium-rate access services. Three steps are needed to
access the Internet using our roaming product:
LAUNCH GRICdial, which automatically updates an electronic phone book of
available Internet access points to ensure the most current listing;
CHOOSE an Internet access point by entering the country and city and
selecting among the phone numbers listed by GRICdial or automatically
using a number that has been previously bookmarked; and
CONNECT and be authenticated using the name and password information
previously stored in GRICdial.
Secure corporate remote access provides a business traveler with an integrated
solution for secure remote access to his or her corporate network through a
public Internet connection. We enable our customers to offer this service
through a combination of our GRICtraveler and GRICdial software as well as
third-party virtual private networking software. Our GRICdial software is
compatible with and launches a variety of industry-leading, third-party virtual
private networking software.
INTERNET TELEPHONY
Our Internet telephony services enable our customers to offer their end users
low-cost, high quality, Internet-based phone calls.
GRICPHONE. Our GRICphone is a phone-to-phone Internet telephony service enabling
phone calls to be made across the Internet to many locations throughout the
world. Generally, end users make an Internet telephony call in the same way as
they would make a traditional telephone call. GRICphone requires our customers
to operate an Internet telephony gateway from GRIC-compatible vendors, which
currently are Cisco Systems and Lucent Technologies. Our GRIC CSP software and
these Internet telephony gateways handle authentication, routing of phone calls
based on quality of service and cost parameters, and settlement services. Our
customers may elect to originate or terminate calls, select the countries to
which calls may be made and offer different quality of service levels. To help
ensure the quality of our Internet telephony service, we operate a worldwide,
private asynchronous transfer mode network over which calls can be routed.
GRICPREPAID. GRICprepaid software enables our customers to offer prepaid
Internet telephony services to their end users. The convenience to end users and
the reduced collection risk for customers have made prepaid services
increasingly popular. Utilizing our GRICprepaid software together with an
Internet telephony gateway from a GRIC-supported vendor, our customers can
immediately enter the prepaid telecommunications market at a fraction of the
cost associated with traditional prepaid telephony systems and offer their end
users access to our existing international Internet telephony network.
Additional functions allow our customers to perform administrative tasks such as
monitoring balances, increasing balances or changing the status of accounts.
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CLEARINGHOUSE SETTLEMENT SERVICES
The combination of our clearinghouse settlement services and GRIC CSP software
establishes critical business relationships and processes needed to enable our
customers to provide services through a shared global network. We generate
settlement revenues when we act as a clearinghouse by providing settlement
services to customers whose end users initiate Internet roaming services or
originate Internet telephony communications. For each global Internet roaming
transaction, we use GRIC CSP to track the usage, collect the amount that a
roamer's "home" service provider owes us, pay the appropriate amount to the
service provider enabling local access, and provide the underlying usage data to
our customer to enable billing of its end user. For each Internet telephony
call, we use GRIC CSP to monitor usage, settle the amounts owed for use of the
networks available through the GRIC Alliance between participating customers and
provide the underlying usage data to facilitate our customer's billing of its
end user.
FUTURE PRODUCTS AND SERVICES
We intend to make significant investments to enhance GRIC CSP and to develop and
market other products and services. However, we cannot assure you that we will
be able to successfully develop or implement any new or enhanced product or
service in the future, and we may offer new products not listed below.
GRIC CSP AS A LICENSED PRODUCT. We currently use GRIC CSP internally to
administer and monitor the networks included in the GRIC Alliance. However, we
are developing an enhanced version of GRIC CSP that we expect to license
directly to our customers. We expect to offer our next generation of GRIC CSP
software in three editions:
- We are designing one edition to be offered to our current installed base of
GRIC Alliance members to support both global Internet roaming and Internet
telephony, as well as future Internet-based services. This edition will add
significant features and functionality over our current GRIC CSP software,
including enhanced scalability, extensibility, portability, security and
remote network management capabilities, fault tolerance, and integration
with third-party provisioning and billing systems. Two important benefits of
this edition are the ability to update GRIC CSP features remotely to ease
network administration and allow future proprietary and third-party
Internet-based services to operate on and plug into GRIC CSP so that they
can be deployed throughout an existing marketing channel--the GRIC Alliance.
Given the substantially increased functionality to be offered by this
edition, we believe our customers will view GRIC CSP as a flexible platform
for quickly adding and bundling new Internet-based services for use by their
end users.
- We intend to license a GRIC CSP software development kit to independent
software vendors and hardware companies that wish to develop new or improve
existing Internet-based services to be deployed throughout the GRIC
Alliance. This software development kit will consist of documentation and
software tools, bundled with consulting and training. We expect that third
party developers will enhance the value of GRIC CSP by increasing the number
of available Internet-based services, making it a more attractive and widely
adopted platform for GRIC Alliance members.
- We intend to license a third edition of GRIC CSP that will enable large
service providers, principally telecommunications companies, to use GRIC CSP
to provide Internet-based services and clearinghouse services within their
own network domain. We are designing this edition of GRIC CSP to allow us
and our customers to partition the networks included in the GRIC Alliance
into multiple sub-networks. We intend to continue to provide settlement
services as a clearinghouse and to track and price transactions among and
between these sub-networks and to allocate payments among multiple parties.
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E-COMMERCE. We intend to enhance our GRIC CSP software capability to enable us
to provide clearinghouse services for e-commerce transactions. We believe that
this will be attractive to e-commerce companies in a variety of settings,
including high volume settlement of business-to-business transactions among more
than two parties and settling of micro-payments, which are typically very small,
high volume payments for products and services offered over a Web site.
PERSONAL COMPUTER-TO-PHONE, UNIFIED MESSAGING AND OTHER INTERNET-BASED
SERVICES. We intend to partner with leading hardware and software vendors to
facilitate the development of other new GRIC CSP-compatible Internet-based
services, which may include personal computer-to-telephone, unified messaging,
call center, multimedia, wireless and customer management solutions.
OUR INTERNET-BASED TECHNOLOGY AND COMMUNICATIONS INFRASTRUCTURE
Our Internet-based infrastructure consists of a worldwide managed network,
distributed software and the GRIC Alliance. Using this infrastructure, we
provide settlement services for, and enable our customers to offer, multiple
Internet-based services.
GRIC CONVERGENT SERVICES PLATFORM
GRIC CSP currently consists of software that we use to manage and operate the
networks included in the GRIC Alliance, provide settlement services, and enable
our customers to offer Internet-based communications services to their end
users. GRIC CSP's capabilities and features fall into the following three
categories:
OPERATIONS. GRIC CSP provides the functionality to support our network operation
by providing:
- AUTHENTICATION. GRIC CSP determines whether a user is permitted to use a
particular service, based upon that user's name and password.
- TRACKING. GRIC CSP monitors each end user's individual service transaction
and service quality, collects the corresponding accounting data necessary to
bill customers and forwards it to our central settlement server.
- ROUTE ORIGINATION AND TERMINATION. For Internet telephony, GRIC CSP helps
locate and process the information that an Internet telephony gateway needs
to route an Internet communication over the network of GRIC Alliance members
for the lowest cost and desired quality of service.
- CLEARINGHOUSE AND SETTLEMENT. GRIC CSP currently provides the functionality
that we need to settle charges through our central clearinghouse server.
CONFIGURATION. These services perform functions such as defining subscribers and
their account information and defining the use, configuration and provisioning
of Internet-based services such as global Internet roaming, including secure
corporate remote access and Internet telephony.
ARCHITECTURE. We have designed GRIC CSP to support a distributed network
architecture, which means the servers and software are located around the globe.
GRIC CSP supports several widely-adopted Internet protocols, which enable our
customers and their end users to transfer information across our customers'
network boundaries in a reliable manner without sacrificing the security of our
customers' networks. GRIC CSP supports the Open Standards Protocol, which is a
specification designed to facilitate inter-domain communications for future
Internet telephony architectures, and which we use to facilitate the interface
between GRIC CSP and Internet telephony gateways and gatekeepers. We believe our
adoption of this standard will facilitate compliance with new Internet telephony
standards in the future.
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GRIC ALLIANCE
As of September 30, 1999, the combined network of over 300 GRIC Alliance members
included over 4,000 Internet access points located in over 140 countries. GRIC
Alliance members that connect their networks to the GRIC Alliance enable their
end users to access the networks of other members. Current members of the GRIC
Alliance include Chunghwa Telecom, Fujitsu Nifty, Globus, MindSpring, Primus
Telecommunications, Singapore Telecommunications, Telstra's On Australia
subsidiary and America Online, which recently began offering our Internet
roaming service to its subscribers.
OUR PHYSICAL NETWORK
The following is a summary of the primary components of our physical network:
- our central clearinghouse, phone-book and network management servers in
Milpitas, California;
- our regionally distributed servers and Internet routing equipment in Los
Angeles, New York, San Jose, Washington, D.C., London and Singapore;
- Lucent Technologies and Cisco Systems Internet routing equipment owned
either by us or our customers, through which we have the capability to
terminate calls in 27 countries; and
- our worldwide private asynchronous transfer mode-based network, which we use
to maintain quality of service for Internet telephony calls. This network
has hubs in Los Angeles, New York, London and Singapore that are connected
by leased lines.
To ensure the quality of our network, we monitor the performance of each
Internet access point. This information enables us to identify the highest
quality Internet access points, update routes and remove poor quality Internet
access points from the electronic phone book contained in GRICdial and from the
network.
Prior to permitting new customers to enter the GRIC Alliance, we evaluate the
quality of their Internet telephony capabilities to help ensure call quality.
Routing tables are established that facilitate routing of Internet telephony
calls through the public Internet, our worldwide, private asynchronous transfer
mode-based network or traditional switch-based phone networks depending on our
customer's desired call quality. We monitor our network 24 hours-a-day, seven
days-a-week using a Hewlett-Packard OpenView system. Additionally, each new GRIC
Alliance member desiring to provide Internet telephony agrees to maintain
specified quality levels for that service.
STRATEGIC RELATIONSHIPS
While we have no material agreements with Lucent Technologies or Cisco Systems,
we work with both these companies in order to promote our settlement services
and software.
LUCENT TECHNOLOGIES. We have been enabling Internet telephony service over the
networks included in the GRIC Alliance with Lucent Technologies ITS-SP gateways
since 1997. These Lucent Technologies ITS-SP gateways are configured to
interface with our GRIC CSP software. We believe the deployment of more than 100
Internet telephony gateways owned either by our GRIC Alliance members or by us
makes the GRIC Alliance one of the largest alliance networks of Lucent
Technologies ITS-SP gateways in the world. Our GRIC prepaid software has been
available on the Lucent Technologies ITS-SP gateway since February 1999. We
co-market and recruit customers for the GRIC Alliance with the Lucent
Technologies sales force.
CISCO SYSTEMS. Working together with Cisco Systems, we have developed
standards-based inter-domain settlement software, based on the widely supported
standard known as Open Settlement Protocol, which is used to enable Cisco
Systems' AS5300 Internet telephony gateways and 36xx series gatekeepers to
interface with our GRIC CSP software. In many instances, our customers will be
able
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to utilize their existing Cisco Systems equipment, such as routers and gateways,
to support Internet telephony through inexpensive hardware and software
upgrades. Beta testing of the GRICphone network with Cisco Systems Internet
telephony gateways began in September 1999. We are involved in joint sales and
marketing activities with the Cisco Systems sales force.
CUSTOMERS
Our typical customers are service providers that benefit from a global
multi-service network built over an Internet-based infrastructure for providing
and managing Internet-based services. As of September 30, 1999, the GRIC
Alliance comprised over 300 members.
Our top ten customers by revenue during the period from January 1, 1999 to
September 30, 1999, by geographic region, were:
<TABLE>
<CAPTION>
ASIA-PACIFIC EUROPE, MIDDLE EAST AND AFRICA AMERICAS
<S> <C> <C>
ACCOS Belgacom Cernet
Amtel Communications Emirates Telecommunications Globus
Chembell Technology France Telecom Interactive HCI Technologies
Chunghwa Telecom Nacamar Interpath
Circlecom Net Vision KF Communications
Dream Train Internet o.tel.o MindSpring
Fujitsu Nifty Sovam Teleport New Global Telecom
NEC Biglobe TeleDanmark Primus Telecommunications
On Australia U-NET WinStar Communications
Singapore Telecommunications UUNET France World Access Telecommunications
</TABLE>
For the nine-month period ended September 30, 1999, World Access
Telecommunications accounted for approximately 10.8% of our revenues. No single
customer accounted for 10% or more of our revenues in 1998.
SALES, MARKETING AND CUSTOMER SERVICE AND SUPPORT
SALES
Our sales strategy is to pursue targeted accounts both directly through our
internal sales force and indirectly through our strategic partners. To date, we
have targeted our sales efforts at medium and large Internet service providers,
Internet divisions of traditional telecommunications providers and other
providers of Internet-based services. In many instances, we have initially
established a customer relationship based on our Internet roaming capabilities
and subsequently sold additional value-added services, such as Internet
telephony and prepaid Internet telephony services. As our service offerings have
expanded, we have broadened our sales focus to include regional and emerging
telephone companies and telecommunications providers.
We maintain direct sales personnel domestically in our Milpitas, California
headquarters, Florida, Texas and Virginia, and internationally in France,
Germany, Jordan, Malaysia, Singapore, South Korea, Taiwan and the United
Kingdom. The direct sales force is organized into individual regional account
teams, which include both sales representatives and systems and marketing
engineers. As of September 30, 1999, our direct sales force comprised 22
individuals. We intend to increase the size of our direct sales force and
establish additional sales offices domestically and internationally.
We complement our direct sales force with value-added resellers, systems
integrators, and hardware and software developers such as Lucent Technologies
and Cisco Systems. These parties provide a global extension of our direct sales
force and serve as a source of leads and referrals.
We also maintain an extensive Web site which, among other things, provides
information to prospective customers and affiliates concerning the technical and
other requirements for becoming a member of the GRIC Alliance.
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MARKETING
Our marketing programs are targeted at providers of Internet-based services and
are currently focused on creating awareness of, and generating interest in, GRIC
CSP and our services. We engage in a variety of marketing activities, including:
- conducting direct mailings and ongoing public relations campaigns;
- conducting seminars;
- creating and placing advertisements;
- managing and maintaining our Web site; and
- establishing and maintaining close relationships with recognized industry
analysts.
We are an active participant in technology-related conferences and demonstrate
our products at trade shows targeted at providers of Internet-based services. We
also focus on a range of joint marketing strategies and programs with our
partners in order to leverage their existing strategic relationships and
resources.
CUSTOMER SERVICE AND SUPPORT
We believe that customer service and support are critical to maintaining
existing customer relationships and developing relationships with new customers.
Our customer service group performs pre-sales support, product installation and
customization, technical support and consulting services, customer training and
product maintenance. Through our network operation centers in California,
Malaysia and France, we have established a globally distributed sales and
support capability that provides support coverage 24 hours-a-day, seven
days-a-week.
RESEARCH AND DEVELOPMENT
Our research and development efforts are currently focused on improving the
functionality and performance of our existing products and developing new
products, such as a stand-alone, separately licensable version of GRIC CSP. See
"Future Products and Services." We obtain extensive product development input
from our customers and monitor our customers' needs and changes in the
marketplace. We are currently working on key areas such as electronic commerce
and the interoperability of our products with those of other vendors. In
addition, we are developing improved network management capabilities and
enhanced end users features.
We believe our success will depend, in part, on our ability to develop and
introduce new products and enhancements to our existing products. In the past we
have made, and intend to continue to make, significant investments in research
and development. Our research and development expenditures were approximately
$5.9 million for the first nine months of 1999, $5.1 million in 1998,
$2.3 million in 1997 and $1.0 million in 1996. If we are unable to develop new
products or enhancements to existing products on a timely basis, or if the new
products or enhancements fail to achieve market acceptance, our business,
prospects and results of operations will suffer.
COMPETITION
We compete in markets that are new, intensely competitive, highly fragmented and
rapidly changing, primarily on the basis of the following factors:
- breadth of geographic presence;
- availability and breadth of Internet-based communications services;
- ease of integration;
- ability to offer turnkey solutions;
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- price;
- performance;
- flexibility;
- customer service;
- scalability;
- reliability; and
- network quality and capacity.
There are low barriers to entry to new or existing businesses seeking to offer
services on the Internet. As a result, our business environment is intensely
competitive, highly fragmented and rapidly changing. Competition can come from
many sources and may be focused on different segments of our business. We
presently compete directly with iPass in the market for Internet roaming and
related settlement services and iPass has formed a competing alliance. Providers
of Internet telephony services such as iBasis (formerly VIP Calling) and ITXC
compete with our Internet telephony services. Transnexus offers a clearinghouse
service for Internet telephony that supports the Open Standards Protocol.
Potential competitors to future stand-alone GRIC CSP products include operations
support system vendors, such as CAP Gemini, EDS and Lucent Technologies. AT&T
and other large telecommunications companies, such as MCI Worldcom, may compete,
or have the ability and resources to compete, in each of our markets, including
by offering clearinghouse and roaming services. Some companies, such as AT&T,
may in the future develop an intelligent platform network that competes with
existing or planned future versions of our GRIC CSP software.
Other companies specialize only in a single Internet-based service, such as
Internet roaming or Internet telephony. While we believe that the multi-service
nature of our product offering may give us a competitive advantage in general,
the narrower focus of these competing companies may give them the ability to
compete more effectively in the market for their respective individual products
and services.
The long distance telephony market and the Internet telephony market are highly
competitive. There are several large and numerous small competitors, and we
expect to face continuing competition for Internet telephony based on price and
service offerings from existing competitors and new market entrants in the
future. Our competitors in these markets include major and emerging
telecommunications carriers in the United States and foreign telecommunications
carriers. These include AT&T Global Clearinghouse, iBasis and ITXC, which
compete in both the business and retail segments, and other Internet telephony
service providers which currently focus only on a retail customer base. In
addition, companies currently in related markets have begun to enter the
Internet telephony market.
Many of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than we
have. In addition, a number of these competitors may merge or form strategic
partnerships. As a result, certain of these competitors may be able to offer, or
bring to market earlier, products or services that are superior to our own in
terms of features, quality, pricing or other factors. Our failure to compete
successfully in any of the markets in which we compete could have a material
adverse effect on our business, prospects, results of operations or financial
condition or on the price of our common stock.
GOVERNMENT REGULATION
We are not currently subject to federal or state telecommunications common
carrier regulation, and we do not believe that we are subject to local
regulation or laws or regulations applicable to access to
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or commerce on the Internet or use of the Internet to provide telephone service,
other than regulations applicable to businesses generally.
REGULATION OF INTERNET TELEPHONY
The use of the Internet to provide telephone service is a recent market
development. We are currently aware of no domestic and few foreign, laws or
regulations that prohibit voice communications over the Internet.
UNITED STATES. We believe that, under United States law, the Internet-related
services that we provide constitute information services and are not regulated
as telecommunications services and therefore are not currently actively
regulated by the Federal Communications Commission, or any state agencies
charged with regulating telecommunications carriers. We cannot assure you that
Internet-related services will not be actively regulated in the future. Several
efforts have been made in the U.S. to enact federal legislation that would
either regulate or exempt from regulation services provided over the Internet.
Increased regulation of the Internet generally may slow our growth, particularly
if other countries also impose regulations. Such regulation could materially
adversely affect our business, prospects, operating results and financial
condition.
Recently, the FCC has considered whether to impose surcharges or other common
carrier regulations upon certain providers of Internet telephony, primarily
those that, unlike us, provide Internet telephony services to end users located
within the U.S. While the FCC has presently decided that information service
providers, including Internet telephony providers, are not telecommunications
carriers, various companies have challenged that decision. Congressional
dissatisfaction with FCC conclusions could result in legislation requiring that
the FCC impose greater or lesser regulation, which in turn could materially
adversely affect our business, financial condition, operating results and future
prospects. On April 10, 1998, the FCC issued a report to Congress discussing the
implementation of certain universal service provisions contained in 1996
amendments to the Communications Act of 1934. In the report, the FCC indicated
that it would examine the question of whether certain forms of phone-to-phone
Internet protocol telephony are information services, which are exempt from
Universal Service Fund contribution requirements, or telecommunications
services, which must make these contributions. The FCC noted that it did not
have, as of the date of the report, an adequate record on which to make a
definitive pronouncement, but that the record suggested that certain forms of
phone-to-phone Internet telephony appear to have the same functionality as
non-Internet protocol telecommunications services and lack the characteristics
that would render them classified as information services, which are exempt from
Universal Service Fund contribution requirements, or telecommunications
services, which must make such contributions. The FCC previously has expressly
found that at least one kind of data communications service using the frame
relay protocol should be regulated as a basic telecommunications service. This
means that any service provider that is providing voice over frame relay service
could be classified as a telecommunications common carrier and therefore subject
to regulation, including being required to contribute to universal service
subsidies. The FCC has not expressly made any similar regulatory determination
with respect to transmissions made over asynchronous transfer mode protocols.
Additionally, to the present time, transmission services provided over leased
lines that are "contaminated" with true information services have been
categorized by the FCC as unregulated. Any determination by the FCC that the
simple transmission of voice over asynchronous transfer mode or Internet
protocols constitutes a basic telecommunications service similar to frame relay
could affect the regulatory treatment of our customers, particularly customers
that operate their own transmission facilities. A determination by the FCC that
we or any of our customers should be regulated as telecommunications service
providers could materially affect the way we conduct our business.
On February 25, 1999, the FCC ruled that telephone traffic bound for Internet
service providers is predominantly "interstate" traffic that is subject to
federal jurisdiction. Incumbent local exchange carriers, also known as "ILECs,"
have since argued on this basis that Internet service providers should
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be required to pay the same kinds of access charges that are presently applied
to traditional-style interstate voice telephone services. However, having found
that most Internet service-bound traffic is jurisdictionally interstate, the FCC
has clarified that its jurisdictional determination does not preclude states
from continuing to apply local service tariffs to calls made by end users to
Internet service providers. The FCC emphasized that its finding that dial-up
calls to Internet service providers are subject to federal jurisdiction did not
compel it to hold that dial-up calls to Internet service providers must be
federally tariffed. The FCC could later change its position on this issue,
however, or be compelled to do so by a court or directed to do so by Congress.
For the time being, despite its acknowledgement that state authorities may
regulate the dial-up portion of voice calls made to Internet service providers,
the FCC has continued to make statements supporting the continued treatment of
Internet-related services as "unregulated" information services. However, the
FCC is continuing to examine these issues, and expanded reliance on
Internet-protocol or Internet-based services by traditional telephone carriers
may result in changes to FCC policies in the future.
If the FCC were to determine that Internet-based telephony services are subject
to FCC regulations as telecommunications services, the FCC could require
providers of Internet telephony services to be subject to traditional common
carrier regulation, make Universal Service Contributions or pay access charges.
It is also possible that the FCC may adopt a regulatory framework other than
traditional common carrier regulation that would apply to Internet telephony
providers. Any FCC regulatory regime could materially adversely affect our
business, prospects, operating results and financial condition to the extent
that it would negatively affect the cost of doing business over the Internet or
otherwise slow the growth of the Internet.
The FCC has the jurisdiction to determine that enhanced services, such as
Internet services, should be treated as unregulated information services. To the
extent that the Internet telephony services provided by our customers are
inseparable from other Internet services, they are subject exclusively to
federal jurisdiction. Consequently, currently, state regulatory authorities may
not assert jurisdiction to regulate the provision of such intrastate Internet
telephony services. In the event FCC policies change, however or to the extent
that phone-to-phone Internet telephony is separable from other Internet services
state authorities may assert jurisdiction to regulate intrastate Internet
telephony.
INTERNATIONAL. The regulatory treatment of Internet telephony outside of the
U.S. varies widely from country to country. A number of countries that currently
prohibit competition in the provision of voice telephony also prohibit Internet
telephony. Other countries permit but regulate Internet telephony. Some
countries will evaluate proposed Internet telephony service on a case-by-case
basis and determine whether it should be regulated, for example, as a voice
service or as another telecommunications service. In many countries, Internet
telephony has not yet been addressed by legislation. Increased regulation of the
Internet or Internet telephony providers or the prohibition of or significant
restrictions upon Internet telephony in one or more countries could materially
adversely affect our business, prospects, operating results and financial
condition.
The European Union regulatory regime, for example, distinguishes between voice
telephony services and other telecommunications services. In Services Directive
90/388/EEC, issued in 1990, the European Commission required its Member States
to allow competition for all telecommunications services except voice telephony
and certain other services. The Services Directive was amended in 1996 by
Commission Directive 96/19/EC, which required the liberalization of all
telecommunications services, including voice telephony, by January 1, 1998. In
addition, Services Directive 96/19/EC held that services other than voice
telephony could be subjected to no more than a general authorization or
declaration procedure. In contrast, voice telephony may be subject to individual
licenses. For purposes of these Services Directives, "voice telephony" is
defined as the commercial provision for the public of the direct transport and
switching of speech in real time between public switch network termination
points.
On January 10, 1998, the European Commission issued a communication that
addressed whether Internet telephony was voice telephony and thus subject to
regulation by the Member States.
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Consistent with its earlier directives, the European Commission stated that
Internet telephony could properly be considered voice telephony, and thus
subject to regulation by the Member States, only if all elements of its "voice
telephony" definition were met. In this January 1998 communication, the European
Commission concluded that no form of Internet telephony currently meets the
definition of "voice telephony." The European Commission stated that only
phone-to-phone communications reasonably could be considered voice telephony and
that, at present, even phone-to-phone Internet telephony does not meet all
elements of its voice telephony definition. Therefore, the European Commission
concluded that voice over Internet services cannot "for the time being" be
classified as "voice telephony."
Under the European Commission's analysis, Internet telephony must be permitted
and providers of Internet telephony should be subjected to no more than a
general authorization or declaration requirement by the Member States. However,
in practice more stringent regulatory requirements may be imposed by individual
Member States, since European Commission communications, unlike directives, are
not binding on the Member States. The Member States therefore are not obligated
to reach the same conclusions as the European Commission on this subject so long
as they adhere to the definition of "voice telephony" in the Services Directive.
In fact, some countries have moved forward through national regulatory
procedures to adopt an individual licensing requirement for certain types of
Internet telephony providers. In Germany the national regulator has looked at
Internet telephony providers on an individual basis and has found that several
of them meet the "real time" standard and required them to obtain an individual
license. The United Kingdom has not formally pronounced Internet telephony as
voice telephony however in the context of international voice resale, the
Department of Trade and Industry recommends that providers obtain an individual
resale license. Finally, France recently has taken comments on a consultation
document concerning the regulation of Internet telephony, although no formal
decision or regulation has been released. Thus, services provided over our
global network could be deemed voice telephony subject to heightened regulation
by one or more European Union Member States. Our failure or the failure of any
of our customers or affiliates to obtain any necessary authorizations could have
a material adverse effect on our business, prospects, operating results and
financial condition. Moreover, the European Commission is continuing to examine
the regulatory treatment of Internet telephony in inquiries on convergence of
telecommunications and information services technologies.
As our services are made available in foreign countries, and as we facilitate
sales by our customers and affiliates to end users located in foreign countries,
these countries may claim that we or our customers are required to qualify to do
business in the particular foreign country, that we are otherwise subject to
regulation, including requirements to obtain authorization, or that we or our
customers are prohibited in all cases from conducting business as currently
conducted in that foreign country. Our failure to qualify as a foreign
corporation in a jurisdiction in which we are required to do so or to comply
with foreign laws and regulations could subject us to taxes and penalties or
preclude us from, or limit our ability in, enforcing contracts in these
jurisdictions, which could materially adversely affect our business, prospects,
operating results and financial condition.
Our customers and affiliates may also currently be, or in the future may become,
subject to requirements to qualify to do business in a particular foreign
country, to comply with regulations, including requirements to obtain
authorization, or to cease from conducting their business as conducted in that
foreign country. We cannot be certain that our customers and affiliates are
currently in compliance with any of these requirements, will be able to comply
with any of these requirements, or will continue in compliance with any of these
requirements. The failure of our customers and affiliates to comply with these
requirements could materially adversely affect our business, prospects,
operating results and financial condition.
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OTHER REGULATIONS AFFECTING THE INTERNET
UNITED STATES. Congress has recently adopted legislation that regulates certain
aspects of the Internet, including online content, user privacy and taxation. In
addition, Congress and other federal entities are considering other legislative
and regulatory proposals that would further regulate the Internet. Congress is,
for example, currently considering legislation on a wide range of issues
including Internet spamming, database privacy, gambling, pornography and child
protection, Internet fraud, privacy and digital signatures. Various states have
adopted and are considering Internet-related legislation. Increased U.S.
regulation of the Internet may slow our growth, particularly if other
governments follow suit, which may negatively impact the cost of doing business
over the Internet and materially adversely affect our business, prospects,
results of operations and financial condition.
INTERNATIONAL. The European Union has also enacted several directives relating
to the Internet. The European Union has, for example, adopted a directive that
imposes restrictions on the collection and use of personal data. Under the
directive, citizens of the European Union are guaranteed rights to access their
data, rights to know where the data originated, rights to have inaccurate data
rectified, rights to recourse in the event of unlawful processing and rights to
withhold permission to use their data for direct marketing. The directives
could, among other things, affect U.S. companies that collect or transmit
information over the Internet from individuals in Member States, and will impose
restrictions that are more stringent than current Internet privacy standards in
the U.S. In particular, companies with offices located in European Union
countries will not be allowed to send personal information to countries that do
not maintain adequate standards of privacy. Although we do not engage in the
collection of data for purposes other than routing our services and billing for
our services, the directive is broad and the European Union privacy standards
are stringent. Accordingly, the potential effect on us is uncertain.
In response to the European Union directive, the U.S. has entered into
negotiations with the European Union to establish certain "Safe Harbor"
principles which will provide companies operating in the U.S. that choose to
adhere to them a presumption of adequate protection of privacy. These Safe
Harbor principles will likely include requirements, for example, that the host
of a web site or other providers of information services and collectors of
personal data, including billing and collection data, establish certain
procedures to disclose and provide notice to users of privacy and security
policies, obtain consent from users for certain collection and use of
information and provide users with the ability to access, correct and delete
personal information that is being stored. The principles may also include
enforcement and redress provisions. The U.S. information services industry has
advocated that the principles be implemented through self-regulation and
industry certification. In the future, however, the requirements embodied in the
principles may become mandatory under U.S. law. Additionally, the European Union
directive requirements are likely to be supplemented in the U.S. by other state
and federal privacy legislation. In conducting our business internationally, we
must comply with similar privacy and data protection rules in all countries in
which we do business. Any such requirements may adversely affect our ability to
collect demographic and personal information from users, which could have an
adverse effect on our ability to provide targeted advertisements. Although we
will endeavor to meet the requirements of the European Union directive and any
U.S. regulations, we cannot guarantee that adequacy of our compliance will not
be subject to challenge.
INTELLECTUAL PROPERTY
We rely on a combination of patent, copyright, trademark and trade secret
protection, nondisclosure agreements and licensing restrictions and arrangements
to establish and protect our proprietary rights. We cannot assure you that these
forms of protection will be effective. We have been issued United States Patent
Number 5,898,780 dated April 27, 1999 for "Method and Apparatus for Authorizing
Remote Internet Access," and have two other U.S. patents pending relating to
Internet telephony and Internet settlement. We cannot assure you that patents
will issue from the pending applications or, if any patents are issued, that
they will be sufficiently broad to protect our technology adequately. We
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have a number of trademarks and trademark applications and use copyright and
trade secret protection to protect our software and other original works.
We enter into confidentiality and proprietary information and invention
agreements with our customers, employees and consultants, and control access to
and distribution of our software, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy, reverse engineer or otherwise obtain and use our
products or technology or otherwise appropriate our proprietary network
information. Monitoring unauthorized use of our products is difficult, and we
cannot be certain that the steps we have taken will prevent misappropriation of
our technology. The laws of some foreign countries do not protect our
proprietary rights to as great an extent as the laws of the United States, and
many United States companies have encountered substantial infringement problems
in these countries, some of which are countries in which we operate.
From time to time, third parties may assert exclusive patent, copyright,
trademark and other intellectual property rights to technologies and may assert
claims or initiate litigation against us or our manufacturers, suppliers or
customers with respect to existing or future products or services. We have not
conducted an exhaustive search of patents issued to others. Because of the
number of patents issued and patent applications filed relating to the
transmission of voice over packet-switched networks, current or potential
customers, competitors and other third parties may have filed, or may file
applications for, or may have received or in the future receive, patents or
obtain additional intellectual property rights relating to materials or
processes that we use or intend to use. If these third-party patents or other
proprietary rights have been or are issued, or are otherwise asserted by third
parties, the holders of these patents or other proprietary rights may bring
infringement claims against us. Furthermore, former employers of our current or
future employees may assert that our employees have improperly disclosed
confidential or proprietary information to us. We may in the future initiate
claims or litigation against third parties for infringement of our proprietary
rights or to determine the scope and validity of our proprietary rights and the
rights of others. Any of these claims, with or without merit, may be
time-consuming, may result in costly litigation, may divert technical and
management personnel, or may require us to develop non-infringing technology,
which may be costly and time consuming. Alternatively, others may claim that we
infringe their intellectual property rights, and we may be required to obtain a
license or royalty agreement from those parties claiming the infringement. We
cannot assure you that any license or royalty agreement would be available. The
terms of any license or royalty agreement that is available may be very
unfavorable to us. In addition, an adverse ruling could result in substantial
damages or the issuance of an injunction against us requiring that we cease
development and withdraw some products and services from the marketplace.
Limitations on our ability to market our products and services, and delays and
costs associated with monetary damages and redesigns in compliance with an
adverse judgment or settlement, could seriously harm our business, prospects,
results of operations and financial condition.
EMPLOYEES
As of September 30, 1999, we had 151 employees: 14 in network and operations, 52
in research and development, 56 in sales and marketing and 29 in finance,
administration and management information systems. Our future performance
depends, in significant part, on our ability to retain existing personnel in key
areas such as engineering, technical support, sales and senior management. The
competition for these individuals in the San Francisco Bay area, and in the
Internet field in particular, is intensely competitive, and we cannot assure you
that we will be able to attract and retain enough qualified employees in the
future. None of our employees is subject to a collective bargaining agreement.
We consider our relationships with our employees to be good.
FACILITIES
We occupy approximately 31,000 square feet of space in Milpitas, California
under a lease that expires in February 2003. We also lease sales and support
offices in France, Malaysia and South Korea. In the event that existing
facilities are not adequate for our needs, we anticipate that additional
facilities will be available on commercially reasonable terms.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, and their ages and positions as of
September 30, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Roger L. Peirce (1)....................... 58 Chairman
Dr. Hong Chen............................. 36 President, Chief Executive Officer and
Director
Lynn Y. Liu............................... 40 Regional President, Asia Pacific and
Director
Joseph M. Zaelit.......................... 54 Senior Vice President, Finance and
Administration and Chief Financial Officer
Philip M. Sakakihara...................... 56 Senior Vice President, Engineering and
Network Operations
Kristin L. Steinmetz...................... 39 Senior Vice President, Marketing and
Business Development
Christophe J. Culine...................... 35 Regional President, Europe, Americas and
Africa
David L. Teichmann........................ 43 Vice President, General Counsel and
Secretary
Barron B. Cox............................. 46 Vice President, Human Resources
Dr. Ta-Lin Hsu............................ 56 Director
Dr. Yen-Son (Paul) Huang (2).............. 53 Director
Kheng Nam Lee............................. 52 Director
Jozef Lernout............................. 51 Director
Stanley J. Meresman (1) (2)............... 52 Director
</TABLE>
- ---------------------
(1) Member of the audit committee
(2) Member of the compensation committee
ROGER L. PEIRCE has served as our Chairman since July 1999 and as a director
since March 1998. From August 1998 to March 1999, Mr. Peirce was Chairman and
Chief Executive Officer of U.S. Wireless Data, a wireless point-of-sale services
provider. From January 1994 to June 1998, he was Group President of Merchant
Services for First Data Corp., a credit card processing services company. From
1981 to January 1994, he held various positions at VISA International, a credit
card company, most recently as Chief Operating Officer. Mr. Peirce holds a B.A.
degree in Mathematics from San Jose State University.
DR. HONG CHEN, one of our co-founders, has served as our Chief Executive Officer
since our inception in February 1994 and as our President since July 1999. Dr.
Chen also served as Chairman from February 1994 to July 1999 and continues to
serve as a director. From February 1993 to February 1994, Dr. Chen was Senior
Consultant with TRW Financial Systems, a systems integrator. Dr. Chen also
serves as a technical advisory board member for the Industry Technology Research
Institute in Taiwan. Dr. Chen holds a B.S. degree in Computer Science from Xian
Jiaotong University and M.S. and Ph.D degrees in Computer Science from State
University of New York at Stony Brook. Dr. Chen is married to Ms. Liu.
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<PAGE>
LYNN Y. LIU, one of our co-founders, has served as our Regional President, Asia
Pacific since December 1998 and as a director since our inception in
February 1994. From our inception to November 1998, she was our Chief Operating
Officer and Executive Vice President responsible for product management, network
operations and engineering. From October 1991 to October 1994, she held the
positions of architect and engineering manager at MARCorp, a multimedia library
software company. Ms. Liu holds a B.SA. degree in Library Science from National
Taiwan University and an M.S. degree in Computer Science from State University
of New York at Stony Brook. Ms. Liu is married to Dr. Chen.
JOSEPH M. ZAELIT has served as our Senior Vice President, Finance and
Administration and Chief Financial Officer since January 1999. From June 1994 to
June 1998, he was employed by VeriFone, Inc., a manufacturer of electronic
payment equipment, most recently as Senior Vice President, Finance and
Administration and Chief Financial Officer. From 1973 to 1993, Mr. Zaelit held a
variety of senior financial positions at Hewlett-Packard Company, most recently
as Corporate Treasury Manager. Mr. Zaelit holds a B.S. degree in Accounting and
an M.B.A. degree, each from the University of Utah, and is a Certified Public
Accountant in California.
PHILIP M. SAKAKIHARA has served as our Senior Vice President, Engineering and
Network Operations since December 1998. From December 1995 to November 1998, he
was Vice President, Engineering and Worldwide Support for Prism Solutions, Inc.,
an enterprise software solutions company. From July 1994 to December 1995, he
was Vice President, Engineering for Viewstar Corporation, an enterprise software
solutions company. From May 1972 to July 1994, Mr. Sakakihara held various
senior engineering and management positions with Hewlett-Packard Company,
including General Manager of the Distributed Computing Products Operation.
Mr. Sakakihara holds a B.S. degree in Applied Mathematics from San Jose State
University and an M.S. degree in Applied Mathematics from Santa Clara
University.
KRISTIN L. STEINMETZ has served as our Senior Vice President, Marketing and
Business Development since July 1999. From June 1991 to July 1999, she served in
various positions at AT&T Corporation, a global telecommunications company, most
recently as Vice President of Global Services, Consumer Marketing Vice President
and Director of Strategy and Business Planning. From 1989 to 1991, she held the
position of Senior Management Consultant at Edgar, Dunn and Company, a
consulting firm. Ms. Steinmetz holds a B.A. degree in Zoology from the
University of California at Berkeley and an M.B.A. degree from Cornell
University.
CHRISTOPHE J. CULINE has served as our Regional President, Europe, Americas and
Africa since December 1998. From September 1996 to November 1998, he was our
Vice President, Worldwide Sales. From April 1991 to August 1996, Mr. Culine held
various positions, including Vice President, Worldwide Sales and Vice President,
European Sales, with NCD Software, a wholly-owned subsidiary of NCD Corporation,
an Internet software company. Mr. Culine holds a diploma from EUDIL (the
University of Lille) in France.
DAVID L. TEICHMANN has served as our Vice President, General Counsel and
Secretary since July 1998. From October 1993 to July 1998, he served in various
positions at Sybase, Inc., a software company, including Vice President,
International Law as well as Director of European Legal Affairs based out of
Sybase's Netherlands headquarters. From March 1989 to October 1993,
Mr. Teichmann was Assistant General Counsel handling legal matters in
Asia-Pacific, Japan, Canada and Latin America for Tandem Computers Corporation,
a computer company. Mr. Teichmann holds a B.A. degree in Political Science from
Trinity College, an M.A.L.D. degree in Law & Diplomacy from the Fletcher School
of Law & Diplomacy and a J.D. degree from the University of Hawaii School of
Law.
BARRON B. COX has served as our Vice President of Human Resources since August
1999. From May 1999 to July 1999, Mr. Cox served as our Senior Director of Human
Resources. From September 1997 to April 1999, he was Vice President of Human
Resources at Prism Solutions. From 1993 to
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<PAGE>
1997, he was Director of Human Resources at Scios, Inc., a biopharmaceutical
company. From 1988 to 1993, Mr. Cox held various positions at Apple Computer's
Enterprise Systems Division, most recently as its Director of Human Resources.
From 1984 to 1988, Mr. Cox served in various human resources positions at
Digital Equipment Corporation. Mr. Cox holds a B.S. degree in Political Science
from Northeastern University.
DR. TA-LIN HSU has served as a director since August 1996. Since 1986, Dr. Hsu
has served as Chairman of H & Q Asia Pacific. Dr. Hsu holds a B.S. degree in
Physics from National Taiwan University and a Ph.D in Electrical Engineering
from the University of California at Berkeley.
DR. YEN-SON (PAUL) HUANG has served as a director since August 1995. Since June
1996, Dr. Huang has served as Chairman and Chief Executive Officer of Novas
Software, Inc., an integrated circuit debugging company. From January 1990 to
May 1996, Dr. Huang was a co-founder and Vice President of Quickturn Design
Systems, an integrated circuit emulation company. Dr. Huang serves on the board
of directors of Quickturn Design Systems. Dr. Huang holds B.S. and M.S. degrees
in Electrical Engineering from the National Chiao-Tung University in Taiwan and
a Ph.D degree in Electrical Engineering from Santa Clara University.
KHENG NAM LEE has served as a director since August 1999. Since 1983, Mr. Lee
has served Vertex Group in several capacities, including as President of Vertex
Management (II) Pte Ltd., a consulting firm, since March 1995. Mr. Lee holds a
B.S. degree in Mechanical Engineering from Queen's University in Canada, an M.S.
degree in Operations Research and System Analysis from the U.S. Naval
Postgraduate School and a degree in Business Administration from the University
of Singapore.
JOZEF LERNOUT has served as a director since April 1999. Mr. Lernout has served
as Co-Chairman and Managing Director of Lernout & Hauspie, a speech recognition
software company, since its inception in December 1987, as President from
January 1994 until November 1996, as Co-Chairman of the Board since
November 1996, as a member of the Office of the Chief Executive since
February 1996 and as Co-Chairman in the Office of Chief Executive since
October 1996. Mr. Lernout holds a B.Sc. degree in Physics from the Vlerick
School in Ghent, Belgium.
STANLEY J. MERESMAN has served as a director since August 1997. From May 1989 to
May 1997, Mr. Meresman was Senior Vice President and Chief Financial Officer of
Silicon Graphics, Inc., a computer manufacturer. Mr. Meresman serves on the
board of directors of Polycom, Inc., a teleconference and video conferencing
equipment company, and a number of private companies. Mr. Meresman holds a B.S.
degree in Industrial Engineering and Operations Research from the University of
California at Berkeley and an M.B.A. degree from Stanford University.
Executive officers are appointed by the board of directors and serve until their
successors are qualified and appointed. Except for Dr. Chen and Ms. Liu, who are
married, there are no family relationships among any of our directors or
executive officers.
BOARD COMPOSITION
We currently have eight directors. Directors are elected by the stockholders at
each annual meeting of stockholders and serve for one year or until their
successors are duly elected and qualified. Our bylaws provide that the
authorized number of directors may be changed by resolution of the board of
directors.
BOARD COMMITTEES
Our board of directors has a compensation committee and an audit committee.
COMPENSATION COMMITTEE. The current members of our compensation committee are
Dr. Huang and Mr. Meresman. The compensation committee reviews and makes
recommendations to our board
51
<PAGE>
concerning salaries and incentive compensation for our officers and employees.
The compensation committee also administers our stock plans.
AUDIT COMMITTEE. The current members of our audit committee are Messrs. Meresman
and Peirce. Our audit committee reviews and monitors our financial statements
and accounting practices, makes recommendations to our board regarding the
selection of independent auditors and reviews the results and scope of the audit
and other services provided by our independent auditors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers currently serves, or has previously served, as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving on our board or compensation
committee. Prior to the creation of our compensation committee, compensation
decisions with respect to officers and directors and with respect to option
grants to employees were made by our full board.
DIRECTOR COMPENSATION
Mr. Peirce's offer letter, dated July 22, 1999, provides for an annual salary of
$50,000 and a grant of a stock option to purchase 17,857 shares. The option
vests at a rate of 8.3% per month over the next 12 months and will be fully
vested on July 19, 2000.
Each non-employee director who is a member of our board on the date of this
prospectus or becomes a member of our board after that date will be granted an
option to purchase 10,000 shares under our 1999 Equity Incentive Plan, unless
that director has received an option grant before the effective date.
Immediately following each annual meeting of our stockholders, each eligible
director will automatically be granted an additional option to purchase 7,500
shares under the plan if the director has served continuously as a member of the
board for at least one year. Each of these options will have a ten-year term and
will terminate three months following the date the director ceases to be one of
our directors or consultants or 12 months if the termination is due to death or
disability. All options granted under the plan will be immediately exercisable.
For initial grants, we will have a right to repurchase the option shares subject
to the option at the exercise price. This option will expire as to 20% of the
shares 10 months after the date of grant and as to the remainder in equal
monthly installments over the next 40 months. Grants subsequent to the initial
grant to directors will also be subject to repurchase. For these grants, our
right to repurchase the shares will lapse in equal installments over 50 months.
EXECUTIVE COMPENSATION
The following table shows compensation awarded to, earned by or paid for
services rendered to GRIC in all capacities during 1998 by our Chief Executive
Officer and each of our other executive officers whose salary and bonus for 1998
was more than $100,000.
52
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------
NAME AND PRINCIPAL POSITIONS SALARY BONUS
- ---------------------------- -------- ----------
<S> <C> <C>
Dr. Hong Chen............................................... $180,551 --
Chairman and Chief Executive Officer
Christophe J. Culine........................................ 207,322 --
Regional President, Europe, Americas and Africa
Lynn Y. Liu................................................. 160,490 --
Regional President, Asia Pacific
Thomas Oswold............................................... 197,856 --
Former Senior Vice President, Finance and Chief Financial
Officer
</TABLE>
Mr. Oswold's employment with us terminated as of April 1999.
Philip M. Sakakihara, our Senior Vice President, Engineering and Network
Operations, was compensated at an annual rate of $200,000 in 1998.
David L. Teichmann, our Vice President, General Counsel and Secretary, was
compensated at an annual rate of $160,000 in 1998.
OPTION GRANTS IN 1998
We did not grant any stock options in 1998 to any of the officers named in the
summary compensation table above. Mr. Sakakihara was granted options to purchase
178,571 shares at an exercise price of $2.80 per share in 1998.
Mr. Sakakihara's options represented 12.9% of the total options granted to our
employees in 1998. Mr. Teichmann was granted options to purchase 35,714 shares
at an exercise price of $2.80 per share in 1998. Mr. Teichmann's options
represented 2.6% of the total options granted to our employees in 1998.
OPTION VALUES AT DECEMBER 31, 1998
No officer named in the summary compensation table above exercised an option in
1998. The following provides information concerning unexercised options held by
these officers as of this date that are "in-the-money", meaning that the assumed
initial public offering price of $11.00 per share exceeds the exercise price per
share. In the following table, the heading "vested" refers to the number of
shares as to which the option can be exercised.
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1998 AT DECEMBER 31, 1998
------------------- ---------------------
NAME VESTED UNVESTED VESTED UNVESTED
- ---- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
Dr. Hong Chen.......................................... -- -- $ -- $ --
Christophe J. Culine................................... 40,178 31,250 430,708 335,000
Lynn Y. Liu............................................ -- -- -- --
Thomas Oswold.......................................... 18,571 52,857 162,682 463,027
</TABLE>
Upon the termination of Mr. Oswold's employment with us in April 1999, all of
his unvested options were returned to our available option pool.
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<PAGE>
EMPLOYEE BENEFIT PLANS
1995 STOCK OPTION PLAN. As of September 30, 1999, options to purchase 184,166
shares of common stock were outstanding under the 1995 Stock Option Plan and
options to purchase 304,181 shares had been exercised, of which 15,290 shares
remained subject to our repurchase right. No additional options will be granted
under this plan. Options granted under plan are subject to terms substantially
similar to those described below with respect to options granted under the 1999
Equity Incentive Plan.
1997 STOCK OPTION PLAN. As of September 30, 1999, options to purchase 1,867,693
shares of common stock were outstanding under the 1997 Stock Option Plan and
options to purchase 118,494 shares had been exercised, of which 56,001 shares
remained subject to our right of repurchase. No additional options will be
granted under this plan. Options granted under the plan are subject to terms
substantially similar to those described below with respect to options granted
under the 1999 Equity Incentive Plan.
1999 EQUITY INCENTIVE PLAN. In September 1999, the board adopted, subject to
stockholder approval, the 1999 Equity Incentive Plan and reserved 4,500,000
shares of common stock to be issued under this plan. On each January 1,
beginning in 2001, the aggregate number of shares reserved for issuance under
this plan will automatically increase by a number of shares equal to 5% of our
outstanding shares on December 31 of the preceding year. In addition, 692,385
shares under the 1995 Stock Option Plan and the 1997 Stock Option Plan not
issued on the date of this prospectus and any shares issued under these plans
that are forfeited or repurchased by us or that are issuable upon exercise of
options that expire or become unexercisable for any reason without having been
exercised in full will be available for grant and issuance under the Equity
Incentive Plan. In addition, shares will again be available for grant and
issuance under the Equity Incentive Plan that:
- are subject to issuance upon exercise of an option granted under the equity
incentive plan and that cease to be subject to the option for any reason
other than exercise of the option;
- have been issued upon the exercise of an option granted under the equity
incentive plan that are subsequently forfeited or repurchased by us at the
original purchase price;
- are subject to an award granted pursuant to a restricted stock purchase
agreement under the equity incentive plan that are subsequently forfeited or
repurchased by us at the original issue price; or
- are subject to stock bonuses granted under the equity incentive plan that
terminate without shares being issued.
This plan will become effective on the consummation of this offering and will
terminate after ten years, unless it is terminated earlier by our board. The
plan authorizes the award of options, restricted stock awards and stock bonuses.
No person will be eligible to receive more than 3,000,000 shares in any calendar
year under the plan.
The plan will be administered by our compensation committee, all of the members
of which are "non-employee directors" under applicable federal securities laws
and "outside directors" as defined under applicable federal tax laws. The
compensation committee will have the authority to construe and interpret the
plan, grant awards and make all other determinations necessary or advisable for
the administration of the plan. Also, our non-employee directors are entitled to
receive automatic annual grants of fully vested options to purchase shares of
our common stock, as described under "Director Compensation."
The plan provides for the grant of both incentive stock options that qualify
under Section 422 of the Internal Revenue Code and nonqualified stock options.
Incentive stock options may be granted only to our employees or employees of our
parent or subsidiary, if any. All awards other than incentive stock options may
be granted to employees, officers, directors, consultants, independent
contractors and advisors of ours or of our parent or subsidiary, if any,
provided the consultants, independent
54
<PAGE>
contractors and advisors render bona fide services not in connection with the
offer and sale of securities in a capital-raising transaction. The exercise
price of incentive stock options must be at least equal to the fair market value
of our common stock on the date of grant. The exercise price of incentive stock
options granted to 10% stockholders must be at least equal to 110% of that
value, and the exercise price of nonqualified stock options must be at least
equal to 85% of that value.
Options may either be exercisable only as they vest or be immediately
exercisable with the shares issued subject to our right of repurchase that
lapses as the shares vest. In general, options will vest over a 50-month period.
The maximum term of options granted under the plan is ten years.
Awards granted under the plan may not be transferred in any manner other than by
will or by the laws of descent and distribution. They may be exercised during
the lifetime of the optionee only by the optionee. The compensation committee
could determine otherwise and provide for these provisions in the award
agreement, but only with respect to awards that are not incentive stock options.
Options granted under the plan generally may be exercised for a period of time
after the termination of the optionee's service to us or to our parent or
subsidiary, if any. Options will generally terminate immediately upon
termination of employment for cause.
The purchase price for restricted stock will be determined by our compensation
committee. Stock bonuses may be issued for past services or may be awarded upon
the completion of certain services or performance goals.
If we are dissolved or liquidated or have a "change in control" transaction,
outstanding awards may be assumed or substituted by the successor corporation,
if any. In the discretion of the compensation committee, the vesting of these
awards may accelerate upon one of these transactions.
1999 EMPLOYEE STOCK PURCHASE PLAN. In September 1999, the board adopted, subject
to stockholder approval, the 1999 Employee Stock Purchase Plan and reserved
500,000 shares for issuance under this plan. On each January 1, beginning in
2001, the aggregate number of shares reserved for issuance under this plan will
automatically increase by a number of shares equal to 1% of our outstanding
shares on December 31 of the preceding year. The plan will be administered by
our compensation committee, which will have the authority to construe and
interpret the plan.
Employees generally will be eligible to participate in the plan if they are
employed ten days before the beginning of an offering period and they are
customarily employed by us, or our parent or any subsidiaries that we designate,
for more than 20 hours per week and more than five months in a calendar year and
are not, and would not become as a result of being granted an option under the
plan, 5% stockholders of us or any designated parent or subsidiary.
Under the plan, eligible employees will be permitted to acquire shares of our
common stock through payroll deductions. Eligible employees will select a rate
of payroll deduction between 2% and 15% of their compensation and be subject to
maximum purchase limitations. Participation in the plan will end automatically
upon termination of employment for any reason.
Each offering period under the plan will be for two years and consist of four
six-month purchase periods. The first offering period is expected to begin on
the first business day on which price quotations for our common stock are
available on the Nasdaq National Market. Offering periods and purchase periods
will begin on February 1 and August 1 of each year. However, because the first
day on which price quotations for our common stock will be available on the
Nasdaq National Market may not be February 1 and August 1, the length of the
first offering period may be more or less than two years, and the length of the
first purchase period may be more or less than six months.
The plan provides that, in the event of our proposed dissolution or liquidation,
each offering period that commenced prior to the closing of the proposed event
will terminate immediately prior to the consummation of such proposed event,
provided that the compensation committee may fix a different date for
termination of the plan. The purchase price for our common stock purchased under
the plan will be 85% of the lesser of the fair market value of our common stock
on the first day of the
55
<PAGE>
applicable offering period or the last day of the applicable purchase period.
The compensation committee will have the power to change the duration of
offering periods without stockholder approval, if the change is announced at
least 15 days prior to the beginning of the affected offering period.
The plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code. Rights granted under the plan will not
be transferable by a participant other than by will or the laws of descent and
distribution.
The plan will terminate ten years from its inception, unless it is terminated
earlier under the terms of the plan. The board will have the authority to amend,
terminate or extend the term of the plan, except that no action may adversely
affect any options previously granted under the plan. Except for the automatic
annual increase of shares described above, stockholder approval is required to
increase the number of shares that may be issued or to change the terms of
eligibility under the plan. The board may make amendments to the plan that it
determines to be advisable if the financial accounting treatment for the plan is
different from the financial accounting treatment in effect on the date the plan
was adopted by the board.
401(k) Plan. We sponsor a defined contribution plan intended to qualify under
Section 401(k) of the Internal Revenue Code. Employees are generally eligible to
participate and may enter the plan as of the first day of each calendar quarter.
Participants may make pre-tax contributions to the plan up to the statutorily
prescribed annual limit. Each participant is fully vested in his or her
contributions and the investment earnings. Contributions to the plan by the
participants or by us, and the income earned on these contributions, are
generally not taxable to the participants until withdrawn. Contributions by us,
if any, are generally deductible by us when made. Participant and company
contributions are held in trust as required by law. Individual participants may
direct the trustee to invest their accounts in authorized investment
alternatives.
EMPLOYMENT AGREEMENTS
On March 1, 1994, we entered into an employment agreement with Dr. Hong Chen.
The employment agreement provides that Dr. Chen will receive a salary and
additional compensation such as a bonus or stock options as determined by our
board.
On March 1, 1994, we entered into an employment agreement with Lynn Y. Liu. The
employment agreement provides that Ms. Liu will receive a salary and additional
compensation such as a bonus or stock options as determined by our board.
OFFER LETTERS AND SEVERANCE AND CHANGE OF CONTROL AGREEMENTS
Mr. Zaelit's offer letter, dated January 15, 1999, provides for an initial
annual salary of $190,000 and an annual bonus of up to 25% of his annual salary.
Mr. Zaelit also received options to purchase 160,713 shares of our common stock,
of which options to purchase 32,142 shares will vest in November 1999 and
options to purchase 3,214 shares will vest monthly thereafter. Mr. Zaelit also
has the right to receive options to purchase an additional 53,571 shares of our
common stock that will be granted upon the fulfillment of certain objectives. In
the event we are acquired and Mr. Zaelit's employment is terminated without
cause, the outstanding options will become fully vested. If Mr. Zaelit's
employment is terminated without cause, he will receive a severance payment
equivalent to six months' base salary. If Mr. Zaelit's employment is terminated
with cause and the termination is not due to a violation of state or federal
law, he will receive a severance payment equivalent to three months' base
salary. If Mr. Zaelit's employment is terminated without cause within the first
ten months of his employment date we will immediately vest the portion of the
stock options that would have vested in November 1999, at the same price and
terms, except in the event we engage in a change of control transaction.
Mr. Zaelit's employment is at will and may be terminated at any time, with or
without cause.
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<PAGE>
Mr. Sakakihara's offer letter, dated October 15, 1998, provides for an initial
annual salary of $200,000 and an annual bonus of up to 30% of his annual salary.
Mr. Sakakihara received options to purchase 124,999 shares of common stock, of
which options to purchase 25,000 shares vested in September 1999 and options to
purchase 2,500 shares vest monthly thereafter. In the event we are acquired,
one-half of the then unvested options will become fully vested. If
Mr. Sakakihara's employment is terminated without cause, he will receive a
severance payment equivalent to six months' base salary. If Mr. Sakakihara's
employment is terminated with cause and the termination is not due to a
violation of state or federal law, he will receive a severance payment
equivalent to three months' base salary. Mr. Sakakihara's employment is at will
and may be terminated at any time, with or without cause.
Mr. Culine's offer letter, dated August 21, 1996, provides for an initial annual
salary of $100,000. The letter provides for additional annual compensation of
$100,000 to be mutually agreed upon. Mr. Culine received options to purchase
71,428 shares of common stock, which vest over a four-year period. In the event
we are acquired and Mr. Culine's employment is terminated, 50% of the then
unvested options will become fully vested. In addition, if Mr. Culine's
employment is terminated, he will receive a severance payment equivalent to
three months' base salary. Mr. Culine's employment is at will and may be
terminated by either party with two weeks' notice.
Ms. Steinmetz's offer letter, dated July 28, 1999, provides for an initial
annual salary of $192,310 per year and a one-time sign-on bonus of $50,000.
Ms. Steinmetz received options to purchase 124,999 shares of common stock, of
which options to purchase 25,000 shares will vest in May 2000 and options to
purchase 2,500 shares will vest monthly thereafter. In the event we are acquired
and Ms. Steinmetz's employment is terminated without cause, the options will
become fully vested. If Ms. Steinmetz's employment is terminated without cause,
she will receive a severance payment equivalent to six months' base salary. If
Ms. Steinmetz's employment is terminated with cause and the termination is not
due to a violation of state or federal law, she will receive a severance payment
equivalent to six months' base salary. Ms. Steinmetz's employment is at will and
may be terminated at any time, with or without cause.
Mr. Teichmann's offer letter, dated June 8, 1998, provides for an initial annual
salary of $160,000 and an annual bonus of up to $30,000. Mr. Teichmann received
options to purchase 35,714 shares of common stock, of which options to purchase
7,142 shares vested in July 1999 and options to purchase 714 shares vest monthly
thereafter. In the event we are acquired, the options will become fully vested.
In the event we are acquired and Mr. Teichmann's employment is terminated, Mr.
Teichmann will receive a severance payment equivalent to six months' base salary
and bonuses. If Mr. Teichmann's employment is terminated without cause, he will
receive a severance payment equivalent to three months' base salary and bonuses.
Mr. Teichmann's employment is at will and may be terminated at any time, with or
without cause.
Mr. Cox's offer letter, dated May 11, 1999, provides for an initial annual
salary of $140,000 and an annual bonus of up to 20% of his annual salary. Mr.
Cox received options to purchase 30,357 shares of common stock, of which options
to purchase 6,071 shares will vest in March 2000 and options to purchase 607
shares will vest monthly thereafter. In the event that we are acquired and
Mr. Cox's employment is terminated, the options will become fully vested. If
Mr. Cox's employment is terminated without cause, he will receive a severance
payment equivalent to three months' base salary. If Mr. Cox's employment is
terminated with cause and the termination is not due to a violation of state or
federal law, he will receive a severance payment equivalent to three months'
base salary. Mr. Cox's employment is at will and may be terminated at any time,
with or without cause.
57
<PAGE>
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our certificate of incorporation that will be effective upon the completion of
this offering includes a provision that eliminates the personal liability of our
directors for monetary damages resulting from breach of fiduciary duty as a
director, except for liability:
- for any breach of the director's duty of loyalty to us or our stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law (regarding
unlawful dividends and stock purchases); or
- for any transaction from which the director derived an improper personal
benefit.
Our bylaws that will be effective upon the completion of this offering provide
that:
- we must indemnify our directors and officers to the fullest extent permitted
by Delaware law, subject to limited exceptions;
- we may indemnify our other employees and agents to the same extent that we
indemnify our directors and officers, unless otherwise required by law, our
certificate of incorporation or agreements;
- we must advance expenses, as incurred, to our directors and officers in
connection with a legal proceeding to the fullest extent permitted by
Delaware law, subject to limited exceptions;
- the rights conferred in the bylaws are not exclusive; and
- we may not retroactively amend the bylaws' provisions relating to indemnity.
Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our current directors and executive
officers to give them additional contractual assurances regarding the scope of
the indemnification provided in our certificate of incorporation and bylaws and
to provide additional procedural protections.
We maintain liability insurance for our directors and officers and expect to
obtain additional coverage for securities matters.
The above items limiting the liability of our directors may discourage
stockholders from bringing a lawsuit against our directors for breach of their
fiduciary duty. They may also reduce the likelihood of derivative litigation
against directors and officers, even though an action, if successful, might
benefit us and other stockholders. Furthermore, a stockholder's investment may
be adversely affected to the extent we pay the costs of settlement for and
damage awards against directors and officers as required by these items.
Presently, there is no pending litigation or proceeding involving any of our
directors, executive officers or employees for which indemnification is sought,
nor are we aware of any threatened litigation that may result in claims for
indemnification.
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<PAGE>
RELATED PARTY TRANSACTIONS
Other than the employment agreements, offer letters and severance and change of
control agreements described in "Management," and the transactions described
below, since January 1, 1996 there has not been nor is there currently proposed,
any transaction or series of similar transactions to which we were or will be a
party:
- in which the amount involved exceeded or will exceed $60,000; and
- in which any director, executive officer, holder of more than 5% of our
common stock or any member of their immediate family had or will have a
direct or indirect material interest.
SERIES D PREFERRED STOCK AND BRIDGE FINANCINGS
Between December 1997 and June 1999, we sold an aggregate of 5,460,745 shares of
Series D Preferred Stock at an effective purchase price of $7.00 per share, as
adjusted by subsequent repricing amendments. Between September 1998 and March
1999, in connection with our bridge financings, we issued warrants to purchase
an aggregate of 223,206 shares of our Series D Preferred Stock at a purchase
price of $7.00 per share as adjusted by subsequent repricing amendments. See
Note 4 of notes to consolidated financial statements.
The following directors, executive officers and holders of more than 5% of our
common stock participated in our preferred stock and bridge financings. Share
numbers reflect the number of shares of common stock into which the preferred
stock or warrants are convertible.
<TABLE>
<CAPTION>
SERIES D WARRANT
STOCKHOLDER SHARES SHARES
- ----------- -------- --------
<S> <C> <C>
Vertex Investment (II) Ltd.................................. 71,428 --
Vertex Technology Fund Ltd.................................. 588,241 100,000
SingTel Ventures (Cayman) Pte. Ltd.......................... 932,473 21,428
L&H Investment Company N.V.................................. 525,908 26,071
Asia Pacific Growth Fund II L.P............................. 142,856 --
Dr. Yen-Son (Paul) Huang.................................... 29,193 2,857
</TABLE>
Kheng Nam Lee, a director, is the President of Vertex Investment (II) Ltd. and
Vertex Technology Fund Ltd. Jozef Lernout, a director, is the Co-Chairman and
Managing Director of L&H Investment Company N.V. Dr. Ta-Lin Hsu, a director, is
a member of H&Q Asia Pacific II LLC, the general partner of Asia Pacific Growth
Fund II L.P.
SINGAPORE TELECOMMUNICATIONS LTD. AGREEMENT
In August 1999, we entered into an agreement with Singapore
Telecommunications Ltd. SingTel Ventures (Cayman) Pte. Ltd., a subsidiary of
Singapore Telecommunications Ltd., is the holder of more than 5% of our common
stock. Under this agreement, we provide GRIC CSP settlement services in exchange
for licensing, maintenance, settlement and training and professional fees. The
term of this agreement is two years and is automatically renewed on an annual
basis unless sooner terminated for breach.
EMPLOYMENT AGREEMENTS AND OFFER LETTERS
Several of our officers have entered into employment agreements with us or
accepted offer letters from us. See "Management--Employment Agreements" and
"Management--Offer Letters and Severance and Change of Control Agreements."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents information as to the beneficial ownership of our
common stock as of September 30, 1999 and as adjusted to reflect the sale of the
common stock in this offering by:
- each stockholder known by us to be the beneficial owner of more than 5% of
our common stock;
- each of our directors;
- each of our executive officers; and
- all executive officers and directors as a group.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless indicated below, to our knowledge, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Shares of common stock subject to options and warrants that
are currently exercisable or exercisable within 60 days of September 30, 1999
are deemed to be outstanding and to be beneficially owned by the person holding
the options or warrants for the purpose of computing the percentage ownership of
such person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Unless indicated below, the address
for each listed stockholder is c/o GRIC Communications, Inc., 1421 McCarthy
Boulevard, Milpitas, California 95035.
The number of shares of common stock outstanding after this offering includes
the shares of common stock being offered under this prospectus but does not
include the shares that are subject to the underwriters' over-allotment option.
The percentage of common stock outstanding as of September 30, 1999 is based on
12,900,105 shares of common stock outstanding on that date.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
SHARES -------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
Kheng Nam Lee (1)........................................... 2,634,668 20.4% 14.9%
Dr. Hong Chen (2)........................................... 1,242,857 9.6 7.0
SingTel Ventures (Cayman) Pte. Ltd. (3)..................... 953,901 7.4 5.4
Dr. Ta-Lin Hsu (4).......................................... 696,428 5.4 3.9
Jozef Lernout (5)........................................... 551,979 4.3 3.1
Lynn Y. Liu (6)............................................. 535,714 4.2 3.0
Dr. Yen-Son (Paul) Huang (7)................................ 233,834 1.8 1.3
Roger L. Peirce (8)......................................... 82,142 * *
Stanley J. Meresman (9)..................................... 64,285 * *
Christophe J. Culine (10)................................... 62,680 * *
Philip M. Sakakihara (10)................................... 43,034 * *
Joseph M. Zaelit (10)....................................... 35,892 * *
David L. Teichmann (10)..................................... 13,928 * *
Barron B. Cox (10).......................................... 856 * *
Kristin L. Steinmetz........................................ -- -- --
All 14 directors and executive officers as a group (11)..... 6,198,297 48.0% 35.0%
</TABLE>
- ---------------------
* Represents less than 1% of our outstanding common stock.
(1) Represents 1,946,427 shares held of record by Vertex Investment (II) Ltd.
and 588,241 shares and immediately exercisable warrants to purchase 100,000
shares held of record by Vertex Technology Fund Ltd. Mr. Lee is the
President of these entities. Mr. Lee disclaims beneficial
60
<PAGE>
ownership of the shares held by these entities, except to the extent he has
a pecuniary interest in these entities. The address of these entities is 77
Science Park Drive, #02-15 Cintech III, Singapore Science Park, Singapore
118256.
(2) Does not include 535,714 shares held by Dr. Chen's spouse, Lynn Y. Liu.
(3) Represents 932,473 shares and immediately exercisable warrants to purchase
21,428 shares. The address of SingTel Ventures (Cayman) Pte. Ltd. is 31
Exeter Road, Comcentre, Singapore, 239732.
(4) Represents 696,428 shares held by Asia Pacific Growth Fund II L.P. Dr. Hsu
is a member of H&Q Asia Pacific II LLC, the General Partner of Asia Pacific
Growth Fund II L.P.
(5) Represents 525,908 shares and immediately exercisable warrants to purchase
26,071 shares held of record by L&H Investment Company, N.V., of which
Mr. Lernout is Co-chairman and Managing Director. Mr. Lernout disclaims
beneficial ownership of these shares.
(6) Does not include 1,242,857 shares held by Ms. Liu's spouse, Dr. Hong Chen.
(7) Includes 94,642 shares held of record by The Huang Revocable Living Trust
dated February 7, 1996, of which Mr. Huang is a trustee. Also includes
immediately exercisable warrants to purchase 2,857 shares held of record by
Mr. Huang.
(8) Represents shares subject to options exercisable within 60 days of
September 30, 1999.
(9) Includes 10,714 shares held of record by Stanley J. Meresman and Sharon A.
Meresman, Trustees of the Meresman Family Trust U/D/T dated September 19,
1989, as amended, of which Mr. Meresman is a trustee. Also includes 25,000
shares held of record by Mr. Meresman, and 28,571 shares subject to options
currently exercisable.
(10) Represents shares subject to options exercisable within 60 days of
September 30, 1999.
(11) Includes 156,390 shares subject to options exercisable within 60 days of
September 30, 1999, and immediately exercisable warrants to purchase
128,928 shares.
61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital stock
will consist of 50,000,000 shares of common stock, $0.001 par value per share,
and 5,000,000 shares of preferred stock, $0.001 par value per share.
Prior to the effectiveness of this offering, we will reincorporate in the State
of Delaware. Following the closing of this offering, we intend to amend and
restate our certificate of incorporation. Our certificate of incorporation,
bylaws and fourth amended and restated registration rights agreement, described
below, are included as exhibits to the registration statement of which this
prospectus forms a part.
COMMON STOCK
As of September 30, 1999, 2,226,251 shares of common stock were outstanding and
held of record by approximately 69 stockholders.
DIVIDEND RIGHTS. Subject to preferences that may apply to shares of preferred
stock outstanding at the time, the holders of outstanding shares of common stock
are entitled to receive dividends out of assets legally available at the times
and in the amounts that our board may from time to time determine.
VOTING RIGHTS. Each common stockholder is entitled to one vote for each share of
common stock held on all matters submitted to a vote of stockholders. Cumulative
voting for the election of directors is not provided for in our certificate of
incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election.
NO PREEMPTIVE OR SIMILAR RIGHTS. The common stock is not entitled to preemptive
rights and is not subject to conversion or redemption.
RIGHT TO RECEIVE LIQUIDATION DISTRIBUTIONS. Upon a liquidation, dissolution or
winding-up of our company, the assets legally available for distribution to
stockholders would be distributable ratably among the holders of the common
stock and any participating preferred stock outstanding at that time after
payment of liquidation preferences, if any, on any outstanding preferred stock
and payment of other claims of creditors.
PREFERRED STOCK
Upon the closing of this offering, each outstanding share of preferred stock
will be converted into one share of common stock. See Note 7 of notes to
consolidated financial statements for a description of this preferred stock.
Following this offering, our board will be authorized, subject to the limits
imposed by Delaware law, to issue preferred stock in one or more series, to
establish from time to time the number of shares to be included in each series,
to fix the rights, preferences and privileges of the shares of each wholly
unissued series and any of its qualifications, limitations or restrictions. The
board will also be able to increase or decrease the number of shares of any
series, but not below the number of shares of that series then outstanding,
without any further vote or action by the stockholders.
The board will be able to authorize the issuance of preferred stock with voting
or conversion rights that could adversely affect the voting power or other
rights of the holders of the common stock. The issuance of preferred stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, have the effect of delaying,
deferring or preventing a change in control and might adversely affect the
market price of our common stock and the voting and other rights of the holders
of common stock. We have no current plan to issue any shares of preferred stock.
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<PAGE>
WARRANTS
As of September 30, 1999, we had outstanding warrants to purchase:
- 102,699 shares of common stock at an exercise price of $7.00 per share,
which will expire on the earlier of November 11, 2003 or the first
anniversary of the date on which the roaming agreement with the holder is
terminated;
- 223,206 shares of Series D Preferred Stock at an exercise price of $7.00,
which will terminate on the closing of this offering if they are not
exercised;
- 17,724 shares of Series D Preferred Stock at an exercise price of $11.20 per
share, which will expire in November 2003; and
- 11,785 shares of Series D Preferred Stock at an exercise price of $7.00
which will expire as to 1,785 shares in December 2003 and as to 10,000
shares on the fifth anniversary of the completion of this offering.
REGISTRATION RIGHTS
As of September 30, 1999, the holders of 12,682,773 shares of common stock will
have the right to require us to register their shares with the Securities and
Exchange Commission so that those shares may be publicly resold or to include
their shares in any registration statement we file.
RIGHT TO DEMAND REGISTRATION. At any time six months after this offering, these
stockholders can request that we file a registration statement so they can
publicly sell their shares. The underwriters of any underwritten offering will
have the right to limit the number of shares to be included in that registration
statement.
WHO MAY MAKE A DEMAND. America Online initially will be able to require that we
file a registration statement on a form other than Form S-3. After we are
eligible to use Form S-3, America Online can only require that we file a
registration statement on a form other than Form S-3 if the anticipated offering
price per share exceeds $5.00. America Online also can require that we file a
registration statement on Form S-3 if the reasonably anticipated offering price
exceeds $500,000.
Holders of registrable shares may request a registration of their shares in an
offering in which the anticipated offering price per share exceeds $5.00.
Holders that will register shares in an offering in which the reasonably
anticipated aggregate offering price exceeds $500,000, or holders of at least
20% of the shares, can require that we file a registration statement on a Form
S-3. If the anticipated offering price exceeds $10,000,000, holders of at least
20% of the shares can require that we file a registration statement on a form
other than a Form S-3.
NUMBER OF TIMES HOLDERS CAN MAKE DEMANDS. We can be required to file up to two
registration statements on a form other than a Form S-3 for America Online and
up to five total registration statements, excluding any registration statements
that are filed at the request of Dr. Chen, Ms. Liu and their affiliated
entities. However, we cannot be required to file more than one registration
statement during any six-month period.
POSTPONEMENT. We have the ability to postpone the filing of a registration
statement for up to 120 days on one occasion before we comply with a request to
file a registration statement if we determine that the filing would be seriously
detrimental to us or our stockholders.
PIGGYBACK REGISTRATION RIGHTS. If we register any securities for public sale,
the stockholders with the registration rights described above will have the
right to include their shares in the registration statement. We have the right
to limit the number of shares to be so included in a registration statement to a
maximum of 70% of the total value of the securities to be registered.
EXPENSES OF REGISTRATION. We will pay for the expenses relating to any demand or
piggyback registration. However, we will not pay for any expenses of any demand
registration if the request is subsequently withdrawn by the holders of a
majority of the shares having registration rights, subject to certain limited
exceptions.
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<PAGE>
EXPIRATION OF REGISTRATION RIGHTS. The registration rights described above will
expire on December 31, 2009. The registration rights will terminate earlier with
respect to a particular stockholder if that holder owns less than 1% of our
outstanding securities or can resell all of its securities in a three month
period under Rule 144 of the Securities Act and we are subject to the reporting
requirements of the Securities Exchange Act of 1934.
ANTI-TAKEOVER PROVISIONS
The provisions of Delaware law, our amended and restated certificate of
incorporation and our bylaws described below may have the effect of delaying,
deferring or preventing a change in control of our company or changes in
management.
DELAWARE LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents certain
Delaware corporations from engaging, under limited circumstances, in a "business
combination," which includes a merger or sale of more than 10% of the
corporation's assets, with any "interested stockholder," or a stockholder who
owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of any such stockholder, for three years following the
date that the stockholder became an "interested stockholder" unless:
- the transaction is approved by the board prior to the date the "interested
stockholder" attained that status;
- upon the closing of the transaction that resulted in the stockholder's
becoming an "interested stockholder," the "interested stockholder" owned at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced; or
- on or subsequent to that date the "business combination" is approved by the
board and authorized at an annual or special meeting of stockholders by at
least two-thirds of the outstanding voting stock that is not owned by the
"interested stockholder."
A Delaware corporation may "opt out" of this provision with an express provision
in its original certificate of incorporation or an express provision in its
certificate of incorporation or bylaws resulting from a stockholders' amendment
approved by at least a majority of the outstanding voting shares. However, we
have not "opted out" of this provision. Section 203 could prohibit or delay
mergers or other takeover or change-in-control attempts and, accordingly, might
discourage attempts to acquire us.
CHARTER AND BYLAW PROVISIONS
Our bylaws provide that any action required or permitted to be taken by our
stockholders at an annual meeting or a special meeting of the stockholders may
only be taken if it is properly brought before the meeting. Thus, our
stockholders may only take actions at a stockholders meeting and may not take
any action by written consent. Our bylaws and certificate of incorporation
provide that special meetings of the stockholders may only be called by our
board, the chairman of our board, our chief executive officer or our president.
Our certificate of incorporation provides that our board of directors may issue
preferred stock with voting or other rights without stockholder action. This
provision may have the effect of delaying, deferring or preventing a takeover
attempt.
Our bylaws provide that we will indemnify officers and directors against losses
that they may incur in investigations and legal proceedings resulting from their
services to us, which may include services in connection with takeover defense
measures. These provisions may have the effect of preventing changes in our
management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Equiserve LLC.
LISTING
We have applied for our common stock to be quoted on The Nasdaq National Market
under the symbol "GRIC."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock, including sales of shares
issued upon exercise of outstanding warrants or options, in the public market
after this offering could adversely affect market prices prevailing from time to
time and could impair our ability to raise capital through the sale of our
equity securities. No shares currently outstanding will be available for sale
immediately after this offering due to contractual restrictions on resale.
However, sales of substantial amounts of our common stock in the public market
after these restrictions lapse could adversely affect the prevailing market
price and our ability to raise equity capital in the future.
Upon completion of this offering, based on shares outstanding at September 30,
1999, we will have outstanding 17,723,311 shares of common stock. Of these
shares, the 4,600,000 shares sold in this offering will be freely tradable
without restriction under the Securities Act unless purchased by our
"affiliates."
The balance of such shares will become eligible for public sale as follows:
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
ADDITIONAL SHARES THAT
DATE MAY BE SOLD COMMENT
- ---- ---------------------- ----------------------------------------
<S> <C> <C>
Date of this prospectus 0 Freely tradable shares.
181 days after the date of this 12,277,294 Underwriters' lock-up released. These
prospectus shares may be sold under Rules 144,
144(k) or 701.
Various times thereafter 846,017 Restricted securities held for at least
one year may be sold under Rule 144.
</TABLE>
In addition, 600,240 shares that were issued to Nokia Holdings, Inc. on
November 12, 1999 may be sold under Rule 144 beginning on November 12, 2000.
LOCK-UP AGREEMENTS
All of our officers and directors and substantially all of our shareholders have
signed lock-up agreements under which they agreed not to sell, dispose of, loan,
pledge or grant any rights with respect to any shares of common stock or any
securities convertible into or exercisable or exchangeable for shares of common
stock without the prior written consent of CIBC World Markets for a period of
180 days after the date of this prospectus.
CIBC World Markets may choose to release some of these shares from these
restrictions prior to the expiration of this 180-day period, although it has no
current intention to do so.
RIGHT OF REPURCHASE
Directors who are granted options under our option plans may immediately
exercise such options and acquire the total number of shares of common stock
subject to such options. We have a right of repurchase on shares of common stock
acquired by such directors to the extent that the number of shares acquired
exceeds the number of shares that have vested.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after the
date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which, based on
shares outstanding as of September 30, 1999, will equal approximately
177,233 shares; or
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<PAGE>
- the average weekly trading volume of the common stock on the Nasdaq National
Market during the four calendar weeks preceding the filing of a notice on
Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us.
RULE 144(k)
Under Rule 144(k), a person who has not been one of our affiliates at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, is entitled to sell those shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144. Therefore, unless otherwise restricted, shares
that have been held by a non-affiliate for at least two years may be sold in the
open market immediately after the lock-up agreements expire.
RULE 701
Any of our employees, officers, directors or consultants who purchased his or
her shares under a written compensatory plan or contract may be entitled to sell
his or her shares in reliance on Rule 701. Rule 701 permits affiliates to sell
their Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell
these shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.
All holders of Rule 701 shares are required to wait until 90 days after the date
of this prospectus before selling those shares. However, all shares issued under
Rule 701 are subject to lock-up agreements or other contractual resale
restrictions and will only become eligible for sale when the 180-day lock-up
agreements or other contractual resale restrictions expire.
REGISTRATION RIGHTS
As of September 30, 1999, the holders of 12,682,773 shares of common stock, or
their transferees, will be entitled to certain rights with respect to the
registration of those shares under the Securities Act. For a discussion of these
rights please see "Description of Capital Stock--Registration Rights." After
these shares are registered, they will be freely tradable without restriction
under the Securities Act.
STOCK OPTIONS
Immediately after this offering, we intend to file a registration statement on
Form S-8 under the Securities Act covering shares of common stock reserved for
issuance under our stock option and employee stock purchase plans. Shares
registered under this registration statement will, subject to Rule 144 volume
limitations applicable to our affiliates and our repurchase rights applicable to
certain shares held by directors, be available for sale in the open market
immediately after the lock-up agreements expire. As of September 30, 1999,
options to purchase 2,051,859 shares of common stock were issued and outstanding
of which options to purchase 389,215 shares were immediately exercisable.
WARRANTS
Upon completion of this offering, we will have outstanding warrants to purchase
132,208 shares of common stock. If these warrants are exercised and the exercise
price is paid in cash, the shares must be held for one year before they can be
sold under Rule 144. Each of the warrants also contains cashless, or net,
exercise provisions. If these warrants are exercised pursuant to these cashless,
or net, exercise provisions, the shares must be held until one year from the
date the warrant was issued. After the lock-up agreements described above
expire, each of the outstanding warrants will have been outstanding for at least
one year.
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<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below. CIBC World Markets Corp., U.S. Bancorp Piper Jaffray Inc. and Volpe Brown
Whelan & Company, LLC are acting as representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
CIBC World Markets Corp.....................................
U.S. Bancorp Piper Jaffray Inc..............................
Volpe Brown Whelan & Company, LLC...........................
---------
Total................................................... 4,600,000
=========
</TABLE>
This is a firm commitment underwriting. This means that the underwriters have
agreed to purchase all of the shares offered by this prospectus (other than
those covered by the over-allotment option described below) if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances.
The shares should be ready for delivery on or about against
payment in immediately available funds. The representatives have advised GRIC
that the underwriters propose to offer the shares directly to the public at the
public offering price that appears on the cover page of this prospectus. In
addition, the representatives may offer some of the shares to other securities
dealers at such price less a concession of $ per share. The underwriters
may also allow, and such dealers may reallow, a concession not in excess of
$ per share to other dealers. After the shares are released for sale to
the public, the representatives may change the offering price and other selling
terms at various times.
GRIC has granted the underwriters an over-allotment option. This option, which
is exercisable for up to 30 days after the date of this prospectus, permits the
underwriters to purchase a maximum of 690,000 additional shares from GRIC to
cover over-allotments. If the underwriters exercise all or part of this option,
they will purchase shares covered by the option at the initial public offering
price that appears on the cover page of this prospectus, less the underwriting
discount. If this option is exercised in full, the total price to public will be
$ , and the total proceeds to GRIC will be $ . The underwriters
have severally agreed that, to the extent the over-allotment option is
exercised, they will each purchase a number of additional shares proportionate
to the underwriter's initial amount reflected in the foregoing table.
The following table provides information regarding the amount of the discount to
be paid to the underwriters by us.
<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH FULL
EXERCISE OF EXERCISE OF
OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OPTION OPTION
--------- -------------- ---------------
<S> <C> <C> <C>
GRIC................................................... $ $ $
------ ----------- -----------
</TABLE>
67
<PAGE>
We estimate that our total expenses of the offering, excluding the underwriting
discount, will be approximately $1.8 million.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
We, our officers and directors, and substantially all securityholders have
agreed to a 180-day "lock up" with respect to 13,123,311 shares of common stock
and certain other GRIC securities that they beneficially own, including
securities that are convertible into shares of common stock and securities that
are exchangeable or exercisable for shares of common stock. This "lock up" means
that, subject to certain exceptions, for a period of 180 days following the date
of this prospectus, GRIC and such persons may not offer, sell, pledge or
otherwise dispose of these GRIC securities.
The representatives have informed us that they do not expect discretionary sales
by the underwriters to exceed five percent of the shares offered by this
prospectus.
The underwriters have reserved for sale up to 300,000 shares for employees,
directors and other persons associated with GRIC. These reserved shares will be
sold at the initial public offering price that appears on the cover page of this
prospectus. The number of shares available for sale to the general public in
this offering will be reduced to the extent reserved shares are purchased by
such persons. The underwriters will offer to the general public, on the same
terms as other shares offered by this prospectus, any reserved shares that are
not purchased by such persons.
There is no established trading market for the shares. The offering price for
the shares has been determined by GRIC and the representatives, based on the
following factors:
- our record of operations;
- our current financial position and future prospects;
- the experience of our management;
- the economics of our industry in general; and
- prevailing market and economic conditions.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules:
- Stabilizing transactions--The representatives may make bids or purchases for
the purpose of pegging, fixing or maintaining the price of the shares, so
long as stabilizing bids do not exceed a specified maximum.
- Over-allotments and syndicate covering transactions--The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with the offering, the representatives may engage in syndicate
covering transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option.
- Penalty bids--If the representatives purchase shares in the open market in a
stabilizing transaction or syndicate covering transaction, they may reclaim
a selling concession from the underwriters and selling group members who
sold those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither we nor the underwriters make any representation or prediction as to the
effect that the transactions described above may have on the price of the
shares. These transactions may occur on
68
<PAGE>
The Nasdaq National Market or otherwise. If such transactions are commenced,
they may be discontinued without notice at any time.
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will provide a legal opinion
regarding the validity of the issuance of the shares of common stock offered
under this prospectus. Gibson, Dunn & Crutcher LLP, San Francisco, California,
will pass upon specified legal matters on behalf of the underwriters. A
partnership comprised of partners of Fenwick & West LLP owns 10,714 shares of
our Series D Preferred Stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated financial
statements and schedule at December 31, 1997, 1998, and September 30, 1999 and
for the three years in the period ended December 31, 1998 and nine-month period
ended September 30, 1999 as set forth in their report. We have included our
financial statements and schedule in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to our common stock.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedule to the registration
statement. For further information with respect to us and our common stock, we
refer you to the registration statement and the exhibits and schedule filed as a
part of the registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other document are not
necessarily complete. If a contract or document has been filed as an exhibit to
the registration statement, we refer you to the copy of the contract or document
that has been filed. Each statement in this prospectus relating to a contract or
document filed as an exhibit is qualified in all respects by the filed exhibit.
The registration statement, including exhibits and schedule, may be inspected
without charge at the principal office of the Securities and Exchange Commission
in Washington, D.C., and copies of all or any part of it may be obtained from
that office after payment of fees prescribed by the Securities and Exchange
Commission. The Securities and Exchange Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission at http://www.sec.gov.
We intend to provide our stockholders with annual reports containing financial
statements audited by an independent public accounting firm and quarterly
reports containing unaudited financial data for the first three quarters of each
year.
69
<PAGE>
GRIC COMMUNICATIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Redeemable Convertible Preferred
Stock
and Stockholders' Equity (Deficit)........................ F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
GRIC Communications, Inc.
We have audited the accompanying consolidated balance sheets of GRIC
Communications, Inc. as of December 31, 1997 and 1998 and September 30, 1999,
and the related consolidated statements of operations, redeemable convertible
preferred stock and stockholders' equity (deficit), and cash flows for each of
the three years in the period ended December 31, 1998 and the nine-month period
ended September 30, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of GRIC
Communications, Inc. at December 31, 1997 and 1998 and September 30, 1999, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 and nine-month period ended
September 30, 1999, in conformity with generally accepted accounting principles.
San Jose, California
October 25, 1999
- --------------------------------------------------------------------------------
The preceding report is in the form that will be signed upon approval by the
Company's stockholders of the reincorporation of the Company in Delaware as
described in Note 8 to the Consolidated Financial Statements.
/s/ Ernst & Young LLP
San Jose, California
November 22, 1999
F-2
<PAGE>
GRIC COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------- -------------
1997 1998 1999 1999
-------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 8,481 $ 1,362 $ 10,181
Accounts receivable, net of allowances of $214, $384, and
$628 at December 31, 1997 and 1998, and September 30,
1999.................................................... 395 750 1,604
Inventories............................................... 102 125 56
Other current assets...................................... 46 141 1,164
------- -------- --------
Total current assets........................................ 9,024 2,378 13,005
Property and equipment...................................... 778 2,055 3,114
Other assets................................................ 53 307 319
------- -------- --------
Total assets................................................ $ 9,855 $ 4,740 $ 16,438
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 670 $ 3,975 $ 4,569
Accrued compensation and benefits......................... 345 881 1,027
Other current liabilities................................. 170 595 883
Current portion of long-term debt and capital lease
obligations ($2,700 and $0 in stockholder notes at
December 31, 1998 and September 30, 1999,
respectively--see Note 4)............................... -- 4,436 513
------- -------- --------
Total current liabilities................................... 1,185 9,887 6,992
Long-term debt and capital lease obligations................ 19 1,069 1,116
Commitments and contingencies
Redeemable convertible preferred stock, $0.001 par value:
6,025,000 shares authorized at December 31, 1997 and 1998,
and September 30, 1999, no shares authorized pro forma;
5,213,109 shares issued and outstanding at December 31,
1997 and 1998, and September 30, 1999 (aggregate
liquidation preference $8,642), no shares issued and
outstanding pro forma................................... 8,590 8,590 8,590 --
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par value:
1,190,476, 1,190,476 and 6,250,000 shares authorized
at December 31, 1997, 1998 and September 30, 1999,
respectively, 5,000,000 shares of preferred stock
authorized pro forma; 431,547, 870,535 and 5,460,745
shares issued and outstanding at December 31, 1997 and
1998 and September 30, 1999, respectively (aggregate
liquidation preferences $7,250, $9,750 and $38,225,
respectively), no shares of preferred stock issued and
outstanding pro forma................................. -- -- 5 --
Common stock, $0.001 par value:
10,714,285, 10,714,285 and 21,428,571 shares
authorized at December 31, 1997, 1998 and
September 30, 1999, respectively, 50,000,000 shares
authorized pro forma; 1,952,059, 1,980,994 and
2,226,251 shares issued and outstanding at
December 31, 1997 and 1998 and September 30, 1999,
respectively, 12,900,105 shares issued and outstanding
pro forma............................................. 2 2 2 13
Additional paid-in capital................................ 7,335 10,370 41,784 50,368
Deferred stock-based compensation......................... -- -- (1,586) (1,586)
Accumulated deficit....................................... (7,276) (25,178) (40,465) (40,465)
------- -------- -------- --------
Total stockholders' equity (deficit)........................ 61 (14,806) (260) $ 8,330
------- -------- -------- ========
Total liabilities and stockholders' equity (deficit)........ $ 9,855 $ 4,740 $ 16,438
======= ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
GRIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------------- -------------------------
1996 1997 1998 1998 1999
--------- --------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Settlement........................................ $ -- $ 254 $ 1,666 $ 1,073 $ 4,122
Software.......................................... 387 719 186 161 517
Hardware.......................................... -- 226 416 294 160
Maintenance and Services.......................... 16 335 281 185 638
--------- --------- ---------- --------- ----------
Total revenues.................................. 403 1,534 2,549 1,713 5,437
--------- --------- ---------- --------- ----------
Costs and Expenses:
Cost of settlement revenues....................... -- 156 1,444 872 3,329
Cost of software revenue.......................... -- 458 251 129 5
Cost of hardware revenue.......................... -- 250 588 350 44
Cost of maintenance and services revenue.......... -- -- 143 10 47
Network and operations............................ -- 837 1,117 729 2,027
Research and development.......................... 998 2,314 5,080 3,718 5,852
Sales and marketing............................... 49 3,723 6,373 4,524 5,844
General and administrative........................ 391 2,002 3,540 2,486 3,276
Other operating expenses (expense reversals)...... -- -- 1,500 -- (925)
Amortization of stock-based compensation.......... -- -- -- -- 193
--------- --------- ---------- --------- ----------
Total costs and expenses........................ 1,438 9,740 20,036 12,818 19,692
--------- --------- ---------- --------- ----------
Operating loss...................................... (1,035) (8,206) (17,487) (11,105) (14,255)
Interest income and other, net...................... 104 79 192 153 298
Interest expense.................................... -- -- (575) (33) (1,292)
--------- --------- ---------- --------- ----------
Loss from continuing operations before income
taxes............................................. (931) (8,127) (17,870) (10,985) (15,249)
Provision for income taxes from continuing
operations........................................ -- 59 32 28 38
--------- --------- ---------- --------- ----------
Net loss from continuing operations................. (931) (8,186) (17,902) (11,013) (15,287)
Discontinued operations:
Loss from discontinued operations................. (1,683) (774) -- -- --
Gain on disposal of discontinued operations....... -- 5,118 -- -- --
--------- --------- ---------- --------- ----------
Net loss............................................ $ (2,614) $ (3,842) $ (17,902) $ (11,013) $ (15,287)
========= ========= ========== ========= ==========
Basic and diluted net loss per share from continuing
operations........................................ $ (0.52) $ (4.42) $ (9.19) $ (5.66) $ (7.61)
========= ========= ========== ========= ==========
Basic and diluted net loss per share................ $ (1.46) $ (2.08) $ (9.19) $ (5.66) $ (7.61)
========= ========= ========== ========= ==========
Shares used to compute basic and diluted net loss
per share......................................... 1,788,684 1,851,140 1,948,424 1,946,870 2,009,596
========= ========= ========== ========= ==========
Pro forma basic and diluted net loss per share from
continuing operations............................. $ (2.27) $ (1.42)
========== ==========
Shares used to compute pro forma basic and diluted
net loss per share................................ 7,889,323 10,782,381
========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
GRIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE PREFERRED STOCK
---------------------------------------------------------------------------
SERIES A SERIES B SERIES C TOTAL
----------------- ----------------- ----------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------ --------- ------ --------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 1,214,282 $680 2,310,705 $3,208 -- $ -- 3,524,987 $3,888
Issuance of Series C
convertible preferred
stock to investors
for cash, exercise of
warrants, and
conversion of bridge
loans at $2.80 per
share, net of
issuance costs of
$25.................. -- -- -- -- 1,688,122 4,702 1,688,122 4,702
Issuance of common
stock upon exercise
of employee stock
options for cash..... -- -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- -- --
--------- ---- --------- ------ --------- ------ ---------- ------
Balance at December 31,
1996................... 1,214,282 $680 2,310,705 $3,208 1,688,122 $4,702 5,213,109 $8,590
Issuance of Series D
convertible preferred
stock to investors
for cash and
cancellation of notes
payable at $16.80 per
share................ -- -- -- -- -- -- -- --
Issuance of common
stock upon exercise
of employee stock
options for cash..... -- -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- -- --
--------- ---- --------- ------ --------- ------ ---------- ------
Balance at December 31,
1997................... 1,214,282 680 2,310,705 3,208 1,688,122 4,702 5,213,109 8,590
Issuance of Series D
convertible preferred
stock to adjust the
cost of previously
issued shares from
$16.80 to $11.20 per
share................ -- -- -- -- -- -- -- --
Issuance of Series D
convertible preferred
stock to investors
for cash and
cancellation of notes
payable at $11.20 per
share, net of
issuance costs of
$15.................. -- -- -- -- -- -- -- --
Issuance of common
stock upon exercise
of employee stock
options for cash..... -- -- -- -- -- -- -- --
Issuance of Series D
warrants and common
stock warrants....... -- -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- -- --
--------- ---- --------- ------ --------- ------ ---------- ------
Balance at December 31,
1998................... 1,214,282 680 2,310,705 3,208 1,688,122 4,702 5,213,109 8,590
Conversion of 1998
bridge financing to
Series D convertible
preferred stock at
$7.00 per share...... -- -- -- -- -- -- -- --
Issuance of Series D
convertible preferred
stock to adjust the
cost of previously
issued shares from
$11.20 to $7.00 per
share................ -- -- -- -- -- -- -- --
Issuance of Series D
convertible preferred
stock at $7.00 per
share, net of
issuance costs of
$326................. -- -- -- -- -- -- -- --
Issuance of Series D
warrants............. -- -- -- -- -- -- -- --
Issuance of common
stock upon exercise
of employee stock
options for cash..... -- -- -- -- -- -- -- --
Warrant revaluation.... -- -- -- -- -- -- -- --
Deferred stock-based
compensation......... -- -- -- -- -- -- -- --
Amortization of
stock-based
compensation......... -- -- -- -- -- -- -- --
Issuance of common
stock to previous
board member......... -- -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- -- --
--------- ---- --------- ------ --------- ------ ---------- ------
Balance at September 30,
1999................... 1,214,282 $680 2,310,705 $3,208 1,688,122 $4,702 5,213,109 $8,590
========= ==== ========= ====== ========= ====== ========== ======
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------------------------------------
SERIES D
CONVERTIBLE TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED STOCKHOLDERS'
------------------ ----------------- PAID-IN STOCK-BASED ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT (DEFICIT)
---------- ------ --------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... -- $-- 1,785,719 $ 2 $ 29 -- $ (820) $ (789)
Issuance of Series C
convertible preferred
stock to investors
for cash, exercise of
warrants, and
conversion of bridge
loans at $2.80 per
share, net of
issuance costs of
$25.................. -- -- -- -- -- -- -- --
Issuance of common
stock upon exercise
of employee stock
options for cash..... -- -- 4,910 -- 1 -- -- 1
Net loss............... -- -- -- -- $ -- -- (2,614) (2,614)
---------- --- --------- --- ------- -------- -------- -------
Balance at December 31,
1996................... -- $-- 1,790,629 $ 2 30 -- $ (3,434) $(3,402)
Issuance of Series D
convertible preferred
stock to investors
for cash and
cancellation of notes
payable at $16.80 per
share................ 431,523 -- -- -- 7,250 -- -- 7,250
Issuance of common
stock upon exercise
of employee stock
options for cash..... -- -- 161,430 -- 55 -- -- 55
Net loss............... -- -- -- -- -- -- (3,842) (3,842)
---------- --- --------- --- ------- -------- -------- -------
Balance at December 31,
1997................... 431,523 -- 1,952,059 2 7,335 -- (7,276) 61
Issuance of Series D
convertible preferred
stock to adjust the
cost of previously
issued shares from
$16.80 to $11.20 per
share................ 215,774 -- -- -- -- -- -- --
Issuance of Series D
convertible preferred
stock to investors
for cash and
cancellation of notes
payable at $11.20 per
share, net of
issuance costs of
$15.................. 223,214 -- -- -- 2,486 -- -- 2,486
Issuance of common
stock upon exercise
of employee stock
options for cash..... -- -- 28,935 -- 13 -- -- 13
Issuance of Series D
warrants and common
stock warrants....... -- -- -- 536 -- -- 536
Net loss............... -- -- -- -- -- -- (17,902) (17,902)
---------- --- --------- --- ------- -------- -------- -------
Balance at December 31,
1998................... 870,511 -- 1,980,994 2 10,370 -- (25,178) (14,806)
Conversion of 1998
bridge financing to
Series D convertible
preferred stock at
$7.00 per share...... 250,010 -- -- -- 2,801 -- -- 2,801
Issuance of Series D
convertible preferred
stock to adjust the
cost of previously
issued shares from
$11.20 to $7.00 per
share................ 672,328 1 -- -- (1) -- -- --
Issuance of Series D
convertible preferred
stock at $7.00 per
share, net of
issuance costs of
$326................. 3,667,896 4 -- -- 25,345 -- -- 25,349
Issuance of Series D
warrants............. -- -- -- -- 689 -- -- 689
Issuance of common
stock upon exercise
of employee stock
options for cash..... -- -- 227,400 -- 324 -- -- 324
Warrant revaluation.... -- -- -- -- 327 -- -- 327
Deferred stock-based
compensation......... -- -- -- -- 1,779 (1,779) -- --
Amortization of
stock-based
compensation......... -- -- -- -- -- 193 -- 193
Issuance of common
stock to previous
board member......... -- -- 17,857 -- 150 -- -- 150
Net loss............... -- -- -- -- -- -- (15,287) (15,287)
---------- --- --------- --- ------- -------- -------- -------
Balance at September 30,
1999................... 5,460,745 $ 5 2,226,251 $ 2 $41,784 $ (1,586) $(40,465) $ (260)
========== === ========= === ======= ======== ======== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
GRIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................... $ (2,614) $ (3,842) $(17,902) $(11,013) $(15,287)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of property and
equipment.......................................... 557 272 1,006 701 1,182
Amortization of stock-based compensation............. -- -- -- -- 193
Gain on sale of discontinued operations.............. -- (5,118) -- -- --
Noncash interest expense............................. -- -- -- -- 275
Noncash issuance of stock............................ -- -- -- -- 150
Noncash warrant expense--preferred stock............. -- -- 408 -- 922
Noncash warrant expense--common stock................ -- -- 1 -- 81
Net changes in assets and liabilities:
Accounts receivable................................ (184) (210) (355) (365) (854)
Inventories........................................ -- (101) (23) (305) 69
Other current assets............................... (43) (2) (95) (101) (1,023)
Other assets....................................... -- (53) (127) (121)
Net assets relating to discontinued operations..... (372) 1,236 -- -- --
Accounts payable................................... 169 500 3,305 1,017 594
Accrued compensation and benefits.................. 32 312 536 293 146
Other current liabilities.......................... -- 171 425 292 288
Other long-term liabilities........................ -- 20 15 2 4
-------- -------- -------- -------- --------
Net cash used in operating activities.................. (2,455) (6,815) (12,806) (9,600) (13,260)
INVESTING ACTIVITIES
Capital expenditures................................... (819) (797) (2,283) (1,624) (1,739)
Proceeds from sale of discontinued operations.......... -- 5,446 -- -- --
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities.... (819) 4,649 (2,283) (1,624) (1,739)
FINANCING ACTIVITIES
Proceeds from issuance of debt......................... -- -- 5,753 3,742 --
Payment of debt........................................ -- -- (282) -- (1,680)
Proceeds from sales of preferred stock................. 4,702 7,250 2,486 2,486 25,174
Proceeds from sales of common stock.................... 1 55 13 10 324
-------- -------- -------- -------- --------
Net cash provided by financing activities.............. 4,703 7,305 7,970 6,238 23,818
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents... 1,429 5,139 (7,119) (4,986) 8,819
Cash and cash equivalents at beginning of period....... 1,913 3,342 8,481 8,481 1,362
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period............. $ 3,342 $ 8,481 $ 1,362 $ 3,495 $ 10,181
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH PAID DURING THE PERIOD
Tax paid............................................... $ -- $ 9 $ 7 $ 2 $ 1
Interest paid.......................................... $ -- $ -- $ 165 $ -- $ 436
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING
ACTIVITIES
Conversion of 1999 bridge notes interest into Series D
preferred stock...................................... $ -- $ -- $ -- $ -- $ 175
Conversion of 1998 bridge notes (principal and
interest) into Series D preferred stock.............. $ -- $ -- $ -- $ -- $ 2,801
Purchase of equipment under capital leases............. $ -- $ -- $ -- $ -- $ 502
</TABLE>
See accompanying notes.
F-6
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS
GRIC Communications, Inc. ("GRIC" or the "Company") is a global provider of
Internet-based products and services that enable telecommunication companies,
Internet service providers, and emerging telecommunications service providers,
to offer Internet-based products and services, such as Internet roaming and
Internet telephony, to their end users worldwide.
GRIC's predecessor corporation, incorporated in California in 1994, was both an
Internet service provider in Northern California and an independent software
provider for the Internet service provider community. In 1997, the local
Internet service provider business and related assets were sold. Operations
through 1997 related to the Internet service provider business are reflected as
discontinued operations. We first recognized clearinghouse settlement revenues
in 1997, and since then we have derived our revenues primarily from
clearinghouse settlement services and software licenses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include all the accounts of GRIC and its
wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements for the
nine-month period ended September 30, 1998 have been prepared in accordance with
generally accepted accounting principles for interim financial information. In
the opinion of management, the accompanying unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the Company's
results of its operations and its cash flows for the nine months ended
September 30, 1998. Results for the nine-month period ended September 30, 1998
are not necessarily indicative of results for the full fiscal year of 1998 or
any future period.
DISCONTINUED OPERATIONS
In May 1997, the Company sold a 55% interest in its local internet access
service provider subsidiary, Aimnet, in exchange for approximately $2,004,000 of
cash and in September 1997, it sold the remaining 45% for approximately
$3,442,000 of cash. Aimnet operated as a separate segment of the business as an
Internet service provider and its operations have been accounted for as
discontinued operations. Revenues earned by Aimnet were approximately $3,010,000
and $1,632,000 in the years ended December 31, 1996 and 1997, respectively.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-7
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY REMEASUREMENT
Adjustments resulting from the process of remeasurement into U.S. dollars of the
foreign currency financial statements of the Company's wholly-owned foreign
subsidiaries, for which the U.S. dollar is the functional currency, are included
in operations and have not been material.
REVENUE RECOGNITION
The Company derives revenues primarily from settlement services it provides to
customers through its network. The Company also derives revenues from licenses
of software to customers seeking to offer Internet roaming and Internet
telephony services to their end users, and from sales of maintenance and support
services and hardware.
Settlement revenues are generated when customers' end users initiate Internet
roaming services or originate Internet telephony communications. Cost of
settlement revenues represents the amounts paid to access our customers'
networks for the completion of services provided. The Company recognizes roaming
services revenue and related costs at the time services are rendered to users.
The Company has minimum purchase commitments with some alliance members that it
expects to utilize provided the supplier maintains the required pricing under
the contract. In addition, the Company bears the risk of loss related to
collection for services.
Software and other revenues consist primarily of revenues from software licenses
and to a lesser extent from related services, maintenance and support and
hardware sales. In accordance with Statement of Position (SOP 97-2), Software
Revenue Recognition, revenue earned on software arrangements involving multiple
elements is required to be allocated to each element based upon the relative
fair values of the elements. Software revenues consist of license revenues which
are recognized upon the delivery of application products, provided no
significant vendor obligation or contingencies remain, and collection of the
receivable is probable, or where the license is for enabling software, ratably
over the contractual services period as enabling licenses have not been sold
separately. Maintenance and support service includes technical support,
consulting, installation and training services. Revenue allocated to maintenance
is recognized ratably over the maintenance term and revenue allocated to
training and other service elements is recognized as the services are performed.
Hardware revenue related to telephony gateways, internet dialers and fax cards
is recognized upon shipment of the equipment.
CASH AND CASH EQUIVALENTS
GRIC considers all highly liquid instruments purchased with an original maturity
of 90 days or less at the date of purchase to be cash equivalents. The Company's
cash and cash equivalents consist solely of monies held in demand deposits.
INVENTORIES
Inventories, which consist of finished goods, are valued at the lower of cost or
market on a first-in, first-out basis.
F-8
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Depreciation and amortization are provided on a straight-line
basis over the estimated useful lives of the respective assets, generally the
shorter of the lease term or two to three years.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which provides for the
establishment of deferred tax assets and liabilities based on the difference
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash equivalents and accounts receivable. The
Company maintains its cash and cash equivalents principally in domestic
financial institutions of high credit standing. The Company is exposed to credit
risks in the event of default by these institutions to the extent of the amount
recorded on the balance sheet. The credit risk in the Company's accounts
receivable is mitigated by the Company's credit evaluation process. The Company
generally does not require collateral and maintains adequate reserves for
potential credit losses.
ADVERTISING EXPENSES
Advertising expenditures are charged to operations as incurred and were not
material for any of the periods presented.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred until technological
feasibility has been established. To date, the Company's service offerings have
been available for general release concurrent with the establishment of
technological feasibility and, accordingly, no development costs have been
capitalized.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements and is effective for fiscal years beginning after December
15, 1997. The Company adopted SFAS 130 in the year ended December 31, 1998. The
Company had no items of other comprehensive income to report in any of the
periods presented.
SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS
F-9
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
131"). SFAS 131 changes the way companies report selected segment information in
annual financial statements and requires companies to report selected segment
information in interim financial reports to stockholders. The Company adopted
SFAS 131 in the year ended December 1998. The Company operates solely in one
segment, providing a global network for Internet service providers and
telecommunications companies and, therefore, there is no impact to the Company's
consolidated financial statements from the adoption of SFAS 131.
The following is a summary of revenue and long-lived assets by geographical area
for the periods presented (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue by external customers:
United States............................... $ 12 $ 407 $ 640 $ 584 $1,802
South East Asia............................. 309 415 623 352 1,280
Japan....................................... 39 151 454 265 894
Europe...................................... -- 193 282 244 534
China....................................... 39 223 212 119 359
Rest of World............................... 4 145 338 149 568
---- ------ ------ ------ ------
$403 $1,534 $2,549 $1,713 $5,437
==== ====== ====== ====== ======
Long-lived assets:
United States............................... $255 $ 705 $1,954 $1,614 $3,015
Rest of World............................... -- 73 101 86 99
---- ------ ------ ------ ------
$255 $ 778 $2,055 $1,700 $3,114
==== ====== ====== ====== ======
</TABLE>
Revenue by external customer is based on the customer's billing locations.
Long-lived assets are those assets used in each geographic location. For the
nine-month period ended September 30, 1999, one customer accounted for 10% of
consolidated revenues. No single customer accounted for 10% of consolidated
revenues for the year ended December 31, 1998. For the year ended December 31,
1997, one customer accounted for 22% of consolidated revenues. For the year
ended December 31, 1996, another customer accounted for 12% of consolidated
revenues.
STOCK-BASED COMPENSATION
The Company has elected to account for employee stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB Opinion No. 25"), using an intrinsic value
approach to measure compensation expense, if any. Appropriate disclosures using
a fair-value based method, as provided by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), are
also reflected in the accompanying notes to the consolidated financial
statements. Options issued to non-employees are accounted for in accordance with
SFAS 123 using a fair value approach.
NET LOSS PER SHARE
Basic net loss per share and diluted net loss per share are presented in
conformity with the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") for
all periods presented.
F-10
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In accordance with SFAS 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock outstanding
during the period. Potentially dilutive securities have been excluded from the
computation of basic and diluted net loss per share as their effect is
antidilutive.
UNAUDITED PRO FORMA PRESENTATIONS
As more fully discussed in Note 7, all preferred stock will automatically be
converted into shares of common stock in the event of the Company's undertaking
an initial public offering. The Company intends to obtain from the preferred
stockholders waivers or consents sufficient to ensure the automatic conversion
of all preferred stock to common stock upon the Company's initial public
offering. The unaudited pro forma stockholders' equity included on the balance
sheet reflects the conversion of the preferred stock into 10,673,854 shares of
common stock as if the conversion had occurred on September 30, 1999.
Unaudited basic and diluted pro forma net loss per share, as presented in the
consolidated statements of operations, has been computed using the weighted
average number of common stock outstanding, adjusted to include the pro forma
effects of the conversion of the preferred stock to common stock as if such
conversion had occurred on January 1, 1998 for the year ended December 31, 1998
and on January 1, 1999 for the nine-month period ended September 30, 1999, or at
the date of original issuance, if later.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance regarding accounting for computer software developed or
obtained for internal use, including the requirement to capitalize specified
costs and amortize such costs. The Company does not expect the adoption of this
standard to have a significant impact on the Company's results of operations,
financial position or cash flows.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5, effective for fiscal years
beginning after December 15, 1998, provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. Since the Company
has expensed these costs as incurred, the adoption of this standard had no
impact on the Company's results of operations, financial position, or cash
flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities" ("SFAS 133"), which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as "derivatives") and for hedging
activities. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. As the Company does not currently engage in
derivatives or hedging transactions, there would be no current impact to the
Company's results of operations, financial position, or cash flows upon the
adoption of SFAS 133.
F-11
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
3. PROPERTY AND EQUIPMENT
Property and equipment comprised the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
Computer hardware and software........................ $ 749 $ 2,515 $ 4,197
Office furniture and equipment........................ 363 834 869
Leased equipment...................................... -- -- 502
Leasehold improvements................................ -- 46 68
------ ------- -------
1,112 3,395 5,636
Less accumulated depreciation and amortization........ (334) (1,340) (2,522)
------ ------- -------
$ 778 $ 2,055 $ 3,114
====== ======= =======
</TABLE>
4. DEBT
BRIDGE LOAN
On November 5, 1998, the Company entered into an agreement with a bank for a
short-term loan of up to $1.5 million with a maturity date of December 31, 1998
(the "Bridge Loan"). On December 31, 1998, this agreement was extended to the
earlier of March 31, 1999 or the sale of preferred stock equal to or greater
than the loan amount. The maximum amount available during the renewal period was
$1 million. The interest rate during the initial period was 0.50 percentage
points above the lender's prime rate and the interest rate changed to 1.25
percentage points above the lender's prime rate during the renewal period.
Substantially all of the Company's assets were pledged as collateral for the
Bridge Loan, other than assets held under permitted liens, which included
purchase money liens on equipment incurred for financing of the equipment.
At December 31, 1998, $1.5 million was outstanding under this facility. The
lenders' prime rate at December 31, 1998 was 7.75%. Prior to March 20, 1999 the
outstanding amount was repaid.
CONVERTIBLE PROMISSORY NOTES
On September 1, 1998, certain stockholders of the Company advanced loans to the
Company totaling $2.7 million in exchange for convertible promissory notes, (the
1998 Bridge Financing). The loans bore interest at 1% above the Bank of America
reference rate and were convertible into shares of Series D preferred stock at a
conversion price of $4.00 per share at the earlier of the initial closing of the
first preferred stock financing following September 1, 1998 and January 31,
1999. The warrants issued in connection with the promissory notes incorporated
antidilution protection.
At December 31, 1998, $2.7 million was outstanding under these notes. On
January 31, 1999, $2.7 million in principal and approximately $101,000 in
accrued interest were converted into 250,010 shares of Series D preferred stock.
F-12
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
4. DEBT (CONTINUED)
During the period from January through March 1999, certain stockholders of the
Company and additional third parties advanced loans to the Company totaling
$12.75 million in exchange for convertible promissory notes (the "1999 Bridge
Financing"). The loans bore interest at 1% above the Bank of America reference
rate and, together with interest thereon of approximately $175,000, were
converted into 1,846,468 shares of Series D preferred stock at a conversion
price of $7.00 per share in April 1999.
5. COMMITMENTS AND CONTINGENCIES
GRIC leases all of its facilities under operating leases that expire at various
dates through 2003. The Company also leases certain equipment under capital
lease arrangements and equipment promissory notes. The future minimum operating
lease and capital lease commitments (including equipment promissory notes) were
as follows at September 30, 1999 (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- --------
<S> <C> <C>
1999........................................................ $ 197 $ 178
2000........................................................ 814 685
2001........................................................ 839 686
2002........................................................ 893 374
2003........................................................ 150 --
------ ------
$2,893 1,923
======
Less amounts representing interest.......................... 330
------
Present value of future lease payments...................... 1,593
Less current portion........................................ 513
------
Long-term portion........................................... $1,080
======
</TABLE>
Rent expense charged to operations totaled approximately $32,000, $263,000,
$688,000 and $602,000 for the years ended December 31, 1996, 1997 and 1998, and
the nine months ended September 30, 1999, respectively. The cost and accumulated
depreciation of assets under capital lease was $502,000 and $29,700 respectively
at September 30, 1999. In addition, the Company has collateralized equipment
purchased for $1.3 million under the equipment promissory notes.
During the year ended December 31, 1998, the Company recorded a charge of $1.5
million related to a commitment to purchase licenses of certain customized
software as the Company does not anticipate the utilization of the required
volume of purchases. In October 1999, the Company settled with the third party
for $600,000 and recorded the adjustment of $925,000 in the quarter ended
September 30, 1999.
LEGAL MATTERS
The Company is involved in certain claims and legal actions arising in the
normal course of business. Management does not expect that the outcome of these
cases will have a material effect on the Company's financial position or results
of operations.
F-13
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
6. INCOME TAXES
The provision for income taxes attributable to continuing operations consists of
foreign income and withholding taxes of approximately $59,000, $32,000 and
$38,000 for the years ended December 31, 1997 and 1998, and the nine-month
period ended September 30, 1999, respectively.
The difference between the provision for income taxes and the amount computed by
applying the federal statutory income tax rate (35%) to income before taxes is
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
------------------- ------------
1997 1998 1999
-------- -------- ------------
<S> <C> <C> <C>
Tax at federal statutory rate......................... $(2,844) $(6,255) $(5,337)
Unutilized net operating losses....................... 2,844 6,255 5,337
Foreign tax........................................... 59 32 38
------- ------- -------
Total................................................. $ 59 $ 32 $ 38
======= ======= =======
</TABLE>
Significant components of the Company's deferred tax assets are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30
------------------- ------------
1997 1998 1999
-------- -------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 2,682 $ 8,912 $ 12,621
Tax credit carryforwards........................... 257 400 600
Accruals and reserves not currently deductible..... 203 1,210 1,854
------- -------- --------
Total deferred tax assets............................ 3,142 10,522 15,075
Valuation allowance.................................. (3,142) (10,522) (15,075)
------- -------- --------
Net deferred tax assets.............................. $ -- $ -- $ --
======= ======== ========
</TABLE>
SFAS 109 provides for the recognition of deferred tax assets if realization of
such assets is more likely than not. Based upon the weight of available
evidence, which includes the Company's historical operating performance and the
reported cumulative net losses in all prior years, the Company has provided a
full valuation allowance against its net deferred tax assets.
The valuation allowance increased by approximately $1.7 million, $7.4 million
and $4.6 million during the years ended December 31, 1997 and 1998, and the
nine-month period ended September 30, 1999, respectively.
As of September 30, 1999, the Company had net operating loss carryforwards for
federal and state tax purposes of approximately $33,100,000 and $17,500,000,
respectively. The Company also had federal and state research and development
tax credit carryforwards of approximately $400,000 and $380,000, respectively.
The federal and state net operating loss carryforwards and tax credit
carryforwards will expire at various dates beginning in 2002 through 2019, if
not utilized.
F-14
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
6. INCOME TAXES
Utilization of the net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code and similar state provisions.
The annual limitation may result in the expiration of the net operating loss and
tax credit carryforwards before utilization.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
The Company has convertible preferred stock that consists of (i) Series A, B and
C redeemable convertible preferred stock and (ii) Series D convertible preferred
stock, collectively referred to as "preferred stock."
REDEEMABLE CONVERTIBLE PREFERRED STOCK
Redeemable convertible preferred stock at December 31, 1997 and 1998, and
September 30, 1999 was as follows:
<TABLE>
<CAPTION>
SHARES ISSUED AND OUTSTANDING
---------------------------------------
PER SHARE DECEMBER 31,
LIQUIDATION AUTHORIZED ----------------------- SEPTEMBER 30,
SERIES PREFERENCE SHARES 1997 1998 1999
--------------------- ----------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
A.......... $0.56 1,214,285 1,214,282 1,214,282 1,214,282
B.......... $1.40 2,310,715 2,310,705 2,310,705 2,310,705
C.......... $2.80 2,500,000 1,688,122 1,688,122 1,688,122
---------- ---------- ---------- ----------
6,025,000 5,213,109 5,213,109 5,213,109
========== ========== ========== ==========
</TABLE>
At any time after August 16, 2001, the holders of a majority of the then
outstanding shares of Series C convertible preferred stock may request the
redemption of all of the outstanding shares of Series C convertible preferred
stock. If so requested, the Company must redeem those shares at a price per
share of $2.80 plus any declared and unpaid dividends for Series C convertible
preferred stock.
At any time after the Series C convertible preferred stockholders have requested
redemption, the holders of a majority of the then outstanding Series A and B
convertible preferred stock may request the redemption of all the outstanding
shares of Series A and B convertible preferred stock. If so requested, the
Company must redeem those shares at a price per share of $0.56 and $1.40 for the
Series A and B Convertible Preferred Stock, respectively, plus any declared and
unpaid dividends for the Series A and B convertible preferred stock,
respectively.
If the Company chooses not to redeem the Series A, B or C convertible preferred
stock when requested by the majority holders of such outstanding shares, the
Series A, B and C convertible preferred stock would begin accruing dividends
equal to 8% of the redemption price per annum.
F-15
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
CONVERTIBLE PREFERRED STOCK
Convertible preferred stock at December 31, 1997 and 1998 and September 30, 1999
was as follows:
<TABLE>
<CAPTION>
SHARES ISSUED AND OUTSTANDING
---------------------------------------
PER SHARE DECEMBER 31,
LIQUIDATION AUTHORIZED ----------------------- SEPTEMBER 30,
SERIES PREFERENCE SHARES 1997 1998 1999
--------------------- ----------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
D.......... $ 16.80 1,190,476 431,523 -- --
D.......... $ 11.20 1,190,476 -- 870,511 --
D.......... $ 7.00 6,250,000 -- -- 5,460,745
</TABLE>
The holders of the preferred stock are entitled to receive noncumulative
dividends, when and if declared by the Board of Directors, out of legally
available funds, in an amount per share of preferred stock equal to 10% per
annum of their respective liquidation values, payable before any dividends may
be paid on common stock. As of September 30, 1999, no dividends had been
declared or paid by the Company.
The holders of the preferred stock have the right to convert their shares into a
like number of shares of common stock, subject to adjustments for future
dilution. The preferred stock automatically converts into common stock, at the
then applicable conversion price, at the earlier of (i) the Company's
undertaking an initial public offering at a price per share of not less than
$14.00 per share (as to the Series A, B, and C convertible preferred stock only)
or not less than $28.00 per share (as to the Series D convertible preferred
stock only) and with aggregate proceeds in excess of $10,000,000 or (ii) the
affirmative vote or written consent of holders of at least two-thirds of the
outstanding shares of all series of preferred stock voting as a single class and
the holders of at least two-thirds of the outstanding shares of Series D
preferred stock voting as a separate class. The Company intends to obtain from
the preferred stockholders waivers or consents sufficient to ensure the
automatic conversion of all preferred stock to common stock upon the Company's
initial public offering. All preferred stockholders are entitled to vote on all
matters in the same manner and with the same effect as if their stock had been
converted into common stock. At December 31, 1998 and September 30, 1999, the
Company had reserved 7,215,476 and 12,275,000 shares of common stock for
issuance upon the conversion of the preferred stock, respectively.
In the event of liquidation, the preferred stockholders are entitled to a per
share liquidation preference distribution plus declared and unpaid dividends, if
any, on each share of preferred stock. The remaining balance of proceeds is to
be paid ratably to common stockholders and preferred stockholders, as if
converted into common stock.
In April 1999, the Board of Directors and stockholders of the Company authorized
the sale and issuance of additional shares of Series D convertible preferred
stock at a price of $7.00 per share. In addition, the Board of Directors and
stockholders of the Company approved the repricing of the Series D convertible
preferred stock sold to investors prior to April 1999 from $11.20 to $7.00, and
the Company entered into agreements with those investors to amend the purchase
price accordingly and issue the requisite additional shares resulting therefrom
(the 1999 Series D Convertible Repricing). The Board of Directors also approved
the repricing of the warrants issued in connection with the 1998 Bridge
Financing from $11.20 per share to $7.00 per share, which in turn results in a
F-16
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
modification of the number of shares that may be purchased upon exercise of the
warrants such that the aggregate number of shares of Series D convertible
preferred stock purchasable increased from 60,268 to 96,427 shares.
Pursuant to an additional Series D convertible preferred stock purchase
agreement, the Company issued and sold a total of 1,821,428 shares of Series D
convertible preferred stock in a series of closings from April 1999 through June
1999. In addition, the Company converted bridge loan principal and interest from
the 1999 Bridge Financing into 1,846,468 shares of Series D convertible
preferred stock and issued 672,328 shares of Series D convertible preferred
stock due to the 1999 Series D convertible Repricing. As of September 30, 1999,
an aggregate total of 5,460,745 shares of Series D convertible preferred stock
had been issued and were outstanding.
PREFERRED STOCK WARRANTS
In connection with the granting of the Bridge Loan, the Company issued a warrant
to purchase 16,071 shares of Series D preferred stock at $11.20 per share. The
warrant was fully exercisable at December 31, 1998, and expires on November 5,
2003. In connection with the original terms of the warrant, the number of shares
of Series D Preferred Stock purchasable upon exercise of the warrants was
increased from 16,071 to 17,724 as a result of the 1999 Series D Convertible
Repricing. The warrant was valued utilizing the Black-Scholes option pricing
model, and resulted in a fair market value of $9.30 per share utilizing a
volatility factor of 1.02, interest rate of 5.18% and expected life of 4 years.
In connection with the extension of the Bridge Loan in December 1998, the
Company issued an additional warrant to purchase up to 7,142 shares of Series D
preferred stock, subject to adjustment, at the price per share at which the
Company closed its Series D preferred stock financing ($7.00). In the first
quarter of 1999, the warrant became exercisable as to 1,785 shares only, based
upon the conditions in the original warrant. The warrant was valued utilizing
the Black-Scholes option pricing model, and resulted in a fair value of $9.30
per share utilizing a volatility of 1.02, interest rate of 5.18% and expected
life of 4 years. The warrant expires on December 31, 2003.
In connection with the equipment promissory notes, the Company issued fully
exercisable warrants for the purchase of 10,000 shares of Series D preferred
stock at $11.20 per share. The warrants expire on the earlier of August 10, 2008
or the fifth anniversary of an initial public offering of the Company's common
stock and were exercisable at December 31, 1998. The Company repriced these
warrants from $11.20 to $7.00 in the third quarter of fiscal 1999. The warrants
were valued utilizing the Black-Scholes option pricing model, and resulted in a
fair value of $8.34 per share utilizing a volatility of 1.02, interest rate of
5.18% and an expected life of 9 years.
In connection with the 1998 Bridge Financing from certain stockholders, the
Company issued fully exercisable warrants for the purchase of 60,267 shares of
the Company's Series D preferred stock at $11.20 per share. These warrants
expire on the earliest of five years from the date of the warrants
(September 1998), the date of a firm commitment for an initial public offering
of Company's common stock, a merger or sale of the Company, or the liquidation
of the Company. In connection with the 1999 Series D convertible repricing, the
number of warrants to purchase Series D convertible preferred stock was
increased from 60,267 to 96,427, and the exercise price per share was adjusted
F-17
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
from $11.20 to $7.00. The additional warrants and change in exercise price was
effective in July 1999. The warrants were valued utilizing the Black-Scholes
option pricing model, and resulted in a fair value of $1.94 per share utilizing
a volatility of 1.02, interest rate of 5.18% and an expected life of
5.43 years.
In connection with the 1999 Bridge Financing, the Company issued fully
exercisable warrants for the purchase of 126,779 shares of Series D preferred
stock at $7.00 per share. These warrants expire on the earliest of five years
from the date of the warrants (between January and March 2004), the date of a
firm commitment for an initial public offering of the Company's common stock,
the merger or sale of the Company, and the liquidation of the Company. The
warrants were valued utilizing the Black-Scholes option pricing model, and
resulted in a fair value of $1.99 per share utilizing a volatility of 1.02,
interest rate of 5.12% and an expected life of 5.57 years.
The Company had recorded approximately $531,000 at December 31, 1998 and an
additional $837,000 at September 30, 1999 to reflect the fair value of the above
warrants, which are being amortized over the lives of the respective underlying
arrangements. Amortization of approximately $408,000 and $925,000 has been
included in the year ended December 31, 1998 and nine-month period ended
September 30, 1999, respectively. The fair value of the warrants was calculated
using the Black-Scholes option pricing model.
As of December 31, 1998 and September 30, 1999 the Company had reserved 93,480
and 252,715 shares of Series D convertible preferred stock for the exercise of
these warrants, respectively.
COMMON STOCK WARRANTS
In connection with entering into a roaming agreement with a certain customer,
the Company issued a warrant for the purchase of 92,857 shares of the Company's
common stock at the lower of the last price at which Series D preferred stock is
issued or $11.20 per share. As a result of the $7.00 per share issuance of
Series D preferred stock in 1999, the warrant was adjusted pursuant to its terms
such that the number of shares exercisable increased to 102,699 effective
May 1999. The warrant, which will expire on the earlier of November 12, 2003 or
the first anniversary of the date on which the roaming agreement with the
customer is terminated, was exercisable at December 31, 1998.
The warrant was valued utilizing the Black-Scholes option pricing model. The
Company was required to reevaluate the warrant fair value for all periods
through September 30, 1999 at which point a final measurement date existed. The
fair value of the warrant at September 30, 1999 was determined to be $184,000
utilizing a volatility of 1.02, interest rate of 5.12% and expected life of
5 years. The fair value of the warrant is being amortized over the life of the
agreement. The Company included an immaterial charge to operations for all
periods presented.
At December 31, 1998 and September 30, 1999, the Company had reserved 92,857 and
102,699 shares of common stock for the exercise of the warrant, respectively.
STOCK OPTION PLANS
On July 17, 1995, the Company adopted the 1995 Stock Option Plan (the 1995
Plan), which provides for the granting of incentive stock options to employees
and directors and nonqualified stock options
F-18
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
to employees, consultants, and directors. Under the 1995 Plan, the Board of
Directors determines the term of each award and the award price. In the case of
incentive stock options, the exercise price may be established at an amount not
less than the fair market value at the date of grant, while nonstatutory stock
options may have exercise prices 85% of the fair market value as of the date of
grant. The exercise price of each option granted to individuals who, at the time
the option is granted, own stock representing more than 10% of the combined
voting power of all stock of the Company, shall be at least 110% of the fair
market value. Options generally vest with respect to 25% of the shares twelve
months after the options' grant date and the remainder ratably over the
following twelve calendar quarters and expire no later than ten years from the
date of grant.
On August 20, 1997, the Company adopted the 1997 Stock Option Plan (the 1997
Plan), which provides for the granting of incentive stock options to employees
and directors and nonqualified stock options to employees, consultants, and
directors. The first grants under the 1997 Plan were made as of November 1997.
Under the 1997 Plan, the Board of Directors determines the term of each award
and the award price. In the case of incentive stock options, the exercise price
may be established at an amount not less than the fair market value at the date
of grant, while nonstatutory stock options may have exercise prices not less
than 85% of the fair market value as of the date of grant. The exercise price of
any option granted to a 10% shareholder will not be less than 110% of the fair
market value of the shares on the date of grant. Options granted under the 1997
Plan for new employees generally vest with respect to 20% of the shares ten
months after the employee's hire date and the remainder vesting ratably over the
following forty months and options generally expire no later than ten years from
the date of grant. As of April 1999, follow-on grants to existing employees
generally vest ratably over fifty months from the date of grant. Prior to
April 1999, follow-on grants to employees vested on the same schedule as grants
made to new employees.
F-19
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
Stock option activity was as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------
WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Outstanding at December 31, 1995............................ 300,353 $0.28
Granted................................................... 342,289 $0.28
Exercised................................................. (4,910) $0.28
Canceled.................................................. (23,725) $0.28
----------
Outstanding at December 31, 1996............................ 614,007 $0.28
Granted................................................... 464,604 $1.65
Exercised................................................. (161,430) $0.34
Canceled.................................................. (229,507) $0.31
----------
Outstanding at December 31, 1997............................ 687,674 $1.20
Granted................................................... 1,383,005 $2.63
Exercised................................................. (28,935) $0.48
Canceled.................................................. (190,575) $1.88
----------
Balance at December 31, 1998................................ 1,851,169 $2.21
Granted................................................... 1,492,376 $5.46
Exercised................................................. (227,400) $1.43
Canceled.................................................. (1,064,286) $2.88
----------
Balance at September 30, 1999............................... 2,051,859 $4.28
==========
</TABLE>
The following tables summarize information about options outstanding at
September 30, 1999:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
---------------------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
EXERCISE PRICE SHARES LIFE PRICE SHARES PRICE
--------------------- --------- ----------- -------- --------- --------
(YEARS)
<S> <C> <C> <C> <C> <C>
$0.28............... 177,952 6.95 $ 0.28 132,619 $ 0.28
$0.70............... 5,824 7.74 $ 0.70 3,012 $ 0.70
$1.68--$2.24........ 246,030 8.48 $ 2.21 101,846 $ 2.20
$2.80--$8.40........ 1,566,524 9.52 $ 4.80 151,641 $ 3.43
$12.60.............. 55,529 9.90 $12.60 97 $12.60
</TABLE>
In connection with the grant of share options to employees through
September 30, 1999, the Company recorded deferred compensation of $1,779,000 for
the aggregate differences between the exercise prices of options at their dates
of grant and the deemed fair value for accounting purposes of the common shares
subject to these options. Such amount is included as a reduction of
stockholders' equity and is being amortized on a straight-line basis over the
option vesting periods, which are
F-20
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
generally four years. The compensation expense of $193,000 through
September 30, 1999 relates to options awarded to employees in all operating
expense categories. This amount has not been separately allocated to these
categories.
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
Shares of common stock of the Company reserved for future issuance at
September 30, 1999 were as follows:
<TABLE>
<S> <C>
Warrants.................................................... 355,414
Stock options............................................... 2,791,609
Series A redeemable convertible preferred stock............. 1,214,285
Series B redeemable convertible preferred stock............. 2,310,715
Series C redeemable convertible preferred stock............. 2,500,000
Series D convertible preferred stock........................ 6,250,000
----------
15,422,023
==========
</TABLE>
PRO FORMA INFORMATION
The Company has elected to follow APB Opinion No. 25 in accounting for its
employee stock options because, as discussed below, the alternative fair value
accounting provided for under SFAS 123 requires the use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB Opinion No. 25, because the exercise price of the Company's employee stock
options equals the fair market value of the underlying stock on the date of
grant, no compensation expense is recognized in the Company's financial
statements.
Pro forma information regarding net income and earnings per share is required by
SFAS 123. The fair value of options granted in fiscal years 1996, 1997 and 1998
and the nine months ended September 30, 1999 reported below has been estimated
at the date of grant using the minimum value method assuming no expected
dividends and the following weighted average assumptions:
<TABLE>
<CAPTION>
EMPLOYEE STOCK OPTIONS
-----------------------------------------------------
DECEMBER 31,
------------------------------------ SEPTEMBER 30,
1996 1997 1998 1999
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Expected life (years)........................ 4-5 4-5 4-5 4-5
Risk-free interest rate (percentage)......... 7-8 7-8 7-8 5-6
</TABLE>
Existing option valuation models were developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the option. Because the
Company's options have characteristics significantly different from those of
traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in the opinion of management, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
F-21
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 IS UNAUDITED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
The weighted average estimated fair values of employee stock options for fiscal
years 1996, 1997 and 1998 and the nine months ended September 30, 1999 were
$0.08, $0.50, $0.76 and $1.20 per share, respectively.
The effect of applying the minimum value option valuation model to the Company's
stock option grants did not result in pro forma net income materially different
from historical amounts reported. Therefore, this pro forma information is not
separately presented herein.
8. SUBSEQUENT EVENTS
REINCORPORATION AND PUBLIC OFFERING
In September 1999, the Board of Directors approved (i) the Company's
reincorporation in the state of Delaware and an associated exchange of shares of
common stock and preferred stock in the California predecessor for shares of
common stock and preferred stock in the Delaware corporation that has the effect
of a 1-for-2.8 reverse stock split, (ii) the designation of common stock and
preferred stock with $0.001 par value per share and (iii) the filing of a
Registration Statement with the Securities and Exchange Commission permitting
the Company to sell up to $80,000,000 of its common stock to the public. The
accompanying consolidated financial statements have been retroactively restated
to give effect to the reincorporation and reverse stock split.
STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLAN
In September 1999, the Board of Directors approved, effective upon the date of
the Company's initial public offering of its common stock, (i) the termination
of the 1995 Plan and the 1997 Plan such that no new options may be granted under
these plans, (ii) the adoption of the 1999 Equity Incentive Plan (the "Equity
Plan") and the reservation of 4,500,000 shares for issuance under the Equity
Plan and (iii) the adoption of the 1999 Employee Stock Purchase Plan (the
"Purchase Plan") and the reservation of 500,000 shares of the Company's common
stock for issuance under the Purchase Plan.
F-22
<PAGE>
- --------------------------------------------------------------------------------
[LOGO]
SHARES
COMMON STOCK
-------------------
PROSPECTUS
-------------------
, 1999
CIBC WORLD MARKETS
U.S. BANCORP PIPER JAFFRAY
VOLPE BROWN WHELAN & COMPANY
- ------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table lists the costs and expenses to be paid by the Registrant in
connection with the sale of the shares of common stock being registered under
this registration statement. All amounts are estimates except for the Securities
and Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 17,648
NASD filing fee............................................. 6,848
Nasdaq National Market filing fee........................... 95,000
Legal fees and expenses..................................... 550,000
Accounting fees and expenses................................ 700,000
Printing and engraving expenses............................. 250,000
Road show expenses.......................................... 130,000
Blue sky fees and expenses.................................. 10,000
Transfer agent and registrar fees and expenses.............. 5,000
Miscellaneous............................................... 35,504
----------
Total................................................. $1,800,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to award,
or a corporation's board of directors to grant, indemnity to directors and
officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities, including reimbursement for expenses
incurred, arising under the Securities Act of 1933, as amended (the "Securities
Act").
As permitted by the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except for liability:
- for any breach of the director's duty of loyalty to the Registrant or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law (regarding
unlawful dividends and stock purchases); or
- for any transaction from which the director derived an improper personal
benefit.
As permitted by the Delaware General Corporation Law, the Registrant's Bylaws
also provide that:
- the Registrant is required to indemnify its directors and officers to the
fullest extent permitted by the Delaware General Corporation Law, subject to
limited exceptions;
- the Registrant may indemnify its agents as set forth in the Delaware General
Corporation Law, unless otherwise required by law, our certificate of
incorporation or agreements;
- the Registrant is required to advance expenses, as incurred, to its
directors and officers in connection with a legal proceeding to the fullest
extent permitted by the Delaware General Corporation Law, subject to limited
exceptions;
- the rights conferred in the Bylaws are not exclusive; and
- the Registrant may not retroactively amend the Bylaws provisions relating to
indemnity.
II-1
<PAGE>
The Registrant intends to enter into Indemnification Agreements with each of its
current directors and officers to give such directors and officers additional
contractual assurances regarding the scope of the indemnification set forth in
the Registrant's Certificate of Incorporation and to provide additional
procedural protections. At present, there is no pending litigation or proceeding
involving a director, officer or employee of the Registrant regarding which
indemnification is sought, nor is the Registrant aware of any threatened
litigation that may result in claims for indemnification.
Reference is also made to Section 7 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provision in
the Registrant's Certificate of Incorporation, Bylaws and the Indemnity
Agreements entered into between the Registrant and each of its directors and
officers may be sufficiently broad to permit indemnification of the Registrant's
directors and officers for liabilities arising under the Securities Act.
The Registrant maintains directors' and officers' liability insurance and
expects to obtain a rider to such coverage for securities matters.
See also "Undertakings" in Item 17.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT NUMBER
- ---------------- --------
<S> <C>
Underwriting Agreement...................................... 1.01
Registrant's Bylaws......................................... 3.02
Registrant's Second Amended and Restated Certificate of
Incorporation............................................. 3.04
Fourth Amended and Restated Registration Rights Agreement
dated April 16, 1999...................................... 4.02
Form of Indemnification Agreement........................... 10.01
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant sold the following securities in the past three years.
1. As of September 30, 1999, the Registrant has issued 422,675 shares of our
common stock for an aggregate purchase price of $394,450 to employees,
directors and consultants pursuant to option exercises under its stock
option plans.
2. In July 1997, the Registrant sold 25,000 shares of common stock to Stanley
J. Meresman for an aggregate purchase price of $17,500.
3. Between December 1997 and June 1999, we issued 5,460,745 shares of Series D
Preferred Stock to a group of investors for an aggregate purchase price of
$38,225,398.
4. In August 1998, the Registrant issued warrants to purchase an aggregate of
10,000 shares of Series D Preferred Stock to Phoenix Leasing Corporation in
connection with an equipment financing.
5. In September 1998, the Registrant issued warrants to purchase an aggregate
of 60,267 shares of Series D Preferred Stock to a group of investors in
connection with a bridge loan financing. The number of shares that may be
acquired upon exercise of this warrant is currently 96,427.
6. In September 1998, in connection with a bridge financing, the Registrant
issued convertible promissory notes aggregating $2,700,000 to a group of
investors. In January 1999, the convertible notes and all related interest
were converted into 400,017 shares of Series D Preferred Stock, which are
included in the aggregate number of shares referred to in paragraph 3 above.
II-2
<PAGE>
7. In November 1998, the Registrant issued a warrant to purchase 16,071 shares
of Series D Preferred Stock to Silicon Valley Bank. The number of shares
that may be acquired upon exercise of this warrant was later adjusted to
17,724.
8. In November 1998, the Registrant issued a warrant to purchase 92,857 shares
of common stock to America Online, Inc. in connection with a strategic
alliance. The number of shares which may be acquired upon exercise of this
warrant was later adjusted to 102,699.
9. In December 1998, the Registrant issued a warrant to purchase 7,142 shares
of Series D Preferred Stock to Silicon Valley Bank. The number of shares
that may be acquired upon exercise of this warrant was later adjusted to
1,785.
10. Between January 1999 and March 1999 we issued warrants to purchase an
aggregate of 126,779 shares of Series D Preferred Stock to a group of
investors in connection with a bridge loan financing.
11. Between January 1999 and March 1999, in connection with a bridge loan
financing, we issued convertible promissory notes aggregating $12,750,000 to
a group of investors. In April 1999, the convertible notes and all related
interest were converted into 1,846,468 shares of Series D Preferred Stock,
which are included in the aggregate number of shares referred to in
paragraph 3 above.
12. In November 1999, we issued 600,240 shares of Series E Preferred Stock to
Nokia Holdings, Inc. for an aggregate purchase price of $6.0 million.
All sales of common stock made pursuant to the exercise of stock options were
made in reliance on Rule 701 under the Securities Act or on Section 4(2) of the
Securities Act.
All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were made
without general solicitation or advertising. Each purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment and represented to the Registrant that the shares were being acquired
for investment.
ITEM 16. EXHIBITS.
(a) The following exhibits are filed with this registration statement:
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER TITLE
- --------------------- -----
<C> <S>
1.01 Form of Underwriting Agreement.***
3.01 The Registrant's Certificate of Incorporation.*
3.02 The Registrant's First Amended and Restated Bylaws.*
3.03 The Registrant's First Amended and Restated Certificate of
Incorporation.**
3.04 The Registrant's Second Amended and Restated Certificate of
Incorporation.**
4.01 Form of specimen certificate for the Registrant's common
stock.**
4.02 Fifth Amended and Restated Registration Rights Agreement,
dated November 12, 1999, among Registrant and the security
holders listed in the agreement.*
5.01 Opinion of Fenwick & West LLP regarding the legality of the
shares of common stock being registered.*
10.01 Form of Indemnification Agreement between the Registrant and
each of its directors and executive officers.*
10.02 Employee Agreement effective March 1, 1994 between Aimnet
Corporation and Dr. Hong Chen.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER TITLE
- --------------------- -----
<C> <S>
10.03 Employee Agreement effective March 1, 1994 between Aimnet
Corporation and Lynn Y. Liu.*
10.04 Offer letter dated August 21, 1996 by the Registrant to
Christophe U. Culine.*
10.05 Offer letter dated June 8, 1998 by the Registrant to David
L. Teichmann.*
10.06 Offer letter dated October 15, 1998 by the Registrant to
Phillip M. Sakakihara.*
10.07 Offer letter dated January 15, 1999 by the Registrant to
Joseph M. Zaelit.*
10.08 Offer letter dated May 11, 1999 by the Registrant to Barron
B. Cox.*
10.09 Offer letter dated July 28, 1999 by the Registrant to
Kristin L. Steinmetz.*
10.10 Offer letter dated July 22, 1999 by the Registrant to Roger
L. Peirce.*
10.11 Aimnet Corporation 1995 Stock Option Plan.*
10.12 GRIC Communications, Inc. (formerly Aimquest Corporation)
1997 Stock Option Plan.*
10.13 The Registrant's 1999 Equity Incentive Plan.*
10.14 The Registrant's 1999 Employee Stock Purchase Plan.*
10.15 Restricted Stock Purchase dated July 1997 between Aimquest
Corporation and Stanley J. Meresman.*
10.16 Warrant to purchase common stock of the Registrant issued to
America Online, Inc. dated as of November 12, 1998.*
10.17 Warrant to purchase Series D Preferred Stock of the
Registrant issued to Silicon Valley Bank dated as of
December 31, 1998.*
10.18 Warrant to purchase Series D Preferred Stock of the
Registrant issued to Silicon Valley Bank dated as of
November 5, 1998.*
10.19 Warrant to purchase Series D Preferred Stock of the
Registrant issued to Phoenix Leasing Incorporated dated as
of August 10, 1998.*
10.20 Warrant to purchase Series D Preferred Stock of the
Registrant issued to Robert A. Kingsbook dated as of
August 10, 1998.*
10.21 Loan and Security Agreement dated November 5, 1998 between
the Registrant and Silicon Valley Bank, together with
Intellectual Property Agreement dated November 5, 1998.*
10.22 Senior Loan and Security Agreement dated August 10, 1998
between the Registrant and Phoenix Leasing Incorporated,
together with a form of Senior Secured Promissory Note.*
10.23 Lease dated January 6, 1998 among the Registrant,
John Arrillaga Survivor's Trust and Richard T. Peery
Separate Property Trust.*
10.24 Agreement dated August 3, 1999 between the Registrant and
Singapore Telecommunications Ltd.*
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).*
23.02 Consent of Independent Auditors.
24.01 Power of attorney.*
27.01 Financial Data Schedule.
</TABLE>
- ---------------------
* Previously filed
** Included with this Amendment No. 2 to Registration Statement
*** To be filed by amendment
(b) The following financial statement is filed with this registration statement:
Schedule II--Valuation and Qualifying Accounts
II-4
<PAGE>
Other financial statement schedules are omitted because the information called
for is not required or is shown either in the financial statements or the notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described under Item 14 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Milpitas, State of California, on the 22nd day of November, 1999.
<TABLE>
<S> <C> <C>
GRIC COMMUNICATIONS, INC.
By: * DR. HONG CHEN
----------------------------------------
Dr. Hong Chen
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to Registration Statement has been signed on November 22, 1999
by the following persons in the capacities:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
PRINCIPAL EXECUTIVE OFFICER:
* DR. HONG CHEN
------------------------------------------- President, Chief Executive Officer and
Dr. Hong Chen Director
PRINCIPAL FINANCIAL OFFICER:
*JOSEPH M. ZAELIT
------------------------------------------- Senior Vice President, Finance and
Joseph M. Zaelit Administration and Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
* KIM S. SILVERMAN
------------------------------------------- Corporate Controller
Kim S. Silverman
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
ADDITIONAL DIRECTORS:
<C> <S>
* ROGER L. PEIRCE Chairman
-------------------------------------------
Roger L. Peirce
* LYNN Y. LIU Director
-------------------------------------------
Lynn Y. Liu
* DR. TA-LIN HSU Director
-------------------------------------------
Dr. Ta-Lin Hsu
* DR. YEN-SON (PAUL) HUANG Director
-------------------------------------------
Dr. Yen-Son (Paul) Huang
* KHENG NAM LEE Director
-------------------------------------------
Kheng Nam Lee
* JOZEF LERNOUT Director
-------------------------------------------
Jozef Lernout
* STANLEY J. MERESMAN Director
-------------------------------------------
Stanley J. Meresman
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ DAVID L. TEICHMANN
--------------------------------------
David L. Teichmann,
AS ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNT
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
DESCRIPTION BEGINNING OF PERIOD EXPENSE DEDUCTIONS(1) END OF PERIOD
- ----------- ------------------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Nine months ended September 30,
1999........................... $384,000 $431,000 $ 187,000 $628,000
Year ended December 31, 1998..... 214,000 406,000 236,000 384,000
Year ended December 31, 1997..... 35,000 220,000 41,000 214,000
Year ended December 31, 1996..... -- 35,000 -- 35,000
</TABLE>
(1) Uncollectible accounts written off net of recoveries.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER TITLE
- --------------------- -----
<C> <S>
3.03 The Registrant's First Amended and Restated Certificate of
Incorporation.
3.04 The Registrant's Second Amended and Restated Certificate of
Incorporation.
4.02 Fifth Amended and Restated Registration Rights Agreement,
dated November 22, 1999, among Registrant and the security
holders listed in the agreement.
23.02 Consent of Independent Auditors.
27.01 Financial Data Schedule.
</TABLE>
<PAGE>
EXHIBIT 3.03
FIRST AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GRIC COMMUNICATIONS, INC.
(Originally incorporated on April 15, 1998)
GRIC Communications, Inc., a Delaware corporation, hereby certifies
that the First Amended and Restated Certificate of Incorporation of the
corporation attached hereto as EXHIBIT "A", which is incorporated herein by
this reference, has been duly adopted by the corporation's Board of Directors
and stockholders in accordance with Sections 242 and 245 of the Delaware
General Corporation Law, with the approval of the corporation's stockholders
having been given by written consent without a meeting in accordance with
Section 228 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, said corporation has caused this First Amended and
Restated Certificate of Incorporation to be signed by its by duly authorized
officer.
Dated: November __, 1999 GRIC COMMUNICATIONS, INC.
__________________________________
Dr. Hong Chen,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
<PAGE>
EXHIBIT "A"
FIRST AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GRIC COMMUNICATIONS, INC.
ARTICLE I
The name of the corporation is GRIC Communications, Inc.
ARTICLE II
The address of the registered office of the corporation in the State
of Delaware is 15 East North Street, City of Dover, County of Kent. The name
of its registered agent at that address is Incorporating Services, Ltd.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE IV
(A) CLASSES OF STOCK. The corporation is authorized to issue two
classes of shares to be designated respectively Common Stock ("COMMON STOCK")
and Preferred Stock ("PREFERRED STOCK"). The total number of shares of
Common Stock the corporation shall have authority to issue is 21,428,571 and
the total number of shares of Preferred Stock the corporation shall have
authority to issue is 12,875,241.
(B) SERIES OF PREFERRED STOCK. The Preferred Stock authorized in
Article III, Section A above shall be divided into five series as follows:
1,214,286 shares are hereby designated "SERIES A PREFERRED STOCK;" 2,310,715
shares are hereby designated "SERIES B PREFERRED STOCK;" 2,500,000 shares are
hereby designated "SERIES C PREFERRED STOCK;" 6,250,000 shares are hereby
designated "SERIES D PREFERRED STOCK." and 600,240 are hereby designated
"SERIES E PREFERRED STOCK." The rights, preferences, privileges and
restrictions granted to and imposed upon the respective classes and series of
the corporation's capital stock are set forth under Article IV, Section C.
(C) RIGHTS, PREFERENCES AND PRIVILEGES OF CAPITAL STOCK. The
rights, preferences, privileges and restrictions granted to or imposed on the
respective classes of the shares of capital stock or the holders thereof are
as follows:
-1-
<PAGE>
1. DIVIDENDS. The holders of the outstanding
Preferred Stock shall be entitled to receive in any fiscal year, when
and as declared by the Board of Directors, out of any assets legally
available therefor, dividends at the rate of $0.056 per share of
Series A Preferred Stock, $0.14 per share of Series B Preferred Stock,
$0.28 per share of Series C Preferred Stock, $0.70 per share of Series
D Preferred Stock and $1.00 per share of Series E Preferred Stock, per
annum before any dividend is paid on Common Stock. Such dividends may
be payable quarterly or otherwise as the Board of Directors may from
time to time determine. No dividends or other distributions (other
than those payable solely in Common Stock) shall be declared or paid
upon Common Stock in any fiscal year of the corporation unless
dividends shall have been paid to or declared and set apart upon all
shares of Preferred Stock at such annual rate for such fiscal year of
the corporation. To the extent that dividends or other distributions
are paid on the Common Stock (other than those payable solely in
Common Stock), the holders of Preferred Stock shall be entitled to
dividends at least as large per share (based on the number of shares
of Common Stock into which the Preferred Stock is convertible) as
those declared or paid with respect to the Common Stock. Such
dividends shall not be cumulative and no right to such dividends shall
accrue to holders of Preferred Stock unless declared by the Board of
Directors.
2. LIQUIDATION PREFERENCE. In the event of any
liquidation, dissolution, or winding up of the corporation, either
voluntary or involuntary, distributions to the stockholders of the
corporation shall be made in the following manner:
(a) The holders of the Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of
any of the assets or surplus funds of the corporation to the
holders of the Common Stock by reason of their ownership of such
stock, the sum of $0.56 per share of Series A Preferred Stock,
$1.40 per share of Series B Preferred Stock, $2.80 per share of
Series C Preferred Stock, $7.00 per share of Series D Preferred
Stock and $10.00 per share of Series E Preferred Stock (adjusted
for any subdivisions, combinations, consolidations or stock
distributions or stock dividends with respect to such shares
effected after the date this First Amended and Restated Certificate
of Incorporation was filed with the Secretary of State
("RECAPITALIZATION")) plus declared and unpaid dividends for each
share of Preferred Stock then held by them. If upon the occurrence
of such event, the assets and funds thus distributed among the
holders of the Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts,
then the entire assets and funds of the corporation legally
available for distribution shall be distributed among the holders
of the Preferred Stock ratably in proportion to the full aforesaid
preferential amounts to which each such holder is entitled. After
payment has been made to the holders of the Preferred Stock of the
full amounts to which they shall be entitled as aforesaid, the
holders of the Preferred Stock and the Common Stock shall be
entitled to share ratably in the remaining assets and funds of the
corporation, based on the number of shares of Common Stock then
held by them (treating the Preferred Stock as if it had been
converted into Common Stock at the then applicable Conversion
Prices).
(b) For purposes of this Section 2, the occurrence of
any of the following shall be treated as a liquidation, dissolution
or winding up of the corporation:
-2-
<PAGE>
(i) a merger or consolidation of the corporation with or into any
other corporation or corporations if the stockholders of the
corporation immediately before such transaction hold less than
fifty percent (50%) of the voting power of the surviving
corporation immediately after such transaction, (ii) a sale of all
or substantially all of the assets of the corporation, or (iii) any
other transaction or series of related transactions pursuant to
which the outstanding stock of the corporation representing in
excess of fifty percent (50%) of the voting power of the
corporation immediately prior to such transaction is transferred,
sold or exchanged. Any such transaction or series of transactions
described in this Section 2(b) shall hereafter be referred to as a
"Corporate Sale Transaction".
3. VOTING RIGHTS.
(a) GENERALLY. Except as otherwise required by law
or provided in this First Amended and Restated Certificate of
Incorporation, the holder of each issued and outstanding share of
Common Stock shall have one vote and the holder of each issued and
outstanding share of Preferred Stock shall be entitled to the
number of votes equal to the number of shares of Common Stock into
which the Preferred Stock could be converted at the record date for
determination of the stockholders entitled to vote on such matters,
or, if no such record date is established, at the date such vote is
taken or any written consent of stockholders is solicited, such
votes to be counted together with all other shares of stock of the
Company having general voting power and not separately as a class
except as provided herein. Holders of Common Stock and Preferred
Stock shall be entitled to notice of any stockholders' meeting in
accordance with the Bylaws of the corporation. Fractional votes by
the holder of Preferred Stock (after aggregating all shares into
which shares of Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with
one-half being rounded upward).
(b) CLASS VOTE FOR DIRECTOR. The holders of Series A
Preferred Stock shall be entitled, voting as a separate class, to
elect one of the authorized directors. The holders of Series B
Preferred Stock shall be entitled, voting as a separate class, to
elect two of the authorized directors. The holders of Common Stock
shall be entitled, voting as a separate class, to elect one of the
authorized directors. The holders of the Common Stock and Preferred
Stock shall be entitled, voting as a single class, to elect the
remaining authorized director and any additional directors that the
stockholders may authorize in accordance with this Section 3(b). In
the case of any vacancy in the office of director elected by the
holders voting as a class, a successor shall be (i) appointed by
the remaining director elected by such class, or (ii) elected to
hold office for the unexpired term of such director by the
affirmative vote of the holders of a majority of the shares of the
class given at a special meeting of such stockholders duly called
for that purpose. Any director who has been elected by the holders
of the class may be removed during the term of office, either for
or without cause, by and only by the affirmative vote of a majority
of the shares of such class represented at a special meeting of
such stockholders duly called for that purpose, and any such
vacancy thereby created may be filled only by the holders of the
class represented at such meeting, or at a subsequent meeting or by
court order if the stockholders fail to act.
-3-
<PAGE>
(c) SUPERMAJORITY VOTE REQUIRED FOR CERTAIN ACTIONS
AFFECTING THE SERIES B PREFERRED STOCK. The written consent of the
holders of at least 66.67% of the outstanding shares of Series B
Preferred Stock, or the vote of the holders of at least 66.67% of
the shares of Series B Preferred Stock present and voting at a
meeting duly called for that purpose, shall be required to approve
any of the following actions:
(i) the amendment or repeal of any provision
of, or addition of any provision to, the First Amended and
Restated Certificate of Incorporation that would adversely alter
or change the rights, preferences, and privileges of, the Series
B Preferred Stock;
(ii) any increase in the authorized number of
shares of Series B Preferred Stock;
(iii) the designation or issuance of securities,
or reclassification of any outstanding securities of the
corporation into, securities having any preference or priority
as to dividends, conversion rights, voting rights, or
liquidation superior to the Series B Preferred Stock; or
(iv) Corporate Sale Transaction.
4. CONVERSION. The holders of the Preferred Stock
have conversion rights as follows (the "CONVERSION RIGHTS"):
(a) RIGHT TO CONVERT. Each share of Preferred Stock
shall be convertible, at the option of the holder thereof, at any
time after the date of issuance of such share at the office of the
corporation or any transfer agent for the Preferred Stock. Each
share of Series A Preferred Stock shall be convertible into the
number of fully paid and nonassessable shares of Common Stock
determined by dividing $0.56 by the Conversion Price for the Series
A Preferred Stock then in effect. Each share of Series B Preferred
Stock shall be convertible into the number of fully paid and
nonassessable shares of Common Stock determined by dividing $1.40
by the Conversion Price for the Series B Preferred Stock then in
effect. Each share of Series C Preferred Stock shall be
convertible into the number of fully paid and nonassessable shares
of Common Stock determined by dividing $2.80 by the Conversion
Price for the Series C Preferred Stock then in effect. Each share
of Series D Preferred Stock shall be convertible into the number of
fully paid and nonassessable shares of Common Stock determined by
dividing $7.00 by the Conversion Price for the Series D Preferred
Stock then in effect. Each share of Series E Preferred Stock shall
be convertible into the number of fully paid and nonassessable
shares of Common Stock determined by dividing $10.00 by the
Conversion Price for the Series E Preferred Stock then in effect.
The initial Conversion Price for the Series A Preferred Stock is
$0.56 per share. The initial Conversion Price for the Series B
Preferred Stock is $1.40 per share. The initial Conversion Price
for the Series C Preferred Stock is $2.80 per share. The initial
Conversion Price for the Series D Preferred Stock is $7.00 per
share. The initial Conversion Price for the Series E Preferred
Stock is $10.00 per share.
-4-
<PAGE>
(b) AUTOMATIC CONVERSION. Each share of Preferred
Stock shall automatically be converted into shares of Common Stock
at the then effective Conversion Price applicable to that series of
Preferred Stock upon the earlier of (i) the closing of a firm
commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the
account of the corporation to the public in which the aggregate
offering price is greater than $10,000,000, or (ii) the affirmative
vote or written consent of holders of at least two-thirds of the
then outstanding Preferred Stock to convert such Preferred Stock.
Further, each share of Series D Preferred Stock shall automatically
be converted into shares of Common Stock at the then effective
Conversion Price applicable to the Series D Preferred Stock upon
the affirmative vote or written consent of holders of at least
66.67% of the then outstanding Series D Preferred Stock to convert
the Series D Preferred Stock, and each share of Series E Preferred
Stock shall automatically be converted into shares of Common Stock
at the then effective Conversion Price applicable to the Series E
Preferred Stock upon the affirmative vote or written consent of
holders of at least 66.67% of the then outstanding Series E
Preferred Stock to convert the Series E Preferred Stock. In the
event of the automatic conversion of the Preferred Stock upon a
public offering as aforesaid, the person(s) entitled to receive the
Common Stock issuable upon such conversion of Preferred Stock shall
not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such public offering.
(c) MECHANICS OF CONVERSION. No fractional shares of
Common Stock shall be issued upon conversion of Preferred Stock.
In lieu of any fractional shares to which the holder would
otherwise be entitled, the corporation shall pay cash equal to such
fraction multiplied by the fair market value of such converted
shares. Before any holder of Preferred Stock shall be entitled to
convert the same into full shares of Common Stock and to receive
certificates therefor, he shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the
corporation or of any transfer agent for the Preferred Stock, and
shall give written notice to the corporation at such office that he
elects to convert the same (except that no such written notice of
election to convert shall be necessary in the event of an automatic
conversion pursuant to Section 4(b)). The corporation shall, as
soon as practicable thereafter, issue and deliver at such office to
such holder of Preferred Stock, a certificate or certificates for
the number of shares of Common Stock to which he shall be entitled
as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional
shares of Common Stock plus any declared but unpaid dividends on
the converted Preferred Stock to which the holder may be entitled.
Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the
shares of Preferred Stock to be converted, or in the case of
automatic conversion, upon such automatic conversion, and the
person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such
date.
-5-
<PAGE>
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING
ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this
Section 4(d), the following definitions shall apply:
(1) "OPTIONS" shall mean rights,
options or warrants to subscribe for, purchase or otherwise
acquire either Common Stock or Convertible Securities.
(2) "ORIGINAL ISSUE DATE" shall mean
November __, 1999.
(3) "CONVERTIBLE SECURITIES" shall mean
any evidences of indebtedness, shares (other than the shares
of Common Stock), or other securities convertible into or
exchangeable for Common Stock.
(4) "ADDITIONAL SHARES OF COMMON STOCK"
shall mean all shares of Common Stock issued (or, pursuant
to Section 4(d)(iii), deemed to be issued) by the
corporation after the Original Issue Date, other than shares
of Common Stock issued or issuable at any time:
(A) upon conversion of Preferred
Stock authorized herein;
(B) to officers, directors,
employees, consultants, customers, vendors, lessors, and
lenders of or to, the corporation pursuant to a stock
grant, stock award, option plan, purchase plan, or other
stock incentive program, agreement or arrangement if such
grant, award, plan, program, agreement or arrangement is
approved by a majority of the Company's Board of
Directors including all of the Directors elected by the
holders of Series B Preferred Stock voting as a separate
class and all directors serving on the Compensation
Committee of the Board of Directors;
(C) as a dividend or distribution
on Preferred Stock;
(D) securities issued pursuant
to the acquisition of another corporation by the Company
(including a merger, a purchase of assets or shares or
other reorganization), or in connection with the
acquisition of assets including rights in patents,
trademarks, trade secrets, or other intellectual
property, approved by a majority of the Board of
Directors including all of the Directors elected by the
Series B Preferred Stock voting as a separate class;
(E) upon conversion of: (x) an
aggregate of 738,096 shares of Series D Preferred Stock
issued to the investors that are parties to that certain
Series D Preferred Stock Purchase Agreement dated
-6-
<PAGE>
December 24, 1997 between the Company and such investors
pursuant to two amendments to such agreement; (y) an
aggregate of 150,007 shares of Series D Preferred Stock
issued to the bridge lenders that acquired shares of
Series D Preferred Stock upon conversion of those certain
convertible promissory notes of the Company dated in
September 1998 in the aggregate principal amount of
$2,700,000, in either case prior to the Original Issue
Date;
(F) upon exercise or conversion
of Options or Convertible Securities outstanding as of
the Original Issue Date;
(G) in connection with the
merger of GRIC Communications, Inc., a California
corporation, with and into the corporation; or
(H) upon the Closing of the
Company's initial public offering.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No
adjustment in the Conversion Price of a particular series of
Preferred Stock shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per
share for an Additional Share of Common Stock issued or deemed
to be issued by the corporation is less than the Conversion
Price in effect on the date of, and immediately prior to such
issue, for such series of Preferred Stock.
(iii) DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK. In the event the corporation at any time or from
time to time after the Original Issue Date shall issue any
Options or Convertible Securities or shall fix a record date for
the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained
therein for a subsequent adjustment of such number) of Common
Stock issuable upon the exercise of such Options or, in the case
of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, shall be deemed to
be Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed,
as of the close of business on such record date, provided that
such Additional Shares of Common Stock shall not be deemed to
have been issued unless the consideration per share (determined
pursuant to Section 4(d)(vi) hereof) of such Additional Shares
of Common Stock would be less than the Conversion Price in
effect on the date of and immediately prior to such issue, or
such record date, as the case may be, and provided further that
in any such case in which Additional Shares of Common Stock are
deemed to be issued:
(1) no further adjustment in the
Conversion Prices shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the
exercise of such Options or conversion or exchange of such
Convertible Securities;
-7-
<PAGE>
(2) if such Options or Convertible
Securities by their terms provide, with the passage of time
or otherwise, for any increase or decrease in the
consideration payable to the corporation, or increase or
decrease in the number of shares of Common Stock issuable,
upon the exercise, conversion or exchange thereof, the
Conversion Prices computed upon the original issue thereof
(or upon the occurrence of a record date with respect
thereto) and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities;
(3) upon the expiration of any such
Options or any rights of conversion or exchange under such
Convertible Securities which shall not have been exercised,
the Conversion Prices computed upon the original issue
thereof (or upon the occurrence of a record date with
respect thereto) and any subsequent adjustments based
thereon, shall, upon such expiration, be recomputed as if:
(A) in the case of Convertible
Securities or Options for Common Stock, the only
Additional Shares of Common Stock issued were shares of
Common Stock, if any, actually issued upon the exercise
of such Options or the conversion or exchange of such
Convertible Securities and the consideration received
therefor was the consideration actually received by the
corporation for the issue of all such Options, whether or
not exercised, plus the consideration actually received
by the corporation upon such exercise, or for the issue
of all such Convertible Securities which were actually
converted or exchanged, plus the additional
consideration, if any, actually received by the
corporation upon such conversion or exchange, and
(B) in the case of Options for
Convertible Securities, only the Convertible Securities,
if any, actually issued upon the exercise thereof were
issued at the time of issue of such Options, and the
consideration received by the corporation for the
Additional Shares of Common Stock deemed to have been
then issued was the consideration actually received by
the corporation for the issue of all such Options,
whether or not exercised, plus the consideration deemed
to have been received by the corporation upon the issue
of the Convertible Securities with respect to which such
Options were actually exercised,
(4) no readjustment pursuant to clause
(2) or (3) above shall have the effect of increasing the
Conversion Price to an amount which exceeds the lower of (i)
the Conversion Price on the original adjustment date, or
(ii) the Conversion Price that would have resulted from any
issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date; and
-8-
<PAGE>
(5) in the case of any Options which
expire by their terms not more than thirty (30) days after
the date of issue thereof, no adjustment of the Conversion
Price shall be made until the expiration or exercise of all
such Options.
(iv) WEIGHTED AVERAGE ADJUSTMENT OF CONVERSION
PRICES OF SERIES A PREFERRED STOCK, SERIES B PREFERRED STOCK,
SERIES D PREFERRED STOCK AND SERIES E PREFERRED STOCK UPON
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. As of the
Original Issue Date, the respective Conversion Price of the
Series A Preferred Stock, the Series B Preferred Stock, the
Series D Preferred Stock and the Series E Preferred Stock is
$0.56, $1.40, $7.00 and $10.00. Subject to clause 4(d)(v)
below, in the event the corporation shall issue, after the
Original Issue Date, Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued
pursuant to Section 4(d)(iii)) without consideration or for a
consideration per share less than the Conversion Price for a
series of Preferred Stock (except for the Series C Preferred
Stock) in effect immediately prior to such event, then and in
such event, the Conversion Price for that series (except for the
Series C Preferred Stock) (as specified above in this paragraph
or as from time to time changed pursuant to this paragraph or
other provisions hereof) shall be reduced, concurrently with
such issue, to a price (calculated to the nearest tenth of a
cent) determined as follows:
CP(1) = CP(0) x CS + (CDIVIDED BYCP(0))
-----------------------
CS + AS
where:
CP(O) = the Conversion Price in effect on the date of and
immediately prior to such issue;
CP(1) = the Conversion Price as so adjusted;
CS = the aggregate number of shares of Common Stock
outstanding immediately prior to such issuance
(including shares of Common Stock issuable upon
conversion or exercise of any Options, Convertible
Securities and Preferred Stock as determined as
provided below in this Section 4(d)(iv));
C = the aggregate consideration, if any, received by the
corporation for the total number of Additional
Shares of Common Stock so issued, provided that if
the Additional Shares of Common Stock are issued
without consideration then C shall be zero; and
AS = the number of such Additional Shares of Common so
issued.
and provided further that, for the purposes of this Section
4(d)(iv), all shares of Common Stock issuable upon conversion of
outstanding Convertible Securities and the Preferred Stock and
issuable upon the exercise of any dilutive Options shall be
-9-
<PAGE>
deemed to be outstanding, and immediately after any Additional
Shares of Common Stock are deemed issued pursuant to Section
4(d)(iii), such Additional Shares of Common Stock shall be
deemed to be outstanding. For the purpose of this Section
4(d)(iv), a dilutive Option shall be deemed to be any then
outstanding Option which provides for an exercise price per
share of Common Stock (or per share of Common Stock following
conversion of any Convertible Securities subject thereto) equal
to or less than the price per share of the Additional Shares of
Common Stock issued (or deemed issued pursuant to Section
4(d)(iii) hereof) for which the adjustment to the applicable
Conversion Price pursuant to this Section 4(d)(iv) is then being
made.
(v) SPECIAL FULL RATCHET ADJUSTMENT OF
CONVERSION PRICE OF SERIES D PREFERRED STOCK AND SERIES E
PREFERRED STOCK UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON
STOCK THROUGH AND INCLUDING APRIL 15, 2000. Notwithstanding and
in lieu of any adjustment provided for under clause 4(d)(iv)
above, in the event the corporation shall issue, after the
Original Issue Date and through and including April 15, 2000,
Additional Shares of Common Stock as defined in clause
4(d)(i)(4) hereof (including Additional Shares of Common Stock
deemed to be issued pursuant to clause 4(d)(iii)) without
consideration or for a consideration per share less than the
Conversion Price for the Series D Preferred Stock in effect
immediately prior to such event, then and in such event, the
Conversion Price for the Series D Preferred Stock and Series E
Preferred Stock shall be reduced, concurrently with such issue,
to the price at which the Additional Shares of Common Stock were
issued or, pursuant to clause 4(d)(iii), deemed issued.
(vi) DETERMINATION OF CONSIDERATION. For
purposes of this Section 4(d), the consideration received by the
corporation for the issue of any Additional Shares of Common
Stock shall be computed as follows:
(1) CASH AND PROPERTY. Such
consideration shall:
(A) insofar as it consists of
cash, be computed at the aggregate amount of cash
received by the corporation;
(B) insofar as it consists of
property other than cash, be computed at the fair value
thereof at the time of such issue, as determined in good
faith by the Board of Directors; and
(C) in the event Additional
Shares of Common Stock are issued together with other
shares of securities or other assets of the corporation
for consideration which covers both, be the proportion of
such consideration so received, computed as provided in
clauses (A) and (B) above, as determined in good faith by
the Board of Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES.
The consideration per share received by the corporation for
Additional Shares of
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Common Stock deemed to have been issued
pursuant to Section 4(d)(iii), relating to Options and
Convertible Securities, shall be determined by dividing
(A) the total amount, if any,
received or receivable by the corporation as
consideration for the issue of such Options or
Convertible Securiies, plus the minimum aggregate amount
of additional consideration (as set forth in the
instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment
of such consideration) payable to the corporation upon
the exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the case
of Options for Convertible Securities, the exercise of
such options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(B) the maximum number of shares
of Common Stock (as set forth in the instruments relating
thereto, without regard to any provision contained
therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(vii) ADJUSTMENTS FOR SUBDIVISIONS,
COMBINATIONS, STOCK DIVIDENDS OR CONSOLIDATIONS OF COMMON STOCK.
In the event that, at any time after the filing of this First
Amended and Restated Certificate of Incorporation with the
Secretary of State, the outstanding shares of Common Stock shall
be subdivided (by stock split, or otherwise) into a greater
number of shares of Common Stock, or a distribution or dividend
payable in Common Stock shall be declared or paid on the Common
Stock, the Conversion Price for the Preferred Stock then in
effect shall, concurrently with the effectiveness of such
subdivision, be proportionately decreased. In the event that,
at any time after the filing of this First Amended and Restated
Certificate of Incorporation with the Secretary of State, the
outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, the Conversion Price for each
series of Preferred Stock then in effect shall, concurrently
with the effectiveness of such combination or consolidation, be
proportionately increased.
(viii) ADJUSTMENTS FOR OTHER DISTRIBUTIONS. In
the event the corporation at any time or from time to time
makes, or fixes a record date for the determination of holders
of Common Stock entitled to receive any distribution payable in
securities of the corporation other than shares of Common Stock
and other than as otherwise adjusted in this Section 4, then and
in each such event provision shall be made so that the holders
of Preferred Stock shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable
thereupon the amount of securities of the corporation which they
would have received had their Preferred Stock been converted
into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and
including the date of conversion, retained such securities
receivable by them as aforesaid during such
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period, subject to all other adjustments called for during such
period under this Section 4 with respect to the rights of the
holders of the Preferred Stock.
(ix) ADJUSTMENTS FOR RECLASSIFICATION,
EXCHANGE, AND SUBSTITUTION. If the Common Stock issuable upon
conversion of the Preferred Stock shall be changed into the same
or a different number of shares of any other class or classes of
stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares
provided for above), the Conversion Price for each series of
Preferred Stock then in effect shall, concurrently with the
effectiveness of such reorganization or reclassification, be
proportionately adjusted such that the Preferred Stock shall be
convertible into, in lieu of the number of shares of Common
Stock which the holders would otherwise have been entitled to
receive, a number of shares of such other class or classes of
stock equivalent to the number of shares of Common Stock that
would have been subject to receipt by the holders upon
conversion of the Preferred Stock immediately before that change.
(e) NO IMPAIRMENT. The corporation will not, by
amendment of this First Amended and Restated Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed
hereunder by the corporation but will at all times in good faith
assist in the carrying out of all the provisions of this Section 4
and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the
holders of the Preferred Stock against impairment.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of the Conversion
Price for the Preferred Stock pursuant to this Section 4, the
corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to
each holder of Preferred Stock as applicable, a certificate setting
forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based. The
corporation shall, upon the written request at any time of any
holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price for each series of
Preferred Stock at the time in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of each
series of Preferred Stock.
(g) NOTICES OF RECORD DATE. In the event that the
corporation shall propose at any time:
(i) to declare any dividend or distribution
upon its Common Stock, whether in cash, property, stock or other
securities, whether or not a regular cash dividend and whether
or not out of earnings or earned surplus;
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(ii) to offer for subscription pro rata to the
holders of any class or series of its stock any additional
shares of stock of any class or series or other rights;
(iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a
change in the Common Stock; or
(iv) to enter into or otherwise consummate any
Corporate Sale Transaction, or to liquidate, dissolve or wind up;
then, in connection with each such event, the corporation shall
send to the holders of the Preferred Stock:
(1) at least twenty (20) days' prior
written notice of the date on which a record shall be taken
for such dividend, distribution or subscription rights (and
specifying the date on which the holders of Common Stock
shall be entitled thereto) or for determining rights to vote
in respect of the matters referred to in (iii) and (iv)
above; and
(2) in the case of the matters referred
to in (iii) and (iv) above, at least twenty (20) days' prior
written notice of the date when the same shall take place
(and specifying the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon the occurrence
of such event).
Each such written notice shall be delivered personally or
given by first class mail, postage prepaid, addressed to the
holders of the Preferred Stock at the address for each such
holder as shown on the books of the corporation.
(h) ISSUE TAXES. The corporation shall pay any and
all issue and other taxes that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion of shares
of Preferred Stock, provided, however, that the corporation shall
not be liable for property taxes or income taxes attributable to
the holders of Preferred Stock upon conversion thereof.
(i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION.
The corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock solely for
the purpose of effecting the conversion of the shares of the
Preferred Stock such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all
outstanding shares of the Preferred Stock. If at any time the
number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding
shares of the Preferred Stock the corporation will take such
corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such
purpose.
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5. REPURCHASE OF COMMON STOCK. Each holder of an
outstanding share of Preferred Stock shall be deemed to have consented
to distributions made by the corporation in connection with the
repurchase, at cost, of shares of Common Stock issued to or held by
employees, directors, or consultants upon termination of their
employment, directorship, or consultancy pursuant to agreements
providing for the right of such repurchase between the corporation and
such persons.
6. REDEMPTION.
(a) REQUESTED REDEMPTION.
(i) BY HOLDERS OF THE SERIES A PREFERRED STOCK
AND THE SERIES B PREFERRED STOCK. After the fourth anniversary
of the date that shares of Series B Preferred Stock are first
issued, the holders of more than fifty percent (50%) of the
outstanding shares of Series B Preferred Stock may request in
writing that the corporation redeem on the Redemption Date (as
defined below) at the applicable Redemption Price (as defined
below), ratably among the stockholders thereof, all of the
Series B Preferred Stock outstanding on the date of such notice.
No redemption requested by any holder of Series B Preferred
Stock or Series A Preferred Stock shall occur unless the
corporation receives requests for redemption from the holders of
more than fifty percent (50%) of the shares of Series B
Preferred Stock. Within ten (10) business days after receiving
a valid request for redemption of the Series B Preferred Stock,
the corporation shall give notice to the holders of the Series A
Preferred Stock that the Series B Preferred Stock has requested
redemption and advising the holders of the Series A Preferred
Stock of their right to request redemption. If such notice is
delivered after the fifth anniversary of the issuance of the
Series C Preferred Stock, the corporation shall also give notice
to the holders of the Series C Preferred Stock that the Series B
Preferred Stock has requested redemption and advising the
holders of the Series C Preferred Stock of their right to
request redemption. After the holders of Series B Preferred
Stock have validly requested redemption, the holders of more
than fifty percent (50%) of the outstanding shares of Series A
Preferred Stock may request in writing that the corporation
redeem on the Redemption Date (as defined below) at the
applicable Redemption Price (as defined below), ratably among
the stockholders thereof, all of the Series A Preferred Stock
outstanding on the date of such notice. No redemption requested
by any holder of Series A Preferred Stock shall occur unless the
corporation receives requests for redemption from the holders of
more than fifty percent (50%) of th shares of Series A Preferred
Stock. The corporation shall give notice pursuant to this
Section 6(a)(i) to holders of the currently outstanding Series A
Preferred Stock and the Series C Preferred Stock, as applicable,
at the address of each such holder appearing on the books of the
corporation or given by such holder to the corporation for the
purpose of notice.
(ii) BY HOLDERS OF THE SERIES C PREFERRED
STOCK. After the fifth anniversary of the date that shares of
Series C Preferred Stock are first issued, the holders of more
than fifty percent (50%) of the outstanding shares of Series C
Preferred Stock may request in writing that the corporation
redeem on the Redemption Date (as defined below) at the
applicable Redemption Price (as defined below), ratably among
the
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stockholders thereof, all of the Series C Preferred Stock
outstanding on the date of such notice. No redemption requested
by any holder of Preferred Stock shall occur unless the
corporation receives requests for redemption from the holders of
more than fifty percent (50%) of the shares of Series C
Preferred Stock. Within ten (10) business days after receiving
a valid request for redemption of the Series C Preferred Stock,
the corporation shall give notice to the holders of the Series A
Preferred Stock and the Series B Preferred Stock that the Series
C Preferred Stock has requested redemption and advising the
holders of the Series A Preferred Stock and the Series B
Preferred Stock of their right to request redemption. After the
holders of Series C Preferred Stock have validly requested
redemption, the holders of more than fifty percent (50%) of the
outstanding shares of Series A Preferred Stock may request in
writing that the corporation redeem on the Redemption Date (as
deemed below) at the applicable Redemption Price (as defined
below), ratably among the stockholders thereof, all of the
Series A Preferred Stock outstanding on the date of such notice,
and the holders of more than fifty percent (50%) of the
outstanding shares of Series B Preferred Stock may request in
writing that the corporation redeem on the Redemption Date (as
defined below) at the applicable Redemption Price (as deemed
below), ratably among the stockholders thereof, all of the
Series B Preferred Stock outstanding on the date of such notice.
No redemption requested by any holder of Series A Preferred
Stock shall occur unless the corporation receives requests for
redemption from theholders of more than fifty percent (50%) of
the shares of Series A Preferred Stock, and no redemption
requested by any holder of Series B Preferred Stock shall occur
unless the corporation receives requests for redemption from the
holders of more than fifty percent (50%) of the shares of Series
B Preferred Stock. The corporation shall give notice pursuant
to this Section 6(a)(ii) to holders of the currently outstanding
Series A Preferred Stock and Series B Preferred Stock, as
applicable, at the address of each such holder appearing on the
books of the corporation or given by such holder to the
corporation for the purpose of notice.
(iii) SERIES D PREFERRED STOCK AND SERIES E
PREFERRED STOCK. Holders of Series D Preferred Stock and Series
E Preferred Stock will have no rights to request or require
redemption of their respective shares thereof.
(b) NOTICE AND MECHANICS. If the corporation
receives notice of a requested redemption pursuant to Section 6(a)
or 6(b) hereof, it shall give written notice to all holders of the
Series A, Series B and Series C Preferred Stock that the
outstanding shares of Series A Preferred Stock and/or Series B
Preferred Stock and/or Series C Preferred Stock, as applicable,
shall be redeemed on a date not later than ninety (90) calendar
days following delivery of such notice requesting redemption of the
Series B Preferred Stock initially delivered under Section 6(a)
(the "REDEMPTION DATE") at the applicable redemption price, which
shall equal $0.56 per share with respect to Series A Preferred
Stock, $1.40 per share with respect to the Series B Preferred
Stock, and $2.80 per share with respect to the Series C Preferred
Stock, adjusted in each case to take into account any stock splits,
stock dividends, or recapitalization of the series of Preferred
Stock, plus in each case any and all declared and unpaid dividends
(including those contemplated at Section 6(c) below) on the
Preferred Stock as of the date the notice of requested redemption
is received pursuant to Section 6(a) (the "Redemption Price"). The
notice shall further call upon such holders to surrender to the
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corporation on or before the relevant Redemption Date, at the place
designated therein in the notice, such holder's certificate or
certificates representing the shares to be redeemed. On or after
the Redemption Date, each holder of shares of Preferred Stock
called for redemption shall surrender the certificate or
certificates evidencing such shares to the corporation at the place
designated in such notice and shall thereupon be entitled to
receive payment of the appropriate Redemption Price. The
corporation shall be under no obligation to redeem shares of
Preferred Stock (i) for which no stock certificate is surrendered
or satisfactory declaration of lost stock certificate and
indemnification agreement is tendered or (ii) to the extent that
any such redemption would be in violation of applicable law.
(c) DIVIDENDS. In the event the corporation fails to
redeem any or all shares of Preferred Stock when it is required to
do so after receiving a request to redeem pursuant to Section 6(a)
or 6(b) hereof, there shall, on any unredeemed shares of Preferred
Stock, commence the accrual of an annual dividend at a rate equal
to eight percent (8%) per annum multiplied by Redemption Price for
such shares.
(d) CESSATION OF RIGHTS. From and after the
Redemption Date, unless there shall have been a default in payment
of the appropriate Redemption Price, all rights of the holders of
shares of the Preferred Stock designated for redemption in the
redemption notice provided pursuant to Section 6(b) hereof (except
the right to receive the Redemption Price upon surrender of their
certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be outstanding for any
purpose whatsoever. If the funds of the corporation legally
available for redemption of shares of Preferred Stock on any
Redemption Date are insufficient to redeem the total number of
shares of Preferred Stock to be redeemed on such date, then those
funds that are legally available shall be used to redeem the
maximum possible number of such shares ratably among the holders of
such shares. The shares of Preferred Stock not redeemed shall
remain outstanding and entitled to all rights and preferences
provided herein. At any time thereafter when additional funds of
the corporation are legally available for the redemption of shares
of Preferred Stock, such funds shall immediately be set aside for
the redemption in chronological order of the balance of the shares
that the corporation has become obligated to redeem on any
Redemption Date, but that it has not redeemed, and the corporation
shall provide the holders of such Preferred Stock with not less
than 20 days' prior notice of such redemption.
(e) DEPOSIT OF REDEMPTION PRICE. Two days prior to
the Redemption Date, the corporation shall deposit the Redemption
Price of all outstanding shares of Preferred Stock designated for
redemption in the redemption notice on the Redemption Date, and not
yet redeemed or converted, with a bank or trust company having
aggregate capital in excess of $50,000,000 as a trust fund for the
benefit of the respective holders of the shares designated for
redemption and not yet redeemed. Simultaneously, the corporation
shall deposit irrevocable instructions and authority to such bank
or trust company to pay, on and after the date fixed for
redemption, the Redemption Price of the Preferred Stock to the
holders thereof upon surrender of their certificates. Any monies
deposited by the corporation pursuant to this Section 6(e) for the
redemption of shares that are thereafter converted into shares of
Common Stock pursuant to Section 4 above no later than the close of
business on the Redemption Date shall be returned to the
corporation forthwith upon such conversion.
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The balance of any monies deposited by the corporation pursuant to
this Subsection 6(e) remaining unclaimed at the expiration of six (6)
months following the Redemption Date shall thereafter be returned
to the corporation, provided that the stockholder to which such
monies would be payable hereunder shall be entitled, upon proof of
its ownership of the Preferred Stock and payment of any bond
requested by the corporation, to receive such monies but without
interest from the Redemption Date.
ARTICLE V
The Board of Directors of the corporation shall have the power to
adopt, amend or repeal the Bylaws of the corporation.
ARTICLE VI
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of
the powers of the corporation, of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided that:
(A) The conduct of the affairs of the corporation shall be managed
under the direction of the Board of Directors. The number of directors shall
be fixed from time to time exclusively by resolution of the Board of
Directors.
(B) Notwithstanding the foregoing provision of this Article VI,
each director shall hold office until such director's successor is elected
and qualified, or until such director's earlier death, resignation or
removal. No decrease in the authorized number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
(C) Subject to the rights of the holders of specified classes to
fill vacancies on the board pursuant to Article III, Section C.3(b) above,
any vacancy occurring in the Board of Directors for any cause, and any newly
created directorship resulting from any increase in the authorized number of
directors, shall, unless (i) the Board of Directors determines by resolution
that any such vacancies or newly created directorships shall be filled by the
stockholders, or (ii) as otherwise provided by law, be filled only by the
affirmative vote of a majority of the directors then in office, although less
than a quorum, or by a sole remaining director, and not by the stockholders.
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.
(D) Except for the rights of the holders of specified classes to
remove directors pursuant to Article III, Section C.3(b) above, any director
or the entire Board of Directors may be removed, with or without cause, by
the holders of a majority of the shares then entitled to vote at an election
of directors.
(E) Election of directors need not be by written ballot unless the
Bylaws of the corporation shall so provide.
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(F) Following the closing of the corporation's initial public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock to the
public (the "INITIAL PUBLIC OFFERING"), no action shall be taken by the
stockholders of the corporation except at an annual or special meeting of
stockholders called in accordance with the Bylaws of the corporation, and no
action shall be taken by the stockholders by written consent.
(G) Advance notice of stockholder nominations for the election of
directors of the corporation and of business to be brought by stockholders
before any meeting of stockholders of the corporation shall be given in the
manner provided in the Bylaws of the corporation. Business transacted at
special meetings of stockholders shall be confined to the purpose or purposes
stated in the notice of meeting.
(H) Subject to Section 6.5 of the Bylaws of the corporation,
following the closing of the Initial Public Offering, stockholders of the
corporation holding at least sixty-six and two-thirds percent (66-2/3%) of
the corporation's outstanding voting stock then entitled to vote at an
election of directors shall have the power to adopt, amend or repeal Bylaws
of the corporation.
Following the closing of the Initial Public Offering, the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of
the corporation's outstanding voting stock then entitled to vote at an
election of directors, voting together as a single class, shall be required
to alter, change, amend, repeal or adopt any provision inconsistent with this
Article VI.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty
as a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the
further elimination or limitation of the liability of a director, then the
liability of a director of the corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
Neither any amendment nor repeal of this Article VII, nor the adoption
of any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation
existing at the time of such amendment, repeal or adoption of such an
inconsistent provision.
Following the closing of the Initial Public Offering, the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of
the corporation's outstanding voting stock then entitled to vote at an
election of directors, voting together as a single class, shall be required
to alter, change, amend, repeal or adopt any provision inconsistent with this
Article VII.
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Exhibit 3.04
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GRIC COMMUNICATIONS, INC.
(Originally incorporated on April 15, 1998)
GRIC Communications, Inc., a Delaware corporation, hereby certifies
that the Second Amended and Restated Certificate of Incorporation of the
corporation attached hereto as EXHIBIT "A", which is incorporated herein by this
reference, has been duly adopted by the corporation's Board of Directors and
stockholders in accordance with Sections 242 and 245 of the Delaware General
Corporation Law, with the approval of the corporation's stockholders having been
given by written consent without a meeting in accordance with Section 228 of the
Delaware General Corporation Law.
IN WITNESS WHEREOF, said corporation has caused this Second Amended and
Restated Certificate of Incorporation to be signed by its by duly authorized
officer.
Dated: , 1999 GRIC COMMUNICATIONS, INC.
------------
-------------------------------------
Dr. Hong Chen,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
<PAGE>
EXHIBIT "A"
-----------
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GRIC COMMUNICATIONS, INC.
ARTICLE I
The name of the corporation is GRIC Communications, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 15 East North Street, City of Dover, County of Kent. The name of its
registered agent at that address is Incorporating Services, Ltd.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the
corporation has authority to issue is 55,000,000 shares, consisting of two
classes: 50,000,000 shares of Common Stock, $0.001 par value per share, and
5,000,000 shares of Preferred Stock, $0.001 par value per share.
The Board of Directors is authorized, subject to any limitations
prescribed by the law of the State of Delaware, to provide for the issuance of
the shares of Preferred Stock in one or more series, and, by filing a
Certificate of Designation pursuant to the applicable law of the State of
Delaware, to establish from time to time the number of shares to be included in
each such series, to fix the designation, powers, preferences and rights of the
shares of each such series and any qualifications, limitations or restrictions
thereof, and to increase or decrease the number of shares of any such series
(but not below the number of shares of such series then outstanding). The number
of authorized shares of Preferred Stock may also be increased or decreased (but
not below the number of shares thereof then outstanding) by the affirmative vote
of the holders of a majority of the stock of the corporation entitled to vote,
unless a vote of any other holders is required pursuant to a Certificate or
Certificates establishing a series of Preferred Stock.
Except as otherwise expressly provided in any Certificate of
Designation designating any series of Preferred Stock pursuant to the foregoing
provisions of this Article IV, any new series of Preferred Stock may be
designated, fixed and determined as provided herein by the Board of Directors
without approval of the holders of Common Stock or the holders of Preferred
Stock, or any series thereof, and any such new series may have powers,
preferences and rights, including,
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without limitation, voting rights, dividend rights, liquidation rights,
redemption rights and conversion rights, senior to, junior to or pari passu with
the rights of the Common Stock, the Preferred Stock, or any future class or
series of Preferred Stock or Common Stock.
ARTICLE V
The Board of Directors of the corporation shall have the power to
adopt, amend or repeal the Bylaws of the corporation.
ARTICLE VI
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
(A) The conduct of the affairs of the corporation shall be managed
under the direction of the Board of Directors. The number of directors shall be
fixed from time to time exclusively by resolution of the Board of Directors.
(B) Notwithstanding the foregoing provision of this Article VI, each
director shall hold office until such director's successor is elected and
qualified, or until such director's earlier death, resignation or removal. No
decrease in the authorized number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
(C) Subject to the rights of the holders of any series of Preferred
Stock, any vacancy occurring in the Board of Directors for any cause, and any
newly created directorship resulting from any increase in the authorized number
of directors, shall, unless (i) the Board of Directors determines by resolution
that any such vacancies or newly created directorships shall be filled by the
stockholders, or (ii) as otherwise provided by law, be filled only by the
affirmative vote of a majority of the directors then in office, although less
than a quorum, or by a sole remaining director, and not by the stockholders. 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.
(D) Subject to the rights of the holders of any series of Preferred
Stock, any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors.
(E) Election of directors need not be by written ballot unless the
Bylaws of the corporation shall so provide.
(F) No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws of the corporation, and no action shall be taken by the stockholders
by written consent.
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(G) Advance notice of stockholder nominations for the election of
directors of the corporation and of business to be brought by stockholders
before any meeting of stockholders of the corporation shall be given in the
manner provided in the Bylaws of the corporation. Business transacted at special
meetings of stockholders shall be confined to the purpose or purposes stated in
the notice of meeting.
(H) Subject to Section 6.5 of the Bylaws of the corporation,
stockholders of the corporation holding at least sixty-six and two-thirds
percent (66-2/3%) of the corporation's outstanding voting stock then entitled to
vote at an election of directors shall have the power to adopt, amend or repeal
Bylaws of the corporation.
The affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the corporation's outstanding voting stock then
entitled to vote at an election of directors, voting together as a single class,
shall be required to alter, change, amend, repeal or adopt any provision
inconsistent with this Article VI.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VII, nor the adoption
of any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
The affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the corporation's outstanding voting stock then
entitled to vote at an election of directors, voting together as a single class,
shall be required to alter, change, amend, repeal or adopt any provision
inconsistent with this Article VII.
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EXHIBIT 4.02
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
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This Agreement is made at Milpitas, California as of November 12, 1999
among GRIC COMMUNICATIONS, INC., a California corporation (the "COMPANY"),
and each of the persons listed on the Signature Page(s) to this Agreement
(the "SECURITYHOLDERS").
RECITALS
A. The Company has previously granted registration rights to certain
Securityholders pursuant to a Fourth Amended Registration Rights
Agreement dated as of April 16, 1999 (the "PREVIOUS AGREEMENT").
B. The Company and the requisite number of Securityholders under the
Previous Agreement make this grant of registration rights in connection
with the issuance of Series E Preferred Stock pursuant to a Series E
Preferred Stock Purchase Agreement dated the date of this Agreement. A
summary of the outstanding Registrable Securities is set forth on
EXHIBIT A to this Agreement. In every case, this Agreement restates, or
does not materially increase, the registration rights granted to each
Securityholder in connection with the original issuance of the
Securityholder's Securities (as defined below).
C. Capitalized terms have the meanings set forth in Article 1 of this
Agreement.
NOW, THEREFORE, the parties agree as follows:
1. AMENDMENT AND DEFINITIONS
1.1. AMENDMENT AND RESTATEMENT.
The Previous Agreement is hereby amended and restated to read in its entirety as
set forth in this Agreement.
1.2. DEFINITIONS.
The capitalized terms listed below have the meanings assigned to them.
Capitalized terms used in this Agreement that are not set forth below have the
meanings ascribed to them elsewhere in this Agreement.
"INITIATING AOL HOLDER" means America Online, Inc. ("AOL"), if the reasonably
anticipated aggregate offering price would exceed $10,000,000 in a Registration
pursuant to Article 2 (REQUESTED REGISTRATION) or $500,000 in a Registration
pursuant to Article 4 (REGISTRATION ON FORM S-3); provided, however, that for
purposes of a Registration pursuant to Article 2 (REQUESTED REGISTRATION), AOL
shall be deemed an Initiating AOL Holder even if the $10,000,000 reasonably
anticipated aggregate offering price threshold is
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not met, provided that AOL proposes to sell and sells in the offering at
least 51% of AOL's Registrable Securities; provided, further, that after the
Company's initial public offering, neither the $10,000,000 reasonably
anticipated aggregate offering price threshold nor the requirement of selling
at least 51% of AOL's Registrable Securities shall apply to any REQUESTED
REGISTRATION under Article 2 after consummation of the Company's initial
public offering.
"CLAIM" means any claim, loss, damage, cost, expense, or liability, joint or
several, or any threatened or pending suit, action, arbitration, or other
proceeding in respect thereof.
"CONTROL PERSON" means any officer, director, general partner, person
controlling another person within the meaning of Section 15 of the Securities
Act, or alleged Control Person.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any
successor statute, and the rules and regulations of the SEC thereunder, all as
the same are in effect at the time.
"FOUNDERS" means Hong Chen, Ph.D., Lynn Ya-Lin Liu, and ELG Partners 1994-1.
"FOUNDERS' SHARES" means shares of the Company's Common Stock held by the
Founders including without limitation any shares of Common Stock hereafter
acquired by the Founders.
"HOLDER" means any Securityholder holding Registrable Securities or securities
or instruments with respect to which Registrable Securities are ultimately
issuable, and any transferee thereof to whom registration rights have also been
transferred in accordance with this Agreement.
"INDEMNIFIED PARTY" means a person entitled to indemnity under Article 9
(INDEMNIFICATION).
"INDEMNIFYING PARTY" means a person required to provide indemnification pursuant
to Article 9.
"INITIATING HOLDERS" means, with respect to the Company's IPO pursuant to
Article 2 (REQUESTED REGISTRATION), Holder(s) (other than Founders) of at least
thirty percent (30%) of the then outstanding or issuable Registrable Securities
(other than Founder's Shares) or any lesser percentage if the reasonably
anticipated aggregate offering price would exceed $10,000,000. In all other
cases, "INITIATING HOLDERS" means Holder(s) of at least twenty percent (20%) of
the then outstanding or issuable Registrable Securities or any lesser percentage
if the reasonably anticipated aggregate offering price would exceed $10,000,000
in a Registration pursuant to Article 2 (REQUESTED REGISTRATION) or $500,000 in
a Registration pursuant to Article 4 (REGISTRATION ON FORM S-3).
"IPO" means the first Registration by the Company (other than a Registration in
a Rule 145 transaction or with respect to an employee benefit plan) (a) pursuant
to which all of the Company's outstanding preferred stock is automatically
converted into shares of Common Stock pursuant to the terms of the Company's
charter documents, and (b) for an aggregate offering price, net of underwriting
discounts and commissions, of more than $10,000,000.
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"MISSTATEMENT" means (a) any untrue statement of a material fact, (b) any
omission to state a material fact required to be stated or necessary to make
another statement not misleading in light of the circumstances in which such
other statement was made, and (c) any alleged Misstatement.
"PROSPECTUS" means any registration statement, prospectus, offering circular, or
other document, including without limitation any related registration statement,
notification, or the like, incident to any Registration, and any amendment or
supplement thereto.
"REGISTER" and "REGISTRATION" mean the act of registering securities by
preparing and filing a registration statement in compliance with the Securities
Act and pursuing such filing until the SEC declares or orders it effective.
Unless the context otherwise requires, "REGISTER" and "REGISTRATION" also
include the filing of appropriate post-effective amendments, appropriate
qualifications under applicable blue sky and other state securities laws,
compliance with applicable regulations, and such other actions as are reasonable
and customary in connection with a Registered sale of securities to the public.
"REGISTERED" means (a) the past tense of Register, or (b) an adjective used to
describe securities, or the sale thereof, with respect to which a Registration
has been completed.
"REGISTRABLE SECURITIES" means (a) (i) Founders' Shares, (ii) Common Stock
issued or issuable with respect to the Securities (including without limitation
upon any exercise of exercisable securities, conversion of convertible
securities, stock split, stock dividend, recapitalization, or as a distribution
or upon exercise of the Warrants issued in August 1998 to Phoenix Leasing
Incorporated and Robert A. Kingsbook or upon exercise of the Warrants issued in
November 1998 to Silicon Valley Bank), and (iii) Common Stock issued or issuable
upon exercise of the Warrants issued to AOL in November 1998; that (b) have not
been sold to the public pursuant to Section 4(l) of the Securities Act or in a
Registration.
"REGISTRATION EXPENSES" means expenses incurred by the Company in complying with
Articles 2 (REQUESTED REGISTRATION), 3 (COMPANY REGISTRATION), and 4
(REGISTRATION ON FORM S-3), including without limitation all Registration fees,
printing expenses, escrow fees, fees and disbursements of counsel and
independent certified public accountants for the Company, reasonable fees and
disbursements of one special counsel for the participating Holders as a group,
and blue sky fees and expenses.
"SEC" means the Securities and Exchange Commission.
"SECURITIES" means the Founders' Shares, the Series A Shares, the Series B
Shares, the Series C Shares, the Series D Shares and the Series E Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any successor
statute, and the rules and regulations of the SEC thereunder, all as the same
are in effect at the time.
"SELLING EXPENSES" means all underwriting discounts, selling commissions, and
stock transfer taxes applicable to the Registrable Securities Registered by the
Company on behalf of the Holders and all fees and disbursements of individual
counsel for the Holders (as opposed to the
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reasonable fees and disbursements of one special counsel for the
participating Holders as a group).
"SERIES A REGISTRABLE SECURITIES" means the Registrable Securities into which
the outstanding Series A Shares are convertible at the time of the calculation.
"SERIES A SHARES" means shares of the Company's Series A Preferred Stock.
"SERIES B REGISTRABLE SECURITIES" means the Registrable Securities into which
the outstanding Series B Shares are convertible at the time of the calculation.
"SERIES B SHARES" means shares of the Company's Series B Preferred Stock.
"SERIES C REGISTRABLE SECURITIES" means the Registrable Securities into which
the outstanding Series C Shares are convertible at the time of the calculation.
"SERIES C SHARES" means shares of the Company's Series C Preferred Stock.
"SERIES D REGISTRABLE SECURITIES" means the Registrable Securities into which
the outstanding Series D Shares are convertible at the time of the calculation.
"SERIES D SHARES" means shares of the Company's Series D Preferred Stock.
"SERIES E REGISTRABLE SECURITIES" means the Registrable Securities into which
the outstanding Series E Shares are convertible at the time of the calculation.
"SERIES E SHARES" means shares of the Company's Series E Preferred Stock.
"SECURITYHOLDERS" means the persons listed on the Signature Page(s) to this
Agreement.
"SHARES" is another term for Registrable Securities.
2. REQUESTED REGISTRATION
2.1. REQUEST FOR REGISTRATION.
2.1.1. WHO MAY MAKE A REQUEST.
Upon receiving a written request from the Initiating Holders or the
Initiating AOL Holder, the Company shall take the actions specified in
this Section 2.1 and Article 8 (REGISTRATION PROCEDURES). The request
shall identify the underwriters who will manage the offering. Each
underwriter shall be subject to the approval of the Company, which the
Company shall not withhold unreasonably. Any Registration pursuant to
this Article 2 shall be a firm commitment underwriting.
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2.1.2. ELIGIBLE PARTICIPANTS.
All Registrable Securities held by persons entitled to be included among
the Initiating Holders and the AOL Initiating Holder shall be eligible to
be included in the Registration. No other Registrable Securities shall
be included in the Registration.
2.1.3. FILINGS.
Subject to Article 5 (LIMITATIONS ON REGISTRATIONS), the Company shall
use diligent reasonable efforts to Register the Shares specified in the
requests of the eligible Holders as quickly as is practicable.
2.2. LIMIT ON REGISTRATIONS.
The Company is not required to complete more than four Registrations pursuant to
this Article 2 exclusive of: (i) any Registrations requested by Founders and
(ii) up to two Registrations pursuant to this Article 2 for AOL.
2.3. FUTURE GRANTS OF RIGHTS.
The Company may grant additional rights to include securities in Registrations
pursuant to this Article 2, if (a) the Holders of at least a majority of the
Registrable Securities entitled to request Registration under this Article 2
consent to such grant in writing (except that in the case of a Registration that
has already been requested, the consent of the Holders of at least a majority of
the Registrable Securities actually included in the Registration shall be
required), or (b) the inclusion of such securities would not reduce the amount
of Registrable Securities to be included in such Registrations.
2.4. LIMIT ON GRANTS OF RIGHTS TO REGISTRATION.
Notwithstanding Section 2.3, the Company shall not, without the prior written
consent of the Holders of a majority of the Series A Registrable Securities, the
prior written consent of the Holders of at least two-thirds of the Series B
Registrable Securities, the prior written consent of the Holders of at least
two-thirds of the Series C Registrable Securities, the prior written consent of
the Holders of at least two-thirds of the Series D Registrable Securities and
the prior written consent of the Holders of at least two-thirds of the Series E
Registrable Securities, enter into any agreement with any holder or prospective
holder of any securities of the Company which would allow such holder or
prospective holder to request a registration which could result in such
registration statement being declared effective before the earlier of either of
the dates set forth in Section 5.3 or within one hundred eighty (180) days of
the effective date of any Registration pursuant to this Article 2.
2.5. PARTICIPATION BY THE COMPANY.
The Company may include securities of the same class as the Registrable
Securities for its own account in a Registration pursuant to this Article 2 in
an amount up to 10% of the total shares to
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<PAGE>
be Registered. The Company may include additional shares of such class in
the Registration if (a) the Holders of at least a majority of the Registrable
Securities actually included in the Registration consent to such inclusion or
(b) the inclusion of such securities would not reduce the amount of
Registrable Securities to be included in such Registration.
3. COMPANY REGISTRATION
3.1. RIGHT TO PIGGYBACK.
3.1.1. REQUIRED ACTIONS.
Whenever the Company decides to Register any of its securities for its
own account or the account of others including a Registration pursuant to
Articles 2 or 4 (other than in connection with (a) a registration
relating solely to employee benefit plans, or (b) a registration relating
solely to a Rule 145 transaction) the Company shall take the actions
specified in this Section 3.1 and Article 8.
3.1.2. ELIGIBLE PARTICIPANTS.
All Registrable Securities shall be eligible to be included in the
Registration.
3.1.3. RIGHT TO TERMINATE REGISTRATION.
The Company and any Holders exercising their rights pursuant to
Articles 2 or 4, if applicable, may terminate any Registration of
securities for its or their own account before the SEC declares the
Registration to be effective, regardless of whether any Holder, or any
other shareholder entitled to include its securities in such
Registration, has elected to include Registrable Securities, or its
securities, respectively, in the Registration.
3.1.4. MINIMUM NUMBER OF SHARES TO BE INCLUDED IN COMPANY REGISTRATION.
Notwithstanding any provision of Article 5 or Section 6.5, the Company
shall not limit the Registrable Securities to be included in a
Registration pursuant to this Article 3 (other than the Company's IPO, in
which case there is no restriction on the limitation of Registrable
Securities that may be included pursuant to this Article 3) to less than
thirty percent (30%) of the total value of the securities to be
Registered.
3.2. FUTURE GRANTS OF RIGHTS.
The Company may grant additional rights to include securities in
Registrations pursuant to this Article 3, if (a) the Holders of at least a
majority of the Registrable Securities entitled to participate in a
Registration pursuant to this Article 3 consent to such grant in writing
(except that in the case of a Registration that has already been requested,
the consent of the Holders of at least a majority of the Registrable
Securities actually included in the Registration shall be required), or (b)
the inclusion of such securities would not reduce the amount of Registrable
Securities to be included in such Registrations.
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4. REGISTRATION ON FORM S-3
4.1. RIGHT TO REGISTRATION.
4.1.1. WHO MAY MAKE A REQUEST.
Upon receiving a written request from the Initiating Holders or the
Initiating AOL Holder to Register their Registrable Securities on Form
S-3 (or any successor form to Form S-3), the Company shall take the
actions specified in this Section 4.1 and Article 8 if the Company is
entitled to use such form. If the Company agrees to an underwritten
offering on Form S-3, the request shall identify the underwriters who
will manage the offering and each underwriter shall be subject to the
approval of the Company, which the Company shall not withhold
unreasonably.
4.1.2. ELIGIBLE PARTICIPANTS.
All Registrable Securities shall be eligible to be included in the
Registration.
4.1.3. FILINGS.
Subject to Article 5, the Company shall use diligent reasonable efforts
to Register the Shares specified in the requests of the eligible Holders
as quickly as is practicable.
4.2. LIMIT ON REGISTRATIONS.
There is no limit on the number of Registrations the Holders may request
pursuant to this Article 4 if the right to request Registration has not
terminated.
4.3. FUTURE GRANTS OF RIGHTS.
The Company may grant additional rights to include securities in Registrations
pursuant to this Article 4, if (a) the Holders of at least a majority of the
Registrable Securities entitled to request Registration under this Article 4
consent to such grant in writing (except that in the case of a Registration that
has already been requested, the consent of the Holders of at least a majority of
the Registrable Securities actually included in the Registration shall be
required), or (b) the inclusion of such securities would not reduce the amount
of Registrable Securities to be included in such Registrations.
4.4. PARTICIPATION BY THE COMPANY.
The Company may include securities of the same class as the Registrable
Securities for its own account in a Registration pursuant to this Article 4 in
an amount up to 10% of the total shares to be Registered. The Company may
include additional shares of such class in the Registration if (a) the Holders
of at least a majority of the Registrable Securities actually included in the
Registration consent to such inclusion or (b) the inclusion of such securities
would not reduce the amount of Registrable Securities to be included in such
Registration.
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5. LIMITATIONS ON REGISTRATIONS
5.1. EXCEPTIONS TO OBLIGATION.
Notwithstanding anything in this Agreement to the contrary, the Company is not
required to take any action enumerated in this Article 5.
5.2. NO GENERAL CONSENT TO SERVICE.
The Company is not required to Register Shares in any jurisdiction in which the
Company would be required to execute a general consent to service of process,
unless (a) the Company is already subject to service in such jurisdiction or (b)
such consent is required by the Securities Act.
5.3. INITIAL MORATORIUM ON REQUESTS.
The Company is not required to Register Shares pursuant to Article 2 before the
earlier of (a) December 31, 1999 or (b) six months after the effective date of
the first Registration by the Company (other than a Registration in a Rule 145
transaction or with respect to an employee benefit plan). Notwithstanding any
other provision of this Agreement, Holders of Series E Shares or Series E
Registrable Securities may not initiate or participate as a seller in any
Registration requested in connection with the Company's IPO.
5.4. LAST DATE FOR REQUESTS.
The Company is not required to Register any Shares pursuant to Articles 2, 3 or
4 after the tenth anniversary following the earlier of the dates referred to in
Section 5.3.
5.5. CONFLICTS WITH OTHER OFFERINGS.
The Company is not required to Register Shares pursuant to Articles 2 or 4 if
the Company receives the request for Registration during the period beginning on
the date the Company files a Registration of its own shares (other than a
Registration in a Rule 145 transaction or with respect to an employee benefit
plan), and ending on the earlier of (a) one hundred eighty (180) days
immediately after the effective date of the Registration, or (b) immediately at
such time as the Company is no longer using all reasonable good faith efforts to
cause the Registration to become effective.
5.6. RIGHT TO DELAY REQUESTED REGISTRATION.
The Company may delay a Registration pursuant to Article 2 or 4 for up to 120
days (the "DELAY PERIOD") if, at any time before the Registration becomes
effective, the Company delivers to the eligible Holders a certificate signed by
the President or Chief Executive Officer of the Company stating that, in the
good faith judgment of the Board of Directors, it would be seriously detrimental
to the Company or its shareholders for a Registration to be filed or become
effective within the time otherwise required by this Agreement. The Holders
shall not have the right to request an additional Registration pursuant to
Article 2 or 4 during the Delay Period. Once the Company has invoked its rights
pursuant to this Section 5.6, it may not do so again until after it
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has completed a Registration pursuant to Article 2 or 4, unless the Holders
have withdrawn the request with respect to which the Delay Period was invoked.
5.7. PACING OF REQUESTS.
The Company may decline to comply with a request to Register Shares made within
six months after a Registration pursuant to Article 2 or 4 has been completed.
5.8. TERMINATION OF REQUESTED REGISTRATIONS.
The Company may, and at the election of Holders of a majority of the eligible
Registrable Securities shall, terminate a Registration pursuant to Article 2 or
4 if the number of Registrable Securities to be included in the Registration is
reduced to fewer that 80% of the minimum number of Registrable Securities
required to be included in the Registration.
6. UNDERWRITTEN REGISTRATIONS
6.1. APPLICATION.
The provisions of this Article 6 apply to each underwritten Registration covered
by this Agreement.
6.2. PERFORM UNDERWRITING AGREEMENT.
In each underwritten Registration, the Company shall enter into and perform, or
be ready, willing, and able to enter into and perform, its obligations under an
underwriting agreement in usual and customary form with the managing
underwriter.
6.3. PARTICIPATION REQUIRED.
Each Holder participating in a Registration shall enter into an underwriting
agreement in customary form with the managing underwriters, if any. No
Registrable Securities shall be included in or sold pursuant to the Registration
except in accordance with the applicable underwriting agreement.
6.4. CHANGES IN UNDERWRITERS.
The Holders of a majority of the Registrable Securities to be included in the
Registration pursuant to Articles 2 or 4 may replace an underwriter named in the
request for Registration or add one or more additional underwriters. Each
underwriter shall be subject to the approval of the Company, which the Company
shall not withhold unreasonably.
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6.5. DECREASES IN OFFERINGS.
Notwithstanding any other provision of this Agreement but subject to subsection
3.1.4, if the Company or the managing underwriters in a Registration advise the
participating Holders in writing that market factors require a limit on the
number of Registrable Securities to be underwritten, then the number of
Registrable Securities that may be included in the Registration shall be
allocated first among all participating Holders (other than the Founders) in
proportion, as nearly as practicable, to the number of Registrable Securities
(other than Founders' Shares) such Holders have requested to include in the
Registration, and thereafter among the Founders in proportion, as nearly as
practicable, to the number of Founders Shares such Holders have requested to
include in the Registration. The Company shall not reduce the number of
Registrable Securities to be included in the Registration if the Registration
will include securities to be sold for the account of persons other than Holders
or the Company.
6.6. INCREASES IN OFFERINGS.
If the managing underwriter(s) in a Registration advise the participating
Holders that the underwriter(s) desire to increase the number of Registrable
Securities to be underwritten, whether because of market factors or withdrawal
of other Shares, the increase shall be allocated among the eligible Holders in
proportion to the Holders' eligible Registrable Securities, including those
already included in the Registration.
6.7. WITHDRAWAL OF SHARES.
Any Holder who disapproves of the terms of an underwriting may withdraw from the
Registration by delivering written notice to the Company, the managing
underwriters, and the other participating Holders.
7. EXPENSES OF REGISTRATION
7.1. OBLIGATION OF THE COMPANY.
Except as otherwise provided in this Agreement, the Company shall pay all
Registration Expenses incurred in connection with any Registration. Unless
otherwise stated, all Selling Expenses relating to Registrable Securities
Registered on behalf of the Holders shall be borne by the Holders pro rata on
the basis of the net proceeds from the sale of their Shares so Registered,
except that attorney fees of individual Holders shall be borne by the individual
Holders. The Company shall pay all of the compensation of its regular
employees, even though they may engage in activities included within the scope
of Registration Expenses. The Company shall pay the expense of any special
audits incident to or required by any Registration except as provided in
Section 7.2.
7.2. EXPENSES OF TERMINATED REQUESTED REGISTRATIONS.
The Registration Expenses of any Registration pursuant to Article 2 or 4 that is
terminated because of a reduction of the Shares to be included below the minimum
required under Article 2
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or 4, respectively, shall be paid by (a) the Holders who have withdrawn their
Shares after requesting them to be included, in proportion to the number of
Shares they have withdrawn, if the termination is due to withdrawal of
Shares, or (b) all Holders who initially requested to have their Registrable
Securities included in the Registration, in proportion to the number of
Shares they requested to have included, in all other cases (such as
underwriter action). For the purpose of this Section 7.2, Registration
Expenses includes the expense of any special audit incident to or required by
the Registration. If such Registration Expenses are not paid promptly, the
terminated Registration shall be deemed to be completed for the purpose of
Section 7.3. The Holders shall not be required to pay the Registration
Expenses, however, if, at the time of termination, the Holders have learned
of a material adverse change in the condition, business, or prospects of the
Company from that known to the Holders at the time of their request.
7.3. WHAT COUNTS AS A COMPLETED REGISTRATION.
A Registration is deemed completed when the Registration has become effective
and the Registered Securities have been sold. Any Registration that is
terminated by the Holders pursuant to this Agreement shall be deemed to have
been completed for the purpose of this Section 7.3 unless (a) at the time of the
termination, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company from that known to the Holders
at the time of their request, or (b) the Holders pay the Registration Expenses
associated with such Registration pursuant to Section 7.2.
8. REGISTRATION PROCEDURES
8.1. DUTY TO GIVE MEANINGFUL NOTICE.
The Company shall advise each Holder in writing as to the initiation and
completion of each Registration in which the Holder is entitled to participate.
Whenever the Company gives a notice that requires a response, the Company shall
notify the Holder as promptly as possible and give a reasonable time, but in no
event less than fifteen (15) days, within which to respond.
8.2. CONTENTS OF NOTICE.
The notice shall give a brief summary of the intended terms of the underwriting,
including the states in which the Company then intends to Register any Shares.
The notice shall advise all eligible Holders that the number of Registrable
Securities they may include in the Registration shall be allocated among all
Holders in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by them at the time the notice is given.
8.3. RESPONSE TO NOTICE BY HOLDERS.
Each eligible Holder shall notify the Company in writing of the number of Shares
the Holder wishes to include in the Registration. If the Holder so notifies the
Company within the time specified in the Company's notice, but in no event less
than fifteen (15) days, the Company shall include such Shares in the
Registration, subject to Article 5.
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8.4. DURATION OF REGISTRATION.
With respect to each Registration of Registrable Securities, the Company shall
prepare and file a registration statement with the SEC with respect to the
Shares and use diligent reasonable efforts to cause the Registration to become
and remain effective for at least 120 days or until the Shares covered by the
Registration have been sold; provided, however, that (i) the 120-day period
shall be extended for a period of time equal to the period the Holder refrains
from selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which is
intended to be offered on a continuous or delayed basis, the 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Securities Act, permits an offering on a continuous or
delayed basis, and provided further that applicable rules under the Securities
Act governing the obligation to file a post-effective amendment permit, in lieu
of filing a post-effective amendment which (I) includes any prospectus required
by Section 10(a)(3) of the Securities Act or (II) reflects facts or events
representing a material or fundamental change in the information set forth in
the registration statement, the incorporation by reference of information
required to be included in (I) and (II) above to be contained in periodic
reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the
registration statement.
8.5. PROSPECTUS DELIVERY.
With respect to each Registration of Registrable Securities, the Company shall
furnish the participating Holders and the underwriters such number of copies of
the registration statement and amendments and supplements thereto, preliminary
and final prospectus and amendments and supplements thereto, and such other
documents as the Holders and underwriters may reasonably request.
8.6. BLUE SKY COMPLIANCE.
Subject to Article 5, with respect to each Registration of Registrable
Securities, the Company shall use diligent reasonable efforts to Register the
securities under the securities or blue sky laws of such jurisdictions as
participating Holders of a majority of the Shares to be included in the
Registration may reasonably request. The Holders must make such request within
ten days before the estimated filing of the Registration with the SEC.
8.7. AMENDMENTS AND SUPPLEMENTS.
With respect to each Registration of Registrable Securities, the Company shall
prepare and file with the SEC, promptly upon the request of any participating
Holders, any amendments or supplements to the Registration which, on the
reasonable advice of the special counsel for the participating Holders, is
required under the Securities Act.
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8.8. INFORMATION TO BE SUPPLIED BY HOLDER.
As a condition precedent to the obligations of the Company to Register a
Holder's Registrable Securities, the Holder shall furnish the Company with
such information regarding the Holder, the Holder's Registrable Securities,
and the distribution proposed by the Holder (if the Registration is pursuant
to Article 2 or 4) as the Company may reasonably request in writing or as may
be required to Register the Holder's Registrable Securities.
8.9. NOTIFICATION OF MISSTATEMENTS IN PROSPECTUS.
The Company shall promptly notify each Holder of Registrable Securities
included in a registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of any event
that causes the prospectus included in such registration statement, as then
in effect, to include a Misstatement.
8.10. CORRECTION OF MISSTATEMENTS.
With respect to each Registration of Registrable Securities, the Company
shall prepare and promptly file with the SEC, and promptly notify the
participating Holders or their attorneys in fact of the filing of, such
amendments or supplements to the Registration as may be necessary to correct
any statements or omissions if, at the time when a prospectus relating to
such securities was required to be delivered under the Securities Act, an
event has occurred that causes the Registration to make an untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made therein not misleading, in the light of the circumstances in
which they were made.
8.11. UPDATES.
With respect to each Registration of Registrable Securities, the Company
shall promptly prepare any amendments to the Registration needed to permit
the participating Holders and their underwriters to comply with the
requirements of the Securities Act.
8.12. LISTING ON EXCHANGES.
The Company shall cause all Registrable Securities included in a Registration
to be listed on each securities exchange or over the counter market on which
the Company's securities of same class and series are then listed.
8.13. PROVIDE TRANSFER AGENT AND REGISTRAR AND CUSIP NUMBER.
The Company shall provide a transfer agent and registrar and a CUSIP number
for all Registrable Securities included in a Registration, in each case not
later than the effective date of the Registration.
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8.14. OPINION OF COUNSEL AND COLD COMFORT LETTER.
The Company shall furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to Article 2, 3, or 4 on the
date that the Holder delivers the Registrable Securities to the underwriters
for sale in connection with a Registration pursuant to Article 2, 3 or 4 if
the Registrable Securities are being sold through underwriters, or, if the
Registrable Securities are not being sold through underwriters, on the date
that the registration statement with respect to the Registrable Securities
becomes effective, (a) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities, and (b) a letter dated
such date, from the independent certified public accountants of the Company,
in form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to
the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
9. INDEMNIFICATION
9.1. BY THE COMPANY.
9.1.1. OBLIGATION TO INDEMNIFY.
The Company shall indemnify and hold harmless (a) each Holder (and each
Control Person of the Holder) and (b) each underwriter, if any (and each
Control Person of the underwriter) of the Holder's Shares against all
Claims arising out of or based on any Misstatement contained in any
preliminary or final Prospectus, or any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, or any state
securities law or of any rule or regulation promulgated under the
Securities Act, the Exchange Act, or any state securities law.
9.1.2. OBLIGATION TO REIMBURSE.
The Company shall reimburse each Holder (and its Control Persons) and
each underwriter (and its Control Persons) for any legal and any other
expenses reasonably incurred by them in connection with investigating or
defending any Claims referred to in subsection 9.1.1.
9.1.3. COMPANY NOT RESPONSIBLE FOR INFORMATION FURNISHED BY HOLDER OR
UNDERWRITER.
The Company shall not be liable under this Section 9.1 to the extent that
any Claim arises out of or is based upon a Misstatement in any
preliminary or final prospectus made in reliance upon and in conformity
with written information furnished to the Company by an instrument duly
executed by a Holder (or its Control Person) or underwriter (or its
Control Person) expressly for use in the Prospectus in which the
information is used.
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9.1.4. CORRECTED MISSTATEMENTS.
If a Claim relates to a Misstatement in a preliminary prospectus that did
not appear in the final prospectus, the Company shall not be liable for
such Claim under this Section 9.1 to (a) the seller (or its Control
Person) if the seller delivered a copy of the preliminary prospectus to
the person alleging the Claim and failed to deliver a copy of the
corrected final prospectus to such person, or (b) any underwriter (or its
Control Person) if the underwriter delivered a copy of the preliminary
prospectus to the person alleging the Claim and failed to deliver a copy
of a corrected final prospectus to such person.
9.2. BY THE HOLDERS.
9.2.1. OBLIGATION TO INDEMNIFY.
If Shares of a Holder are included in a Registration, the Holder shall,
along with all other Holders participating in the Registration, severally
indemnify (a) the Company (and its Control Persons); (b) each underwriter
(and its Control Persons); and (c) each other Holder (and its Control
Persons), if any, against all Claims arising out of or based on any
Misstatement contained in any preliminary or final Prospectus. Each
Holder shall severally indemnify (a) the Company (and its Control
Persons); (b) each underwriter (and its Control Persons); and (c) each
other Holder (and its Control Persons), if any, against all Claims
arising out of or based on any violation or alleged violation by the
Holder of the Securities Act, the Exchange Act, or any state securities
law or of any rule or regulation promulgated under the Securities Act,
the Exchange Act, or any state securities law.
9.2.2. OBLIGATION TO REIMBURSE.
Each Holder shall reimburse (a) the Company (and its Control Persons);
(b) each underwriter (and its Control Persons); and (c) each other Holder
(and its Control Persons), if any, for any legal or any other expenses
reasonably incurred in connection with investigating or defending any
Claim referred to in subsection 9.2.1.
9.2.3. LIMIT ON LIABILITY.
A Holder shall be liable under this Section 9.2 only to the extent that a
Misstatement is made in a Prospectus in reliance upon and in conformity
with written information furnished to the Company by an instrument duly
executed by the Holder expressly for use therein. In addition, a Holder
shall not be liable under this Section 9.2 for more than the net amount
of proceeds received from the sale of the Holder's Shares pursuant to the
Registration with respect to which the Claim is made.
9.2.4. CORRECTED MISSTATEMENTS.
If a Claim relates to a Misstatement in a preliminary prospectus that did
not appear in the final prospectus, the Holder shall not be liable for
such Claim under this Section 9.2 to (a)
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<PAGE>
the seller (or its Control Person) if the seller delivered a copy of
the preliminary prospectus to the person alleging the Claim and failed
to deliver a copy of the corrected final prospectus to such person, or
(b) any underwriter (or its Control Person) if the underwriter
delivered a copy of the preliminary prospectus to the person alleging
the Claim and failed to deliver a copy of the corrected final
prospectus to such person.
9.3. PROCEDURE.
9.3.1. NOTICE.
Each Indemnified Party shall give written notice to each Indemnifying
Party promptly after the Indemnified Party has actual knowledge of any
Claim as to which indemnity may be sought. The failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Parties of their obligations under this Article 9 unless and
to the extent that the Indemnifying Parties are prejudiced thereby.
9.3.2. CONDUCT OF DEFENSE.
In case any action shall be brought against any Indemnified Party and it
shall notify an Indemnifying Party of the commencement thereof, such
Indemnifying Party shall be entitled to participate therein, and to the
extent that it shall wish, jointly with any other Indemnifying Party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such Indemnified Party (who shall not, except with the
consent of the Indemnified Party, be counsel to the Indemnifying Party),
and, after notice from the Indemnifying Party to such Indemnified Party
of its election so to assume the defense thereof, such Indemnifying Party
shall not be laible to such Indemnified Party under Section 9.2 for any
legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such Indemnified Party, in connection with the
defense thereof other than reasonable costs of investigation.
9.3.3. SETTLEMENTS.
No Indemnifying Party, in the defense of any Claim, shall, except with
the consent of each Indemnified Party, consent to entry of any judgment
or enter into any settlement or compromise that does not include as an
unconditional term thereof the giving to such Indemnified Party by the
claimant or plaintiff a release from all liability in respect to such
Claim.
9.3.4. CONSENT AS CONDITION TO OBLIGATION TO INDEMNIFY.
The indemnity obligations contained in this Article 9 shall not apply to
amounts paid in settlement of any such Claim without the consent of the
Indemnifying Party, which the Indemnifying Party shall not withhold
unreasonably.
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9.4. CONTRIBUTION.
If the indemnification obligations provided for in this Article 9 are held by
a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any Claim, the Indemnifying Party, in lieu of indemnifying
such Indemnified Party under this Article 9, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Claim in such
proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the Misstatements that resulted in the Claim as well as
any other relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by
referring to, among other things, whether the Misstatement relates to
information supplied by the Indemnifying Party or by the Indemnified Party,
the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such Misstatement, and the evidence
indicating whether the Misstatement was in fact false or misleading.
9.5. CONFLICT WITH UNDERWRITING AGREEMENT.
Notwithstanding anything in this Article 9, to the extent that the provisions
on indemnification and contribution contained in an underwriting agreement
entered into in connection with a Registration conflict with this Article 9,
the underwriting agreement shall control.
9.6. SURVIVAL.
The obligations of the Company and the Holders under this Article 9 shall
survive the closing of any Registration under this Agreement, and otherwise.
10. TRANSFER OF REGISTRATION RIGHTS
10.1. TRANSFERS PERMITTED.
By giving written notice to the Company, a Holder may assign the right to
require the Company to Register Registrable Securities under this Agreement to
any transferee in connection with a transfer of Securities or Registrable
Securities by the Holder upon complying with all of the provisions of this
Article 10, unless the Company waives such compliance in its discretion.
10.2. MINIMUM TRANSFER.
Unless the transferee is an equity owner of the Holder or another
Securityholder, the transferee shall acquire at least the lesser of (a)
twenty percent (20%) of the Registrable Securities held by the original
Holder, or (b) twenty thousand (20,000) shares of Registrable Securities
(adjusted for recapitalizations, stock splits, reverse stock splits, stock
dividends, conversions and similar events).
10.3. COMPLIANCE WITH LAWS AND AGREEMENTS.
Each such transfer shall comply with all applicable securities laws and any
agreements between the Company and the transferor.
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<PAGE>
10.4. TRANSFER INSTRUMENTS.
The transferee shall execute and deliver to the Company an agreement in form
and substance satisfactory to the Company by which the transferee agrees to
be bound by all terms and provisions of this agreement as a Holder of the
transferred rights.
10.5. RIGHTS WITH RESPECT TO REMAINING SHARES.
The Company shall continue to have the same obligation to register the
balance of a Holder's Registrable Securities following a transfer of less
than all of the Holder's Registrable Securities, unless the obligation has
otherwise terminated.
11. STANDOFF AGREEMENT
11.1. RESTRICTION ON TRANSFER.
Upon delivery of a written request by the Company, or the underwriters
managing a Registered offering of the Company's securities, the Holders shall
not sell, make any short sale of, loan, grant any option for the purchase of,
or otherwise dispose of any Registrable Securities (other than those included
in the Registration) to the public without the prior written consent of the
Company or the underwriter(s) for such time (not to exceed 180 days in the
case of the Company's IPO, and 90 days in all other cases) following the
effective date of the Registration as the Company or the underwriters may
request. As a condition precedent to the obligations of the Holders under
this Article, all officers and directors of the Company who own stock in the
Company, owners of more than 1% of the outstanding shares of Common Stock of
the Company, and holders of registration rights other than pursuant to this
Agreement, shall also abide by such restrictions. This Section 11.1 does not
apply to a registration relating solely to employee benefit plans on Form S-1
or Form S-8 or similar forms which may be promulgated in the future, or a
registration relating solely to a Commission Rule 145 transaction on Form
S-14 or Form S-15 or similar forms which may be promulgated in the future.
11.2. LEGEND.
The Company shall cause each stock certificate representing the Holders'
Securities and any Registrable Securities issued with respect to the Securities
to bear a conspicuous legend in substantially the following form:
SALE, TRANSFER, OR HYPOTHECATION OF THE SHARES REPRESENTED BY THIS
CERTIFICATE IS PROHIBITED FOR UP TO 180 DAYS FOLLOWING A PUBLIC
OFFERING OF THE STOCK OF THE CORPORATION PURSUANT TO A
REGISTRATION RIGHTS AGREEMENT BETWEEN THE ORIGINAL PURCHASER OF
THE SHARES AND THE CORPORATION.
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12. TERMINATION OF RIGHTS
The rights of any particular Holder to cause the Company to Register
Registrable Securities under this Agreement shall terminate with respect to
such Holder following a bona fide, firmly underwritten public offering of
shares of Common Stock Registered under the Securities Act for so long after
the Company's IPO as the Holder holds Registrable Securities constituting
less than one percent (1%) of the combined voting power of all classes of
stock of the Company and is able to dispose of all of the Holder's
Registrable Securities in one transaction pursuant to SEC Rule 144.
13. RULE 144 REPORTING
13.1. DURATION OF UNDERTAKINGS.
The Company shall use its best efforts, including the actions described in
this Article 13, to make available to the Holders all of the benefits of any
SEC rules or regulations that may permit the Holders to sell their
Registrable Securities to the public without Registration for so long as the
Holders hold Registrable Securities.
13.2. RULE 144 PUBLIC INFORMATION REQUIREMENTS.
The Company shall make and keep public information available, in the manner
contemplated by SEC Rule 144, at all times after the Company becomes subject
to the reporting requirements of the Securities Act or the Exchange Act
regardless of whether the Company subsequently ceases to be subject to such
requirements.
13.3. REPORTING OBLIGATIONS.
The Company shall file with the SEC, in a timely manner, all reports and
other documents required under the Securities Act and the Security Exchange
Act of 1934, as amended, at all times after the Company becomes subject to
the reporting requirements of such Acts.
13.4. COMPLIANCE CERTIFICATE AND OTHER DOCUMENTATION.
The Company shall furnish to each Holder, forthwith upon request, (a) a
written statement by the Company as to its compliance with the reporting
requirements of SEC Rule 144 (at any time after 90 days after the effective
date of the first Registration by the Company (other than a Registration in a
Rule 145 transaction or with respect to an employee benefit plan)) and of the
Securities Act and the Securities Exchange Act of 1934, as amended (at any
time after the Company has become subject to such reporting requirements),
(b) a copy of the most recent annual or quarterly report of the Company, and
(c) such other reports and documents of the Company and other information in
the possession of or reasonably obtainable by the Company as a Holder may
reasonably request; provided, however, that the Company's obligations under
subsections (b) and (c) of this Section 13.4 shall terminate upon the
Company's IPO.
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13.5. S-3 REGISTRATION.
The Company shall take such action, including the voluntary registration of
its Common Stock under Section 12 of the Exchange Act, as is necessary to
enable the Holders to use Form S-3 to sell their Registrable Securities as
soon as practicable after the end of the fiscal year in which the Company's
IPO is declared effective.
14. MISCELLANEOUS
14.1. ADDITIONAL ACTIONS AND DOCUMENTS.
The parties shall execute and deliver such further documents and instruments
and shall take such other further actions as may be required or appropriate
to carry out the intent and purposes of this Agreement.
14.2. SUCCESSORS AND ASSIGNS.
Subject to Article 10, this Agreement shall bind and inure to the benefit of
the parties hereto and their respective successors and assigns.
14.3. AMENDMENTS, WAIVERS, AND CONSENTS.
This Agreement shall not be amended except in a writing signed by the
Company, the Holders of a majority of the Founders Registrable Securities,
the Holders of a majority of the outstanding Series A Registrable Securities,
the Holders of two-thirds (2/3) of the outstanding Series B Registrable
Securities, the Holders of a majority of the outstanding Series C Registrable
Securities, the Holders of a majority of the outstanding Series D Registrable
Securities and the Holders of a majority of the outstanding Series E
Registrable Securities; and provided, further, that no provision of this
Agreement pertaining solely to AOL or the Registrable Securities issued or
issuable to AOL or its successors or transferees may be amended except in a
writing signed by the Company and AOL. No waiver or consent shall be binding
except in a writing signed by the party making the waiver or giving the
consent, except that the Holders of a majority of the Founders' Shares may
grant a waiver or consent on behalf of all of the Holders of Founder's Shares
in their capacity as such, the Holders of a majority of the Series A
Registrable Securities may grant a waiver or consent on behalf of all of the
Holders of Series A Registrable Securities in their capacity as such, the
Holders of two thirds (2/3) of the Series B Registrable Securities may grant
a waiver or consent on behalf of all of the Holders of Series B Registrable
Securities in their capacity as such, the Holders of a majority of the Series
C Registrable Securities may grant a waiver or consent on behalf of all of
the Holders of Series C Registrable Securities in their capacity as such, the
Holders of a majority of the Series D Registrable Securities may grant a
waiver or consent on behalf of all of the Holders of Series D Registrable
Securities in their capacity as such, and the Holders of a majority of the
Series E Registrable Securities may grant a waiver or consent on behalf of
all of the Holders of Series E Registrable Securities in their capacity as
such. No waiver of any provision or consent to any action shall constitute a
waiver of any other provision or consent to any other action, whether or not
similar. No waiver or consent shall constitute a continuing waiver or
consent except to the extent specifically set forth
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<PAGE>
in writing. For the protection of all parties, amendments, waivers, and
consents that are not in writing and executed by the party to be bound may be
enforced only if they are detrimentally relied upon and proved by clear and
convincing evidence. Such evidence may not include the alleged reliance.
14.4. NOTICE.
Any notice, instruction, or communication required or permitted to be given
under this Agreement to any party shall be in writing (which may include
telex, telegram, telecopier, or other similar form of reproduction followed
by a mailed hard copy) and shall be deemed given when actually received or,
if earlier, five (5) days after deposit in the United States Mail by
certified or express mail, return receipt requested, postage prepaid (or for
foreign addresses by Federal Express, DHL or other comparable delivery
service), addressed to the principal office of such party or to such other
address as such party may request by written notice. Each party shall make
an ordinary, good faith effort to ensure that the person to be given notice
actually receives such notice promptly. Each party shall ensure that the
other parties to this Agreement have a current address, fax number, and
telephone number for the purpose of giving notice. Addresses for each of the
Securityholders are set forth on the Signature Page(s) of this Agreement.
For ease of reference, a current business address for the Company is as
follows:
To Company: GRIC Communications, Inc.
1421 McCarthy Boulevard
Milpitas, CA 95035
Attn.: General Counsel
Tel: (408) 955-1920
Fax: (408) 435-8687
A copy of any notice to the Company shall be given to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94036
Attn.: David W. Healy
Tel: (650) 858-7266
Fax: (650) 494-1417
Any party may change its address for the purpose of this Section 14.4 by giving
the other parties written notice of its new address as provided above.
14.5. ATTORNEY'S FEES.
If any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees, costs, and necessary disbursements in addition to any other
relief to which such party may be entitled.
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<PAGE>
14.6. AGGREGATION OF STOCK.
All shares of Registrable Securities held or acquired by affiliated entities
or persons shall be aggregated together for the purpose of determining the
availability of any rights under this Agreement.
14.7. GOVERNING LAW.
The rights and obligations of the parties shall be governed by, and this
Agreement shall be construed and enforced in accordance with, the laws of the
United States and the State of California, excluding California's conflicts
of laws rules to the extent such rules would apply the law of another
jurisdiction.
14.8. JURISDICTION AND VENUE.
The parties hereto consent to the personal jurisdiction of all federal and
state courts in California, and agree that venue shall lie exclusively in
Santa Clara County, California.
14.9. ENTIRE AGREEMENT.
This Agreement and the documents and agreements contemplated herein
constitute the entire agreement between the parties with regard to the
subject matter hereof and thereof. This Agreement supersedes all prior
written and oral agreements and understandings between the parties hereto
with respect to the subject matter hereof including, without limitation, the
Previous Agreement. There are now no agreements, representations, or
warranties between or among the parties other than those set forth in this
Agreement or the documents and agreements contemplated in this Agreement.
14.10. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
may be executed by less than all of the parties hereto, each of which shall
be enforceable only against the parties actually executing such counterparts,
and all of which together shall constitute one instrument.
14.11. PARTIES IN INTEREST.
Except as expressly provided in this Agreement, nothing in this Agreement
shall (a) confer any rights or remedies on any persons other than the
parties, their respective successors and assigns, and any Indemnified
Parties, (b) relieve or discharge the obligation of any third person to any
party, or (c) shall give any third person any right of subrogation or (except
for the Indemnified Parties) action against any party.
14.12. SEVERABILITY.
If any provision of this Agreement, or the application of such provision to any
person or circumstances, is held invalid or unenforceable, the remainder of this
Agreement, or the
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<PAGE>
application of such provision to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall continue in full force
without being impaired or invalidated.
14.13. TITLES, CAPTIONS, AND RECITALS.
Article, Section, and subsection titles and captions contained in this
Agreement are inserted as a matter of convenience and for reference and in no
way define, limit, extend, or describe the scope of this Agreement or the
intent of any of its provisions. If there is any conflict between the
Recitals at the beginning of this Agreement and the substantive provisions of
this Agreement, the substantive provisions shall control.
14.14. SECTION REFERENCES.
Unless otherwise stated, any reference contained in this Agreement to an
Article, Section, or subsection refers to the provisions of this Agreement.
An Article includes all of the Sections within that Article, and a Section
includes all of the subsections within that Section.
14.15. VARIATIONS OF PRONOUNS.
All pronouns and all variations thereof shall be deemed to refer to the
masculine, feminine, or neuter, singular or plural, as the context in which
they are used may require.
14.16. ADJUSTMENT FOR STOCK SPLITS.
All stock numbers and per share dollar numbers in this Agreement shall
automatically be deemed appropriately adjusted for any recapitalization,
stock split, reverse stock split, stock dividends, conversions or similar
event.
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SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have executed this Fifth Amended and Restated
Registration Rights Agreement of GRIC COMMUNICATIONS, INC. as of the date
first set forth above.
"COMPANY"
GRIC COMMUNICATIONS, INC.,
a California corporation
By: _________________________
"SECURITYHOLDERS"
_____________________________
Hong Chen, Ph.D.
c/o GRIC Communications, Inc.
1421 McCarthy Blvd.
Milpitas, CA 95035
Tel: (408) 955-1920
_____________________________
Lynn Ya-Lin Liu
c/o GRIC Communications, Inc.
1421 McCarthy Blvd.
Milpitas, CA 95035
Tel: (408) 955-1920
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
_____________________________
Jeff Lin
21031 Hazelbrook Dr.
Cupertino, CA 95014
Tel: (408) 873-2588
_____________________________
Swan Chen
1000 Fremont Avenue, #120
Los Altos, CA 94024
Tel: 650-947-1541
_____________________________
Eric Kao
c/o Asia Pacific Investment Co.
8F No. 201-33
Tung Hwa N. Rd.
Taipei, Taiwan, R.O.C.
Tel: (011) 886-2-545-6268
_____________________________
Wen-Ling Tsai
3636 Penitencia Creek Road
San Jose, CA 95132-3141
Tel: (408) 256-7956
_____________________________
Penny Ray
410 Auburn Way, #34
San Jose, CA 95129
Tel: (408) 985-6536
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
_____________________________
Frank S. S. Lee
2279 Farmcrest Street
Milpitas, CA 95035
Tel: (408) 942-0655
_____________________________
Jingsha He
7212 High Plains Drive
Plano, TX 75024
Tel: (214) 491-1980
ELG PARTNERS 1994-1,
a California general partnership
By: _________________________
Wayland M. Brill, Managing Partner
4400 Bohannon Drive, Suite 280
Menlo Park, CA 94025-1041
Tel: (650) 462-4700
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Vertex Investments (II) Ltd.
By: _________________________
(sign name)
_________________________
(print name)
_________________________
(title)
77 Science Park Drive
#02-15 Cintech III
Singapore Science Park
Singapore 118256
Tel: 65-870-0620
Fax: 65-777-1878
Vertex Technology Fund Ltd.
By: _________________________
(sign name)
_________________________
(print name)
_________________________
(title)
77 Science Park Drive
#02-15 Cintech III
Singapore Science Park
Singapore 118256
Tel: 65-870-0620
Fax: 65-777-1878
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Technology Associates Corporation
By: _________________________
(sign name)
_________________________
(print name)
_________________________
(title)
9F, No. 108, Sec. 5, Nan King East Road
Taipei 105, Taiwan, ROC
Tel: 886-2-2747-0030
Fax: 886-2-2747-2177
Tech Alliance Corporation
By: _________________________
(sign name)
_________________________
(print name)
_________________________
(title)
c/o Technology Associates Corporation
9F, No. 108, Sec. 5, Nan King East Road
Taipei 105, Taiwan, ROC
Tel: 886-2-2747-0030
Fax: 886-2-2747-2177
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
AII Holding Corporation
By: _________________________
(sign name)
_________________________
(print name)
_________________________
(title)
c/o Acer Advanced Labs
1830-B Bering Drive
San Jose, CA 95112
Tel: 408-467-7400
Fax: 408-467-7475
Attn: Dr. Wen Ku
Netis Technology, Inc.
By: _________________________
(sign name)
_________________________
(print name)
_________________________
(title)
1606 Centre Point Drive
Milpitas, CA 95035
Tel: 408-263-0368
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Tekkang Management Consulting, Inc.
By: _________________________
(sign name)
_________________________
(print name)
_________________________
(title)
11F, 201 Chien Kuo S. Road, Sec. 2
Taipei, Taiwan, ROC
Tel: 886-2-703-0030
Fax: 886-2-703-3051
_____________________________
Yen-Son Huang
18833 Bellgrove Circle
Saratoga, CA 95070
Tel: (408) 863-0578
_____________________________
Shiu-Ping Chao, Trustee of the Chao Family Trust U/A dated 2/12/90
14257 Stanford Court
Los Altos Hills, CA 94022
Tel: 650-694-6508
_____________________________
Hung Chih Chen
9F, No. 108, Sec 5 Nanking East Road
Taipei105, Taiwan, ROC
Tel: 886-2-2747-0030
Fax: 886-2-2747-2177
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
- ---------------------------------------
Timothy Lin
12F, 13, Sec. 2, Fu-Hsing S. Rd.
Taipei, Taiwan, ROC
Tel: 011-886-2-2706-5750
- ---------------------------------------
Daniel C.P. Ongg
Products Development Division
Institute for Information Industry
5F, #15 265 Lane
Hoping East Road, Sec. 2
Taipei, Taiwan, R.O.C.
Tel: 886-2-2-377-9539
- ---------------------------------------
Yiyou Chang
Fushin Rd, Sec. 2, Alley 71, No. 81
Taichung, Taiwan
Tel: 886-04-261-5250
- ---------------------------------------
Chun P. Chiu
851 Martin Avenue
Santa Clara, CA 95050
Tel: 415-450-8001
- ---------------------------------------
Paul Gupta
15000 BlueGum Court
Saratoga, CA 95070
Tel: (408) 395-6247
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
- ---------------------------------------
Masaharu Shinya
6-1 Shintomi 1-Chome
Chuo-Ku
Tokyo, 104 Japan
Tel: 81-3-3555-0173
- ---------------------------------------
Ella F. Shum
822 Upland Rd.
Redwood City,CA 94062
Tel: 650-299-1899
- ---------------------------------------
Fu Lin
c/o Netis Technology, Inc.
1606 Centre Point Drive
Milpitas, CA 95035
Tel: 408-263-0368
- ---------------------------------------
Susan Liang and Jeremy Liang Revocable Trust
c/o Netis Technology, Inc.
1606 Centre Point Drive
Milpitas, CA 95035
Tel: 408-263-0368
- ---------------------------------------
James Lee
3 Pandan Valley, #16-309
Singapore 597627
Tel: 65-469-4118
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
- ---------------------------------------
Jennifer Ng Yoke Lay
41A Lorong Marzuki
Singapore 1441
Tel: 65-841-4119
Gau Tech Enterprises, Inc.
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
3874 Cellecita
Santa Barbara, CA 93110
Attn: George J. Gau
Tel: 805-682-3424
ST Telecommunications Pte. Ltd.
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
51 Cuppage Rd. #10 - 11/17
The Cuppage
Singapore 229469
Tel: 65-838-3988
Attn: Lawrence Pang
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Essex Investment (Singapore) Pte Ltd.
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
23 Tai Seng Drive
IPC Building
Singapore 1953
Tel: 65-381-4641
Fax: 65-743-0691
Attn: Patrick Ngiam
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Asia Pacific Growth Fund II
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
c/o H&Q Taiwan Co., Ltd.
Suite 3201, 32F,
International Trade Building
No. 333, Keelung Road, Sec. 1
Taipei 10548, Taiwan, ROC
Tel: 886-2-720-9855
Attn: Jedi Chan
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
HanTech International Venture Capital Corporation
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
c/o H&Q Taiwan Co., Ltd.
Suite 3201, 32F,
International Trade Building
No. 333, Keelung Road, Sec. 1
Taipei 10548, Taiwan, ROC
Tel: 886-2-720-9855
Attn: Jedi Chan
- ------------------------------
Ko Suzuki
c/o SRI Consulting
333 Ravenswood Avenue
Menlo Park, CA 94025
Tel: (650) 859-6494
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
SingTel Ventures (Cayman) Pte Ltd
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
c/o Singapore Telecommunications, Inc.
31 Exeter Road, Comcentre
Singapore 239732
Tel: 65-838-8230
Fax: 65-733-8486
Attn: Andrew Buay
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Technology Fund Pte Ltd.
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
21 Science Park Road
#02-01 The Aquarius
Singapore Science Park II
Singapore 117628
Tel: 65-774-2308
Fax: 65-774-0401
Attn.: Mrs. Tahn Joo Chin
Technology Fund II Pte Ltd.
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
21 Science Park Road
#02-01 The Aquarius
Singapore Science Park II
Singapore 117628
Tel: 65-774-2308
Fax: 65-774-0401
Attn.: Mrs. Tahn Joo Chin
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Trustees of General Electric Pension Trust
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
With a copy to:
--------------
3003 Summer Street
P.O. Box 7900 Dewey Ballantine, LLP
Attn: Michael M. Pastore, Esq. 1301 Avenue of the Americas
Stamford, CT 06904-7900 New York, NY 10019
Tel: (203) 326-2312 Tel: (212) 259-6280
Fax: (203) 326-4073 Fax: (212) 259-6333
-and- Attn: Richard A. Stenberg, Esq.
Attn: David W. Wiederecht
Tel: (203) 326-2376
Fax: (203) 326-4179
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Talisman Capital Opportunity Inc.
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
16101 LaGrande Drive
Suite 100
Little Rock, AR 72211
Tel: (501) 821-6800
Fax: (501) 821-6888
Attn: Geoffrey Tirman
Talisman Capital Opportunity Fund Ltd.
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
16101 LaGrande Drive
Suite 100
Little Rock, AR 72211
Tel: (501) 821-6800
Fax: (501) 821-6888
Attn: Geoffrey Tirman
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
InnoMedia Pte Ltd
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
10 Science Park Road #03-04/05
The Alpha, Singapore Science Park II
Singapore 117684
Tel: +65-8720-828
Fax: +65-8720-122
Attn: Ng Kai Wa
L&H Investment Company N.V.
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
Sint Krispijnstraat 7
B-8900 Ieper
Belgium
Tel: +32-57-22-95-40
Fax: +32-57-22-95-45
Attn: Chantal Mestdagh
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Flanders Language Valley Fund C.V.A.
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
Patteelstraat 24
50 B-8900 Ieper
Belgium
Tel: +32-57-22-94-30
Fax: +32-57-20-68-42
Attn: Filip Vandamme
- ---------------------------------
Deborah A. Widener
c/o Oasis Capital, LLC
Three Embarcadero Center
Suite 2900
San Francisco, CA 94111
Tel: (415) 217-6880
Fax: (415) 217-6888
- ---------------------------------
Sandra T. Andrews
c/o Oasis Capital, LLC
Three Embarcadero Center
Suite 2900
San Francisco, CA 94111
Tel: (415) 217-6880
Fax: (415) 217-6888
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Richmond Holdings Global Limited
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
20C, 60 Tun Hwa South Road, Sec. 2
Taipei, Taiwan, R.O.C.
Tel: 886-2-702-8808
Fax: 886-2-702-6208
Attn.: Vivian Chen
- -----------------------------------
Martin Velasco
Le Greny
1279 Bogis-Bossey
Switzerland
Tel: 41-22-960-01-03
Fax: 41-22-776-03-69
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
- ----------------------------------
Z.C. Tseng
No. 6, Alley 38, Lane 492,
Tu Chen Road, Ta Li Village
TaiChung County, Taiwan, R.O.C.
Tel: 886-4-492-5841
- ---------------------------------
John H. and Danielle O. Saunders, Tenants by the Entirety
8476 Portland Place
McLean, VA 22102
Tel: 703-448-1798
- ---------------------------------
Limin Hu
4344 Pickerel Drive
Union City, CA 94587
T: 510-487-5383
F: 510-475-4170
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
NORTH AMERICA VENTURE FUND, L.P.,
a Cayman Islands Limited Partnership
By: CDC North America Venture
Management, L.D.C., a Cayman Islands Limited
Duration Company
General Partner
By: -------------------------
Emily Chen
Title: Member
By: -------------------------
Charles Lau
Title: Member
Maples & Calder, Ugland House
P.O. Box 309
George Town, Grand Cayman
Cayman Islands, British West Indies
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Finlayson Investments Pte Ltd
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
8 Shenton Way 338-03
Temasek Tower
Singapore 068811
Tel.: +65-220-4981
Fax: +65-221-4870
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
F&W Investments 1999
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
Two Palo Alto Square
Palo Alto, California 94306
Tel.: 650-494-0600
Fax: 650-494-1417
Attn.: David W. Healy
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Creative Technology Ltd
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
________________________
________________________
Tel.: __________________
Fax: _________________
Attn.: Sim Wong Hoo
<PAGE>
GRIC COMMUNICATIONS, INC.
FIFTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Nokia Holding Inc.
By: -------------------------
(sign name)
-------------------------
(print name)
-------------------------
(title)
________________________
________________________
Tel.: __________________
Fax: ___________________
Attn.:
<PAGE>
EXHIBIT A
SUMMARY OF REGISTRABLE SECURITIES
<TABLE>
<CAPTION>
NUMBER OF REGISTRABLE
SECURITIES INTO WHICH
PRESENTLY (1)
SECURITY NUMBER OF SHARES CONVERTIBLE
-------- ---------------- ---------------------
<S> <C> <C>
Founders' Shares 5,000,000 5,000,000
AOL Registrable
Securities 287,558 287,558
Series A Shares 3,400,000 3,400,000
Series B Shares 6,470,000 6,470,000
Series C Shares 4,726,752 4,726,752
Series D Shares Up to 17,500,000 Up to 17,500,000
Series E Shares 1,680,672 1,680,672
TOTAL UP TO 39,064,982 UP TO 39,064,982
</TABLE>
- ------------------------------
(1) For the purpose of this table, Preferred Stock are deemed convertible
into Common Stock.
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Selected Financial
Data" and "Experts" and to the use of our report dated October 25, 1999 in
Amendment No. 2 to the Registration Statement (Form S-1 No. 333-87497) and
related Prospectus of GRIC Communications, Inc. dated November 22, 1999.
Our audits also included the financial statement schedule listed in Item 16(b)
of this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
San Jose, California
The foregoing consent is in the form that will be signed upon the approval by
the Company's stockholders, of the reincorporation of the Company in Delaware as
described in Note 8 to the Consolidated Financial Statements.
/s/ Ernst & Young LLP
San Jose, California
November 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 SEP-30-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 1,362 10,181
<SECURITIES> 0 0
<RECEIVABLES> 1,112 2,165
<ALLOWANCES> 384 628
<INVENTORY> 125 56
<CURRENT-ASSETS> 2,378 13,005
<PP&E> 3,395 5,636
<DEPRECIATION> 1,340 2,522
<TOTAL-ASSETS> 4,740 16,438
<CURRENT-LIABILITIES> 9,887 6,992
<BONDS> 0 0
8,590 8,590
0 5
<COMMON> 2 2
<OTHER-SE> (14,808) (267)
<TOTAL-LIABILITY-AND-EQUITY> 4,740 16,438
<SALES> 416 160
<TOTAL-REVENUES> 2,549 5,437
<CGS> 588 44
<TOTAL-COSTS> 20,036 19,692
<OTHER-EXPENSES> 6,197<F1> 7,879<F2>
<LOSS-PROVISION> 406 431
<INTEREST-EXPENSE> 575 1,292
<INCOME-PRETAX> (17,870) (15,249)
<INCOME-TAX> 32 38
<INCOME-CONTINUING> (17,902) (15,287)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (17,902) (15,287)
<EPS-BASIC> (2.27) (1.42)
<EPS-DILUTED> (2.27) (1.42)
<FN>
<F1>includes network & operations and research & development
<F2>includes network & operations and research & development
</FN>
</TABLE>
