<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 21, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GRIC COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
--------------------------
CALIFORNIA 334410 77-0368092
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of classification code number) identification
incorporation or organization) no.)
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:
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
KYLE M. CHIN, ESQ. ONE MONTGOMERY STREET
FENWICK & WEST LLP SAN FRANCISCO, CALIFORNIA 94104
TWO PALO ALTO SQUARE (415) 393-8200
PALO ALTO, CALIFORNIA 94306
(650) 494-0600
--------------------------
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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock..................................................... $50,000,000 $13,900
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933.
------------------------------
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 SEPTEMBER 21, 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.
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 $
and $ per share. The market price of the shares after the offering may be
higher or lower than the offering price.
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."
<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 additional
shares from GRIC within 30 days following the date of this prospectus to cover
over-allotments.
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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: Global Alliance Network
[picture of our network footprint for Internet roaming and telephony showing
countries covered by roaming, and hubs and gateway locations for telephony]
INSIDE FRONT SPREAD:
[GRIC logo]
Headline: Multiple Internet Services. One Global Solution.
[picture shows how we operate our network and CSP to manage the GRIC Alliance,
and how service providers in the GRIC Alliance provide Internet services to
their end users]
Text:
We manage the network and provide the infrastructure that we make available to
telecommunications service providers and Internet service providers to deploy
the value-added Internet services which keep our customer's end-users connected
globally.
1. Convergent Services Platform (CSP) is the software platform that manages
multiple IP-based services over a global network. Operating as a global
clearinghouse, we use CSP to handle worldwide authentication, authorization,
route origination and termination, provisioning, and clearinghouse services.
2. We manage a global network of our customers, the GRIC Alliance, which is
distinguished by companies such as America Online, MindSpring, o.tel.o, and
Singapore Telecommunications. We created the GRIC Alliance by forming
relationships that allow our customers to share their communications networks,
expand their global presence and increase their revenue opportunities.
3. CSP + GRIC Alliance = a single solution that makes it possible for service
providers to quickly and economically deploy and manage multiple IP-based
services such as global Internet roaming, including corporate remote access
capability, and Internet telephony, including voice, fax and prepaid
capabilities.
INSIDE BACK COVER:
Logos of our key alliance members and technology partners.
<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.................................................................... 17
Capitalization..................................................................... 18
Dilution........................................................................... 19
Selected Financial Data............................................................ 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 22
Business........................................................................... 33
Management......................................................................... 51
Principal Stockholders............................................................. 61
Related Party Transactions......................................................... 63
Description of Capital Stock....................................................... 64
Shares Eligible for Future Sale.................................................... 68
Underwriting....................................................................... 71
Legal Matters...................................................................... 73
Experts............................................................................ 73
Where You Can Find Additional Information.......................................... 74
Index to Consolidated Financial Statements......................................... F-1
</TABLE>
----------------------------
GRIC is our registered trademark and GRIC Alliance, GRIC Network, Global Reach
Internet Connection, GRICprepaid, GRICtraveler, GRICphone, GRICfax, GRIC CSP,
GRIC Convergent Services Platform 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;
- 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; AND
- NO EXERCISE OF WARRANTS TO PURCHASE 995,187 SHARES OF COMMON AND PREFERRED
STOCK PRIOR TO THE CLOSING OF THIS OFFERING.
3
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THIS SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION AND OUR
FINANCIAL STATEMENTS AND ACCOMPANYING NOTES APPEARING ELSEWHERE IN THIS
PROSPECTUS. IN THIS PROSPECTUS, "GRIC," "WE," "US" AND "OUR" REFER TO GRIC
COMMUNICATIONS, INC., A DELAWARE CORPORATION AND ITS PREDECESSORS AND "IP" OR
INTERNET PROTOCOL REFERS TO A STANDARD INDUSTRY METHOD OF IDENTIFYING, TRACKING,
AND REASSEMBLING PACKETS OF INFORMATION TRANSFERRED OVER MULTIPLE COMMUNICATIONS
NETWORKS, INCLUDING THE INTERNET.
GRIC COMMUNICATIONS, INC.
OVERVIEW
We enable telecommunications service providers, Internet service providers and
other emerging communications service providers to offer IP-based products and
services such as Internet telephony and Internet roaming to their end users on a
global basis. Our customers are able to deploy IP-based products and services
across our managed global network. We created our network, which we call the
GRIC Alliance, by forming relationships with our customers that allow them to
share their communications networks. We manage this shared network and provide
clearinghouse services using our internally-developed CSP software platform. Our
clearinghouse services allow us to settle charges between our customers. These
charges are incurred when our customers' end users access the GRIC Alliance
network to initiate Internet roaming services or to originate Internet telephony
communications. Our global network and CSP technology benefit our customers by
enabling them to provide global services to their users over a network managed
through the implementation of common technical, service and payment standards.
As of August 31, 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. Current members of the GRIC Alliance include Chunghwa
Telecom, Fujitsu Nifty, Globus, MindSpring, o.tel.o, Singapore
Telecommunications and Telstra's On Australia subsidiary, as well as America
Online, which recently began offering our Internet roaming service to its
subscribers, and Primus Telecommunications, which recently began to offer
Internet telephony calls.
Our CSP, or Convergent Services Platform, software is an open, standards-based
platform that we use to manage our global infrastructure. CSP is designed to
facilitate the introduction, deployment and management of new IP-based services
on a global scale across the multiple networks that comprise the GRIC Alliance
network. Through CSP, we also provide multi-service transaction management, user
authentication and authorization, route termination and clearinghouse services.
Improvements in technology, the efficiency of Internet-based communications,
global deregulation of the communications industry and the convergence of the
IP-based communications and traditional telecommunications markets all have
combined to create significant new opportunities for providers of IP-based
services. For example, according to International Data Corporation, voice
minutes transmitted over IP-based networks are expected to increase from 300
million minutes in 1998 to 135 billion minutes in 2004, representing an
estimated revenue increase from approximately $100 million in 1998 to
approximately $19 billion in 2004.
In addition, demand for other IP-based communications services, including
Internet roaming, is also expected to increase. According to International Data
Corporation, the number of Internet users will increase from approximately 142
million in 1998 to approximately 502 million by 2003.
Our Internet telephony services enable our customers to offer their end users
low-cost, high quality, Internet-based phone calls. Our global Internet roaming
solution, which includes GRICtraveler and GRICdial, 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.
4
<PAGE>
STRATEGY
Our goal is to become the preferred global provider of IP-based communications
infrastructure and clearinghouse services. In order to achieve this goal, we
intend to:
- continue to add high-quality GRIC Alliance members;
- cross-sell products and services to GRIC Alliance members;
- enhance our technology leadership;
- promote the adoption of CSP;
- leverage strategic relationships; and
- increase transaction-based revenue.
PRODUCTS
We enable our customers to offer global Internet roaming through the combination
of our GRICtraveler, GRICdial and 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. Our Internet telephony services enable our customers to offer their
end users low-cost, high quality, Internet-based phone calls. We generate
settlement revenues when we provide clearinghouse services to customers whose
end users initiate Internet roaming services or originate Internet telephony
communications. We also intend to make significant investments to enhance CSP
and to develop and market additional IP-based products and services.
Our principal executive offices are located at 1421 McCarthy Blvd., Milpitas,
California 95035 and our telephone number is (408) 955-1920.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered..................................... shares
Common stock to be outstanding after the offering........ 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 our common stock to be outstanding immediately after the
offering is based on the number of shares outstanding as of August 31, 1999.
This number does not include 7,206,981 shares of our common stock subject to
options and warrants outstanding under our stock plans as of August 31, 1999.
The number of shares to be outstanding includes 29,886,911 shares of preferred
stock that will be converted into common stock upon the completion of this
offering.
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------ ------------------------
1996 1997 1998 1998 1999
---------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Total revenues....................................... $ 403 $ 1,534 $ 2,549 $ 939 $ 3,064
Operating loss....................................... (1,035) (8,206) (17,487) (6,899) (8,552)
Net loss............................................. $ (2,614) $ (3,842) $ (17,902) $ (6,779) $ (9,652)
Basic and diluted net loss per share from
continuing operations............................ $ (0.19) $ (1.58) $ (3.28) $ (1.25) $ (1.72)
---------- ---------- ------------ ---------- ------------
---------- ---------- ------------ ---------- ------------
Shares used to compute basic and diluted net loss per
share.............................................. 5,008,315 5,183,191 5,455,588 5,419,377 5,600,411
---------- ---------- ------------ ---------- ------------
---------- ---------- ------------ ---------- ------------
Pro forma basic and diluted net loss per share from
continuing operations(1)........................... $ (0.81) $ (0.35)
------------ ------------
------------ ------------
Shares used to compute pro forma basic and diluted
net loss per share................................. 22,090,104 27,496,821
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents.................................................................. $ 16,593 $
Working capital............................................................................ 12,000
Total assets............................................................................... 20,448
Long-term debt and other long-term liabilities, less current portion....................... 995
Redeemable convertible preferred stock..................................................... 8,590
Total stockholders' equity................................................................. 4,944
</TABLE>
- ---------------------
(1) Pro forma gives the effect of the conversion of all outstanding shares of
preferred stock into 29,886,911 shares of common stock and the termination
of all outstanding warrants to purchase convertible preferred stock upon the
closing of this offering without the exercise of any of such warrants.
The as adjusted data give effect to the sale of the shares of common stock
that we are offering under this prospectus at an assumed initial public offering
price of $ per share after deducting the estimated underwriting discounts
and commissions and estimated offering expenses and the conversion of the
redeemable convertible preferred stock and convertible preferred stock into
common stock which will occur upon the completion of the offering. See
"Capitalization."
6
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE BUYING SHARES IN
THIS OFFERING. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY
RISKS WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR
THAT WE CURRENTLY DEEM IMMATERIAL MAY IMPAIR OUR BUSINESS OPERATIONS. IF ANY OF
THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, PROSPECTS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION COULD BE SERIOUSLY HARMED, THE TRADING PRICE
OF OUR COMMON STOCK COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR
INVESTMENT. SEE "FORWARD-LOOKING STATEMENTS."
RISKS RELATED TO OUR BUSINESS
OUR OPERATING HISTORY IS LIMITED, SO IT WILL BE DIFFICULT FOR YOU TO EVALUATE
OUR BUSINESS IN MAKING AN INVESTMENT DECISION.
We have limited experience in developing and providing some of the products and
services we currently offer, including our clearinghouse, global Internet
roaming and Internet telephony offerings. Since our inception, we have had
limited revenue from our current IP-based communications software products and
services, and have never generated revenues from licensing our Convergent
Services Platform, or "CSP," software as a separately licensed product. Finally,
many members of our senior management team and other employees have worked
together at GRIC for only a short period of time. Consequently, we have not
demonstrated that our business can succeed.
WE HAVE NOT BEEN PROFITABLE TO DATE, 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 $8.6 million
for the first six months of 1999, $17.5 million for 1998, $8.2 million for 1997,
and as of June 30, 1999, our accumulated deficit was $34.8 million. We expect to
continue 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,
our business and the price of our common stock may be harmed. See "Selected
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 ARE NOT ABLE TO DEVELOP CSP SOFTWARE PRODUCTS THAT WE CAN LICENSE TO OUR
CUSTOMERS, OR TO DEVISE AN APPROPRIATE PRICING MODEL FOR THAT SOFTWARE, WE WOULD
LOSE A FUNDAMENTAL PART OF OUR EXPECTED FUTURE BUSINESS.
Our future growth and profitability depend, to a great extent, on our being able
to develop and market future versions of our 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, particularly given our lack
of experience in development projects of this magnitude.
Even if we succeed in developing future versions of our 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 the standalone CSP software product or for any
related services. We have limited experience with the transaction-based revenue
models we hope to use with our CSP software. If we are unable to establish a
pricing and revenue model acceptable to our customers, our standalone CSP
software product may 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 CSP, or that we will be
able
7
<PAGE>
to develop any such applications. These uncertainties make any judgment about
our future business prospects particularly risky.
WE MAY NOT BE ABLE TO MAINTAIN OR INCREASE OUR CUSTOMER BASE, WHICH WOULD HARM
OUR REVENUE GROWTH.
Our success 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 turnover in the future. 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 actual future revenues will be,
or to anticipate the rate at which we will add or retain new customers. If we
are unable to expand the overall size of our customer base and to increase the
average revenues per customer, our business would be harmed.
WE DEPEND ON OUR CUSTOMERS TO MARKET NEW 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
various IP-based services to their end users because our ability to promote
those services is limited. Many of those services, such as Internet telephony,
are new and have not proven themselves in the marketplace. Accordingly our
customers may be reluctant to promote these services until they gain greater
commercial acceptance. If our customers fail to effectively market IP-based
services, due to the unproven nature of these services or other factors, our
business would be harmed.
WE FACE SIGNIFICANT COMPETITION IN THE MARKETS IN WHICH WE OPERATE, INCLUDING
COMPETITION FROM LARGE TELECOMMUNICATIONS COMPANIES, WHICH COULD MAKE IT MORE
DIFFICULT FOR US TO SUCCEED.
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. For
example, we compete directly with iPass in the market for Internet roaming and
related settlement services and iPass has a competing alliance. Transnexus
offers a clearinghouse service for Internet telephony and, like us, it supports
the Open Standards Protocol which is a specification designed to facilitate
inter-domain communications for future Internet telephony architectures.
Providers of Internet telephony services, such as iBasis (formerly VIP Calling)
and ITXC, compete with our Internet telephony products. Potential competitors to
future standalone CSP products may include independent software vendors and
vendors of operations support system software, such as CAP Gemini, EDS and
Lucent Technologies. Large telecommunications companies such as AT&T and MCI
Worldcom have the ability and resources to compete in each of our markets or
future markets if they choose to do so, including by offering clearinghouse and
roaming services.
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 combine or form strategic
partnerships. As a result, our competitors may be able to offer, or bring to
market earlier, products and 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 harm our business, and the price
of our common stock. See "Business--Competition."
WE MAY EXPERIENCE DIFFICULTIES IN MANAGING GROWTH, WHICH COULD HARM OUR ABILITY
TO COMPETE EFFECTIVELY AND OUR OPERATING RESULTS.
In recent periods the rapid growth of the GRIC Alliance and acceleration of our
product development efforts, particularly relating to our CSP software, has
strained our network operations, product development and other managerial,
operating and financial resources. We expect these strains
8
<PAGE>
to continue as we grow. In the future, our 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 will have to be able to:
- manage our research and development efforts effectively;
- 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 cannot assure you that we will be able to accomplish these tasks, and if we
are unable to accomplish any of these tasks, our business may be harmed.
THE MARKET FOR INTERNET TELEPHONY SERVICES, AND OUR INTERNET TELEPHONY PRODUCTS
AND SERVICES, INVOLVE SPECIAL UNCERTAINTIES AND RISKS.
INTERNET TELEPHONY IS A NEW AND UNPROVEN MARKET. 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 IP-based data networks. Telecommunications companies
and phone users can be expected to resist migrating to Internet telephony unless
it offers clear benefits. If Internet telephony does not achieve commercial
acceptance at all or in the time frame anticipated, our Internet telephony
business would be harmed.
WE MUST CONTINUOUSLY IMPROVE THE QUALITY OF OUR INTERNET TELEPHONY
SOLUTION. Historically, the sound quality of Internet telephony calls has been
poor. Due to capacity constraints on the Internet over which calls travel,
Internet telephony callers sometimes experience transmission delays or
transmission errors. Failure of the technology to overcome problems causing poor
Internet telephony voice quality, or bad connections, could hamper our efforts
to grow our Internet telephony business, or result in customer or end user
disputes.
THE SUCCESS OF OUR INTERNET TELEPHONY BUSINESS DEPENDS ON THIRD PARTIES. The
success of our Internet telephony business depends on our ability to develop and
maintain strategic relationships with technology leaders. For example, we must
maintain compatibility of our products with the Internet telephony gateways of
Lucent Technologies and Cisco Systems and remain compliant with industry
standards set by third parties. Further, to increase voice traffic using our
Internet telephony service, we must continue to establish arrangements for
originating and terminating customer calls and build out our network.
THE PRICING ADVANTAGE OF INTERNET TELEPHONY MAY DECLINE. 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. Should prices of traditional international long
distance calls decline to a point where Internet telephony no longer offers a
price advantage, Internet telephony would lose a significant competitive
advantage, and our Internet telephony business would suffer.
TO DATE, OUR INTERNET TELEPHONY REVENUE IS CONCENTRATED. A small number of
customers originate or terminate Internet telephone calls using our Internet
telephony services. The loss of any such customer could have a material adverse
effect on our Internet telephony business. Any future growth depends in large
part on our ability to establish new call origination or termination
relationships with customers.
9
<PAGE>
OUR BUSINESS IS PARTICULARLY SENSITIVE TO TECHNICAL DIFFICULTIES IN DELIVERY OF
THE SERVICES WE ENABLE.
Our success depends in large part on our ability to assure substantially
error-free clearinghouse services, uninterrupted operation of our network and
software infrastructure, and a satisfactory experience for our customers' end
users when they use IP-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 solely based on our network access agreement with
Equant and on Equant'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 collection or processing of
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 cause demand for our products and services to decline and
could harm our business.
AS A CLEARINGHOUSE, WE MAY FACE DIFFICULTIES IN COLLECTING ACCOUNTS RECEIVABLE.
Our financial results may be harmed if our accounts receivable are not
collected. There is a financial risk inherent in serving as a clearinghouse for
communications service providers because we are obligated to pay amounts owed to
customers with a net balance due whether or not we have collected all the net
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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
IF WE ARE UNABLE TO DEVELOP AND INTRODUCE NEW PRODUCTS AND SERVICES, WE WILL BE
LESS LIKELY TO INCREASE OR MAINTAIN OUR REVENUES.
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 develop and market such enhancements and new products or services on
a timely or on a cost-effective basis. In the past, we have experienced delays
and difficulties that increased expenses of our research and development
activities. On several occasions, we have altered the course of our product
development efforts or discontinued products after their introduction. If we
fail to produce technologically competitive products and services in a
cost-effective manner and on a timely basis our business would 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:
- volume of transaction-based revenues;
- management of our growth;
- the rate at which customers use our services;
- our dependence on the timely and successful launch of future products,
including future versions of our standalone CSP software products;
- the mix of services used by end user subscribers of GRIC Alliance members;
10
<PAGE>
- 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;
- fluctuations in interest rates; and
- the international regulatory environment.
Business models relying on the Internet as a medium for providing IP-based
communications services are still evolving. As a result, we believe that
period-to-period comparisons of our 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 REVENUE,
REQUIRES US TO INCUR HIGH COSTS OF SALES, AND AGGRAVATES FLUCTUATIONS IN
QUARTERLY FINANCIAL RESULTS.
We compete in the global markets for multiple IP-based communications services,
including Internet telephony and Internet roaming. These are all new markets
with uncertain demand and there are many technical challenges to overcome.
Because these markets are not proven, we have historically experienced, and
expect to continue to experience, a long sales cycle in establishing
relationships with new customers as well as a significant time lag before
licensed customers generate significant transaction-based revenues for us. This
makes it difficult for us to predict future revenues. In addition, we generally
incur significant sales costs prior to recognizing any related revenue. As a
result, our quarterly results of operations are likely to be volatile, which
could harm the price of our common stock.
WE ARE SUBJECT TO THE RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.
Because we conduct business internationally, we are subject to special risks
associated with international operations, both directly and indirectly through
our affiliates. Those risks include:
- longer payment cycles;
- difficulty in accounts receivable collection, including delays due to
currency controls and fluctuations;
- the impact of fluctuating foreign currency exchange rates;
- foreign taxes; and
- the burdens of complying with a variety of foreign laws, trade standards,
and tariffs and of overcoming trade barriers.
We are also subject to general geopolitical risks, such as political and
economic instability and changes in diplomatic and trade relationships. Any of
these risks associated with our international operations may harm our business.
WE NEED TO HIRE AND RETAIN QUALIFIED PERSONNEL TO SUSTAIN 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 have only recently
been hired, and our ability to attract highly skilled employees. If any key
officer or employee were unable or unwilling to continue in their present
positions, our business could be harmed. From time to time we have experienced,
and we expect to continue to experience, difficulty in hiring and retaining
highly skilled employees. Competition for
11
<PAGE>
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 unable to retain our key employees or attract, assimilate
or retain other highly qualified employees in the future, that may have a
material adverse effect on our business.
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 valid
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
with such third parties. From time to time we have been, and expect to continue
to be, parties to disputes with such 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 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 5 to our
Financial Statements.
WE EXPECT TO NEED ADDITIONAL CAPITAL IN THE FUTURE AND IT MAY NOT BE AVAILABLE
ON ACCEPTABLE TERMS.
We expect to be required in the future to raise additional capital to fund our
operations, to finance the investments in 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. If adequate funds are not
available on acceptable terms, we may be forced to curtail or cease our
operations. Moreover, even if we are able to continue our operations, the
failure to obtain additional financing could have a material adverse effect on
our business, prospects, results of operations or financial condition or on the
price of our common stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
OUR EXECUTIVE OFFICERS AND DIRECTORS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK
AND COULD EXERT SIGNIFICANT INFLUENCE OVER MATTERS REQUIRING STOCKHOLDER
APPROVAL AFTER THESE OFFERINGS.
Immediately after the closing of the offering, our executive officers and
directors and their respective affiliates will own approximately ___% of our
outstanding common stock. Accordingly, these stockholders will be able to exert
significant influence over matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combinations. This concentration could have the effect of delaying or
preventing a change in control of our company.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS
THAT COULD DISCOURAGE A TAKEOVER AND SUPPRESS 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;
- prohibit cumulative voting in the election of directors;
12
<PAGE>
- limit the persons who may call special meetings of stockholders;
- prohibit stockholder action by written consent; 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 Section 203 of the
Delaware Corporations Code. As a result of all this, we may discourage takeover
attempts.
THE YEAR 2000 RISKS WE FACE ARE PARTICULARLY COMPLEX AND UNPREDICTABLE BECAUSE
WE INTERFACE WITH SO MANY OTHER SYSTEMS.
On January 1, 2000, computer systems and software used by many companies in a
wide variety of industries may produce erroneous results or fail unless they
process date information correctly. 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 whom we interface. Failure of any of these
parties' systems or software to process date information on and after January 1,
2000 could seriously impact our ability to deliver our 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 we are dependent upon
are not Year 2000 compliant and fail to operate effectively on and after January
1, 2000. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Compliance."
RISKS RELATED TO OUR INDUSTRY
THE FUTURE DIRECTION AND GROWTH OF CONVERGED IP-BASED COMMUNICATIONS SERVICES,
UPON WHICH WE DEPEND, IS UNCERTAIN.
The growth of our revenues requires validation of the Internet as an effective
medium for the delivery of Internet roaming, Internet telephony and other
IP-based communications services. The infrastructure of the public Internet may
not continue to be able to support increased demands on it, and the performance
or reliability of the Internet may be adversely affected. Our business would be
harmed if the Internet does not continue to grow as a telecommunications medium,
but that growth may be inhibited by factors such as:
- quality of the Internet infrastructure, including the ability of vendors to
develop Internet networking equipment that offers telecommunications-grade
communications services over the Internet;
- security concerns;
- new regulatory requirements;
- inconsistent quality of service; and
- lack of availability of cost-effective service.
SECURITY RISKS AND CONCERNS MAY DETER THE USE OF THE INTERNET FOR BUSINESS AND
OTHER IP-BASED COMMUNICATIONS.
A significant barrier to widespread adoption of electronic commerce and
communications is the secure transmission of confidential information over
public networks. The Internet is a public network and data is sent over this
network from many sources. Advances in computer capabilities, new
13
<PAGE>
discoveries in the field of cryptography or other events or developments could
result in compromises or breaches of the security of our network or those of
others, and impact the ability to ensure proprietary information is protected.
If any well-publicized compromises of such information were to occur, it could
have the effect of substantially reducing or delaying the expansion of the use
of the Internet for IP-based communications.
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, or the FCC, has at
times considered proposals to impose surcharges or other common carrier
regulations upon certain 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 which 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 and 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--Governmental
Regulations."
RISKS RELATED TO THIS OFFERING
MARKET VOLATILITY MAY AFFECT OUR STOCK PRICE.
Prior to the 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. The initial public offering price for our shares will be
determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in any future
trading market.
The stock market has experienced extreme price and volume fluctuations. In
particular, the market prices of the securities of Internet-related companies
have been especially volatile, and often these fluctuations have been unrelated
to operating performance. In the past, following periods of market volatility,
security holders have instituted class action litigation. If the market value of
our stock experiences adverse fluctuations and we become involved in this type
of litigation, we could incur substantial legal costs and management's attention
could be diverted. These developments could harm our business.
OUR STOCK PRICE MAY BE SUBJECT TO WIDE FLUCTUATIONS DUE TO BUSINESS, FINANCIAL,
COMPETITIVE OR MARKET DEVELOPMENTS OR STOCK SALES BY CURRENT STOCKHOLDERS.
Factors which could cause the market price for our common stock to be highly
volatile and subject to wide fluctuations include:
- quarterly variations in our operating results;
- announcements of technological innovations by us or our competitors;
14
<PAGE>
- announcements of new products or services by us or our competitors;
- investor perception of us, the market for IP-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 such sales will increase substantially when the underwriter lockup
agreements or equivalent contractual restrictions, covering approximately
36,030,945 shares, expire 180 days after closing of this offering. These factors
could make it more difficult for us to raise funds through future offerings of
our common stock. See "Dilution."
INVESTORS WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
Persons purchasing shares of common stock in this offering will incur immediate
and substantial dilution in net tangible book value per share. See "Dilution."
15
<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,"
"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 CSP and to make 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," "continue" or 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, Internet roaming and IP-based communications
markets. Some of this data was obtained from industry publications and reports,
such as reports by TeleGeography and International Data Corporation. These
reports assume certain events, trends and activities will occur and they project
information on those assumptions. We have not independently verified this data.
Also, we have not sought the consent of all of these organizations to refer to
their reports in this prospectus.
We cannot guarantee future results, levels of activity, performance or
achievements. Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of these statements. 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 $ from
the sale of shares of our common stock ($ if the underwriters'
over-allotment option is exercised in full) at an assumed initial public
offering price of $ per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses. The primary purposes
of this offering are to obtain additional working capital, create a public
market for our common stock, facilitate our future access to public capital
markets and provide liquidity to existing stockholders.
We intend to use the proceeds from this offering for working capital and general
corporate requirements. We may use the proceeds for acquisitions of
technologies, product lines or businesses
16
<PAGE>
that are complementary to our business. We have no current acquisition plans.
Pending such uses, we plan to invest the net proceeds in short-term to
medium-term 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.
17
<PAGE>
CAPITALIZATION
The following table sets forth the following information, as of June 30, 1999:
- our actual capitalization;
- our pro forma capitalization after giving effect to the conversion of all
outstanding shares of redeemable convertible preferred stock and convertible
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
shares of common stock offered under this prospectus at an assumed
initial public offering price of $ per share, less the estimated
underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
Current portion of long-term debt..................... $ 373 $ 373 $ 373
----------- ----------- -----------
Long-term debt and other long-term liabilities........ 995 995 995
----------- ----------- -----------
Redeemable convertible preferred stock, $0.001 par
value, 16,870,000 shares authorized, 14,596,752
shares issued and outstanding, actual; no shares
authorized, issued or outstanding, pro forma and pro
forma as adjusted................................... 8,590 -- --
----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $0.001 par value,
17,500,000 shares authorized, actual; 15,290,159
shares issued and outstanding, actual; none pro
forma; no shares authorized, issued or outstanding
pro forma as adjusted............................. 15 -- --
Common stock, $0.001 par value, 60,000,000 shares
authorized, 5,978,790 shares issued and
outstanding, actual; 60,000,000 shares authorized,
35,865,701 shares issued and outstanding, pro
forma; shares authorized, shares
issued and outstanding, pro forma as adjusted..... 6 36
Additional paid-in capital.......................... 39,753 48,328
Accumulated deficit................................. (34,830) (34,830)
----------- ----------- -----------
Total stockholders' equity........................ 4,944 13,534
----------- ----------- -----------
Total capitalization............................ $ 14,902 $ 14,902 $
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The shares of common stock outstanding in the actual, pro forma and pro forma as
adjusted column exclude:
- 6,464,294 shares issuable upon the exercise of options outstanding at June
30, 1999 under our stock option plans and 1,556,916 shares available for
future issuance under those plans;
- 893,937 shares issuable upon exercise of outstanding warrants as of June 30,
1999; and
- 1,368,250 shares issuable upon exercise of outstanding options granted after
June 30, 1999 and prior to August 31, 1999.
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<PAGE>
DILUTION
The pro forma net intangible book value of our common stock as of June 30, 1999,
after giving effect to the conversion of all outstanding shares of preferred
stock into common stock, was $ , or approximately $ per share.
Pro forma net tangible book value per share represents the amount of our total
tangible assets less total liabilities, divided by shares of common stock
outstanding 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 June 30, 1999
would have been $ , or $ per share. This represents an immediate
increase in pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution in net tangible book value of $
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......................... $
Pro forma net tangible book value per share as of June 30, 1999....... $
Increase in pro forma net tangible book value per share attributable
to new investors.................................................... $
---
Pro forma net tangible book value per share after offering.............. $
---
Dilution per share to new investors..................................... $
---
---
</TABLE>
The following table summarizes, on a pro forma basis as of June 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 $ per share, and we
have not deducted estimated underwriting discounts and commissions and estimated
offering expenses in our calculations.
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED AVERAGE
------------------------ ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................... % %
New investors.......................................
----- --- ----- ---
Total............................................. 100% 100%
----- --- ----- ---
----- --- ----- ---
</TABLE>
The foregoing discussion and table assume no exercise of any outstanding stock
options or warrants. As of June 30, 1999, there were options and warrants
outstanding to purchase a total of 7,358,231 shares of common stock. The
exercise of outstanding stock options or warrants having an exercise price less
than the offering price would increase the dilutive effect to new investors.
19
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with, and is
qualified by reference to, the Financial Statements and Notes thereto and
"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 the balance sheet data at December 31, 1997 and 1998, 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 six months ended June 30, 1998 and June 30, 1999, and
the balance sheet data at June 30, 1999, are derived from unaudited 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. Selected financial data
for the years prior to 1996 relate to discontinued operations and are not
presented. 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>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------- ---------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------- ------------ -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Settlement........................... $ -- $ 254 $ 1,666 $ 629 $ 1,966
Software and other................... 403 1,280 883 310 1,098
------------ ------------ ------------- ------------ -------------
Total revenues..................... 403 1,534 2,549 939 3,064
Costs and expenses:
Cost of settlement revenues.......... -- 156 1,444 391 1,523
Cost of software and other
revenues........................... -- 708 2,482 219 74
Network and operations............... -- 837 1,117 411 1,163
Research and development............. 998 2,314 5,080 2,397 3,430
Sales and marketing.................. 49 3,723 6,373 2,932 3,560
General and administrative........... 391 2,002 3,540 1,488 1,866
------------ ------------ ------------- ------------ -------------
Total costs and expenses........... 1,438 9,740 20,036 7,838 11,616
------------ ------------ ------------- ------------ -------------
Operating loss......................... (1,035) (8,206) (17,487) (6,899) (8,552)
Interest income and other, net......... 104 79 192 137 159
Interest expense....................... -- -- (575) -- (1,241)
------------ ------------ ------------- ------------ -------------
Loss from continuing operations before
income taxes......................... (931) (8,127) (17,870) (6,762) (9,634)
Provision for income taxes from
continuing operations................ -- 59 32 17 18
------------ ------------ ------------- ------------ -------------
Net loss from continuing operations.... (931) (8,186) (17,902) (6,779) (9,652)
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) $ (6,779) $ (9,652)
------------ ------------ ------------- ------------ -------------
------------ ------------ ------------- ------------ -------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------- ---------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------- ------------ -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Basic and diluted net loss per share
from continuing operations........... $ (0.19) $ (1.58) $ (3.28) $ (1.25) $ (1.72)
------------ ------------ ------------- ------------ -------------
------------ ------------ ------------- ------------ -------------
Basic and diluted net loss per
share.............................. $ (0.52) $ (0.74) $ (3.28) $ (1.25) $ (1.72)
------------ ------------ ------------- ------------ -------------
------------ ------------ ------------- ------------ -------------
Shares used to compute basic and
diluted net loss per share......... 5,008,315 5,183,191 5,455,588 5,419,377 5,600,411
------------ ------------ ------------- ------------ -------------
------------ ------------ ------------- ------------ -------------
Pro forma basic and diluted net loss
per share from continuing
operations(1)(2)................... $ (0.81) $ (0.35)
------------- -------------
------------- -------------
Shares used to compute pro forma
basic and diluted net loss per
share.............................. 22,090,104 27,496,821
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------------- JUNE 30, JUNE 30,
1996 1997 1998 1999 1999(2)
--------- --------- --------- --------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 3,342 $ 8,481 $ 1,362 $ 16,593 $ 16,593
Working capital (deficit)................................. 4,026 7,839 (7,509) 12,000 12,000
Total assets.............................................. 5,796 9,855 4,740 20,448 20,448
Long-term debt and other long-term liabilities, less
current portion......................................... -- 19 1,069 995 995
Redeemable convertible preferred stock.................... 8,590 8,590 8,590 8,590 --
Total stockholders' equity (deficit)...................... (3,402) 61 (14,806) 4,944 13,534
</TABLE>
- ---------------------
(1) See Note 2 of Notes to the Consolidated Financial Statements for information
concerning the calculation of pro forma basic and diluted net loss per
share.
(2) Pro forma gives the effect of the conversion of all outstanding shares of
preferred stock into 29,886,911 shares of common stock and the termination
of all outstanding warrants to purchase convertible preferred stock upon the
closing of this offering without exercise of any of such warrants.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH "SELECTED FINANCIAL DATA" AND OUR
FINANCIAL STATEMENTS AND NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS
DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS,
UNCERTAINTIES AND ASSUMPTIONS. SEE "FORWARD-LOOKING STATEMENTS." THE ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF SEVERAL FACTORS, INCLUDING THOSE DESCRIBED UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We enable telecommunications service providers, Internet service providers and
other emerging communication service providers to offer IP-based products and
services such as Internet telephony and Internet roaming to their end users on a
global basis. Our customers are able to deploy IP-based products and services
across our managed global network. We created our network, which we call the
GRIC Alliance, by forming relationships with our customers that allow them to
share their communications networks. We manage this shared network and provide
clearinghouse services using our internally-developed CSP software platform. Our
clearinghouse services allow us to settle charges between our customers. These
charges are incurred when our customers' end users access the GRIC Alliance
network to initiate Internet roaming services or to originate Internet telephony
communications. Our global network and CSP technology benefit our customers by
enabling them to provide global services to their users over a network managed
through the implementation of common technical, service and payment standards.
Our predecessor corporation, incorporated in California in 1994, was both an
Internet service provider, or "ISP," in Northern California and a developer of
software for the ISP community, including our current Internet roaming software.
In 1997 we sold our local ISP business and related assets. Operations that
related to our ISP business through 1997 are reflected as discontinued
operations. We intend to reincorporate in Delaware prior to the completion of
this offering.
To date, we have derived our revenues primarily from clearinghouse services to
customers providing Internet roaming and Internet telephony services to their
end users and from licenses of software to customers seeking to offer those
services using our network. We have also derived revenue from sales of
equipment, maintenance and support services.
Settlement revenues are generated when we provide clearinghouse services to
customers whose end users initiate Internet roaming services or originate
Internet telephony communications. For each global Internet roaming transaction,
we use 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 CSP to track
the usage, settle the amounts owed for use of the GRIC network between our
customers that were involved in the transaction and provide the underlying usage
data to our customers to enable billing of its end users.
We have incurred substantial losses since our inception as a result of expenses
associated with building our GRIC Alliance and distributed network
infrastructure, and developing our software products. As of June 30, 1999, we
had an accumulated deficit of approximately $34.8 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, and we anticipate continued losses for the foreseeable
future."
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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 limited,
so it will be difficult for you to evaluate our business in making an investment
decision."
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations data as a
percentage of total revenues for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Settlement.................................................. --% 17% 65% 67% 64%
Software and other.......................................... 100 83 35 33 36
--- --- --- --- ---
Total revenues............................................ 100 100 100 100 100
Costs and expenses:
Cost of settlement revenues................................. -- 10 57 42 50
Cost of software and other revenues......................... -- 46 97 23 2
Network and operations...................................... -- 55 44 44 38
Research and development.................................... 248 151 199 255 112
Sales and marketing......................................... 12 243 250 312 116
General and administrative.................................. 97 131 139 158 61
--- --- --- --- ---
Total costs and expenses.................................. 357 636 786 834 379
--- --- --- --- ---
Operating loss................................................ (257)% (536)% (686)% (734)% (279)%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES
Total revenues increased to $3.1 million for the first six months of 1999 from
$939,000 for the first six months of 1998, representing an increase of 226%.
Both settlement revenues and software and other revenues grew significantly
during this period.
SETTLEMENT REVENUES. Settlement revenues increased to $2.0 million for the first
six months of 1999 from $629,000 for the first six months of 1998, an increase
of 213%. This increase reflects higher volumes of Internet roaming and, to a
lesser extent, Internet telephony transactions. We expect revenues from Internet
telephony to increase in the future at a faster rate than revenues from Internet
roaming.
SOFTWARE AND OTHER REVENUES. Software and other revenues increased to $1.1
million for the first six months of 1999 from $310,000 for the first six months
of 1998, representing an increase of 254%. 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.
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<PAGE>
COSTS AND EXPENSES
COST OF SETTLEMENT REVENUES. Cost of settlement revenues represents the amounts
we pay for access points of presence for Internet roaming services for our
customers, and to terminate Internet telephony services for our customers. Cost
of settlement revenues increased to $1.5 million for the first six months of
1999 from $391,000 for the first six months of 1998, an increase of 290%. The
increase is due to higher sales volumes, primarily our Internet roaming and
Internet telephony services.
COST OF SOFTWARE AND OTHER REVENUES. Cost of software and other revenues
represents license fees for third-party software that is incorporated into our
software products, and the cost of Internet telephony equipment. Cost of
software and other revenues decreased to $74,000 for the first six months of
1999 from $219,000 for the first six months of 1998, representing a decrease of
66%. This decrease is primarily attributable to our decision to no longer sell
certain customized software and hardware, offset partially by increased sales of
Internet telephony equipment.
NETWORK AND OPERATIONS. Network and operations costs include expenses associated
with operating our network, such as salaries, benefits, allocated facility and
management information systems costs, co-location of network equipment and
leased telecommunication lines, and depreciation on network equipment. Network
and operations expenses increased to $1.2 million for the first six months of
1999 from $411,000 for the first six months of 1998, representing an increase of
183%. This increase was primarily due to higher costs associated with the
expansion of our customer support and network operations center to 24
hours-per-day, seven days-a-week, co-location of network equipment, leased line
costs, allocated expenses, and personnel costs. We expect that network and
operations costs 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 who work on
the development of our software and quality assurance, allocated facility,
management information services and depreciation costs. Research and development
increased to $3.4 million for the first six months of 1999 from $2.4 million for
the first six months of 1998, representing an increase of 43%. This increase was
primarily due to the development of our 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 achieve 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, marketing and promotional
programs, and the costs associated with our domestic and international sales
offices. Sales and marketing expenses increased to $3.6 million for the first
six months of 1999 from $2.9 million for the first six months of 1998,
representing an increase of 21%. This increase reflects the hiring of additional
personnel to expand the coverage of geographic markets 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. General and administrative expenses
increased to $1.9 million for the first six months of 1999 from $1.5 million for
the first six months of 1998, representing an increase of 25%. 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
24
<PAGE>
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.
INTEREST INCOME AND OTHER, NET
Interest income and other, net primarily represents interest income on cash
balances. Interest income and other, net increased to $159,000 for the first six
months of 1999 from $137,000 for the first six months of 1998, an increase of
16%. This increase is primarily due to higher average cash balances during the
first six 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 of $1.2 million for the first six months of 1999 was primarily due to
the amortization of warrants. We incurred no interest expense for the first six
months of 1998.
INCOME TAXES
The provision for income taxes consists primarily of foreign taxes. FASB
Statement No. 109 provides for the recognition of deferred tax assets if
realization of such 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%, and to $1.5 million in 1997 from $403,000 in 1996, an increase
of 281%.
SETTLEMENT REVENUES. Settlement revenues increased to $1.7 million in 1998 from
$254,000 in 1997, an increase of 556%. We recognized no settlement revenues in
1996. These increases were due to increases in the numbers of customers and
transactions.
SOFTWARE AND OTHER REVENUES. Software and other revenues decreased to $883,000
in 1998 from $1.3 million in 1997, a decrease of 31%, and increased to $1.3
million in 1997 from $403,000 in 1996, an increase of 218%. The decrease in 1998
from 1997 was primarily attributable to our decision to no longer sell certain
customized software and hardware. The increase in 1997 from 1996 was primarily
due to increased sales of Internet fax hardware and software and, to a lesser
extent, to increased sales of Internet roaming software and related services.
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 826%. 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 AND OTHER REVENUES. The cost of software and other revenues
increased to $2.5 million in 1998 from $708,000 in 1997, an increase of 251%. We
incurred no cost of software and other revenues in 1996. The increase in 1998
from 1997 was primarily due to a charge of $1.5 million in the fourth quarter of
1998 related to a purchase commitment for licenses of certain customized
software which we are no longer selling and due to sales of Internet telephony
equipment. The increase in 1997 from 1996 was primarily due to higher volumes of
software licenses.
25
<PAGE>
NETWORK AND OPERATIONS. Network and operation expenses increased to $1.1 million
in 1998 from $837,000 in 1997, an increase of 34%. We incurred no network and
operations expenses in 1996. The increases during the periods were due to an
expansion of our network operations center.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to $5.1
million in 1998 from $2.3 million in 1997, an increase of 120%, and to $2.3
million in 1997 from $998,000 in 1996, an increase of 132%. The increases are
primarily due to increased spending on development of our 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%. 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 77%, and to $2.0
million in 1997 from $391,000 in 1996, representing an increase of 412%. These
increases were primarily due to the recruiting and hiring of additional
personnel, including key executives.
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%, and decreased to $79,000 in 1997 from $104,000 in
1996, a decrease of 24%. These fluctuations were due to changes in the average
cash balances during each year.
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 46%. We incurred no income taxes in 1996.
DISCONTINUED OPERATIONS
In 1997, we sold our interest in our local ISP 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.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statement of
operations data for the six quarters ended June 30, 1999, as well as such data
expressed as a percentage of our total revenues for the respective periods
indicated. 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 been in the past and
may in the future be subject to significant fluctuations. As a result, we
believe that results of
26
<PAGE>
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,
1998 1998 1998 1998 1999 1999
----------- --------- --------- --------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Settlement........................................... $ 284 $ 345 $ 444 $ 593 $ 736 $ 1,230
Software and other................................... 176 134 330 243 430 668
----------- --------- --------- --------- ----------- ---------
Total revenues..................................... 460 479 774 836 1,166 1,898
----------- --------- --------- --------- ----------- ---------
Costs and Expenses:
Cost of settlement revenues.......................... 171 220 481 572 631 892
Cost of software and other revenues.................. 88 131 270 1,993 24 50
Network and operations............................... 195 216 318 388 561 602
Research and development............................. 1,047 1,350 1,321 1,362 1,461 1,969
Sales and marketing.................................. 1,430 1,502 1,592 1,849 1,643 1,917
General and administrative........................... 617 871 998 1,054 924 942
----------- --------- --------- --------- ----------- ---------
Total costs and expenses........................... 3,548 4,290 4,980 7,218 5,244 6,372
----------- --------- --------- --------- ----------- ---------
Operating loss......................................... (3,088) (3,811) (4,206) (6,382) (4,078) (4,474)
Interest income and other, net......................... 75 62 16 39 40 119
Interest expense....................................... -- -- (33) (542) (391) (850)
----------- --------- --------- --------- ----------- ---------
Loss before income taxes............................... (3,013) (3,749) (4,223) (6,885) (4,429) (5,205)
Provision for income taxes............................. 5 12 11 4 8 10
----------- --------- --------- --------- ----------- ---------
Net loss............................................... $ (3,018) $ (3,761) $ (4,234) $ (6,889) $ (4,437) $ (5,215)
----------- --------- --------- --------- ----------- ---------
----------- --------- --------- --------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT 30, DEC 31, MARCH 31,
PERCENTAGE OF REVENUE: 1998 1998 1998 1998 1999
- ---------------------------------------------------------- ------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Settlement.............................................. 62% 72% 57% 71% 63%
Software and other...................................... 38 28 43 29 37
--- --- --- --- ---
Total revenues........................................ 100 100 100 100 100
--- --- --- --- ---
Costs and Expenses:
Cost of settlement revenues............................. 37 46 62 68 54
Cost of software and other revenues..................... 19 27 35 238 2
Network and operations.................................. 42 45 41 46 48
Research and development................................ 228 282 171 163 125
Sales and marketing..................................... 311 314 206 221 141
General and administrative.............................. 134 182 129 126 79
--- --- --- --- ---
Total costs and expenses.............................. 771 896 644 862 449
--- --- --- --- ---
Operating loss............................................ (671)% (796)% (544)% (762)% (349)%
--- --- --- --- ---
--- --- --- --- ---
<CAPTION>
JUNE 30,
PERCENTAGE OF REVENUE: 1999
- ---------------------------------------------------------- -----------
<S> <C>
Revenues:
Settlement.............................................. 65%
Software and other...................................... 35
---
Total revenues........................................ 100
---
Costs and Expenses:
Cost of settlement revenues............................. 47
Cost of software and other revenues..................... 3
Network and operations.................................. 32
Research and development................................ 104
Sales and marketing..................................... 101
General and administrative.............................. 50
---
Total costs and expenses.............................. 337
---
Operating loss............................................ (237)%
---
---
</TABLE>
The discussions of the annual and six-month operating results for the periods
ended June 30, 1999 apply generally to the comparisons of results of operations
for the six quarters ended June 30, 1999.
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<PAGE>
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:
- utilization, or changes in the size, of the GRIC Alliance;
- our ability to establish and maintain relationships with service providers
and strategic partners;
- demand for our products and services;
- software defects and other product quality problems;
- size and timing of specific sales;
- the length of our sales cycles;
- budgeting cycles of our customers;
- delay of customer purchases caused by the announcement of new hardware or
software platforms;
- level of product and price competition;
- changes in our pricing policies;
- 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;
- 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 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
DECEMBER 31, SIX MONTHS
-------------------- ENDED
1997 1998 JUNE 30,
--------- --------- 1999
-----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents..................................................... $ 8,481 $ 1,362 $ 16,593
Net cash used in operating activities......................................... (6,815) (12,806) (7,881)
Net cash provided by (used in) investing activities........................... 4,649 (2,283) (722)
Net cash provided by financing activities..................................... 7,305 7,970 23,834
</TABLE>
OPERATING ACTIVITIES. Net cash used in operating activities was $7.9 million for
the first six months ended June 30, 1999, $12.8 million in 1998 and $6.8 million
in 1997. Net cash used in operating
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<PAGE>
activities for the first six 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 investing activities have consisted primarily of
capital expenditures for computer hardware relating to the network
infrastructure as well as computer hardware and software for our increasing
employee base. Net cash used in investing activities was $722,000 for the six
months ended June 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 local ISP 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 six 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
$47.1 million since inception. We have also financed our operations through
equipment promissory notes. At June 30, 1999, our principle source of liquidity
is approximately $16.6 million of cash and cash equivalents. As of June 30,
1999, we had $1.2 million of outstanding equipment promissory notes.
COMMITMENTS. We lease all of our facilities under operating leases that expire
at various dates through 2003. As of June 30, 1999, we had $3.0 million in
future operating lease commitments. As of June 30, 1999, we had $115,000 of
capital lease obligations and we expect to continue to finance the acquisition
of computer and network equipment through additional capital lease arrangements.
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 such 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. 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
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<PAGE>
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 immaterial amount of debt
obligations, we believe that there is no significant material risk 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 as
to 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 as to year 2000 compliance for the
current generally available and immediately preceding versions of our software.
The review includes 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 software. We have not tested our
software on all platforms or all versions of operating systems that it currently
supports.
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<PAGE>
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 their 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, or increased service and warranty costs, or
liability from our customers, any of which could seriously harm our business.
THE GRIC NETWORK AND THE GRIC ALLIANCE. We have initiated an assessment of the
components of the GRIC network that are within our control. In the fourth
quarter of 1999, we expect to complete testing of those portions of the GRIC
network over which we maintain control. 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 GRIC Alliance network are not year 2000 compliant. Our ability to determine
the year 2000 compliance of GRIC Alliance members and telecommunications
carriers who are not members of the GRIC Alliance is limited. Even if we receive
these 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 clearinghouse and 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 such 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 expect to fund the year
2000-related costs through funds provided by operations and do not expect these
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
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
ASSUMPTIONS, UNCERTAINTIES AND RISKS. ACTUAL OUTCOMES MAY DIFFER FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS IN SIGNIFICANT WAYS, AS A RESULT
OF FACTORS SUCH AS THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS. SEE "FORWARD-LOOKING STATEMENTS."
We enable telecommunications service providers, Internet service providers and
other emerging communication service providers to offer IP-based products and
services such as Internet telephony and Internet roaming to their end users on a
global basis. Our customers are able to deploy IP-based products and services
across our managed global network. We created our network, which we call the
GRIC Alliance, by forming relationships with our customers that allow them to
share their communications networks. We manage this shared network and provide
clearinghouse services using our internally-developed CSP software platform. Our
clearinghouse services allow us to settle charges between our customers. These
charges are incurred when our customers' end users access the GRIC Alliance
network to initiate Internet roaming services or to originate Internet telephony
communications. Our global network and CSP technology benefit our customers by
enabling them to provide global services to their users over a network managed
through the implementation of common technical, service and payment standards.
As of August 31, 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 enable their end users
to access a global network consisting of the aggregation 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 GRIC network. Current members of the GRIC
Alliance include Chunghwa Telecom, Fujitsu Nifty, Globus, MindSpring, o.tel.o,
Singapore Telecommunications and Telstra's On Australia subsidiary, as well as
America Online, which recently began offering our Internet roaming service to
its subscribers, and Primus Telecommunications, which recently began to offer
Internet telephony calls.
Our CSP, or Convergent Services Platform, software is an open, standards-based
platform that we use to manage our global infrastructure. CSP is designed to
facilitate the introduction, deployment and management of new IP-based services
on a global scale across the multiple networks that comprise the GRIC Alliance
network. Through CSP, we also provide multi-service transaction management, user
authentication and authorization, route termination and clearinghouse services.
INDUSTRY BACKGROUND
GROWTH OF THE IP-BASED SERVICES MARKET.
Improvements in technology, the efficiency of Internet-based communications,
global deregulation of the communications industry and the convergence of the
IP-based communications and traditional telecommunications markets all have
combined to create significant new opportunities for providers of IP-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 IP-based communications and traditional
telecommunications markets is gaining momentum because technological
improvements have recently made it more practical to utilize IP to not only
transport data over the Internet, but also to utilize it for telephone
connections, particularly international calls. It is now possible to transmit
phone-to-phone calls over IP-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
IP-based networks allow voice and data calls to be pooled, enabling them 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 IP-based networks are expected
to increase from 300 million minutes in 1998 to 135 billion minutes in 2004
representing an estimated revenue increase from approximately $100 million in
1998 to approximately $19 billion in 2004.
Demand for a wide variety of other IP-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 different from their "home provider" or provider with whom they have
their 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 International Data
Corporation, the number of Internet users are expected to increase from
approximately 142 million in 1998 to approximately 502 million by 2003.
Finally, we believe demand for all IP-based services, including Internet
telephony and Internet roaming, is expected to increase as a result of
deregulation in global telecommunications markets. Global deregulation has also
compelled communications service providers to add services as a means to
differentiate themselves from their competitors and to generate increased
revenues.
THE CHALLENGES ASSOCIATED WITH PROVIDING IP-BASED SERVICES.
If emerging Internet communications services are to achieve widespread
commercial acceptance, they will require an underlying global IP-based
infrastructure that enables activities such as inter-network communications and
clearinghouse services that provide settlement for multi-party, multi-service
transactions. There are several impediments to the development of such an
infrastructure.
NEED FOR A GLOBAL IP-BASED NETWORK. Access to, or ownership of, an IP-based
network with Internet access points around the world is required to enable the
global delivery of multiple IP-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 IP-based services on a
global basis.
NEED FOR 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.
NEED FOR 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;
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- PROVISIONING--designating one or more IP-based services that a person is
authorized to use once an account is established;
- AUTHENTICATION--determining whether a person is authorized to use a
particular service and then connecting that person to the appropriate
hardware and software;
- ROUTE ORIGINATION AND TERMINATION--determining the appropriate network
routing of an Internet transaction, including the origination and
termination points, based on applicable cost and quality of service
parameters;
- TRACKING--tracking each end user's individual Internet service transaction
and service quality and collecting the corresponding accounting data
necessary to bill customers; and
- CLEARINGHOUSE AND SETTLEMENT--billing and collecting the amounts owed by the
communications service provider whose end users accessed another provider's
facilities or services and paying the second provider for the use of those
facilities or delivery of those services. Settlement becomes more complex
with multiple parties because all such parties must agree on a common set of
rules for settlement and payment. A settlement clearinghouse establishes
these rules and provides these settlement services for multiple parties.
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 IP-based communications infrastructure products and
services, including clearinghouse services, that enable telecommunications
service providers, Internet service providers, and emerging communications
providers to offer IP-based products and services to their customers worldwide.
Our IP-based platform consists of a globally managed network, CSP software and
the GRIC Alliance. Through this IP-based platform, we offer transaction
management and clearinghouse services to our customers to settle the charges
between customers. Our combination of software, network infrastructure and
business relationships allows our customers to provide to their end users, on a
global basis, IP-based services such as global Internet roaming, including
secure corporate remote access capability, and Internet telephony, including
voice, fax, and prepaid capabilities. As a 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 IP-BASED SERVICES. Our solution enables new
IP-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
IP-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,
instantly becoming a global service provider through us as a single point of
contact.
- 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 IP-based
multiple-service network.
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- LEVERAGES ESTABLISHED BUSINESS RELATIONSHIPS TO ENABLE NETWORK AND SERVICE
INTERCHANGE. We have designed our software technology, structured our
business and formed the GRIC Alliance in a way that allows our customers to
leverage the end user base and share the network facilities of each GRIC
Alliance member. Our common set of technical, service and payment standards
facilitates this interchange by providing enhanced predictability as well as
business and technical interoperability.
Utilizing our CSP software, we administer and monitor the GRIC Alliance network
and provide transaction management and clearinghouse services to our customers.
We believe CSP benefits our customers in the following ways:
- PROVIDES FUNCTIONALITY NECESSARY TO MANAGE A GLOBAL NETWORK. CSP provides
configuration, authentication, route origination and termination, tracking,
settlement and other clearinghouse services, which are essential to
integrate the dispersed networks of the GRIC Alliance members into a
globally managed, interconnected network.
- SUPPORTS EFFICIENT BILLING AND TRANSACTION MANAGEMENT. By tracking usage
data through the GRIC Alliance network, we use 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 IP-BASED SERVICES. CSP's open, standards-based
architecture is designed to readily enable the introduction of new IP-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 IP-based communications
infrastructure and clearinghouse services. In order to achieve this goal, we
intend to:
CONTINUE TO ADD HIGH-QUALITY 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 high quality attributes that enhance the GRIC
Alliance, such as extensive network facilities, a diverse array of IP-based
service offerings and large subscriber bases, particularly those with a high
percentage of roaming and telephony subscribers.
CROSS-SELL PRODUCTS AND SERVICES 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 to their end users all available IP-based 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
IP-based services. Our existing Internet telephony infrastructure should make it
easier for us to offer new Internet telephony services, such as PC-to-phone,
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 CSP's
features and functionality, enhancing our existing IP-based service offerings
and introducing new IP-based services. We expect that new enhancements of CSP
will offer integration with third party provisioning and billing systems and the
ability to allow future proprietary and third party IP-based services to operate
on the CSP platform. We also plan to increase functionality of 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 CSP. We intend to encourage the adoption of CSP as the
preferred platform world-wide for delivery of multiple IP-based services which
in turn is expected to provide us with increased settlement revenues. In
addition to continuing to use CSP to manage the GRIC Alliance network and
provide our clearinghouse services, we intend to license future versions of CSP
directly
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to our customers. By licensing our customers an enhanced 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 also plan to
create and market a software developer kit for CSP, which we believe will
encourage demand for CSP by enabling technology partners to develop new CSP-
compatible IP-based services, such as e-commerce, PC-to-phone, unified
messaging, multimedia, wireless and customer management solutions. We believe
that these new services will be deployed through our own existing global
channel--potentially benefiting all members of the GRIC Alliance.
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 Lucent Technologies and
Cisco Systems or integrate CSP with third party billing, Internet telephony or
e-commerce software solutions. We also intend to work with system integrators,
who could integrate 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 IP-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 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 using our
clearinghouse service.
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PRODUCTS AND SERVICES
OVERVIEW
Our products and services enable telecommunications companies, ISPs and other
communication service providers to offer multiple IP-based services, including
global Internet roaming and Internet telephony, to their customers world-wide.
As shown in the chart below, we enable these products and services to be
delivered by providing our IP-based infrastructure. This infrastructure includes
our distributed CSP software, our world-wide managed network and the GRIC
Alliance, which is our global alliance of service providers. 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 clearinghouse. In addition
to enabling our customers to expand their service offering as a means to
generate incremental revenue by offering multiple IP-based services, we also
provide a comprehensive clearinghouse solution to our customers.
[LOGO]
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The table below summarizes our current products and services. We provide
clearinghouse services for each of our IP-based services.
<TABLE>
<CAPTION>
IP-BASED SERVICE GRIC PRODUCT/SERVICE INFRASTRUCTURE ELEMENTS
<S> <C> <C>
Global Internet Roaming - GRICtraveler software - Over 4000 Internet access
- GRICdial software points in over 140 countries
- secure corporate remote -High quality network
access - 82% of Internet access
- CSP clearinghouse services points offer 56k access speed
- Easy to use with automatic
update feature
- Network quality monitored
by dialer software and 24x7
network operations center
Internet Telephony - GRICphone service - Allows phone to phone
- GRICprepaid software Internet telephony,
- CSP clearinghouse services including voice, prepaid
and fax
-Provides worldwide
termination
- Supports Lucent and Cisco
gateways
- World-wide private backbone
network for enhanced
quality of service
- Network quality monitored
by dialer software and 24x7
network operations center
</TABLE>
GLOBAL INTERNET ROAMING
We enable our customers to offer global Internet roaming through the combination
of our GRICtraveler, GRICdial and 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.
GRICTRAVELER. Our GRICtraveler software normally resides on our customer's
server and enables our customers 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 GRIC network, 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 website.
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 GRIC Alliance network. 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:
1. Launch GRICdial, which automatically updates an electronic phone book
of available Internet access points to ensure the most current listing;
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2. 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
3. Connect and be authenticated using the name and password information
previously stored in GRICdial.
SECURE CORPORATE REMOTE ACCESS. 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 or VPN
software. Our GRICdial software is compatible with and launches a variety of
industry-leading third party VPN 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 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 flexible
business model allows our customers to 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 world-wide, private asynchronous transfer mode, or ATM, 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.
CSP CLEARINGHOUSE SERVICES
The combination of our clearinghouse services and 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 provide clearinghouse services to customers whose end users
initiate Internet roaming services or originate Internet telephony
communications. For each global Internet roaming transaction, we use 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 CSP to monitor usage, settle
the amounts owed for use of the GRIC network between participating customers and
provide the underlying usage data to facilitate our customer's billing of its
end user.
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FUTURE PRODUCTS AND SERVICES
We intend to make significant investments to enhance 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.
CSP AS A LICENSED PRODUCT. We currently use CSP internally to administer and
monitor the GRIC Alliance network. However, we are developing an enhanced
version of CSP that we expect to license directly to our customers. We expect to
offer our next generation of 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 IP-based services. This edition will add
significant features and functionality over our current 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 CSP features remotely to ease network
administration and allow future proprietary and third party IP-based
services to operate on and plug into 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 CSP as a flexible platform for quickly
adding and bundling new IP-based services for use by their end users.
- We intend to license a CSP software development kit to independent software
vendors and hardware companies that wish to develop new or improve existing
IP-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 CSP by increasing the number of available IP-based
services, making it a more attractive and widely adopted platform for GRIC
Alliance members.
- We intend to license a third edition of CSP that will enable large service
providers, principally telecommunications companies, to use CSP to provide
IP-based services and clearinghouse services within their own network
domain. We are designing this edition of CSP to allow us and our customers
to partition the GRIC Alliance network into multiple sub-networks. We intend
to continue to provide clearinghouse services and to track and price
transactions among and between these sub-networks and to allocate payments
among multiple parties.
E-COMMERCE. We intend to enhance our 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.
PC-TO-PHONE, UNIFIED MESSAGING AND OTHER IP-BASED SERVICES. We intend to partner
with leading hardware and software vendors to facilitate the development of
other new CSP-compatible IP-based services, which may include PC-to-phone,
unified messaging, call center, multimedia, wireless and customer management
solutions.
OUR IP-BASED TECHNOLOGY AND COMMUNICATIONS INFRASTRUCTURE
Our IP-based infrastructure consists of a world-wide managed network,
distributed software and the GRIC Alliance. Using this infrastructure, we
provide clearinghouse services for, and enable our customers to offer, multiple
IP-based services.
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CONVERGENT SERVICES PLATFORM (CSP)
Our Convergent Services Platform, or CSP, currently consists of software that we
use to manage and operate the GRIC network, provide clearinghouse services, and
enable our customers to offer IP-based communications services to their end
users. CSP's capabilities and features fall into the following three categories:
OPERATIONS. CSP provides the functionality to support our network operation by
providing:
- AUTHENTICATION. CSP determines whether a user is permitted to use a
particular service based upon that user's name and password.
- TRACKING. 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, CSP helps locate
the information that an Internet telephony gateway needs to choose the
appropriate route for a telephone call, based on parameters such as cost and
quality.
- CLEARINGHOUSE AND SETTLEMENT. 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 IP-based services such as global Internet roaming, secure corporate remote
access and Internet telephony.
ARCHITECTURE. We have designed CSP to support a distributed network
architecture, which means the servers and software are located around the globe.
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. 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 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.
GRIC ALLIANCE
As of August 31, 1999, the combined network of over 300 active GRIC Alliance
members includes over 4,000 Internet access points located in over 140
countries. GRIC Alliance members that connect their networks to the GRIC
Alliance network enable their end users to access the networks of other members.
Current members of the GRIC Alliance include Chunghwa Telecom, Fujitsu Nifty,
Globus, MindSpring, o.tel.o, Singapore Telecommunications, Telstra's On
Australian subsidiary and America Online, which recently began offering our
Internet roaming service to its subscribers and Primus Telecommunications, which
recently began to offer Internet telephony calls.
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
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- our world-wide private ATM-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 connected by leased lines.
To ensure the quality of the GRIC network, we monitor the performance of each
Internet access point. This data enables us to identify the best 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 which facilitate routing of Internet telephony
calls through the public Internet, our world-wide, private ATM-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
LUCENT TECHNOLOGIES. We have been enabling Internet telephony service over the
GRIC network with Lucent Technologies ITS-SP gateways since 1997. These Lucent
Technologies ITS-SP gateways are configured to interface with our CSP software.
We believe the deployment of more than 100 Internet telephony gateways owned
either by our GRIC Alliance members or 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 (OSP), which is used to enable Cisco
Systems' AS5300 Internet telephony gateways and 36xx series gatekeepers to
interface with our CSP software. In many instances, our customers will be able
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. GRIC is 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 IP-based infrastructure for providing and
managing IP-based services. As of August 31, 1999, the GRIC Alliance was
comprised of over 300 members.
Our top 10 customers by revenue during the period January through July 1999, by
geographic region, include:
<TABLE>
<CAPTION>
ASIA-PACIFIC EUROPE, MIDDLE EAST & AFRICA AMERICAS
<S> <C> <C>
ACCOS Belgacom CARATS
Amtel Communications Cybernet Internet Corix
Caltran Emirates Telecommunications Globus
Chembell Technology Internet Iprolink HCI Technologies
Chunghwa Telecom Nacamar Interpath
Circlecom Net Vision KF Communications
Fujitsu Nifty o.tel.o MindSpring
On Australia Sovam Teleport New Global Telecom
Shanghai T&M TeleDanmark WinStar Communications
Singapore Telecommunications UUNET France World Access Telecommunications
</TABLE>
During the past 90 days, several new customers with large subscriber bases have
begun offering our Internet roaming or Internet telephony services to their end
users, including America Online and Primus Telecommunications.
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SALES, MARKETING AND CUSTOMER SERVICE AND SUPPORT
SALES
Our sales strategy is to pursue targeted accounts both through our direct sales
force and indirectly through our strategic partners. To date, we have targeted
our sales efforts at medium and large ISPs, 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, Malaysia, Singapore, South Korea 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 August 31,
1999, our direct sales force was comprised of 23 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 by utilizing value added resellers and
systems integrators, as well as with hardware platform and software applications
developers such as Lucent Technologies and Cisco Systems. These partners provide
a global extension of our direct sales force and serve as a source of leads and
referrals.
In addition to our marketing and sales staff, we rely on our executive and
operations personnel, including the staff of our globally distributed, 24
hours-a-day, seven days-a-week network operations center, to identify sales
opportunities within existing customer accounts and to provide quality customer
service.
We also maintain an extensive Internet 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.
MARKETING
Our marketing programs are targeted at providers of Internet-based services and
are currently focused on creating awareness of, and generating interest in, 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 services group performs
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pre-sales support, product installation and customization, technical support and
consulting services, customer training and product maintenance. Through our
offices in North America, Asia and Europe, we have established a globally
distributed sales and support capability that provides support coverage 24
hours-a-day, seven days-a-week.
RESEARCH & 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 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
as well as the interoperability of our products with those of other vendors. In
addition, we are developing improved network management capabilities and
enhanced end user 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
$3.4 million for the first six 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 would 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;
- the availability and breadth of IP-based communications services;
- quality of service;
- ease of integration;
- ability to offer turnkey solutions;
- price;
- performance;
- customizability;
- customer service;
- scalability;
- extensibility;
- 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
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Standards Protocol. Potential competitors to future stand-alone CSP products
include operations support system vendors, such as CAP Gemini, EDS and Lucent
Technologies. AT&T and other large telecommunication 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 CSP
software.
Other companies specialize only in a single IP-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, who compete
in both the business and retail segments, and other Internet telephony service
providers who 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 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 FCC, 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.
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Recently, the FCC has considered whether to impose surcharges or other common
carrier regulations upon certain providers of Internet telephony, primarily
those which, 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 such 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. Additionally, the FCC has
expressly found that at least one kind of data communications service using the
frame relay protocol meets the definition of a basic 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, or ATM
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 ATM 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 some 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 ISPs is
predominantly "interstate" traffic that is subject to federal jurisdiction.
Incumbent local exchange carriers, or ILECs have since argued on this basis that
ISPs should 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 ISP-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 ISPs. The Commission emphasized that neither the October 1998
decision nor its finding that dial-up calls to ISPs are subject to federal
jurisdiction compels it to hold that dial-up calls to ISPs 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 ISP providers, the FCC has continued to
make statements supporting the continued treatment of Internet related services
under its jurisdiction 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 IP-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
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common carrier regulation which 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 they would
negatively affect the cost of doing business over the Internet or otherwise slow
the growth of the Internet.
State regulatory authorities may assert jurisdiction to regulate the provision
of intrastate Internet telephony services. Several state regulatory authorities
have initiated proceedings to examine the regulation of such services. Others
could initiate proceedings to do so.
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 and/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. 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 which
addressed whether Internet telephony was voice telephony and thus subject to
regulation by the Member States. Consistent with its earlier directives, the
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."
As a result of the European Commission's conclusion, providers of Internet
telephony should be subjected to no more than a general authorization or
declaration requirement by the Member States. However, we cannot assure you that
more stringent regulatory requirements will not be imposed by individual Member
States, since 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 Commission on this subject so long as they adhere to the
definition of "voice telephony" in the Services Directive. In fact, France is
currently conducting an investigation into how Internet telephony should be
regulated. In its January 10, 1998 IP Telephony Communication, the European
Commission stated that providers of Internet telephony whose services satisfy
all elements of the "voice telephony" definition and whose users can dial out to
any telephone number can be considered providers of voice telephony and may be
regulated as such by the Member States. We cannot assure you that the services
provided over our global network will not be deemed voice telephony subject to
heightened regulation by one or more EU Member States. Moreover, we cannot
assure you that our failure or
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the failure of any of our customers or affiliates to obtain any necessary
authorizations will not 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,
such countries may claim that we 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 are prohibited in all
cases from conducting our business as 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 such 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 otherwise 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 either
are currently in compliance with any such requirements, will be able to comply
with any such requirements, or will continue in compliance with any such
requirements. The failure of our customers and affiliates to comply with such
requirements could materially adversely affect our business, prospects,
operating results and financial condition.
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 resource 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.
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
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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 a patent will issue from the pending applications or, if any patents are
issued, that they will be sufficiently broad to adequately protect our
technology. We 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 have received or will 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 such
license or royalty agreement would be available. The terms of any such 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 August 31, 1999, we had 161 employees: 14 in network and operations, 55 in
research and development, 60 in sales and marketing and 32 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 such 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 relationship 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 as of August 31, 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. 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.
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
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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 &
Administration and Chief Financial Officer since January 1999. From June 1994 to
June 1998, he served most recently as Senior Vice President, Finance &
Administration and Chief Financial Officer at VeriFone, Inc., a manufacturer of
electronic payment equipment. From 1973 to 1993, Mr. Zaelit held a variety of
senior financial positions at Hewlett-Packard, 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, 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 June 1999, he was Vice President of Human
Resources at Prism Solutions. From 1993 to 1997, he was Director of Human
Resources at Scios, Inc., a biopharmaceutical company. From 1992 to 1993, Mr.
Cox held the position of Director of Human Resources for Apple Computer's
Enterprise Systems Division. Mr. Cox holds a B.S. degree in Political Science
from Northeastern University.
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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 is the author of
Dracula, one of the leading design verification programs of the EDA industry.
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. In addition, 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 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
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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 50,000 shares. The option will
vest at a rate of 8.333% per month over the next 12 months and will be fully
vested on July 19, 2000.
Each eligible director who is not our employee and who is or becomes a member of
our board on or after the effective date of the registration statement, of which
this prospectus forms a part, will be granted an option to purchase shares
under our 1999 Equity Incentive Plan, unless that director has previously
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 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 exercisable immediately upon date of grant. For
initial grants, we have a right to repurchase the option shares at the exercise
price which expires as to 20% of the shares 10 months after the date of grant
and the remainder expires in equal monthly installments over the next 40 months.
Grants subsequent to the initial grant to directors are also subject to
repurchase. For such grants, our right to repurchase the option shares expire 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 three other most highly compensated executive officers
whose salary and bonus for 1998 was more than $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------
<S> <C> <C>
NAME AND PRINCIPAL POSITIONS SALARY BONUS
- -------------------------------------------------------------------------------------- ---------- ------------
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.
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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
500,000 shares at an exercise price of $1.00 per share in 1998. Mr. Sakakihara's
options represented 12.91% of the total options granted to our employees in
1998. Mr. Teichmann was granted options to purchase 100,000 shares at an
exercise price of $1.00 per share in 1998. Mr. Teichmann's options represented
2.58% of the total options granted to our employees in 1998.
AGGREGATE OPTION EXERCISES IN 1998 AND OPTION VALUES AT DECEMBER 31, 1998
The following table provides information concerning stock option exercises by
each of the executive officers named in the summary compensation table above
that exercised options during the year ended December 31, 1998. The table also
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 $ 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>
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NUMBER OF SHARES AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
ACQUIRED ON VALUE -------------------- ---------------------
NAME EXERCISE REALIZED VESTED UNVESTED VESTED UNVESTED
- ----------------------------------- ------------------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Dr. Hong Chen...................... -- -- -- -- -- --
Christophe J. Culine............... -- -- 112,500 87,500
Lynn Y. Liu........................ -- -- -- -- -- --
Thomas Oswold...................... -- -- 52,000 148,000
</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.
EMPLOYEE BENEFIT PLANS
1995 STOCK OPTION PLAN. As of August 31, 1999, options to purchase 518,994
shares of common stock were outstanding under the 1995 Stock Option Plan and
options to purchase 848,504 shares had been exercised, of which 42,812 remain
subject to our repurchase right. No additional options will be granted under
this plan. Options granted under the stock option 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 August 31, 1999, options to purchase 5,656,230
shares of common stock were outstanding under the 1997 Stock Option Plan and
options to purchase 295,530 shares had been exercised, of which 158,000 remain
subject to our right of repurchase. No additional options will be granted under
this plan. Options granted under the stock option 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 shares
of common stock to be issued under this plan. On each January 1, the aggregate
number of shares reserved for issuance under this plan will
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automatically increase by a number of shares equal to 5% of our outstanding
shares on December 31 of the preceding year. In addition, shares under the 1997
Stock Option Plan not issued or subject to outstanding grants 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. 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 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
terminates without shares being issued.
This plan will become effective on the consummation of this offering and will
terminate after 10 years, unless it is terminated earlier by our board. The plan
will authorize the award of options, restricted stock awards and stock bonuses.
No person will be eligible to receive more than shares in any calendar
year under the plan other than a new employee who will be eligible to receive no
more than shares in the calendar year in which the employee commences
employment.
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 "Management--Director Compensation."
The plan will provide 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 other 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 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. The exercise price of nonqualified
stock options must be at least equal to 85% of the fair market value of our
common stock on the date of grant.
Options may be exercisable only as they vest or may 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 10 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
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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. If our stockholders approve this
plan, it will become effective one business day after consummation of this
offering. On each January 1, 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 our designated parent or subsidiaries.
Under the plan, eligible employees will be permitted to acquire shares of our
common stock through payroll deductions. Eligible employees may select a rate of
payroll deduction between 2% and 15% of their compensation and are 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 will provide that, in the event of our proposed dissolution or
liquidation, each offering period that commenced prior to the closing of the
proposed event shall continue for the duration of the offering period, 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 is 85% of
the lesser of the fair market value of our common stock on the first day of the
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 10 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 outstanding shares previously purchased 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
as it determines to be advisable if the
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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 of the Internal Revenue Code, or a 401(k) plan. All 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 April 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 April 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, 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 450,000 shares of our common stock,
of which options to purchase 90,000 shares will vest in November 1999 and
options to purchase 9,000 shares will vest monthly thereafter. Mr. Zaelit also
has the right to receive options to purchase an additional 150,000 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 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.
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 350,000 shares of common stock, of
which options to purchase 70,000 shares vested in September 1999 and options to
purchase 7,000 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 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
200,000 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
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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 350,000 shares of common stock, of which
options to purchase 70,000 shares will vest in May 2000 and options to purchase
7,000 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 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 100,000 shares of common stock, of which options to purchase
20,000 shares vested in July 1999 and options to purchase 2,000 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 85,000 shares of common stock, of which options
to purchase 17,000 shares will vest in March 2000 and options to purchase 1,700
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 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.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our certificate of incorporation, as 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, as will be effective upon the completion of this offering, also
provide that:
- we must indemnify our directors and officers to the fullest extent permitted
by Delaware law, subject to limited exceptions;
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- 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 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 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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PRINCIPAL STOCKHOLDERS
The following table presents information as to the beneficial ownership of our
common stock as of August 31, 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 August 31, 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 above, 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
shares of common stock being offered and does not include the shares that
are subject to the underwriters' over-allotment option. The percentage of common
stock outstanding as of August 31, 1999 is based on 36,030,945 shares of common
stock outstanding on that date, assuming all outstanding preferred stock has
been converted into common stock.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF OUTSTANDING
SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------------------------------------------------------------ ------------ ----------- -----------
<S> <C> <C> <C>
Kheng Nam Lee (1)............................................................. 7,377,077 20.5%
Dr. Hong Chen (2)............................................................. 3,480,000 9.7
SingTel Ventures (Cayman) Pte. Ltd. (3)....................................... 2,670,926 7.4
Dr. Ta-Lin Hsu (4)............................................................ 1,950,000 5.4
Jozef Lernout (5)............................................................. 1,545,545 4.3
Lynn Y. Liu (6)............................................................... 1,500,000 4.2
Dr. Yen-Son (Paul) Huang (7).................................................. 654,741 1.8
Roger L. Peirce (8)........................................................... 230,000 *
Stanley J. Meresman (9)....................................................... 180,000 *
Christophe J. Culine (10)..................................................... 156,000 *
Philip M. Sakakihara (11)..................................................... 139,000 *
David L. Teichmann (12)....................................................... 36,000 *
Joseph M. Zaelit (13)......................................................... 9,000 *
Kristin L. Steinmetz ......................................................... 0 --
All thirteen directors and executive officers as a group (14)................. 19,928,289 46.6% %
</TABLE>
- ---------------------
* Represents less than 1% of our outstanding common stock.
(1) Includes 5,450,000 shares held of record by Vertex Investment (II) Ltd. and
1,647,077 shares and immediately exercisable warrants to purchase 280,000
shares held of record by Vertex Technology Fund Ltd. Mr. Lee is the
President of these entities. Mr. Lee disclaims beneficial
61
<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 1,500,000 shares held by Dr. Chen's spouse, Lynn Y. Liu.
(3) Includes 2,610,926 shares and immediately exercisable warrants to purchase
60,000 shares. The address of SingTel Ventures (Cayman) Pte. Ltd. is 31
Exeter Road, Comcentre, Singapore, 239732.
(4) Includes 1,950,000 shares held by Asia Pacific Growth Fund II. Dr. Hsu is a
member of H&Q Asia Pacific II LLC, the General Partner of Asia Pacific
Growth Fund II L.P.
(5) Includes 1,472,545 shares and immediately exercisable warrants to purchase
73,000 shares held of record by L&H Investment Company, N.V., of which Mr.
Lernout is Chairman. Mr. Lernout disclaims beneficial ownership of these
shares. The address of L&H Investment Company, N.V. is Sint Krispijnstraat
7, B-8900 Leper, Belgium.
(6) Does not include 3,480,000 shares held by Ms. Liu's spouse, Dr. Hong Chen.
(7) Includes 265,000 shares held of record by The Huang Revocable Living Trust
dated February 7, 1996, of which Mr. Huang is a trustee. 132,800 of the
shares held by this trust are subject to our right of repurchase. Also
includes immediately exercisable warrants to purchase 8,000 shares.
(8) Represents shares subject to options exercisable within 60 days of August
31, 1999, of which 174,727 shares are subject to our right of repurchase.
(9) Includes 100,000 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. Of these shares,
59,000 are subject to our right of repurchase. Also includes 80,000 shares
subject to options exercisable within 60 days of August 31, 1999, all of
which are subject to our right of repurchase.
(10) Represents shares subject to options exercisable within 60 days of August
31, 1999.
(11) Represents shares subject to options exercisable within 60 days of August
31, 1999.
(12) Represents shares subject to options exercisable within 60 days of August
31, 1999.
(13) Represents shares subject to options exercisable within 60 days of August
31, 1999.
(14) Includes 16,246,363 shares of issued and outstanding capital stock, of
which 191,800 shares are subject to a right of repurchase by us. Includes
724,000 shares subject to options exercisable within 60 days of August 31,
1999, of which 254,727 shares are subject to our right of repurchase. Also
includes immediately exercisable warrants to purchase 288,000 shares.
62
<PAGE>
RELATED PARTY TRANSACTIONS
Other than the employment agreements, offer letters and severance agreements
described in "Management," and the transactions described below, since we were
formed 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 15,290,159 shares
of Series D Preferred Stock at an effective purchase price of $2.50 per share,
as adjusted by subsequent re-pricing amendments. See Note 7 to our Consolidated
Financial Statements. Between September 1998 and March 1999, in connection with
our bridge financings, we issued warrants to purchase an aggregate of 625,000
shares of our Series D Preferred Stock at a purchase price of $2.50 per share as
adjusted by subsequent repricing amendments. See Note 4 to our 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............................................................... 200,000 0
Vertex Technology Fund Ltd............................................................... 1,647,077 280,000
SingTel Ventures (Cayman) Pte. Ltd....................................................... 2,610,926 60,000
L&H Investment Company N.V............................................................... 1,472,545 73,000
Dr. Yen-Son (Paul) Huang................................................................. 81,741 8,000
</TABLE>
Kheng Nam Lee, a director, is the President of Vertex Investment (II) Ltd. and
Vertex Technology Fund Pte. Ltd.
Jozef Lernout, a director, is the Co-Chairman and Managing Director of L&H
Investment Company N.V.
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 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, Severance and Change of Control Agreements."
63
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital stock
will consist of shares of common stock, $0.001 par value per share, and
shares of preferred stock, $0.001 par value per share.
Immediately before the closing 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 August 31, 1999, 6,144,034 shares of common stock were outstanding and
held of record by approximately 106 stockholders, assuming no exercise after
August 31, 1999 of outstanding options or warrants.
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 as 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 are 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. Each outstanding share of common stock is, and all
shares of common stock to be outstanding upon completion of this offering will
be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, each outstanding share of preferred stock
will be converted into shares of common stock. See Note 7 of our Consolidated
Financial Statements for a description of this preferred stock.
Following this offering, we 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 can also
increase or decrease the number of shares of any series, but not below the
number of shares of such series then outstanding, without any further vote or
action by the stockholders.
The board may 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 may adversely affect the market
price of our common stock and the voting and other
64
<PAGE>
rights of the holders of common stock. We have no current plan to issue any
shares of preferred stock.
WARRANTS
As of August 31, 1999, we had outstanding warrants to purchase:
- 287,558 shares of common stock at an exercise price of $2.50 per share which
will expire on November 11, 2003;
- 625,000 shares of Series D Preferred Stock at an exercise price of $2.50
which will terminate on the closing of this offering if they are not
exercised;
- 49,629 shares of Series D Preferred Stock at an exercise price of $4.00 per
share which will expire in November 2003; and
- 33,000 shares of Series D Preferred Stock at an exercise price of $2.50
which will expire between December 2003 and August 2008.
REGISTRATION RIGHTS
The holders of 34,910,636 shares of common stock 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 so included in a registration
statement.
WHO MAY MAKE A DEMAND. America Online can 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 reasonably anticipated offering price per share exceeds
$5.00 and if the reasonably anticipated offering price exceeds $10,000,000, or
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. Holders that will register shares in
an offering in which the reasonably anticipated 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.
NUMBER OF TIMES HOLDERS CAN MAKE DEMANDS. We will 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. In addition, we are not required to file more than one registration
statement during any six month period.
POSTPONEMENT. We may 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 same stockholders with registration rights described above will have the
right to include their shares in the registration statement. We will have the
right to limit the number of shares to be so included in a registration
statement up to a maximum of 70% of the total value of the securities to be
registered.
65
<PAGE>
EXPENSES OF REGISTRATION. We w ill 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.
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 discouraging another person from acquiring control of our company.
DELAWARE LAW
We will be 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 stockholders, 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 the 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, may
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. 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.
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<PAGE>
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 .
LISTING
We have applied for our common stock to be quoted on The Nasdaq National Market
under the symbol "GRIC."
67
<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. Furthermore, as described below, no shares currently
outstanding will be available for sale immediately after this offering due to
contractual restrictions on resale. 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, we will have outstanding shares of
common stock, assuming the cash exercise of outstanding warrants to purchase
995,187 shares of common stock and the exercise of options to purchase 1,011,317
shares of common stock, as of August 31, 1999, and assuming no exercise of the
underwriters' over-allotment option. Of these shares, the shares sold in
this offering will be freely tradable without restriction under the Securities
Act unless purchased by our "affiliates."
The remaining 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 24,889,633 Underwriters' lock-up released. These shares may
prospectus be sold under Rule 144, 144(k) or 701.
January 18, 2000 2,991,057 Restricted securities held for at least one year
may be sold under Rule 144.
March 9, 2000 706,508 Restricted securities held for at least one year
may be sold under Rule 144.
March 10, 2000 1,472,545 Restricted securities held for at least one year
may be sold under Rule 144.
April 19, 2000 3,742,519 Restricted securities held for at least one year
may be sold under Rule 144.
May 10, 2000 30,000 Restricted securities held for at least one year
may be sold under Rule 144.
May 12, 2000 400,000 Restricted securities held for at least one year
may be sold under Rule 144.
May 14, 2000 800,000 Restricted securities held for at least one year
may be sold under Rule 144.
May 24, 2000 400,000 Restricted securities held for at least one year
may be sold under Rule 144.
June 7, 2000 1,200,000 Restricted securities held for at least one year
may be sold under Rule 144.
June 14, 2000 410,000 Restricted securities held for at least one year
may be sold under Rule 144.
August 31, 2000 995,187 Restricted securities held for at least one year
may be sold under Rule 144.
</TABLE>
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
68
<PAGE>
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 will
equal approximately shares immediately after this offering; or
- 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 employee, officer or director of, or consultant to, us 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, substantially 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
Upon completion of this offering, the holders of 34,026,886 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.
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<PAGE>
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 August 31, 1999, options
to purchase 6,211,794 shares of common stock were issued and outstanding of
which options to purchase 1,011,317 shares were immediately exercisable.
WARRANTS
As of August 31, 1999, we had outstanding warrants to purchase 287,558 shares of
common stock and 707,629 shares of Series D Preferred Stock. When 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. 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............................................................................
-----------------
-----------------
</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 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 WITH
TOTAL WITHOUT FULL EXERCISE
EXERCISE OF OF
OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OPTION OPTION
----------- -------------- --------------
<S> <C> <C> <C>
GRIC................................................................ $ $ $
----------- -------------- --------------
</TABLE>
71
<PAGE>
GRIC estimates that its total expenses of the offering, excluding the
underwriting discount, will be approximately $ .
GRIC has agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
GRIC, its officers and directors, and substantially all securityholders have
agreed to a 180-day "lock up" with respect to 36,030,945 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 without the prior written consent of
CIBC World Markets Corp.
The representatives have informed GRIC that they do not expect discretionary
sales by the underwriters to exceed five percent of the shares offered by this
prospectus.
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 GRIC 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 The Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.
72
<PAGE>
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will provide a legal opinion as to
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 several partners of Fenwick & West LLP owns 30,000 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 and 1998, and for the three years
in the period ended December 31, 1998, 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.
73
<PAGE>
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 schedules 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 schedules 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 schedules, 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.
74
<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 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 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. 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 the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
San Jose, California
February 10, 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
September 21, 1999
F-2
<PAGE>
GRIC COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
-------------------- JUNE 30, AT JUNE 30,
1997 1998 1999 1999
--------- --------- ----------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 8,481 $ 1,362 $ 16,593
Accounts receivable, net of allowances of $214, $384, and $381
at December 31, 1997 and 1998 and June 30, 1999.............. 395 750 1,021
Inventories.................................................... 102 125 56
Other current assets........................................... 46 141 249
--------- --------- -----------
Total current assets............................................. 9,024 2,378 17,919
Property and equipment........................................... 778 2,055 2,172
Other assets..................................................... 53 307 357
--------- --------- -----------
Total assets..................................................... $ 9,855 $ 4,740 $ 20,448
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 670 $ 3,975 $ 3,890
Accrued compensation and benefits.............................. 345 881 1,001
Other current liabilities...................................... 170 595 655
Current portion of long-term debt ($2,700 and $0 in stockholder
notes at December 31, 1998 and June 30, 1999,
respectively--see Note 4).................................... -- 4,436 373
--------- --------- -----------
Total current liabilities........................................ 1,185 9,887 5,919
Long-term debt and other long-term liabilities................... 19 1,069 995
Commitments and contingencies
Redeemable convertible preferred stock, $0.001 par value:
Authorized shares--16,870,000 issuable in series and none pro
forma
Issued and outstanding shares--14,596,752 at December 31, 1997,
1998 and June 30, 1999, respectively (aggregate liquidation
preference of $8,642); pro forma--none....................... 8,590 8,590 8,590 --
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par value:
Authorized shares--Series D 3,333,334, 3,333,334 and
17,500,000 at December 31, 1997, 1998 and June 30, 1999,
respectively; pro forma--none
Issued and outstanding shares--1,208,332 and 2,437,500 at
December 31, 1997 and 1998, respectively, and 15,290,159 at
June 30, 1999, (aggregate liquidation preferences of
$7,250, $9,750, and $38,225 at December 31, 1997, 1998, and
June 30, 1999 respectively); pro forma--none............... 1 2 15 --
Common stock, $0.001 par value:
Authorized shares--30,000,000, 30,000,000, and 60,000,000 at
December 31, 1997 and 1998, and June 30, 1999 respectively;
pro forma
Issued and outstanding shares--5,465,774, 5,546,802, and
5,978,790 at December 31, 1997, 1998, and June 30, 1999,
respectively; pro forma 35,865,701......................... 5 6 6 36
Additional paid-in capital..................................... 7,331 10,364 39,753 48,328
Accumulated deficit............................................ (7,276) (25,178) (34,830) (34,830)
--------- --------- ----------- -------------
Total stockholders' equity (deficit)............................. 61 (14,806) 4,944 $ 13,534
--------- --------- ----------- -------------
-------------
Total liabilities and stockholders' equity (deficit)............. $ 9,855 $ 4,740 $ 20,448
--------- --------- -----------
--------- --------- -----------
</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 SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------- ------------------------
1996 1997 1998 1998 1999
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
Settlement........................................ $ -- $ 254 $ 1,666 $ 629 $ 1,966
Software and other................................ 403 1,280 883 310 1,098
--------- --------- --------- ----------- -----------
Total revenues.................................. 403 1,534 2,549 939 3,064
--------- --------- --------- ----------- -----------
Costs and expenses:
Cost of settlement revenues....................... -- 156 1,444 391 1,523
Cost of software and other revenues............... -- 708 2,482 219 74
Network and operations............................ -- 837 1,117 411 1,163
Research and development.......................... 998 2,314 5,080 2,397 3,430
Sales and marketing............................... 49 3,723 6,373 2,932 3,560
General and administrative........................ 391 2,002 3,540 1,488 1,866
--------- --------- --------- ----------- -----------
Total costs and expenses........................ 1,438 9,740 20,036 7,838 11,616
--------- --------- --------- ----------- -----------
Operating loss...................................... (1,035) (8,206) (17,487) (6,899) (8,552)
Interest income and other, net...................... 104 79 192 137 159
Interest expense.................................... -- -- (575) -- (1,241)
--------- --------- --------- ----------- -----------
Loss from continuing operations before income
taxes............................................. (931) (8,127) (17,870) (6,762) (9,634)
Provision for income taxes from continuing
operations........................................ -- 59 32 17 18
--------- --------- --------- ----------- -----------
Net loss from continuing operations................. (931) (8,186) (17,902) (6,779) (9,652)
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) $ (6,779) $ (9,652)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Basic and diluted net loss per share from continuing
operations........................................ $ (0.19) $ (1.58) $ (3.28) $ (1.25) $ (1.72)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Basic and diluted net loss per share................ $ (0.52) $ (0.74) $ (3.28) $ (1.25) $ (1.72)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Shares used to compute basic and diluted net loss
per share......................................... 5,008,315 5,183,191 5,455,588 5,419,377 5,600,411
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Pro forma basic and diluted net loss per share from
continuing operations............................. $ (0.81) $ (0.35)
--------- -----------
--------- -----------
Shares used to compute pro forma basic and diluted
net loss per share................................ 22,090,104 27,496,821
--------- -----------
--------- -----------
</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
---------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.......................... 3,400,000 $ 680 6,470,000 $ 3,208 -- $ --
Issuance of Series C convertible preferred stock to
investors for cash, exercise of warrants, and
conversion of bridge loans at $1.00 per share, net
of issuance costs of $25.......................... -- -- -- -- 4,726,752 4,702
Issuance of common stock upon exercise of employee
stock options for cash............................ -- -- -- -- -- --
Net loss............................................ -- -- -- -- -- --
--------- ----- --------- ----------- --------- -----------
Balance at December 31, 1996.......................... 3,400,000 $ 680 6,470,000 $ 3,208 4,726,752 $ 4,702
Issuance of Series D convertible preferred stock to
investors for cash and cancellation of notes
payable at $6.00 per share........................ -- -- -- -- -- --
Issuance of common stock upon exercise of employee
stock options for cash............................ -- -- -- -- -- --
Net loss............................................ -- -- -- -- -- --
--------- ----- --------- ----------- --------- -----------
Balance at December 31, 1997.......................... 3,400,000 680 6,470,000 3,208 4,726,752 4,702
Issuance of Series D convertible preferred stock to
adjust the cost of previously issued shares from
$6.00 previously to $4.00 per share............... -- -- -- -- -- --
Issuance of Series D convertible preferred stock to
investors for cash and cancellation of notes
payable at $4.00 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.......................... 3,400,000 680 6,470,000 3,208 4,726,752 4,702
Issuance of Series D convertible preferred stock to
adjust the cost of previously issued shares from
$4.00 to $2.50 per share (unaudited).............. -- -- -- -- -- --
Conversion of 1998 bridge financing to Series D
convertible preferred stock at $2.50 per share
(unaudited)....................................... -- -- -- -- -- --
Issuance of Series D convertible preferred stock at
$2.50 per share, net of issuance costs of $326
(unaudited)....................................... -- -- -- -- -- --
Issuance of Series D warrants (unaudited)........... -- -- -- -- -- --
Issuance of common stock upon exercise of employee
stock options for cash (unaudited)................ -- -- -- -- -- --
Warrant revaluation (unaudited)..................... -- -- -- -- -- --
Net loss (unaudited)................................ -- -- -- -- -- --
--------- ----- --------- ----------- --------- -----------
Balance at June 30, 1999 (unaudited).................. 3,400,000 $ 680 6,470,000 $ 3,208 4,726,752 $ 4,702
--------- ----- --------- ----------- --------- -----------
--------- ----- --------- ----------- --------- -----------
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
SERIES D
CONVERTIBLE PREFERRED
TOTAL STOCK COMMON STOCK
---------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C>
Balance at December 31, 1995.......................... 9,870,000 $ 3,888 -- $ -- 5,000,000 $ 5
Issuance of Series C convertible preferred stock to
investors for cash, exercise of warrants, and
conversion of bridge loans at $1.00 per share, net
of issuance costs of $25.......................... 4,726,752 4,702 -- -- -- --
Issuance of common stock upon exercise of employee
stock options for cash............................ -- -- -- -- 13,750
Net loss............................................ -- -- -- -- -- --
--------- ----------- --------- --- --------- ---
Balance at December 31, 1996.......................... 14,596,752 $ 8,590 -- $ -- 5,013,750 $ 5
Issuance of Series D convertible preferred stock to
investors for cash and cancellation of notes
payable at $6.00 per share........................ -- -- 1,208,332 1 -- --
Issuance of common stock upon exercise of employee
stock options for cash............................ -- -- -- -- 452,024 --
Net loss............................................ -- -- -- -- -- --
--------- ----------- --------- --- --------- ---
Balance at December 31, 1997.......................... 14,596,752 8,590 1,208,332 1 5,465,774 5
Issuance of Series D convertible preferred stock to
adjust the cost of previously issued shares from
$6.00 previously to $4.00 per share............... -- -- 604,168 -- -- --
Issuance of Series D convertible preferred stock to
investors for cash and cancellation of notes
payable at $4.00 per share, net of issuance costs
of $15............................................ -- -- 625,000 1 -- --
Issuance of common stock upon exercise of employee
stock options for cash............................ -- -- -- -- 81,028 1
Issuance of Series D warrants and common stock
warrants.......................................... -- -- -- --
Net loss............................................ -- -- -- -- -- --
--------- ----------- --------- --- --------- ---
Balance at December 31, 1998.......................... 14,596,752 8,590 2,437,500 2 5,546,802 6
Issuance of Series D convertible preferred stock to
adjust the cost of previously issued shares from
$4.00 to $2.50 per share (unaudited).............. -- -- 1,462,500 2 -- --
Conversion of 1998 bridge financing to Series D
convertible preferred stock at $2.50 per share
(unaudited)....................................... -- -- 1,120,049 1 -- --
Issuance of Series D convertible preferred stock at
$2.50 per share, net of issuance costs of $326
(unaudited)....................................... -- -- 10,270,110 10 -- --
Issuance of Series D warrants (unaudited)........... -- -- -- -- -- --
Issuance of common stock upon exercise of employee
stock options for cash (unaudited)................ -- -- -- -- 431,988 --
Warrant revaluation (unaudited)..................... -- -- -- -- -- --
Net loss (unaudited)................................ -- -- -- -- -- --
--------- ----------- --------- --- --------- ---
Balance at June 30, 1999 (unaudited).................. 14,596,752 $ 8,590 15,290,159 $ 15 5,978,790 $ 6
--------- ----------- --------- --- --------- ---
--------- ----------- --------- --- --------- ---
<CAPTION>
TOTAL
STOCKHOLDERS'
ADDITIONAL ACCUMULATED EQUITY
PAID IN-CAPITAL DEFICIT (DEFICIT)
--------------- ------------ ---------------
Balance at December 31, 1995.......................... $ 26 $ (820) $ (789)
Issuance of Series C convertible preferred stock to
investors for cash, exercise of warrants, and
conversion of bridge loans at $1.00 per share, net
of issuance costs of $25.......................... -- -- --
Issuance of common stock upon exercise of employee
stock options for cash............................ 1 -- 1
Net loss............................................ (2,614) (2,614)
------- ------------ -------
Balance at December 31, 1996.......................... 27 $ (3,434) $ (3,402)
Issuance of Series D convertible preferred stock to
investors for cash and cancellation of notes
payable at $6.00 per share........................ 7,249 -- 7,250
Issuance of common stock upon exercise of employee
stock options for cash............................ 55 -- 55
Net loss............................................ (3,842) (3,842)
------- ------------ -------
Balance at December 31, 1997.......................... 7,331 (7,276) 61
Issuance of Series D convertible preferred stock to
adjust the cost of previously issued shares from
$6.00 previously to $4.00 per share............... -- -- --
Issuance of Series D convertible preferred stock to
investors for cash and cancellation of notes
payable at $4.00 per share, net of issuance costs
of $15............................................ 2,485 -- 2,486
Issuance of common stock upon exercise of employee
stock options for cash............................ 12 -- 13
Issuance of Series D warrants and common stock
warrants.......................................... 536 -- 536
Net loss............................................ -- (17,902) (17,902)
------- ------------ -------
Balance at December 31, 1998.......................... 10,364 (25,178) (14,806)
Issuance of Series D convertible preferred stock to
adjust the cost of previously issued shares from
$4.00 to $2.50 per share (unaudited).............. (2) -- --
Conversion of 1998 bridge financing to Series D
convertible preferred stock at $2.50 per share
(unaudited)....................................... 2,800 -- 2,801
Issuance of Series D convertible preferred stock at
$2.50 per share, net of issuance costs of $326
(unaudited)....................................... 25,339 -- 25,349
Issuance of Series D warrants (unaudited)........... 689 -- 689
Issuance of common stock upon exercise of employee
stock options for cash (unaudited)................ 236 -- 236
Warrant revaluation (unaudited)..................... 327 -- 327
Net loss (unaudited)................................ -- (9,652) (9,652)
------- ------------ -------
Balance at June 30, 1999 (unaudited).................. $ 39,753 $ (34,830) $ 4,944
------- ------------ -------
------- ------------ -------
</TABLE>
F-5
<PAGE>
GRIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------- ----------------------------
1996 1997 1998 1998 1999
--------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES
Net loss................................................. $ (2,614) $ (3,842) $ (17,902) $ (6,779) $ (9,652)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization of equipment............. 557 272 1,006 388 720
Gain on sale of subsidiary............................. -- (5,118) -- -- --
Noncash interest expense............................... -- -- -- -- 273
Noncash warrant expense--preferred stock............... -- -- 408 -- 920
Noncash warrant expense--common stock.................. -- -- 1 -- 45
Net changes in assets and liabilities:
Trade accounts receivable............................ (184) (210) (355) (34) (271)
Inventories.......................................... -- (101) (23) (122) 69
Other current assets................................. (43) (2) (95) (65) (108)
Other assets......................................... -- (53) (127) (105) --
Net assets relating to discontinued operations....... (372) 1,236 -- -- --
Accounts payable..................................... 169 500 3,305 172 (85)
Accrued compensation and benefits.................... 32 312 536 194 120
Other current liabilities............................ -- 171 425 55 60
Other long-term liabilities.......................... -- 20 15 -- 28
--------- --------- --------- ------------- -------------
Net cash used in operating activities.................... (2,455) (6,815) (12,806) (6,296) (7,881)
INVESTING ACTIVITIES
Capital expenditures..................................... (819) (797) (2,283) (1,249) (722)
Proceeds from sale of discontinued operations............ -- 5,446 -- -- --
--------- --------- --------- ------------- -------------
Net cash provided by (used in) investing activities...... (819) 4,649 (2,283) (1,249) (722)
FINANCING ACTIVITIES
Proceeds from issuance of debt........................... -- -- 5,753 -- --
Payment of debt.......................................... -- -- (282) -- (1,576)
Proceeds from sales of preferred stock................... 4,702 7,250 2,486 2,501 25,174
Sale of common stock..................................... 1 55 13 5 236
--------- --------- --------- ------------- -------------
Net cash provided by financing activities................ 4,703 7,305 7,970 2,506 23,834
--------- --------- --------- ------------- -------------
Net increase (decrease) in cash and cash equivalents..... 1,429 5,139 (7,119) (5,039) 15,231
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 $ 3,442 $ 16,593
--------- --------- --------- ------------- -------------
--------- --------- --------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH PAID DURING THE PERIOD
Tax paid................................................. $ -- $ 9 $ 7 $ 5 $ 1
Interest paid............................................ $ -- $ -- $ 165 $ -- $ 322
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES
Conversion of 1999 bridge notes (interest) into Series D
preferred stock........................................ $ -- $ -- $ -- $ -- $ 175
Conversion of 1998 bridge notes (principle and interest)
into Series D preferred stock.......................... $ -- $ -- $ -- $ -- $ 2,801
Equipment capital leases................................. $ -- $ -- $ -- $ -- $ 115
</TABLE>
See accompanying notes.
F-6
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS
GRIC Communications, Inc. (GRIC or the Company) is a global provider of IP-based
communications infrastructure and clearinghouse services that enable
telecommunication companies, emerging telecommunications providers and Internet
service providers to offer IP-based products and services to their end-user
subscribers worldwide. These services include Internet roaming and Internet
telephony.
The predecessor corporation, incorporated in California in 1994, was both an
Internet service provider in Northern California and a developer of software for
the ISP community, including our current Internet roaming software. In 1997 we
sold our local ISP business and related assets. Operations that related to our
ISP business through 1997 are reflected as discontinued activities.
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 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 financial position as of June 30, 1999, and the
results of its operations and its cash flows for the six months ended June 30,
1998 and 1999. Results for the six-month period ended June 30, 1999 are not
necessarily indicative of results to be expected for the full fiscal year of
1999 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
cash and the remaining 45% was sold in September 1997 in exchange for
approximately $3,442,000 cash. AimNet operated as a separate segment of the
business as an ISP and has 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 AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 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 licenses of software to customers
seeking to offer Internet roaming, Internet telephony and Internet fax services
to their end-users, and from settlement services the Company provides to
customers through its network. The Company also derives revenues from the sales
of equipment, maintenance and support services.
Settlement revenues are generated when customers' end-users initiate Internet
roaming services or originate Internet telephony and Internet fax
communications. Cost of settlement revenues represents the amounts paid to
access points of presence for 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 members and bears the
risk of loss related to collection for services.
Software and other revenues consist primarily of revenues from software
licenses, and to a lessor extent sales of equipment such as Internet telephony
gateways and Internet dialers and fax cards. It also includes technical support,
consulting, installation and training service and maintenance revenues. Software
license revenues are recognized upon delivery provided no significant vendor
obligations or contingencies remain, and collection of the receivable is
probable.
Revenues related to significant postcontract support agreements (generally
product maintenance agreements) are deferred and recognized over the period of
the agreements.
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. All of the
Company's cash and cash equivalents consist 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.
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.
F-8
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 trade accounts
receivable. 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 trade 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 are not
material for any of the periods presented.
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 other comprehensive income items to report for the all 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 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 shareholders. The Company adopted SFAS 131 in the year ended December
1998. The Company operates solely in one segment, providing a global network for
ISPs and telcos, and therefore, there is no impact to the Company's consolidated
financial statements due to the adoption of SFAS 131.
F-9
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following is a summary of revenue and long-lived assets by geographical area
for the periods presented (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------- ------------------------
1996 1997 1998 1998 1999
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue by external customers:
United States........................................... $ 12 $ 407 $ 640 $ 472 $ 773
South East Asia......................................... 309 415 623 134 904
Japan................................................... 39 151 454 125 506
Europe.................................................. -- 193 282 84 307
China................................................... 39 223 212 40 220
Rest of World........................................... 4 145 338 84 354
--------- --------- --------- ----------- -----------
$ 403 $ 1,534 $ 2,549 $ 939 $ 3,064
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Long-lived assets:
United States........................................... $ 255 $ 705 $ 1,954 $ 1,561 $ 2,093
Rest of World........................................... -- 73 101 78 79
--------- --------- --------- ----------- -----------
$ 255 $ 778 $ 2,055 $ 1,639 $ 2,172
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
Revenue by external customer is based on the customers' billing location.
Long-lived assets are those assets used in each geographic location. 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 nonemployees 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.
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
F-10
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 29,886,911 shares of
common stock as if the conversion occurred on June 30, 1999.
Unaudited basic and diluted pro forma net loss per share, as presented in the
consolidated statement of operations, has been computed using the weighted
average number of common shares 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 six month period ended June 30, 1999, or at the
date of original issuance, if later.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants 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 financial results.
In April 1998, the American Institute of Certified Public Accountants (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. As the Company 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 will 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 AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
3. PROPERTY AND EQUIPMENT
Property and equipment comprises the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer hardware and software........................................ $ 749 $ 2,515 $ 3,320
Office furniture and equipment........................................ 363 834 848
Leasehold improvements................................................ -- 46 64
--------- --------- -----------
1,112 3,395 4,232
Less accumulated depreciation and amortization........................ (334) (1,340) (2,060)
--------- --------- -----------
$ 778 $ 2,055 $ 2,172
--------- --------- -----------
--------- --------- -----------
</TABLE>
4. DEBT
BRIDGE LOAN
On November 5, 1998, the Company entered into an agreement with a bank for a
short-term note for a maximum of $1.5 million with maturity at 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 note 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 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 include
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 agreements. On
January 31, 1999, $2.7 million in principal and approximately $101,000 in
accrued interest were converted into 700,030 shares of Series D preferred stock.
F-12
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
4. DEBT (CONTINUED)
During the period from January through March 1999, certain shareholders 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 5,170,110 shares of Series D preferred stock at a conversion
price of $2.50 per share in April 1999.
EQUIPMENT PROMISSORY NOTES
In August and October 1998, the Company entered into various senior secured
promissory note agreements with a lender in connection with the purchase of
equipment. A total of $1.3 million has been advanced with repayment being due in
42 installments as follows (in thousands):
<TABLE>
<S> <C>
1999....................................................................... $ 422
2000....................................................................... 496
2001....................................................................... 496
2002....................................................................... 264
---------
Total installments due..................................................... 1,678
Less amount representing interest.......................................... 407
---------
Present value of future payments........................................... 1,271
Less current portion....................................................... 236
---------
Long-term obligation....................................................... $ 1,035
---------
---------
</TABLE>
Collateral for the promissory notes consists of all equipment purchased by the
amounts advanced.
5. COMMITMENTS AND CONTINGENCIES
GRIC leases all of its facilities under operating leases that expire at various
dates through 2003. The future fiscal year minimum operating lease commitments
were as follows at December 31, 1998 (in thousands):
<TABLE>
<S> <C>
1999....................................................................... $ 762
2000....................................................................... 762
2001....................................................................... 798
2002....................................................................... 891
2003....................................................................... 150
---------
Operating lease commitments................................................ $ 3,363
---------
---------
</TABLE>
Rent expense charged to operations totaled approximately $32,000, $263,000, and
$688,000 for the years ended December 31, 1996, 1997, and 1998, respectively.
During the year ended December 31, 1998, the Company recorded a charge of $1.5
million related to a purchase commitment for licenses of certain customized
software as the Company does not anticipate the utilization of the required
volume of purchases.
F-13
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
6. INCOME TAXES
The provision for income taxes attributable to continuing operations consists of
foreign income and withholding taxes of approximately $59,000 and $32,000 for
the years ended December 31, 1997 and 1998, 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>
1997 1998
--------- ---------
<S> <C> <C>
Tax at federal statutory rate..................................................... $ (2,844) $ (6,255)
Unutilized net operating losses................................................... 2,844 6,255
Foreign tax....................................................................... 59 32
--------- ---------
Total............................................................................. $ 59 $ 32
--------- ---------
--------- ---------
</TABLE>
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- ----------
<S> <C> <C>
Deferred tax assets (in thousands):
Net operating loss carryforwards............................................... $ 2,682 $ 8,912
Tax credit carryforwards....................................................... 257 400
Accruals and reserves not currently deductible................................. 203 1,210
--------- ----------
Total deferred tax assets........................................................ 3,142 10,522
Valuation allowance.............................................................. (3,142) (10,522)
--------- ----------
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, and $7.4
million during the years ended December 31, 1997 and 1998, respectively.
As of December 31, 1998, the Company had federal and state net operating loss
carryforwards of approximately $22 million. As of December 31, 1998, the Company
also had federal and state research and development tax credit carryforwards of
approximately $300,000 and $150,000, respectively. The federal and state net
operating loss and tax credit carryforwards will expire at various dates
beginning in 2002 through 2018, if not utilized.
F-14
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 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, 1998, and June 30,
1999 is as follows:
<TABLE>
<CAPTION>
SHARES ISSUED AND OUTSTANDING
----------------------------------------
PER SHARE DECEMBER 31, JUNE 30,
LIQUIDATION AUTHORIZED -------------------------- 1999
SERIES PREFERENCE SHARES 1997 1998 ------------
- ----------- ------------- ------------ ------------ ------------ (UNAUDITED)
<S> <C> <C> <C> <C> <C>
A.......... $ 0.20 3,400,000 3,400,000 3,400,000 3,400,000
B.......... $ 0.50 6,470,000 6,470,000 6,470,000 6,470,000
C.......... $ 1.00 7,000,000 4,726,752 4,726,752 4,726,752
------------ ------------ ------------ ------------
16,870,000 14,596,752 14,596,752 14,596,752
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</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. The Company shall redeem such shares at a price per share of $1.00 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. The Company shall redeem
such shares at a price per share of $0.20 and $0.50 for Series A and B,
respectively, plus any declared and unpaid dividends for 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 shall begin accruing dividends at
8% per annum of the redemption price.
F-15
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
CONVERTIBLE PREFERRED STOCK
Convertible preferred stock at December 31, 1997, 1998, and June 30, 1999 is as
follows:
<TABLE>
<CAPTION>
SHARES ISSUED AND OUTSTANDING
----------------------------------------
PER SHARE DECEMBER 31,
LIQUIDATION AUTHORIZED -------------------------- JUNE 30,1999
SERIES PREFERENCE SHARES 1997 1998 ------------
- ----------- ------------- ------------ ------------ ------------ (UNAUDITED)
<S> <C> <C> <C> <C> <C>
D.......... $ 6.00 3,333,334 1,208,332 -- --
D.......... $ 4.00 3,333,334 -- 2,437,500 --
D.......... $ 2.50 17,500,000 -- -- 15,290,159
</TABLE>
The holders of redeemable convertible preferred stock and convertible preferred
stock (the preferred stock) are entitled to receive noncumulative dividends,
when and if declared by the Board of Directors, out of legally available funds,
in the 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 December 31, 1998, no dividends have been declared or paid
by the Company.
The holders of the preferred stock have the right at any time after the date of
issuance to convert their shares into a like number of shares of common stock on
a one-for-one basis, 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) Company undertaking an initial public
offering at a price per share of not less than $5.00 per share (as to the Series
A, B, and C convertible preferred stock only) or not less than $10.00 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 June 30, 1999, the Company had reserved 20,203,334 and
34,370,000 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 accrued dividends, if any, on
each share of preferred stock. The remaining balance of proceeds is to be paid
to common stockholders and preferred stockholders, as if converted into common
stock, ratably.
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 $2.50 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 $4.00 to $2.50, and
the Company entered into amendment agreements with such 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 $4.00 per share to $2.50 per share, which in turn results in a
modification of the number of shares that may be purchased upon exercise of the
warrants
F-16
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
such that the aggregate number of shares of Series D convertible preferred stock
purchasable increased from 168,750 to 270,000 shares.
Pursuant to an additional Series D convertible preferred stock purchase
agreement, the Company issued and sold a total of 5,100,000 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 5,170,110 shares of Series D convertible
preferred stock and issued 1,882,519 shares of Series D convertible preferred
stock due to the 1999 Series D convertible Repricing. As of June 30, 1999, an
aggregate total of 15,290,159 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 45,000 shares of Series D preferred stock at $4.00 per share. The
warrant expires on November 5, 2003 and was fully exercisable at December 31,
1998. 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 45,000 to 49,629 as a result of the 1999 Series D convertible
repricing.
In connection with the extension of the Bridge Loan in December 1998, the
Company issued an additional warrant to purchase up to 20,000 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 ($2.50). The warrant
expires on December 31, 2003 and in the first quarter of 1999, the warrant
became exercisable as to 5,000 shares only, based upon the conditions in the
original warrant.
In connection with the equipment promissory notes, the Company issued fully
exercisable warrants for the purchase of 28,000 shares of Series D preferred
stock at $4.00 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 was exercisable at December 31, 1998. The Company intends to reprice
these warrants from $4.00 to $2.50 in the third quarter of fiscal 1999.
In connection with the issuance of the 1998 bridge financing from certain
stockholders, the Company issued fully exercisable warrants for the purchase of
168,750 shares of the Company's Series D preferred stock at $4.00 per share.
These warrants expire on the earlier 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 168,750 to 270,000, and the exercise price per share was adjusted
from $4.00 to $2.50. The additional warrants and change in exercise price was
effective in July 1999.
In connection with the 1999 Bridge Financing, the Company issued fully
exercisable warrants for the purchase of 355,000 shares of Series D preferred
stock at $2.50 per share. These warrants expire on the earlier 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 Company has recorded approximately $531,000 at December 31, 1998 and an
additional $837,000 at June 30, 1999 to reflect the fair value of the above
warrants, which are being amortized over the life of the respective underlying
arrangements. Amortization of approximately $408,000 and $920,000
F-17
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
has been included in the year ended December 31, 1998 and six months ended June
30, 1999, respectively. The fair value of the warrants was calculated using the
Black-Scholes option pricing model.
As of December 31, 1998 and June 30, 1999 the Company had reserved 261,750 and
606,379 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 260,000 shares of the Company's
common stock at the lower of the last price at which Series D convertible
preferred stock is issued or $4.00 per share. As a result of the $2.50 per share
issuance of Series D convertible preferred stock in 1999, the warrant was
adjusted pursuant to its terms such that the number of shares exercisable
increased to 287,558 effective May 1999. The warrant, which expires on the
earlier of November 12, 2003 or the first anniversary of the date that 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 June 30, 1999 at which point a final measurement date existed. The fair
value of the warrant at June 30, 1999 was determined to be $184,000. 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 June 30, 1999, the Company had reserved 260,000 and
287,558 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 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 not less than 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
F-18
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
vest with respect to 20% of the shares ten months after the respective
employees' hire date and the remainder ratably over the following forty months
and 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.
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.................................................... 841,000 $ 0.10
Granted........................................................................... 958,500 $ 0.10
Exercised......................................................................... (13,750) $ 0.10
Canceled.......................................................................... (66,437) $ 0.10
-----------
Outstanding at December 31, 1996.................................................... 1,719,313 $ 0.10
Granted........................................................................... 1,301,000 $ 0.59
Exercised......................................................................... (452,024) $ 0.12
Canceled.......................................................................... (642,689) $ 0.11
-----------
Outstanding at December 31, 1997.................................................... 1,925,600 $ 0.43
Granted........................................................................... 3,872,650 $ 0.94
Exercised......................................................................... (81,028) $ 0.17
Canceled.......................................................................... (533,671) $ 0.67
-----------
Balance at December 31, 1998........................................................ 5,183,551 $ 0.79
Granted (unaudited)................................................................. 2,810,615 $ 1.35
Exercised (unaudited)............................................................... (431,988) $ 0.56
Canceled (unaudited)................................................................ (1,097,884) $ 0.89
-----------
Balance at June 30, 1999 (unaudited)................................................ 6,464,294 $ 1.03
-----------
-----------
</TABLE>
The following tables summarize information about options outstanding at December
31, 1998:
<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>
$0.10............ 923,350 7.37 $ 0.10 699,133 $ 0.10
$0.25............ 53,251 8.55 $ 0.25 19,190 $ 0.25
$0.60--$0.80..... 1,540,300 9.17 $ 0.78 248,815 $ 0.76
$1.00............ 2,641,650 9.93 $ 1.00 60,000 $ 1.00
$5.00............ 25,000 8.04 $ 5.00 10,938 $ 5.00
</TABLE>
F-19
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
Shares of common stock of the Company reserved for future issuance at December
31, 1998 are as follows:
<TABLE>
<S> <C>
Warrants....................................................... 521,750
Stock options.................................................. 5,453,198
Series A redeemable convertible preferred stock................ 3,400,000
Series B redeemable convertible preferred stock................ 6,470,000
Series C redeemable convertible preferred stock................ 7,000,000
Series D convertible preferred stock........................... 3,333,334
---------
26,178,282
---------
---------
</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
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
-------------------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Expected life (years)................................................... 4-5 4-5 4-5
Risk-free interest rate (percentage).................................... 7-8 7-8 7-8
</TABLE>
The option 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.
The weighted average estimated fair values of employee stock options for fiscal
years 1996, 1997, and 1998 were $0.03, $0.18, and $0.27 per share, respectively.
F-20
<PAGE>
GRIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
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, such 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, (ii) the designation of common stock
and preferred stock with $0.001 par value per share, (iii) management of the
Company to file 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 and, (iv) management to effect a reverse stock split of its common
stock. The accompanying consolidated financial statements have been
retroactively restated to give effect to the reincorporation.
STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLAN
In September 1999, the Board of Directors approved, effective 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 shall be granted under
these plans, (ii) the adoption of the 1999 Equity Incentive Plan (the Equity
Plan) and reserved shares that will be outstanding immediately after the
initial public offering of its common stock for issuance under the Equity Plan
and (iii) the adoption of the 1999 Employee Stock Purchase Plan (the Purchase
Plan) and reserved 500,000 shares of the Company's common stock, post any stock
split, being reserved for issuance under the Purchase Plan.
F-21
<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. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALER'S OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO 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...................... $ 13,900
NASD filing fee.......................................................... 5,500
Nasdaq National Market filing fee........................................ 95,000
Legal fees and expenses.................................................. 500,000
Accounting fees and expenses............................................. 250,000
Printing and engraving expenses.......................................... 250,000
Road show expenses....................................................... 30,000
Directors and officers liability insurance...............................
Blue sky fees and expenses............................................... 10,000
Transfer agent and registrar fees and expenses........................... 5,000
Miscellaneous............................................................ 50,000
Total.............................................................. $
</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 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 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 Certificate of Incorporation..................................................... 3.01
Registrant's Bylaws........................................................................... 3.03
Fourth Amended and Restated Registration Rights Agreement dated April 16, 1999................ 4.02
Form of Indemnity 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 August 31, 1999, we have sold and issued 1,144,034 shares of our
common stock for an aggregate purchase price of $361,731 to employees,
directors and consultants pursuant to option exercises under our stock
option plans.
2. In July 1997, we sold 70,000 shares of Common Stock to an outside director
for an aggregate purchase price of $17,500.
3. Between December 1997 and June 1999, we sold and issued 15,290,159 shares of
Series D Preferred Stock to a group of investors for an aggregate purchase
price of $38,225,397.50.
4. In August 1998, we issued warrants to purchase an aggregate of 28,000 shares
of Series D Preferred Stock in connection with an equipment financing.
5. In September 1998, we issued warrants to purchase an aggregate of 168,750
shares of Series D Preferred Stock to a group of investors in connection
with a bridge loan financing. The number of shares which may be acquired
upon exercise of this warrant is currently 270,000.
6. In September 1998, in connection with a bridge financing, we issued
convertible promissory notes to a group of investors. In January 1999, the
convertible notes and all related interest were converted into 1,120,049
shares of Series D Preferred Stock which are included in the aggregate
number of shares referred to in paragraph 3 above.
7. In October 1998, we issued a warrant to purchase 45,000 shares of Series D
Preferred Stock to a commercial lender. The number of shares which may be
acquired upon exercise of this warrant was later adjusted to 49,629.
II-2
<PAGE>
8. In November 1998, we issued a warrant to purchase 260,000 shares of common
stock to a customer, in connection with a strategic alliance. The number of
shares which may be acquired upon exercise of this warrant was later
adjusted to 287,558.
9. In December 1998, we issued a warrant to purchase 20,000 shares of Series D
Preferred Stock to a commercial lender. The number of shares which may be
acquired upon exercise of this warrant was later adjusted to 5,000.
10. Between January 1999 and March 1999 we issued warrants to purchase an
aggregate of 355,000 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 to a group of investors.
In April 1999, the convertible notes and all related interest were converted
into 5,170,110 shares of Series D Preferred Stock which are included in the
aggregate number of shares referred to in paragraph 3 above.
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 Bylaws.*
3.03 The Registrant's Certificate of Retirement of preferred stock.*
3.04 The Registrant's Certificate of Designation of preferred stock.*
4.01 Form of specimen certificate for the Registrant's common stock.*
4.02 Fourth Amended and Restated Registration Rights Agreement, dated April 16, 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.
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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER TITLE
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S>
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 Ernst & Young LLP, Independent Auditors.
24.01 Power of attorney (see pg. II-6 of this registration statement).
27.01 Financial Data Schedule.
</TABLE>
- ---------------------
* To be filed by amendment
(b) The following financial statement is filed with this registration statement:
Schedule II--Valuation and Qualifying Accounts
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.
II-4
<PAGE>
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 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Milpitas,
State of California, on the 21st day of September, 1999.
<TABLE>
<S> <C> <C>
GRIC COMMUNICATIONS, INC.
By: /s/ DR. HONG CHEN
----------------------------------------
Dr. Hong Chen
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Joseph M. Zaelit and David L. Teichmann, and each of them, with full
power of substitution and resubstitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file, any and all
amendments to this Registration Statement, including any and all post-effective
amendments and amendments thereto and any registration statement relating to the
same offering as this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in fact and agents, and each of them, full power and authority to do
and perform each and every act and thing, ratifying and confirming all that said
attorneys-in fact and agents or any of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue thereof. Pursuant to
the requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<S> <C> <C>
<CAPTION>
PRINCIPAL EXECUTIVE OFFICER:
<S> <C> <C>
/s/ DR. HONG CHEN
- ------------------------------ President, Chief Executive September 21, 1999
Dr. Hong Chen Officer and Director
<CAPTION>
PRINCIPAL FINANCIAL OFFICER:
<S> <C> <C>
Senior Vice President,
/s/ JOSEPH M. ZAELIT Finance and
- ------------------------------ Administration and Chief September 21, 1999
Joseph M. Zaelit Financial Officer
<CAPTION>
PRINCIPAL ACCOUNTING OFFICER:
<S> <C> <C>
/s/ KIM S. SILVERMAN
- ------------------------------ Corporate Controller September 21, 1999
Kim S. Silverman
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
ADDITIONAL DIRECTORS:
<C> <S> <C>
/s/ ROGER L. PEIRCE Chairman September 21, 1999
- ------------------------------
Roger L. Peirce
/s/ LYNN Y. LIU Director September 21, 1999
- ------------------------------
Lynn Y. Liu
/s/ DR. TA-LIN HSU Director September 21, 1999
- ------------------------------
Dr. Ta-Lin Hsu
/s/ DR. YEN-SON (PAUL) HUANG Director September 21, 1999
- ------------------------------
Dr. Yen-Son (Paul) Huang
/s/ KHENG NAM LEE Director September 21, 1999
- ------------------------------
Kheng Nam Lee
/s/ JOZEF LERNOUT Director September 21, 1999
- ------------------------------
Jozef Lernout
/s/ STANLEY J. MERESMAN Director September 21, 1999
- ------------------------------
Stanley J. Meresman
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER TITLE
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S>
4.02 Fourth Amended and Restated Registration Rights Agreement, dated April 16, 1999, among Registrant and
the security holders listed in the agreement.
10.02 Employee Agreement effective March 1, 1994 between Aimnet Corporation and Dr. Hong Chen.
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.
10.15 Restricted Stock Purchase Agreement 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.
23.02 Consent of Ernst & Young LLP, Independent Auditors.
24.01 Power of attorney (see pg. II-6 of this registration statement).
27.01 Financial Data Schedule.
</TABLE>
<PAGE>
GRIC COMMUNICATIONS, INC.
FOURTH AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
___________________________
This Agreement is made at Milpitas, California as of April 16, 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 Third Amended Registration Rights Agreement
dated as of December 24, 1997 (the "Previous Agreement").
B. The Previous Agreement was amended on August 10, 1998, November 5, 1998
and November 12, 1998, respectively, to grant registration rights to
Phoenix Leasing Incorporated, Robert Kingsbook, Silicon Valley Bank and
America Online, Inc. with respect to warrants issued to them to puchase
certain of the Company's securities and to add them as Securityholders
thereunder.
C. 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 D Preferred Stock pursuant to a Series D
Preferred Stock Second 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).
D. 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 and the
reasonably anticipated price per share is at least $5.00 in a Registration
pursuant to Article 2 (REQUESTED REGISTRATION)
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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 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; provided, further, that the $5.00 per
share threshold shall not apply to any REQUESTED REGISTRATION under Article 2
that is requested after the Company's initial public offering and prior to
the Company's becoming eligible to use Form S-3.
"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 and
the reasonably anticipated price per share is at least $5.00. 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 and the reasonably anticipated price per share is at least
$5.00 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
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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, (b) for an aggregate offering price, net of underwriting
discounts and commissions, of more than $10,000,000, and (c) with an offering
price to the public of at least $10.00 per share.
"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 and the Series D 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.
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"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 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.
"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.
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.
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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 three 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 (2/3) of the
Series B Registrable Securities, the prior written consent of the Holders of
at least two-thirds of the Series C Registrable Securities, and the prior
written consent of the Holders of at least two-thirds of the Series D
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 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.
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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.
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
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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.
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.
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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).
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 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.
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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.
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
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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 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
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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.
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
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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.
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.
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
final prospectus, the Holder shall not be liable for such Claim under
this Section 9.2 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 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.
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
<PAGE>
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.
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, 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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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 and the Holders
of a majority of the outstanding Series D 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,
and 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. 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 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:
<PAGE>
To Company: GRIC Communications, Inc.
1421 McCarthy Boulevard
Milpitas, CA 95035
Attn.: General Counsel
Tel: (408) 955-1920
Fax: (408) 955-1968
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.
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
<PAGE>
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 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.
<PAGE>
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have executed this Fourth 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.
FOURTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Jeff Lin
22071 Lindy Lane
Cupertino, CA 95014
Tel: (408) 446-4021
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.
FOURTH 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.
FOURTH 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.
FOURTH 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
AII Holding Corporation
<PAGE>
GRIC COMMUNICATIONS, INC.
FOURTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
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
Tekkang Management Consulting, Inc.
<PAGE>
GRIC COMMUNICATIONS, INC.
FOURTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
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
14257 Stanford Court
Los Altos Hills, CA 94022
Tel: 650-694-6508
Hung Chih Chen
11F, 201 Chien Kuo S. Road, Sec. 2
Taipei, Taiwan, ROC
Tel: 886-2-703-0030
Fax: 886-2-703-3051
<PAGE>
GRIC COMMUNICATIONS, INC.
FOURTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Timothy Lin
2F, No. 4, Lane 144, Chung Cheng Rd.
Hsin-Tein,
Taipei, Taiwan, ROC
Tel: 011-886-2-914-4580
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.
FOURTH 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
1531 Oriole Avenue
Sunnyvale, CA 95050
Tel: 408-774-8714
Fu Lin
c/o Netis Technology, Inc.
1606 Centre Point Drive
Milpitas, CA 95035
Tel: 408-263-0368
Susan Liang
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
Jennifer Ng Yoke Lay
41A Lorong Marzuki
<PAGE>
GRIC COMMUNICATIONS, INC.
FOURTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Singapore 1441
Tel: 65-841-4119
Gau Tech Enterprises, Inc.
By:
(sign name)
(print name)
(title)
3874 Cellecita
Santa Barbara, CA 93110
Attn: George Gau
Tel: 805-682-3424
ST Telecommunications Pte. Ltd.
By:
(sign name)
(print name)
(title)
3 Lim Teck Kim Road, #10-02
Singapore Technologies Bldg.
Singapore 088934
Tel: 65-220-5335
Attn: Goh Sock Cheng
Essex Investment (Singapore) Pte Ltd.
<PAGE>
GRIC COMMUNICATIONS, INC.
FOURTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
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.
FOURTH 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
Asia Pacific Growth Fund III
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.
FOURTH 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.
FOURTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
SingCom (Australia) Pty Limited
By:
(sign name)
(print name)
(title)
c/o Singapore Telecommunications
Limited
Comcentre, 31 Exeter Road, 18th Fl.
Singapore 239732
Tel: 65-838-2344
Attn: Andrew Buay
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
<PAGE>
GRIC COMMUNICATIONS, INC.
FOURTH 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.
FOURTH 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
Stamford, CT 06904-7900 1301 Avenue of the Americas
Attn: Michael M. Pastore, Esq. 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.
FOURTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Talisman Capital Opportunity Inc.
By:
(sign name)
(print name)
(title)
16101 LaGrande Drive
Suite 100
Litle 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
Litle Rock, AR 72211
Tel: (501) 821-6800
Fax: (501) 821-6888
Attn: Geoffrey Tirman
<PAGE>
GRIC COMMUNICATIONS, INC.
FOURTH 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.
FOURTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
Flanders Language Valley Fund C.V.A.
By:
(sign name)
(print name)
(title)
Mergherlynckstraat 4
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.
FOURTH 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.
FOURTH 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
<PAGE>
GRIC COMMUNICATIONS, INC.
FOURTH 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
<PAGE>
GRIC COMMUNICATIONS, INC.
FOURTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE (CONTINUED)
EXHIBIT A
SUMMARY OF REGISTRABLE SECURITIES
<TABLE>
<CAPTION>
NUMBER OF REGISTRABLE
SECURITIES INTO WHICH PRESENTLY
SECURITY NUMBER OF SHARES CONVERTIBLE
- -------- ---------------- -----------------------------------
<S> <C> <C>
Founders' Shares 5,000,000 5,000,000
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
TOTAL UP TO 37,096,752 UP TO 37,096,752
</TABLE>
For the purpose of this table, Preferred Stock are deemed convertible
into Common Stock.
<PAGE>
EMPLOYEE AGREEMENT
EFFECTIVE MARCH 1, 1994
Agreement between , Hong Chen , hereafter referred to as Employee and Aimnet
Corporation, hereinafter referred to as Employer.
Employer and Employee agree as follows:
1. Employment, Complete Agreement, and Modification
Employer will employ Employee, and Employee will be employed by Employer on
the terms and conditions hereafter set forth. This Agreement supersedes all
previous correspondence, promises, representations, and agreements. If any,
either written or oral. No provision of this Agreement may be modified
except by a writing signed by both Employer and Employee. This Agreement
consists of six (6) pages.
2. Termination of Employment
Either party man terminate this Agreement at any time during the duration
of employment, for any reason whatsoever or for no reason and without
cause, upon the giving of two (2) weeks notice to the other. However,
Employer may terminate this Agreement without prior notice during the first
ninety (90) clays of employment, and without notice after the ninety (90)
days if Employee has misappropriated company property or funds. No policies
or procedures of Employer or benefits provided by Employer, whether oral or
written, express or implied, formal or informal, am intended, nor shall
they be construed, to limit the right or ability of Employer or Employee to
terminate this Agreement as set forth above. In the event Employee is
terminated due to a reduction in force, severance pay, if applicable, will
not reduce Employee's right to prior notice required under this paragraph.
Employees employment is and shall be "at will". Except as otherwise agreed
in writing or as otherwise provided in this Agreement, upon termination of
employment neither Employer nor Employee shall have any further obligation
to each other.
3. Duties and Compensation
Employee shall perform any and all duties now or hereafter assigned to
Employee by Employer, as well as other tasks whether or not assigned by
Employer, for a salary as may from time to time be fixed by Employer.
Employee's salary will constitute the full and exclusive monetary
consideration and compensation for all services performed by Employer, and
for the performance of all his or her promises and obligations hereunder.
Employee's salary may be increased or decreased from time to time by
Employer, in Employers sole discretion, without violating this Agreement.
4. Other Compensation
Any additional compensation awarded to Employee (whether by way of bonus
payment, opportunity
- --------------------------------------------------------------------------------
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Page 1 of 6
<PAGE>
to acquire stock, or any other form of additional compensation) shall reset
in the sole discretion of the Board of Directors of Employer, and Employee
shall not earn or accrue any right to any such additional compensation by
reason of his or her employment hereunder.
Employee's other compensation may be increased or decreased by Employer, in
Employer's sole discretion without violating this Agreement.
5. Rules and Regulations
Employee will abide by Employers rules and regulations, and practices
concerning vacation, sick leave, and other terms and conditions of
employment, as they may from time to time be adopted or modified.
6. Employee Benefit Plans
Employer may adopt, or continue in force, benefit plans for the benefit of
all of its employees or only certain of its employees. Such benefit plans
may include, as examples only, group life insurance, medical insurance,
401K, and profit sharing plans. Employer, In its sole discretion, may
increase or decrease the benefits provided by such plan or plans or
terminate any or all such plans at any time, and may choose not to adopt
any additional plans, without violating this Agreement. Employee's rights
under any benefit plans now in force or later adopted by Employer shall
governed solely by the terms of such plans.
7. Expenses
Employer will reimburse Employee for all substantiated reasonable travel
and out-of-pocket expenses incurred in accordance with Employer's travel
policy.
If Employer pays for relocation of Employee, and Employee resigns the
employ of Employer within one (1) year of such relocation, Employee shall,
within ten (10) days of his or her resignation, pay to Employer any moving
expenses related to such relocation previously paid or reimbursed by
Employer.
8. Noncompetition by Employee during Employment
During his or her employment, Employee shall not, directly or indirectly,
engage or participate in any business that is in competition with the
business of Employer. This prohibition shall not include ownership by
Employee of less one percent (1%) of the outstanding stock in a publicly
traded corporation.
9. Duty to Devote Full Time and Avoid Conflict of Interest
During his or her employment, Employee shall devote full-time efforts to
his or her duties as an Employee of the Employer. Employee will not,
directly or indirectly, engage or participate in any activities during the
period of employment in conflict with the best interests of Employer.
10. Invention Belong to Employer
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 2 of 6
<PAGE>
Employee shall promptly disclose and assign to Employer all of Employee's
right, title and interest in and to any and all ideas, inventions,
discoveries or creations which are or may become legally protectable or
recognized improvements, including but not limited to computer programs,
algorithms, methods, manufacturing techniques, writings and other works of
authorship, illustrations and pictures which Employee solely or jointly has
or may in the future have conceived, made or reduced to practices or
developed, in whole or part, during work time, unless the idea, invention,
creation or discovery (1) does not use Employers equipment, supplies,
facilities or trade secret information; (2) was developed entirely on
Employee's own time without the use of Employer's equipment, supplies or
facilities; (3) does not relate to the business of Employer or to
Employer's actual or demonstrable anticipated research or development; and
(4) does not result from work Employee performs for Employer. Employee will
assign to Employer inventions or creations created or discovered by
Employer, or jointly by Employee and a co-employee or co-employees, on
Employee's or their time if the same relate to the business of Employer or
to its actual or demonstrably anticipated research or development or which
results from any work performed by Employee for Employer. The forgoing
Agreement is binding upon Employee's heirs, representatives and assignees.
Pursuant to the above, Employee will execute and deliver to Employer or its
attorneys without additional compensation, but without expense to Employee,
any and all instruments including United States and foreign patent
applications, instruments to secure priority rights under the International
Convention for the Protection of Industrial Property, applications for
securing or registering any property rights assigned herein, and will
perform any and all lawful acts which in the judgment of, Employer or its
attorneys maybe necessary or desirable to secure or maintain for the
benefit of Employer, patents or other proprietary rights in the Unites
States and all foreign countries with respect to the property rights to be
assigned herein.
It is understood that the election of whether or not to file a patent
application on any disclosure submitted by Employee and the manner of
preparation and prosecution of any and all Unites States or foreign patent
applications shall be wholly within the discretion of Employer, and at its
expense. If Employee petitions in writing to Employer for a release of any
rights hereunder granted, Employer will promptly consider and act on such
petition, but is not obligated to release any of its rights.
11. Trade Secrets and Proprietary Information of Employer
Employee will have access to, will acquire and become acquainted with
various trade secrets, confidential and proprietary information, relating
to Employer's business, including but not limited to: client, employee,
supplier, and distributor lists, contacts, addresses, information about
employees and employee relations, training manuals and procedures,
recruitment method and procedures, employment contracts, employee
handbooks, information about clients and suppliers, price lists, costs and
expenses, documents, budgets, proposals, financial information, inventions,
patterns, processes, computer programs, manufacturing, recruitment and
distribution techniques, specifications, tapes and compilations of
information, all of which are owned by Employer, other parties with which
Employer does business ("Third Parties") or clients of Employer and which
are used n the operation of Employer's, Third Parties and/or a client's
business. Employee shall hold in strictest confidence and shall not (other
than as specifically allowed in writing by Employer) disclose or use any
trade secret or confidential information of Employer, directly or
indirectly, or use them in any way, either during the term of Employee's
employment, or at any time thereafter, except as required by Employer in
the course of Employee's employment. Employee understands that the term
"trade secret" or confidential information" means all information
concerning Employer, Third Parties and/or clients of Employer, or any
parent, subsidiary or affiliate of Employer, Third Parties, and/or a cli-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 3 of 6
<PAGE>
ent (including, but not limited to, information regarding the
peculiarities, preferences and manner of doing business) that is not
generally known to the public. All items referred to in this paragraph and
similar items relating to the business of Employer, Third Parties and/or a
client, whether prepared by Employee or otherwise, shall remain the
exclusive property of Employer, Third Parties and/or client and shall not
be removed from Employer's, Third Parties' and/or clients premises without
prior written consent of Employer. Employee also agrees that the remedy at
law for breach of this paragraph is inadequate and that Employer, in
addition to any other remedy, can seek appropriate injunctive relief from
an appropriate court or arbitrator, at its election.
12. Confidential Information of Clients
All ideas, concepts, information and written material disclosed to Employee
by Employer, or acquired from a client of Employer, and all financial,
accounting, statistical, personnel, and business data and plans of clients,
are and shall remain the sole and exclusive property and proprietary
information of the Employer, or said client, and are disclosed in
confidence by Employer or permitted to be acquired from clients in reliance
on Employee's agreement to maintain them in confidence and not to use or
disclose them to any other person except in furtherance of Employer's
business. The prohibitions of this paragraph shall not apply to any
information which is later publicly disclosed, or is obtained by Employee
in a legal manner from another source not connected with or related to
Employer.
13. Return of Information
On or before termination of employment, Employee will return to Employer
all originals and copies of all of any part of:
Lists and sources of clients and suppliers;
Lists of employees;
Proposals to clients or drafts of proposals;
Reports, job notes, specifications, and drawings pertaining to
clients; or
Any and all other things, equipment, and written materials obtained by
Employee during the course of employment from Employer or from any
client of Employer.
14. Post-Employment Nonsolicitation of Clients
It is understood that Employee will learn trade secrets, confidential and
proprietary information as referred to in paragraphs 11 and 12 above. Use
of such trade secrets, confidential and proprietary information will
provide Employee with an unfair advantage over Employer, as compared to a
normally competitive situation. Employee agrees that if he or she solicits
business from Employer's clients and prospective clients, Employee will of
necessity use such trade secrets, proprietary and confidential information,
and such solicitation would be unfair. In recognition of this, Employee
agrees that upon termination of employment, he or she will not engage in
the conduct described below:
Employee shall not solicit any clients of Employer (i.e., clients where at
least a project has been conducted in the last two (2) years), or attempt
to take away any business of Employer that is either under way or about to
begin at the termination of employment.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 4 of 6
<PAGE>
For a period of one (1) year following termination of employment, employee
shall not interfere or compete in any way with any proposal or other
efforts of Employer, already in process (that is, a proposal sent to or
being then currently developed for a specific existing or prospective
client or clients, or contemplated to be submitted to a specific existing
or prospective client or clients by Employer within one (1) year) at the
termination of employment.
For a period of one (1) year following termination of employment, Employee
shall not make use any of his or her personal relationships or business
contacts developed during the course of employment with Employer ant
utilized for business purposes within the two (2) years prior to
termination, for the benefit of himself, herself or another, in an
competitive manner with respect to the business of Employer.
Notwithstanding the foregoing, the Employee and Employer agree that there
is no restriction on Employee's right, upon termination, to send general
announcements of any new employment or to contact in the same manner all
potential customers of this new employment without selecting or devoting
special attention (as in a, b, or c above or otherwise) to Employer's
clients or prospective clients.
15. No Solicitation of Employees
Employee will not, either during the term of Employee's employment or at
any time thereafter, attempt to solicit or influence any of Employer's
employees to: (a) become employees of, or render services to, any other
employer or business; (b) engage in any activity, business or undertaking
not sponsored by Employer; or (c) engage in any activity contrary to or
conflicting with the interests of Employer, while the Employee is employed
by Employer. Employee agrees that the remedy at law for breach of this
paragraph is inadequate and that Employer, in addition to any other remedy,
can seek appropriate injunctive relief from and appropriate court or
arbitrator, at its election.
16. Injective Relief
The services of Employee, as well as the trade secrets and the proprietary
and confidential information of Employer are of a special, unique, unusual
and extraordinary nature, which give them a unique value, the loss of which
cannot reasonably or adequately be compensated for in damages in an action
at law. The breach by Employee of any provision of this Agreement would
cause the Employer irreparable injury and damage, the measure of which
could not be adequately measured at law. Employer shall be entitled, as a
matter of right, to injunctive and other equitable relief to prevent the
violation of any provision of this Agreement by Employee. Employee hereby
consents to the granting of such injunctive or other equitable relief. The
exercise by Employer of any of its rights hereunder shall not constitute a
waiver by Employer of any other rights which it may have to damages or
otherwise.
17. Severability
In any term or provision of this Agreement is held to be invalid or
unenforceable, the remaining portions of this Agreement will continue to be
valid and will be performed, construed and enforced to the fullest extend
permitted by law, and the invalid or unenforceable term will be deemed
amended and limited in accordance with the intent of the parties, as
determined from the face of the Agreement, to
- --------------------------------------------------------------------------------
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Page 5 of 6
<PAGE>
the extent necessary to permit the maximum enforceability or validation of
the term or provision.
18. Agreement Binding on others
This Agreement is binding on the heirs, executors, administrators, and
successors-in-interest of the parties hereto.
19. Governing Law
This Agreement shall be construed and enforced according to the laws of the
Sate of California, excluding its choice of law rules.
20. Agreement Read, Understood and Fair
Employee has carefully read and considered the provisions of this Agreement
and agrees that all of the restrictions set forth are fair and reasonable
and are reasonably required for the protection of the interests of
Employer. Employee acknowledges that the goodwill and value of Employer is
enhanced by these provisions and that said enhancement is desired by
Employee.
/s/ Hong Chen
----------------------------
For Employer
President
----------------------------
Title
4/1/94
----------------------------
Date
/s/ Hong Chen
----------------------------
Employee Signature
11011 Bubb Road
----------------------------
Address
Cupertino, CA 95014
----------------------------
City, State, Zip
----------------------------
Telephone
074 701451
----------------------------
Social Security #
4/1/94
----------------------------
Date
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Page 6 of 6
<PAGE>
Confidential Information
Exhibit A
CONFIDENTIALLY AGREEMENT
Aimnet Corporation
In consideration of my employment or continued employment by Aimnet Corporation
I agree as follows:
1. I will not, directly or indirectly, use, publish, or otherwise disclose any
Confidential Information related to the business of the Company. "Confidential
Information" means proprietary knowledge held by Company employees or contained
in Company files, computers, or libraries. Such Information includes the
Company's products, network and software designs, cost or price information,
procedural manuals, guides, memos, plans, drawings, records, and all material
identified as Confidential by the Company.
2. All Confidential Information that comes into my possession or control by
reason of my employment, whether prepared by me or others, is Company property.
I agree such Information will never be used by me in any way which is contrary
to the interests of the Company. I will not remove information from Company
premises except as required by my normal duties.
3. In the event of the termination of my employment with the Company, I agree to
return forthwith any and all Information in my possession.
4. My duties under this Agreement shall survive termination of my employment
with the Company. I agree that the Company shall be entitled to injunctive
relief and/or damages for any breach by me of this Agreement.
5. The foregoing is the entire understanding of the undersigned parties with
respect to Confidential Information.
Dated: 9/1/94 /s/ Hong Chen
--------------- -----------------------------
Employee
/s/ Hong Chen
-----------------------------
For Aimnet Corporation
- --------------------------------------------------------------------------------
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Page 1 of 6
<PAGE>
EMPLOYEE AGREEMENT
EFFECTIVE MARCH 1, 1994
Agreement between , Lynn Lui , hereafter referred to as Employee and Aimnet
Corporation, hereinafter referred to as Employer.
Employer and Employee agree as follows:
1. Employment, Complete Agreement, and Modification
Employer will employ Employee, and Employee will be employed by Employer on
the terms and conditions hereafter set forth. This Agreement supersedes all
previous correspondence, promises, representations, and agreements. If any,
either written or oral. No provision of this Agreement may be modified
except by a writing signed by both Employer and Employee. This Agreement
consists of six (6) pages.
2. Termination of Employment
Either party man terminate this Agreement at any time during the duration
of employment, for any reason whatsoever or for no reason and without
cause, upon the giving of two (2) weeks notice to the other. However,
Employer may terminate this Agreement without prior notice during the first
ninety (90) clays of employment, and without notice after the ninety (90)
days if Employee has misappropriated company property or funds. No policies
or procedures of Employer or benefits provided by Employer, whether oral or
written, express or implied, formal or informal, am intended, nor shall
they be construed, to limit the right or ability of Employer or Employee to
terminate this Agreement as set forth above. In the event Employee is
terminated due to a reduction in force, severance pay, if applicable, will
not reduce Employee's right to prior notice required under this paragraph.
Employees employment is and shall be "at will". Except as otherwise agreed
in writing or as otherwise provided in this Agreement, upon termination of
employment neither Employer nor Employee shall have any further obligation
to each other.
3. Duties and Compensation
Employee shall perform any and all duties now or hereafter assigned to
Employee by Employer, as well as other tasks whether or not assigned by
Employer, for a salary as may from time to time be fixed by Employer.
Employee's salary will constitute the full and exclusive monetary
consideration and compensation for all services performed by Employer, and
for the performance of all his or her promises and obligations hereunder.
Employee's salary may be increased or decreased from time to time by
Employer, in Employers sole discretion, without violating this Agreement.
4. Other Compensation
Any additional compensation awarded to Employee (whether by way of bonus
payment, opportunity
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Page 1 of 6
<PAGE>
to acquire stock, or any other form of additional compensation) shall reset
in the sole discretion of the Board of Directors of Employer, and Employee
shall not earn or accrue any right to any such additional compensation by
reason of his or her employment hereunder.
Employee's other compensation may be increased or decreased by Employer, in
Employer's sole discretion without violating this Agreement.
5. Rules and Regulations
Employee will abide by Employers rules and regulations, and practices
concerning vacation, sick leave, and other terms and conditions of
employment, as they may from time to time be adopted or modified.
6. Employee Benefit Plans
Employer may adopt, or continue in force, benefit plans for the benefit of
all of its employees or only certain of its employees. Such benefit plans
may include, as examples only, group life insurance, medical insurance,
401K, and profit sharing plans. Employer, In its sole discretion, may
increase or decrease the benefits provided by such plan or plans or
terminate any or all such plans at any time, and may choose not to adopt
any additional plans, without violating this Agreement. Employee's rights
under any benefit plans now in force or later adopted by Employer shall
governed solely by the terms of such plans.
7. Expenses
Employer will reimburse Employee for all substantiated reasonable travel
and out-of-pocket expenses incurred in accordance with Employer's travel
policy.
If Employer pays for relocation of Employee, and Employee resigns the
employ of Employer within one (1) year of such relocation, Employee shall,
within ten (10) days of his or her resignation, pay to Employer any moving
expenses related to such relocation previously paid or reimbursed by
Employer.
8. Noncompetition by Employee during Employment
During his or her employment, Employee shall not, directly or indirectly,
engage or participate in any business that is in competition with the
business of Employer. This prohibition shall not include ownership by
Employee of less one percent (1%) of the outstanding stock in a publicly
traded corporation.
9. Duty to Devote Full Time and Avoid Conflict of Interest
During his or her employment, Employee shall devote full-time efforts to
his or her duties as an Employee of the Employer. Employee will not,
directly or indirectly, engage or participate in any activities during the
period of employment in conflict with the best interests of Employer.
10. Invention Belong to Employer
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<PAGE>
Employee shall promptly disclose and assign to Employer all of Employee's
right, title and interest in and to any and all ideas, inventions,
discoveries or creations which are or may become legally protectable or
recognized improvements, including but not limited to computer programs,
algorithms, methods, manufacturing techniques, writings and other works of
authorship, illustrations and pictures which Employee solely or jointly has
or may in the future have conceived, made or reduced to practices or
developed, in whole or part, during work time, unless the idea, invention,
creation or discovery (1) does not use Employers equipment, supplies,
facilities or trade secret information; (2) was developed entirely on
Employee's own time without the use of Employer's equipment, supplies or
facilities; (3) does not relate to the business of Employer or to
Employer's actual or demonstrable anticipated research or development; and
(4) does not result from work Employee performs for Employer. Employee will
assign to Employer inventions or creations created or discovered by
Employer, or jointly by Employee and a co-employee or co-employees, on
Employee's or their time if the same relate to the business of Employer or
to its actual or demonstrably anticipated research or development or which
results from any work performed by Employee for Employer. The forgoing
Agreement is binding upon Employee's heirs, representatives and assignees.
Pursuant to the above, Employee will execute and deliver to Employer or its
attorneys without additional compensation, but without expense to Employee,
any and all instruments including United States and foreign patent
applications, instruments to secure priority rights under the International
Convention for the Protection of Industrial Property, applications for
securing or registering any property rights assigned herein, and will
perform any and all lawful acts which in the judgment of, Employer or its
attorneys maybe necessary or desirable to secure or maintain for the
benefit of Employer, patents or other proprietary rights in the Unites
States and all foreign countries with respect to the property rights to be
assigned herein.
It is understood that the election of whether or not to file a patent
application on any disclosure submitted by Employee and the manner of
preparation and prosecution of any and all Unites States or foreign patent
applications shall be wholly within the discretion of Employer, and at its
expense. If Employee petitions in writing to Employer for a release of any
rights hereunder granted, Employer will promptly consider and act on such
petition, but is not obligated to release any of its rights.
11. Trade Secrets and Proprietary Information of Employer
Employee will have access to, will acquire and become acquainted with
various trade secrets, confidential and proprietary information, relating
to Employer's business, including but not limited to: client, employee,
supplier, and distributor lists, contacts, addresses, information about
employees and employee relations, training manuals and procedures,
recruitment method and procedures, employment contracts, employee
handbooks, information about clients and suppliers, price lists, costs and
expenses, documents, budgets, proposals, financial information, inventions,
patterns, processes, computer programs, manufacturing, recruitment and
distribution techniques, specifications, tapes and compilations of
information, all of which are owned by Employer, other parties with which
Employer does business ("Third Parties") or clients of Employer and which
are used n the operation of Employer's, Third Parties and/or a client's
business. Employee shall hold in strictest confidence and shall not (other
than as specifically allowed in writing by Employer) disclose or use any
trade secret or confidential information of Employer, directly or
indirectly, or use them in any way, either during the term of Employee's
employment, or at any time thereafter, except as required by Employer in
the course of Employee's employment. Employee understands that the term
"trade secret" or confidential information" means all information
concerning Employer, Third Parties and/or clients of Employer, or any
parent, subsidiary or affiliate of Employer, Third Parties, and/or a cli-
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<PAGE>
ent (including, but not limited to, information regarding the
peculiarities, preferences and manner of doing business) that is not
generally known to the public. All items referred to in this paragraph and
similar items relating to the business of Employer, Third Parties and/or a
client, whether prepared by Employee or otherwise, shall remain the
exclusive property of Employer, Third Parties and/or client and shall not
be removed from Employer's, Third Parties' and/or clients premises without
prior written consent of Employer. Employee also agrees that the remedy at
law for breach of this paragraph is inadequate and that Employer, in
addition to any other remedy, can seek appropriate injunctive relief from
an appropriate court or arbitrator, at its election.
12. Confidential Information of Clients
All ideas, concepts, information and written material disclosed to Employee
by Employer, or acquired from a client of Employer, and all financial,
accounting, statistical, personnel, and business data and plans of clients,
are and shall remain the sole and exclusive property and proprietary
information of the Employer, or said client, and are disclosed in
confidence by Employer or permitted to be acquired from clients in reliance
on Employee's agreement to maintain them in confidence and not to use or
disclose them to any other person except in furtherance of Employer's
business. The prohibitions of this paragraph shall not apply to any
information which is later publicly disclosed, or is obtained by Employee
in a legal manner from another source not connected with or related to
Employer.
13. Return of Information
On or before termination of employment, Employee will return to Employer
all originals and copies of all of any part of:
Lists and sources of clients and suppliers;
Lists of employees;
Proposals to clients or drafts of proposals;
Reports, job notes, specifications, and drawings pertaining to
clients; or
Any and all other things, equipment, and written materials obtained by
Employee during the course of employment from Employer or from any
client of Employer.
14. Post-Employment Nonsolicitation of Clients
It is understood that Employee will learn trade secrets, confidential and
proprietary information as referred to in paragraphs 11 and 12 above. Use
of such trade secrets, confidential and proprietary information will
provide Employee with an unfair advantage over Employer, as compared to a
normally competitive situation. Employee agrees that if he or she solicits
business from Employer's clients and prospective clients, Employee will of
necessity use such trade secrets, proprietary and confidential information,
and such solicitation would be unfair. In recognition of this, Employee
agrees that upon termination of employment, he or she will not engage in
the conduct described below:
Employee shall not solicit any clients of Employer (i.e., clients where at
least a project has been conducted in the last two (2) years), or attempt
to take away any business of Employer that is either under way or about to
begin at the termination of employment.
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<PAGE>
For a period of one (1) year following termination of employment, employee
shall not interfere or compete in any way with any proposal or other
efforts of Employer, already in process (that is, a proposal sent to or
being then currently developed for a specific existing or prospective
client or clients, or contemplated to be submitted to a specific existing
or prospective client or clients by Employer within one (1) year) at the
termination of employment.
For a period of one (1) year following termination of employment, Employee
shall not make use any of his or her personal relationships or business
contacts developed during the course of employment with Employer ant
utilized for business purposes within the two (2) years prior to
termination, for the benefit of himself, herself or another, in an
competitive manner with respect to the business of Employer.
Notwithstanding the foregoing, the Employee and Employer agree that there
is no restriction on Employee's right, upon termination, to send general
announcements of any new employment or to contact in the same manner all
potential customers of this new employment without selecting or devoting
special attention (as in a, b, or c above or otherwise) to Employer's
clients or prospective clients.
15. No Solicitation of Employees
Employee will not, either during the term of Employee's employment or at
any time thereafter, attempt to solicit or influence any of Employer's
employees to: (a) become employees of, or render services to, any other
employer or business; (b) engage in any activity, business or undertaking
not sponsored by Employer; or (c) engage in any activity contrary to or
conflicting with the interests of Employer, while the Employee is employed
by Employer. Employee agrees that the remedy at law for breach of this
paragraph is inadequate and that Employer, in addition to any other remedy,
can seek appropriate injunctive relief from and appropriate court or
arbitrator, at its election.
16. Injective Relief
The services of Employee, as well as the trade secrets and the proprietary
and confidential information of Employer are of a special, unique, unusual
and extraordinary nature, which give them a unique value, the loss of which
cannot reasonably or adequately be compensated for in damages in an action
at law. The breach by Employee of any provision of this Agreement would
cause the Employer irreparable injury and damage, the measure of which
could not be adequately measured at law. Employer shall be entitled, as a
matter of right, to injunctive and other equitable relief to prevent the
violation of any provision of this Agreement by Employee. Employee hereby
consents to the granting of such injunctive or other equitable relief. The
exercise by Employer of any of its rights hereunder shall not constitute a
waiver by Employer of any other rights which it may have to damages or
otherwise.
17. Severability
In any term or provision of this Agreement is held to be invalid or
unenforceable, the remaining portions of this Agreement will continue to be
valid and will be performed, construed and enforced to the fullest extend
permitted by law, and the invalid or unenforceable term will be deemed
amended and limited in accordance with the intent of the parties, as
determined from the face of the Agreement, to
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<PAGE>
the extent necessary to permit the maximum enforceability or validation of
the term or provision.
18. Agreement Binding on others
This Agreement is binding on the heirs, executors, administrators, and
successors-in-interest of the parties hereto.
19. Governing Law
This Agreement shall be construed and enforced according to the laws of the
Sate of California, excluding its choice of law rules.
20. Agreement Read, Understood and Fair
Employee has carefully read and considered the provisions of this Agreement
and agrees that all of the restrictions set forth are fair and reasonable
and are reasonably required for the protection of the interests of
Employer. Employee acknowledges that the goodwill and value of Employer is
enhanced by these provisions and that said enhancement is desired by
Employee.
/s/ Hong Chen
----------------------------
For Employer
President
----------------------------
Title
4/1/94
----------------------------
Date
/s/ Lynn Lui
----------------------------
Employee Signature
11011 Bubb Road
----------------------------
Address
Cupertino, CA 95014
----------------------------
City, State, Zip
----------------------------
Telephone
###-##-####
----------------------------
Social Security #
4/1/94
----------------------------
Date
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<PAGE>
Confidential Information
Exhibit A
CONFIDENTIALLY AGREEMENT
Aimnet Corporation
In consideration of my employment or continued employment by Aimnet Corporation
I agree as follows:
1. I will not, directly or indirectly, use, publish, or otherwise disclose any
Confidential Information related to the business of the Company. "Confidential
Information" means proprietary knowledge held by Company employees or contained
in Company files, computers, or libraries. Such Information includes the
Company's products, network and software designs, cost or price information,
procedural manuals, guides, memos, plans, drawings, records, and all material
identified as Confidential by the Company.
2. All Confidential Information that comes into my possession or control by
reason of my employment, whether prepared by me or others, is Company property.
I agree such Information will never be used by me in any way which is contrary
to the interests of the Company. I will not remove information from Company
premises except as required by my normal duties.
3. In the event of the termination of my employment with the Company, I agree to
return forthwith any and all Information in my possession.
4. My duties under this Agreement shall survive termination of my employment
with the Company. I agree that the Company shall be entitled to injunctive
relief and/or damages for any breach by me of this Agreement.
5. The foregoing is the entire understanding of the undersigned parties with
respect to Confidential Information.
Dated: 9/1/94 /s/ Lynn Lui
--------------- -----------------------------
Employee
/s/ Hong Chen
-----------------------------
For Aimnet Corporation
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<PAGE>
Exhibit 10.04
August 21, 1996
Christophe Culine
6620 Leyland Park Ave.
San Jose, CA 95120
Dear Christophe,
It is our pleasure to offer you employment at Aimnet Corporation, in the
initial position as VICE PRESIDENT OF SALES. We would like for you to begin
on Monday, September 9, 1996. You will report directly to the President of
the company. This is an executive level position and is critical to the
company's success. We are excited about your background and your drive to
propel Aimnet to success in sales.
Your initial compensation has a base annual salary of $100,000. We
intend to compensate you an additional $100,000 in commission structure and
MBO. This plan will be mutually agreed upon. You are also invited to
participate in the employee incentive stock option plan, receiving 200,000
options priced at $0.10/share. These will vest over a four year period. The
Plan documents will detail the associated option provisions. In the case of
termination by company within the first year, your stock options will be
vested on a monthly basis up to the time of the termination. In the case of
acquisition and merger where your stock options are affected, 50% of the
remaining unvested stock options will be vested upon the time of merger and
acquisition. You will participate in the full range of employee benefits,
including medical and dental insurance, paid vacation, sick leave, and if
necessary COBRA coverage effective on your start date. We will provide you
with the related policies and procedures that explain these benefits.
The company will provide you with a notebook computer and a cellular
phone for business use.
Employment with the Aimnet is contingent upon meeting the Company's
requirements; which include completing all necessary work related forms,
producing applicable documents as required by the Immigration Conform and
Control Act of 1986 and other such documents. Failure to comply will result
in the rescinding of our offer of employment.
This letter is not intended to confer contractual rights of any kind
upon any employee, or to create contractual obligations of any kind on
Aimnet. Aimnet's relationship with all of its employees is on an "at will"
basis. Either the company or the employee can terminate the relationship
after giving two weeks notice. However, in case of termination by company
during the time of employment, you will receive a severance
AIMNET CORPORATION
2350 Mission College Blvd., Suite 600
Santa Clara, California 95054
Voice: 408- 567- 3800
Fax: 408- 567- 3990
http://www.aimnet.com
[email protected]
<PAGE>
package consisting of three months of base salary plus 6 months
of full medical and dental insurance, plus all accrued vacation
time.
Please sign below to indicate your acceptance of this offer, as it will
expire on Wednesday, August 28, 1996. By accepting employment with the
Company, you agree to be bound by its policies and procedures, including an
Employee Agreement and Confidentiality Agreement which you will be shown
before you begin.
Welcome to Aimnet! We look forward to your contribution to bring us
additional success.
Sincerely,
/s/ Hong Chen, Ph.D. Accepted:
President and CEO
Aimnet Corporation /s/ Christophe Culine
-------------------------
date: August 27, 1996
<PAGE>
Exhibit 10.05
June 8, 1998
David Teichmann
1621 Oakdell Dr.
Menlo Park, CA 94025
Dear David:
It is our pleasure to offer you employment at GRIC Communications, Inc.,
in the initial position as VICE PRESIDENT AND GENERAL COUNSEL, reporting to
Tom Oswold, Senior Vice President and Chief Financial Officer. This offer
follows the Key Terms as outlined and agreed in a letter dated June 7, 1998.
In this position, you will be responsible for directing the legal
affairs of the company. You will assist in giving legal review and
negotiations to contracts and agreements with customers, vendors and other
business partners. You will help formulate company policy, from a legal
perspective and will be assigned to manage corporate risk. You are a member
of the Executive team and will counted upon to bring your experience to bear
in shaping company operations and direction. You will also manage our
relationship with outside law firms.
We also propose that you become the Corporate Secretary, subject to
Board approval. We would like for you to begin your employment on Monday,
July 6, 1998.
Your initial compensation is based on a monthly salary of $13,333.33,
which is equivalent to $160,000 per year, and reviewed annually. In addition
you will participate in a bonus program of $30,000 annually. The bonus will
be based on meeting individual objectives and payable semi-annually. You
shall be eligible for the pro-rated amount for the period of July through
December 31, 1998 without individual objectives, provided that you maintain
your employment through the last day of the bonus period.
You will also participate in the employee stock option plan and will
receive 100,000 incentive stock options, subject to Board approval. The
vesting schedule totals four years and is subject to the normal conditions of
the company's stock option plan. If there is a Change of Control, each share
subject to an option that is not fully exercisable shall be accelerated
immediately and become fully exercisable.
<PAGE>
GRIC will reimburse professional dues to maintain professional
designations and reasonable expenses for Continuing Legal Education courses.
The company will also provide a notebook PC (to be used as your principal
desktop PC while at the office) and cellular telephone. The company will pay
your business use of telephone charges, including the monthly costs of a
second phone line at your home.
Paydays are twice monthly, on the 15th and the last day of each month.
You will participate in the full range of employee benefits, including
medical, dental and life insurance, short and long term disability coverage,
401k, vacation allowance, holiday pay, sick leave, etc. Medical and dental
coverage is available on the first of the month following date of hire. We
will provide you with the related policies and procedures that explain these
benefits.
Employment with GRIC Communications, Inc. is contingent upon meeting the
Company's requirements, which include completing all necessary work related
forms, producing applicable documents as required by the Immigration Conform
and Control Act of 1986 and other such documents. Failure to comply will
result in the rescinding of our offer of employment.
If your employment is terminated for reasons other than Cause (including
any significant reduction in compensation or job responsibility), you will
receive ninety days of severance pay (based on then current annual base
salary and bonuses) and continuation of normal employee benefits for a period
of ninety days. If your employment is terminated for reasons other than Cause
(including any significant reduction in compensation or job responsibility),
immediately prior to or after a Change of Control, you will receive one
hundred eighty days of severance pay (defined in the same manner as above)
and continuation of normal employee benefits for the a period of one hundred
eighty days.
This letter is not intended to confer contractual rights of any kind
upon any employee, or to create contractual obligations of any kind on GRIC
Communications. GRIC's relationship with all of its employees is on an "at
will" basis. Either the Company or the employee can terminate the employment
relationship at any time with or without notice and for any reason or for no
reason.
By accepting employment with the Company, you agree to be bound by its
policies and procedures, including an Employee Non-Disclosure, Conflicts of
Interest and Proprietary Rights Agreement, which you will be asked to sign as
you begin. This offer letter is the entire basic agreement for compensation
and employee benefits. By signing below, you acknowledge that you have not
been induced to accept employment by any representations or statements, oral
or written, not contained in this letter.
<PAGE>
Welcome to GRIC Communications! We hope that your employment is mutually
rewarding and expect your contribution to bring us additional success. Please
sign below to indicate your acceptance of this offer, as it will expire on
June 11, 1998.
Sincerely,
John Blank
Vice President-Finance & Administration
Accepted:
----------------------------------
Date
<PAGE>
GRIC COMMUNICATIONS, INC.
KEY TERMS OF DAVID TEICHMANN JOB OFFER
(JUNE 7, 1998)
START DATE: July 6, 1998 (subject to earlier start date if current
situation permits)
Vice President, General Counsel and Secretary (members of
Executive Team) (reporting to Chief Financial Officer)
SALARY: BASE. $160,000
BONUS. $30,000 (based on meeting individual objectives;
payable semi-annually; guaranteed for period July-December 1997
VACATION: Paid vacation according to current GRIC policy
OPTIONS: Grant of 100,000 shares at price to be approved at next Board
meeting
Exercisable 2% per month over 50 months with 10 month cliff
vesting
BENEFITS: Standard (GRIC employee benefits (medical, dental, life
insurance, etc.)
TERMINATION UNDER SPECIAL CONDITIONS
If Teichmann's employment is terminated for reasons other than
Cause (including any significant reduction in compensation or
job responsibility), Teichmann is entitled to ninety days of
severance pay (based on then current annual base salary plus
bonuses) and continuation of employee benefits for a period of
ninety days
If Teichmann's employment is terminated for reasons other than
Cause (including any significant reduction in compensation or
job responsibility) immediately prior to or after a Change of
Control, Teichmann is entitled to six months of severance pay
(based on then current annual base salary base salary plus
bonuses) and continuation of employee benefits for a period of
six months. In addition, each outstanding share subject to an
option that is not fully exercisable shall be accelerated
immediately and become fully exercisable.
MISCELLANEOUS
GRIC to reimburse professional dues for State Bar of California,
American Corporate Counsel Association and Peninsula General
Counsel Association and reasonable expenses for Continuing Legal
Education
GRIC to provide notebook PC (to be used also as principal desktop
PC) and cell phone as well as reimburse payment for business use
of second phone line at home
The above terms will be reflected in a formal Offer Letter to be prepared on
or about June 8, 1998.
/s/ David L. Teichmann Agreed: /s/ Toni Oswold
---------------------- --------------------------------
David L. Teichmann Toni Oswold, Sr. V.P. and C.F.O.
GRIC COMMUNICATIONS, INC.
Date: June 7, 1998 Date: June 7, 1998
<PAGE>
EXHIBIT 10.06
October 15, 1998
Mr. Phil Sakakihara
14017 Quito Road
Saratoga, CA 95070
Dear Phil:
We are pleased to offer you the position of Senior Vice President of
Engineering of GRIC Communications, Inc. The terms and conditions of this
offer are stated below:
RESPONSIBILITY: You will be responsible for all engineering aspects of the
company.
You will manage the engineering departments of GRICbilling, Settlement and
applications engineering. These responsibilities include planning and
scheduling software development, test, de-bug, documentation, etc. You will
part of the Executive Management Team and participate in management meetings,
strategic planning and other responsibilities as assigned by the President.
You will be responsible for meeting or exceeding the Company's engineering
goals on a quarterly and annual basis; delivering planned products and
services in a timely and cost-effective manner with the quality and
performance appropriate to the task.
As a member of the Executive Management Team, you will have shared
responsibility for the accomplishment of financial goals of the company.
REPORTING: You will report to the President and Chief Operating Officer. All
engineering staff will report to you through managers and Directors, as
assigned.
Your cash compensation will consist of the following:
BASE SALARY: You will be paid a base salary of $200,000.00 per annum,
payable semi-monthly.
PERFORMANCE BONUS: You will participate in a bonus program, calculated at
Thirty Percent (30%) of your base salary, assuming achievement of mutually
agreed objectives. These objectives will be a combination of corporate goals
established during the first sixty days of your tenure with the Company.
Performance bonuses beyond 1999 will be based on a new Corporate Bonus Plan
to be developed over the next several months.
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<PAGE>
PERFORMANCE AND SALARY REVIEWS: Performance/salary reviews are conducted
annually in the anniversary month of your date of employment.
EMPLOYEE STOCK OPTION: You will be granted an incentive stock option subject
to board approval for the purchase of Three Hundred Fifty Thousand (350,000)
shares of the common stock of GRIC Communications. This option will be
granted by the Board at the current fair market value; this option is subject
to the Company's standard vesting schedule (20% after ten months and 2% per
month thereafter) and vesting commences on your date of employment. In the
event the Company is acquired, fifty percent of the unvested portion of this
initial option grant will vest.
EMPLOYEE BENEFITS: As an employee of GRIC, you will receive benefits in
accordance with the GRIC employee benefits plans, as may be amended from time
to time. The current benefit package includes a choice of three medical plans,
dental, life, disability and accidental dismemberment insurance.
GRIC 401(k) PLAN: As a full-time employee of GRIC, you may, if you wish,
enroll in the Company's 401(k) Plan at the next or a subsequent Plan entry
date. You will be provided with a full description of the Plan including
eligible contributions from your compensation and investment options.
TERMS OF EMPLOYMENT: Your employment will be considered "at will" and will
continue for an indefinite term. Employment at will means that either you or
the Company may terminate the employment relationship at any time for any
reason, with or without cause.
TERMINATION OF EMPLOYMENT: The Company may terminate your employment at any
time without cause. If the Company terminates your employment without cause,
the Company will provide you a severance payment equivalent to six months'
base salary, payable monthly in accordance with the Company's normal payroll
policies.
Additionally, the Company will provide you with up to six months of
company-paid insurance continuation following the date of your termination.
Such insurance continuation will be provided for up to six months unless
comparable benefits are otherwise provided to you by any third party. Such
benefits are separate from your then-existing COBRA rights to extend
GRIC-related insurance benefits at your cost for an additional period of time.
The Company may, also, terminate your employment for cause in its sole
discretion. For the purposes of this Offer of Employment, "cause" shall be
defined as:
(1) Failure to continually and substantially perform the reasonably
assigned responsibilities of the position in an acceptable manner, gross
negligence, gross misconduct, habitual neglect of duties, criminal acts,
violation of any state or federal securities laws, commission of any felony
involving fraud or dishonesty, violation of the written lawful policies or
written instructions of the Board of Directors, or commencement of employment
or any other businesses arrangements with another employer while you are an
employee of the Company.
(2) Your death, or your total disability lasting more than 90 days.
TERMINATION OF EMPLOYMENT WITH CAUSE. If the Company terminates your
employment with cause, the Company will provide you a severance payment
equivalent to three months' base salary, payable monthly in accordance with
the Company's normal payroll policies. However, if the cause for termination
relates to violation by you of state or federal law, then you will receive no
severance payment from the Company.
Additionally, unless the cause for termination relates to violation by you of
state or federal law, the Company will provide you with up to three months of
company-paid insurance continuation following the
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<PAGE>
date of your termination. Such insurance continuation will be provided for up
to three months unless comparable benefits are otherwise provided to you by
any third party. Such benefits are separate from your then-existing COBRA
rights to extend GRIC-related insurance benefits at your cost for an
additional period of time.
CONFIDENTIALITY: GRIC requires that you sign and return the enclosed
Confidentiality Agreement as a condition of employment.
START DATE: Your employment with GRIC will commence on or before December 1,
1998.
If you agree with the terms stated in this letter, please sign and return the
attached Acceptance and Acknowledgement. This offer is valid for seven days.
Phil, we look forward to a long and mutually prosperous relationship. We
expect that you will have a significant and positive impact on the future
growth and success of GRIC Communications.
Sincerely,
Hong Chen
President & C.E.O.
Enclosure: Confidentiality Agreement
Page 3/4
<PAGE>
ACCEPTANCE AND ACKNOWLEDGMENT
I have read, understand, and accept the foregoing terms of employment at GRIC
Communications, Inc. and will start work no later than December 1, 1998. I
certify that on this date I will not be employed by, on the payroll of, or
compensated by any other Company, with the exception of a position(s) on the
Board of Directors of a Company whose business activity is not in conflict or
competitive with GRIC Communications, Inc. I will provide a listing of all
current Board-level obligations to the Board of Directors of GRIC at the
first Board meeting that follows my acceptance of this position with the
Company. I will provide a written request to the Board seeking its approval
of prospective new Board positions prior to entering into new Board-level
commitments.
I understand that you do not wish me to bring any confidential or proprietary
material of any former employer or to violate any lawful obligation to my
former employers.
I understand that my employment is contingent on my providing appropriate
legal proof of eligibility to be employed in the United States as well as
signing the Company's customary confidentiality and invention agreement,
which is attached.
Signed: /s/ Phil Sakakihara
---------------------
10/23/98
---------------------
Page 4/4
<PAGE>
Exhibit 10.07
GRIC COMMUNICATIONS, INC.
1421 McCarthy Blvd.
Milpitas, CA 95035
Writer's Direct Tel: (408) 965-1125
Fax: (408) 955-1968
PERSONAL AND CONFIDENTIAL
January 15, 1999
Mr. Joseph M. Zaelit
5469 Kaveny Drive
San Jose, CA 95129
Dear Joe:
I am pleased to offer you the position of Senior Vice President, Finance &
Administration and Chief Financial Officer of GRIC Communications, Inc. The
terms and conditions of this offer are stated below:
RESPONSIBILITY: You will be responsible for all of the financial, human
resource, legal and administrative operations of the Company.
You will be part of the Executive Management Team and participate in
management meetings, strategic planning and other responsibilities as
assigned by me.
You will be responsible for meeting or exceeding the Company's financial
goals on a quarterly and annual basis and
REPORTING: You will report to me in my role as President and Chief Operating
Officer.
BASE SALARY: You will be paid a base salary of $190,000.00 per annum, payable
semi-monthly.
PERFORMANCE BONUS: Performance bonuses for fiscal 1999 will be based on the
Company's new Corporate Bonus Plan, which is currently being developed and
will be submitted shortly for Board approval. Your target should be 25% of
base salary if our plan is approved by the Board.
PERFORMANCE AND SALARY REVIEWS: Performance/salary reviews are conducted
annually in the anniversary month of your date of employment.
EMPLOYEE STOCK OPTION GRANTS: You will be granted an incentive stock option
subject to Board approval for the purchase of four hundred fifty thousand
(450,000) shares of the Company's common stock. This option will be granted
by the Board at the current fair market value and is subject to the Company's
<PAGE>
Joseph Zaelit
January 15, 1999
Page 2
standard vesting schedule (20% after ten months and 2% per month thereafter).
Vesting commences on your date of employment. In addition, you will be
granted a second incentive stock option subject to Board approval for the
purchase of one hundred fifty thousand (150,000) shares of the Company's
common stock. This option will be granted subject to fulfillment of certain
objectives to be mutually agreed upon in writing between you and me. In
addition, vesting of these options shall be subject to the terms of SCHEDULE
1 hereto.
EMPLOYEE BENEFITS: As an employee of GRIC, you will receive benefits in
accordance with the GRIC employee benefits plans, as may be amended from time
to time. The current benefit package includes a choice of three medical
plans, dental, life, disability and accidental dismemberment insurance.
GRIC 401(k) PLAN: As a full-time employee of GRIC, you may, if you wish,
enroll in the Company's 401(k) Plan at the next or a subsequent Plan entry
date. You will be provided with a full description of the Plan including
eligible contributions from your compensation and investment options.
TERMS OF EMPLOYMENT: Your employment will be considered "at will" and will
continue for an indefinite term. Employment at will means that either you or
the Company may terminate the employment relationship at any time for any
reason, with or without cause.
TERMINATION OF EMPLOYMENT WITHOUT CAUSE: The Company may terminate your
employment at any time without cause. If the Company terminates your
employment without cause, the Company will provide you a severance payment
equivalent to six months' base salary, payable monthly in accordance with the
Company's normal payroll policies.
Additionally, the Company will provide you with up to six months of
company-paid insurance continuation following the date of your termination.
Such insurance continuation will be provided for up to six months unless
comparable benefits are otherwise provided to you by any third party. Such
benefits are separate from your then-existing COBRA rights to extend
GRIC-related insurance benefits at your cost for an additional period of time.
The Company may, also, terminate your employment for cause in its sole
discretion. For the purposes of this Offer of Employment, unless otherwise
noted, "cause" shall be defined as:
(1) Failure to continually and substantially perform the reasonably
assigned responsibilities of the position in an acceptable manner, gross
negligence, gross misconduct, habitual neglect of duties, criminal acts,
violation of any state or federal securities laws, commission of any felony
involving fraud or dishonesty, violation of the written lawful policies or
written instructions of the Board of Directors, or commencement of employment
or any other businesses arrangements with another employer while you are an
employee of the Company.
(2) Your death, or your total disability lasting more than 90 days.
TERMINATION OF EMPLOYMENT WITH CAUSE. If the Company terminates your
employment with cause, the Company will provide you a severance payment
equivalent to three months' base salary, payable monthly in accordance with
the Company's normal payroll policies. However, if the cause for termination
relates to violation by you of state or federal law, then you will receive no
severance payment from the Company.
Additionally, unless the cause for termination relates to violation by you of
state or federal law, the Company will provide you with up to three months of
company-paid insurance continuation following the date of your termination.
Such insurance continuation will be provided for up to three months unless
comparable benefits are otherwise provided to you by any third party. Such
benefits are separate from
<PAGE>
Joseph Zaelit
January 15, 1999
Page 3
your then-existing COBRA rights to extend GRIC-related insurance benefits at
your cost for an additional period of time.
CONFIDENTIALITY: GRIC requires that you sign and return the enclosed Employee
Nondisclosure Agreement as a condition of employment.
START DATE: Your employment with GRIC will commence on or before January
15, 1999.
If you agree with the terms stated in this letter, please sign and return the
attached Acceptance and Acknowledgement. This offer is valid for seven days.
Joe, I look forward to a long and mutually prosperous relationship. I am
confident you will have a significant and positive impact on the future
growth and success of GRIC Communications, Inc.
Sincerely,
/s/ John Jacquay
John Jacquay
President and Chief Operating Officer
Enclosure: Confidentiality Agreement
<PAGE>
Joseph Zaelit
January 15, 1999
Page 4
ACCEPTANCE AND ACKNOWLEDGMENT
I have read, understand, and accept the foregoing terms of employment at GRIC
Communications, Inc. and will start work no later than January 15, 1999. I
certify that on this date I will not be employed by, on the payroll of, or
compensated by any other Company, with the exception of a position(s) on the
Board of Directors of a Company whose business activity is not in conflict or
competitive with GRIC Communications, Inc. I will provide a listing of all
current Board-level obligations to the Board of Directors of GRIC at the
first Board meeting that follows my acceptance of this position with the
Company. I will provide a written request to the Board seeking its approval
of prospective new Board positions prior to entering into new Board-level
commitments.
I understand that you do not wish me to bring any confidential or proprietary
material of any former employer or to violate any lawful obligation to my
former employers.
I understand that my employment is contingent on my providing appropriate
legal proof of eligibility to be employed in the United States as well as
signing the Company's customary confidentiality and invention agreement,
which is attached.
Signed: /s/ Joseph M. Zaelit
-------------------------------
Joseph M. Zaelit
Date: January 15, 1999
<PAGE>
Joseph Zaelit
January 15, 1999
Page 5
SCHEDULE 1
If the Company or its successor elects to terminate your employment as Chief
Financial Officer without cause following an acquisition or merger of the
Company involving a change of control, the option vesting described in your
offer letter dated January 15, 1999 ("Offer Letter") shall be accelerated so
as to occur automatically on the date of such termination, without regard to
the satisfaction of the conditions to vesting that would otherwise apply.
"Change of Control" for purposes of the paragraph shall mean the occurrence
of a purchase or other acquisition by any person, entity or group of persons,
within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act
of 1934 (the "Act") or any comparable successor provisions, of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Act) of
more than fifty (50) percent of either the outstanding shares of common stock
of the Company or the combined voting power of the Company's then outstanding
voting securities entitled to vote generally, or the approval by the
stockholders of the Company of a reorganization, merger, or consolidation, in
each case, with respect to which persons who were stockholders of the Company
immediately prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than fifty (50) percent of the combined
voting power entitled to vote generally in the election of directors of the
reorganized, merged or consolidated Company's then outstanding securities, or
a liquidation or dissolution of the Company or of the sale of all or
substantially all of the Company's assets.
Only service which is involuntarily terminated without Cause or voluntarily
terminated with Good Reason within one (1) year of the date of a Change in
Control shall be deemed to constitute termination due to such Change of
Control. "Cause" for purposes of this Schedule I shall mean misconduct,
including but not limited to: (A) conviction of any felony or any crime
involving moral turpitude or dishonesty, (B) participation in a fraud or act
of dishonesty against the Company, (C) conduct by you which, based upon a
reasonable determination by the Company, demonstrates gross unfitness to
serve, or (D) intentional, material violation by you of any contract between
you and the Company or any statutory duty of you to the Company that is not
corrected within thirty (30) days after written notice to you. "Good Reason"
for purposes of this paragraph shall mean (A) reduction of your rate of
compensation as in effect immediately prior to the Change in Control, (B)
failure to provide a package of welfare benefit plans which, taken as a
whole, provide substantially similar benefits to those in which you were
entitled to participate immediately prior to the Change in Control (except
that employee contributions may be raised to the extent of any cost increases
imposed by third parties) any action by the Company which would adversely
affect your participation or reduce your benefits under any of such plans,
(C) change in your responsibilities, authority, title or office resulting in
diminution of position, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith which is remedied by the
Company promptly after notice thereof is given by you, (D) request that you
relocate to a worksite that is more than 35 miles from your prior worksite,
unless you accept such relocation opportunity, (E) failure or refusal of a
successor to the Company to assume the Company's obligations under the Offer
Letter, or (F) material breach by the Company or any successor to the Company
of any of the material provisions of the Offer Letter.
If the Company terminates your employment without Cause anytime within the
first 10 months of your date of employment, but not following an acquisition
or merger of the Company involving a change of control, the Company will
immediately vest the portion of the stock options (90,000 shares) that would
have vested on your 10 month anniversary date, at the same price and terms.
You will have up to 90 days after termination to exercise all or a portion of
the 90,000 shares.
<PAGE>
Exhibit 10.08
[LOGO]
PERSONAL AND CONFIDENTIAL
May 11, 1999
Mr. Barron Cox
662 Rebecca Way
San Jose, CA 95117
Dear Barron:
We are pleased to offer you the position of Director of Human Resources for
GRIC Communications Inc. The terms and conditions of this offer are stated
below:
RESPONSIBILITY: You will be responsible for all Human Resources aspects of
the company.
You will be responsible for meeting or exceeding the Company's Human Resource
Department goals on a quarterly and annual basis; delivering planned services
and support in a timely and cost-effective manner with the quality and
performance appropriate to the task.
As a member of the management team, you will have shared responsibility for
the accomplishment of financial and business goals of the company.
REPORTING: You will report to the Chief Financial Officer.
Your cash compensation will consist of the following:
BASE SALARY: You will be paid a base salary of $140,000.00 per annum, payable
semi-monthly.
PERFORMANCE BONUS: You will participate in a bonus program, calculated at
Twenty Percent (20%) of your base salary, assuming achievement of mutually
agreed objectives. These objectives will be a combination of corporate goals
established during the first sixty days of your tenure with the Company.
Performance bonuses beyond 1999 may be based on a new Corporate Bonus Plan to
be developed over the next several months.
PERFORMANCE AND SALARY REVIEWS: Performance/salary reviews are conducted
annually.
1
<PAGE>
EMPLOYEE STOCK OPTION: You will be granted an incentive stock option subject
to Board of Director approval for the purchase of eighty-five thousand
(85,000) shares of the common stock of GRIC Communications. This option will
be granted by the Board at the current fair market value; (we will request
the Board to approve these options at $1.50 per share) this option is subject
to the Company's standard vesting schedule (20% after ten months and 2% per
month thereafter) and vesting commences on your date of employment. If the
company or its successor elects to terminate your employment as Director of
Human Resources without cause following an acquisition or merger of the
Company involving a change of control, the option vesting described above
shall be accelerated so as to occur automatically on the date of such
termination, without regard to the satisfaction of the conditions to vesting
that would otherwise apply.
EMPLOYEE BENEFITS: As an employee of GRIC, you will receive benefits in
accordance with the GRIC employee benefits plans, as may be amended from time
to time. The current benefit package includes a choice of three medical
plans, dental, life, disability and accidental dismemberment insurance.
GRIC 401(k) PLAN: As a full-time employee of GRIC, you may, if you wish,
enroll in the Company's 401(k) Plan at the next or a subsequent Plan entry
date. You will be provided with a full description of the Plan including
eligible contributions from your compensation and investment options.
TERMS OF EMPLOYMENT: Your employment will be considered "at will" and will
continue for an indefinite term. Employment at will means that either you or
the Company may terminate the employment relationship at any time for any
reason, with or without cause.
TERMINATION OF EMPLOYMENT: The Company may terminate your employment at any
time without cause. If the Company terminates your employment without cause,
the Company will provide a severance payment equivalent to three months' base
salary, payable monthly in accordance with the Company's normal payroll
policies.
Additionally, the Company will provide you with up to three months of
company-paid insurance continuation following the date of your termination.
Such insurance continuation will be provided for up to three months unless
comparable benefits are otherwise provided to you by any third party. Such
benefits are separate from your then-existing COBRA rights to extend
GRIC-related insurance benefits at your cost for an additional period of time.
The Company may, also, terminate your employment for cause in its sole
discretion. For the purpose of this Offer of Employment, "cause" shall be
defined as:
(1) Failure to continually and substantially perform the reasonably
assigned responsibilities of the position in an acceptable manner,
gross negligence, gross misconduct, habitual neglect of duties,
criminal acts, violation of any state or federal securities laws,
commission of any felony involving fraud or
2
<PAGE>
dishonesty, violation of the written lawful policies or written
instructions of the Board of Directors, or commencement of
employment or any other business arrangements with another with
another employer while you are an employee of the Company.
(2) Your death, or your total disability lasting more than 90 days.
TERMINATION OF EMPLOYMENT WITH CAUSE: If the Company terminates your
employment with cause, the Company will provide you a severance payment
equivalent to three months' base salary, payable monthly in accordance with
the Company's normal payroll policies. However if the cause for termination
relates to violation by you of state or federal law, then you will receive no
severance payment from the Company.
Additionally unless the cause for termination relates to violation by you of
state or federal law, the Company will provide you with up to three months of
company-paid insurance continuation following the date of your termination.
Such insurance continuation will be provided for up to three months unless
comparable benefits are otherwise provided to you by any third party. Such
benefits are separate from your then-existing COBRA rights to extend
GRIC-related insurance benefits at your cost for an additional period of time.
CONFIDENTIALITY: GRIC requires that you sign and return the enclosed
Confidentiality Agreement as a condition of employment.
START DATE: Your employment with GRIC will commence on or before June 1,
1999.
If you agree with the terms stated in this letter, please sign and return the
attached Acceptance Acknowledgment. This offer is valid for seven days.
Barron, we look forward to a long and mutually prosperous relationship. We
expect that you will have a significant and positive impact on the future
growth and success of GRIC Communications.
Sincerely,
/s/ Joe Zaelit
Joe Zaelit
SVP & CFO
Enclosure: Confidentiality Agreement
JZ:cs
3
<PAGE>
[LOGO]
ACCEPTANCE AND ACKNOWLEDGMENT
I have read, understand, and accept the foregoing terms of employment at GRIC
Communications, Inc. and will start work no later than June 1, 1999. I
certify that on this date I will not be employed by, on the payroll of, or
compensated by any other Company, with the exception of a position(s) on the
Board of Directors of a Company whose business activity is not in conflict or
competitive with GRIC Communications, Inc. I will provide a listing of all
current Board-level obligations to the CFO of GRIC at the time of my
acceptance of this position with the Company. I will provide a written
request to the CFO seeking his approval of prospective new Board positions
prior to entering into new Board-level commitments.
I understand that you do not wish me to bring any confidential or proprietary
material of any former employer or to violate any lawful obligation to my
former employers.
I understand that my employment is contingent on my providing appropriate
legal proof of eligibility to be employed in the United States as well as
signing the Company's customary confidentiality and invention agreement,
which is attached.
Signed: /s/ Barron B. Cox
----------------------
Date: 5/13/99
------------------------
4
<PAGE>
Exhibit 10.09
July 28, 1999
Ms. Kristin Steinmetz
190 Maywood Drive
San Francisco, CA 94127
Dear Kristin:
We are pleased to offer you the position of Senior Vice President of
Marketing initially reporting to Hong Chen, President and CEO. The terms and
conditions of the offer are stated below:
RESPONSIBILITY: You will be responsible to lead the marketing product
programs. This includes positioning and product direction, marketing interface
to engineering, market requirements, and sales support. You will be a member of
the executive team and will participate in executive management meetings,
strategic planning and other responsibilities.
COMPENSATION: Your initial compensation is based on a semi-monthly
base salary of $8012.92, which is equivalent to $192,310 per year and subject
to annual review. Paydays are twice monthly, on the 15th and the last day of
each month. You will be eligible to participate in the management incentive
bonus program, which is designed to provide you with additional compensation
equal to 30% of your base pay upon meeting your objectives. Performance
bonuses beyond 1999 may be based on a new Corporate Bonus Plan.
Additionally, this offer carries a one time signing bonus of $50,000
payable 30 days after your hire date, should you accept this offer of employment
and begin your employment on or before August 3, 1999. Should you decide to
terminate your employment within one year from your date of hire, you will be
responsible for the repayment of the signing bonus on a prorated basis of
one-twelfth of the amount for each month less than twelve months of employment.
EMPLOYEE STOCK OPTION: You will be granted an incentive stock option,
subject to Board of Director approval, for the purchase of three hundred-fifty
thousand (350,000) shares of the common stock of GRIC Communications. This
option will be granted at the current fair market value as of the date of grant
and is subject to the Company's standard vesting schedule (20% after ten months
and 2% per month thereafter) and vesting commences as of your date of
employment.
Should the Company, or its successor elect to terminate your employment
as Senior Vice President of Marketing without cause following an acquisition or
merger of the Company involving a change in control, the option vesting
described above shall be accelerated as to occur automatically on the date of
such termination, without regard to the satisfaction of the conditions to
vesting that would otherwise apply.
<PAGE>
Offer of Employment
K. Steinmetz
Page 2 of 4
EMPLOYEE BENEFITS: As an employee of GRIC, you will be eligible to
receive benefits in accordance with the GRIC employee benefit plans, as may be
amended from time to time. The current benefit package includes a choice of
three medical plans, dental, life, disability and accidental dismemberment
insurance.
GRIC 401(k) PLAN: As a full-time employee of GRIC, you may, if you
wish, enroll in the Company's 401(k) Plan at the next or a subsequent Plan entry
date. You will be provided with a full description of the Plan including
eligible contributions from your compensation, and investment options.
TERMS OF EMPLOYMENT: Your employment will be considered "at will" and
will continue for an indefinite term. Employment at will means that either you
or the Company may terminate the employment relationship at any time for any
reason, with or without cause.
TERMINATION OF EMPLOYMENT: The Company may terminate your employment at
any time without cause. If the Company terminates your employment without cause,
the Company will provide a severance payment equivalent to six (6) months' base
salary, payable monthly in accordance with the Company's normal payroll
policies.
Additionally, the Company will provide you with up to six (6) months of
company-paid insurance continuation following the date of your termination. Such
insurance continuation will be provided for up to three months unless comparable
benefits are otherwise provided to you by a third party. Such benefits are
separate from your then-existing COBRA rights and extend to GRIC-related
insurance benefits at your cost for an additional period of time.
The Company may also terminate your employment for cause in its sole discretion.
For the purpose of this Offer of Employment, "cause" shall be defined as:
1. Failure to continually and substantially perform the reasonably
assigned responsibilities of the position in an acceptable manner,
gross negligence, gross misconduct, habitual neglect of duties,
criminal acts, violation of any state or federal securities laws,
commission of any felony involving fraud or dishonesty, violation of
written lawful policies or written instructions of the Board of
Directors, or commencement of employment or any other business
arrangements with another employer while you are an employee of the
Company.
2. Your death, or your total disability lasting more than 90 days.
TERMINATION OF EMPLOYMENT WITH CAUSE: If the Company terminates your
employment with cause, the Company will provide you with a severance payment
equivalent to six months' base salary, payable monthly in accordance with the
Company's normal payroll policies. However, if the cause for termination relates
to a violation by you of state or federal law, then you will receive no
severance payment from the Company.
<PAGE>
Offer of Employment
K. Steinmetz
Page 3 of 4
Additionally, unless the cause for termination relates to violation by you of
state or federal law, the Company will provide you with up to six months of
company-paid insurance continuation following the date of your termination. Such
insurance continuation will be provided for up to six months unless comparable
benefits are otherwise provided to you by any third party. Such benefits are
separate from your then-existing COBRA rights to extend GRIC-related insurance
benefits at your cost for an additional period of time.
CONFIDENTIALITY: GRIC requires that you sign a Confidentiality
Agreement as a condition of employment.
Employment with GRIC Communications is contingent upon meeting the
Company's requirements, which include completing all necessary work related
forms, producing applicable documents as required by the Immigration Reform and
Control Act of 1986 and other such documents. Failure to comply will result in
the rescinding of our offer of employment.
By accepting employment with the Company, you agree to be bound by its
policies and procedures, including an Employee Agreement and Confidentiality
Agreement, This offer letter is the entire initial basic agreement for
compensation and employee benefits. By signing below, you acknowledge that you
have not been induced to accept employment by any representations or statements,
oral or written, not contained in this letter.
Welcome to GRIC Communications! We look forward to a long and mutually
prosperous relationship. We expect you will have a significant and positive
impact on the future growth and success of GRIC Communications. If you agree
with the terms stated in this letter, please sign and return the attached
Acceptance and Acknowledgement.
Sincerely,
Barron Cox
Sr. Director of Human Resources
<PAGE>
Offer of Employment
K. Steinmetz
Page 4 of 4
ACCEPTANCE AND ACKNOWLEDGEMENT
I have read, understand, and accept the foregoing terms of employment at GRIC
Communications, Inc. and will start work no later than _____. I certify that on
this date I will not be employed by, on the payroll of, or compensated by any
other Company, whose business activity is in conflict or competitive with GRIC
Communications. I will provide a listing of all current Board-level obligations
to the Board upon request. I will provide a written request to the Board seeking
its approval of prospective new Board positions prior to entering into new
Board-level commitments.
I understand that you do not wish me to bring any confidential or proprietary
material of any former employer or to violate any lawful obligation to my former
employers.
I understand that my employment is contingent on my providing appropriate legal
proof of eligibility to be employed in the United States as well as signing the
Company's customary confidentiality and invention agreement, which is attached.
Signed: __________________________________
Date: __________________________________
<PAGE>
July 22, 1999
Roger Peirce
12008 Emerald Hill Lane
Los Altos CA 94022
Dear Roger:
Welcome to GRIC Communication, Inc., We look forward to your contributions as
the Chairman of the Board, reporting to the Board of Directors. In this role,
you will be paid a semi-monthly salary of $2,083.33, ($50,000 per year).
Additionally, this position includes a grant of 50,000 stock options. The
price of these options will be determined at the next regularly scheduled
meeting of the Board of Directors. These options will vest at the rate of
8.333% per month over the next 12 months and reach full vesting on July 19,
2000.
Your start date as an employee of GRIC Communications, Inc. is July 19, 1999.
Paydays are twice monthly, on the 15th and the last working day of each
month. You will be eligible to participate in the full range of employee
benefits, including medical, dental and life insurance, short and long term
disability coverage, 401k, vacation allowance, holiday pay, sick leave, etc.
Medical and dental coverage is available on the first day of the month
following your actual date of hire.
Employment with GRIC Communications, Inc. is contingent upon meeting Company
requirements, which include completing all necessary work related forms,
producing applicable documents as required by the Immigration Conform and
Control Act of 1986 and other such documents. Failure to comply will result
in the rescinding of our offer of employment.
This letter is not intended to confer contractual rights of any kind upon any
employee, or to create contractual obligations of any kind on GRIC
Communications. GRIC's relationship with all of its employees is on an "at
will" basis. While we except that the relationship between you and the
company will be rewarding and mutually beneficial, either the Company or the
employee can terminate the employment relationship at any time with or
without notice and for any reason or for no reason.
<PAGE>
Offer of Employment
Roger Peirce
July 22, 1999
Page 2 of 2
By accepting employment with the Company, you agree to be bound by its
policies and procedures, including an Employee Non-Disclosure, Conflicts of
Interest and Proprietary Rights Agreement, which you will be asked to sign on
you hire date. This offer letter is the entire initial basic agreement for
position, compensation, reporting relationship and employee benefits. By
signing below, you acknowledge that you have not been induced to accept
employment by any representations or statements, oral or written, not
contained in this letter.
Please sign below to indicate your acceptance of this offer and welcome to
GRIC Communications!
Sincerely,
/s/ Hong Chen
Hong Chen
President & Chief Executive Officer
Accepted:
/s/ Roger Peirce Aug 24, 1999
----------------------------------------
Roger Peirce Date
<PAGE>
EXHIBIT 10.11
AIMNET CORPORATION
1995 STOCK OPTION PLAN
<PAGE>
AIMNET CORPORATION
1995 STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. SHARES SUBJECT TO THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . .1
3. TERM OF PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
4. PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
4.1. ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
4.2. PARTICIPANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
4.3. LEGAL REPRESENTATIVES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
5. GENERAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
5.1. OPTION AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
5.2. EXERCISE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
5.3. PAYMENT OF EXERCISE PRICE; TAXES. . . . . . . . . . . . . . . . . . . . . . . .3
5.4. CONDITIONS TO EXERCISE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
5.5. NO EMPLOYMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
5.6. RESTRICTIONS ON TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
5.7. MARKET STANDOFF REQUIREMENT. . . . . . . . . . . . . . . . . . . . . . . . . .4
6. TERMS OF OPTION AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . .4
6.1. LIMITATION ON INCENTIVE OPTION GRANTS. . . . . . . . . . . . . . . . . . . . .4
6.2. DURATION OF OPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
6.3. EXERCISABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6.4. EXERCISE OF OPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6.5. TRANSFERABILITY OF OPTION. . . . . . . . . . . . . . . . . . . . . . . . . . .6
6.6. NOTICE OF DISQUALIFYING DISPOSITION OF INCENTIVE OPTIONS. . . . . . . . . . . .7
6.7. ADJUSTMENTS TO OPTION RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . .7
6.8. IDENTIFICATION OF INCENTIVE OPTIONS. . . . . . . . . . . . . . . . . . . . . .7
7. SHARE REPURCHASE RIGHT . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.1. RIGHT TO REPURCHASE SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.2. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP. . . . . . . . . . . . . . . .7
7.3. EXERCISE OF SHARE REPURCHASE OPTION. . . . . . . . . . . . . . . . . . . . . .8
7.4. SHARE REPURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
7.5. EFFECT OF FAILURE TO EXERCISE SHARE REPURCHASE RIGHT. . . . . . . . . . . . . .8
7.6. PAYMENT FOR SHARES AND RETURN OF SHARES. . . . . . . . . . . . . . . . . . . .8
7.7. ASSIGNMENT OF SHARE REPURCHASE RIGHT. . . . . . . . . . . . . . . . . . . . . .8
7.8. TERMINATION OF SHARE REPURCHASE RIGHT. . . . . . . . . . . . . . . . . . . . .9
7.9. LEGENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
7.10. "CURRENT MARKET PRICE". . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
8. RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
8.1. RESTRICTION ON TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
8.2. RIGHT OF FIRST REFUSAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>
AIMNET CORPORATION
1995 Stock Option Plan
Table of Contents continued
8.3. NOTICE OF PROPOSED TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . . 10
8.4. EXERCISE OF RIGHT OF FIRST REFUSAL. . . . . . . . . . . . . . . . . . . . . . 10
8.5. EXCHANGES OR OTHER TRANSFERS. . . . . . . . . . . . . . . . . . . . . . . . . 10
8.6. FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. . . . . . . . . . . . . . . . . . 10
8.7. TRANSFEREES OF THE TRANSFER SHARES. . . . . . . . . . . . . . . . . . . . . . 11
8.8. SPECIAL TRANSFERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.9. ASSIGNMENT OF THE RIGHT OF FIRST REFUSAL. . . . . . . . . . . . . . . . . . . 12
8.10. TERMINATION OF RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . 12
8.11. LEGENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9. SHARE DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.1. DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.2. COPIES OF NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.3. DELIVERY OF SHARES AND PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . 13
9.4. ATTORNEY-IN-FACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.5. OWNERSHIP OF THE SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.6. RELEASE OF CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.7. POWERS AND RIGHTS OF CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . 13
10. ADMINISTRATION AND AMENDMENT OF THE PLAN. . . . . . . . . . . . . . . . . . . 14
10.1. ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.2. RIGHTS AND POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.3. TERMINATION; AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.4. REQUIREMENTS OF RULE 16B-3. . . . . . . . . . . . . . . . . . . . . . . . . . 15
11. ADJUSTMENT OF AND CHANGES IN STOCK. . . . . . . . . . . . . . . . . . . . . . 15
11.1. RECAPITALIZATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.2. LIQUIDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.3. REORGANIZATIONS IN WHICH THE COMPANY DISAPPEARS . . . . . . . . . . . . . . . 16
11.4. REORGANIZATIONS IN WHICH COMPANY SURVIVES . . . . . . . . . . . . . . . . . . 16
11.5. OTHER CHANGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.6. NO FRACTIONAL SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
12. SUSPENSION OF OPTIONS TO SATISFY SECURITIES LAWS. . . . . . . . . . . . . . . 17
12.1. POWER TO SUSPEND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12.2. MINIMUM PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12.3. MAXIMUM PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12.4, OPTION GRANTS DURING SUSPENSION . . . . . . . . . . . . . . . . . . . . . . . 17
12.5. OPTION TERMINATION DURING PERIOD OF SUSPENSION. . . . . . . . . . . . . . . . 17
12.6. ALLOCATION OF EXERCISE RIGHTS BEFORE SUSPENSION . . . . . . . . . . . . . . . 17
12.7. ALL OPTIONS MUST BE SUSPENDED . . . . . . . . . . . . . . . . . . . . . . . . 17
12.8. ADVICE OF COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
12.9. SUNSET PROVISION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
13. INFORMATION TO PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . . . . . 18
13.1. INFORMATION PROVIDED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
13.2. INFORMATION CONFIDENTIAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
<PAGE>
AIMNET CORPORATION
1995 Stock Option Plan
Table of Contents continued
14. TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
15. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
15.1. ADDITIONAL ACTIONS AND DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . 18
15.2. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
15.3. NO THIRD-PARTY BENEFICIARIES . . . . . . . . . . . . . . . . . . . . . . . . 18
15.4. AMENDMENTS, WAIVERS, AND CONSENTS . . . . . . . . . . . . . . . . . . . . . 19
15.5. NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.6. DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.7. JURISDICTION AND VENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
15.8. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
15.9. PLAN GOVERNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
<PAGE>
AIMNET CORPORATION
1995 STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1995 Stock Option Plan is to advance the interests of AIMNET
CORPORATION, a California corporation (the "Company"), by giving the Company's
employees and others who perform substantial services on behalf of the Company
incentive through ownership of the Company's common stock to continue in the
service of the Company and thereby to help the Company compete effectively with
other enterprises for the services of qualified individuals. This Plan intended
to be an employee stock option plan within the meaning of Section 408 of the
California Corporations Code.
2. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Article 11, the Company is authorized to
issue options ("Options") to purchase up to 1,500,000 shares of its common stock
("Shares"). Any unpurchased Shares that are subject to an Option that terminates
for any reason other than exercise shall, unless this Plan has been terminated,
become available for future grant under this Plan. The Company shall at all
times reserve for issuance pursuant to this Plan a number of its authorized but
unissued Shares equal to the number of Shares issuable under this Plan. Exercise
of an Option shall decrease the number of Shares available for grant under this
Plan.
3. TERM OF PLAN
This Plan shall become effective upon its adoption by the Board of Directors of
the Company (the "Board"). Within 12 months after the date of such adoption,
this Plan shall be approved by the shareholders of the Company in the degree and
manner required under applicable state and federal law. No Option shall become
exercisable unless and until such shareholder approval has been obtained. Unless
sooner terminated under Article 10 or 11, this Plan shall terminate upon the
earlier of (a) the tenth anniversary of its adoption by the Board or (b) the
date on which all Shares available for issuance under this Plan have been
issued. Any Option outstanding under this Plan at the time of its termination
shall remain in effect in accordance with its terms and conditions and those of
this Plan.
4. PARTICIPANTS
4.1. ELIGIBILITY.
The following persons shall be eligible to receive Options under this Plan: (a)
any employee (an "Employee") of the Company or any present or future parent or
subsidiary corporation of the Company (an "Affiliate") as defined in Sections
424(e) and (f) of the Internal Revenue Code of 1986, as amended (the "Code"),
respectively, (b) any person who is engaged by the Company or
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an Affiliate to render consulting services and is compensated for such services,
but who is not an Employee (a "Consultant") and (c)any director of the Company
or an Affiliate who is not an Employee, whether compensated for such services or
not (an "Outside Director"). Only Employees are eligible to receive Options that
are intended to be incentive options ("Incentive Options") within the meaning of
Section 422 of the Code. Employees, Consultants, and Outside Directors are
eligible to receive Options that are not intended to be Incentive Options
("Nonstatutory Options").
4.2. PARTICIPANTS.
The Board shall have the authority in its sole discretion to select the
Employees, Consultants and Outside Directors to whom Options may from time to
time be granted under this Plan ("Participants").
4.3. LEGAL REPRESENTATIVES.
As used in this Plan, the term "Participant" includes any person who acquires
the legal right to exercise a Participant's Options by reason of the death or
incompetence of the Participant.
5. GENERAL TERMS
5.1. OPTION AGREEMENT.
Grants of Options shall be evidenced by a written option agreement ("Option
Agreement"), which shall contain the provisions that this Plan requires and may
contain additional provisions that do not conflict with this Plan as the Board
deems appropriate. Each Option Agreement shall be signed by the Participant and
an officer of the Company designated by the Board. The form of Option Agreement
for use pursuant to this Plan is attached to this Plan. The Board may modify
said form as it deems appropriate, subject to the provisions of this Plan.
Option Agreements need not have identical terms, but each Option Agreement shall
be subject to this Plan.
5.2 EXERCISE PRICE.
5.2.1. GENERAL RULE.
The exercise price of each Incentive Option shall not be less than the
fair market value of the Shares, as the Board may determine, on the date
the Option is granted. The exercise price of each Nonstatutory Option
shall not be less than 85% of the fair market value of the Shares, as the
Board may determine, on the date the Option is granted. It is the
Company's policy that the exercise price of Nonstatutory Options be at
least the fair market value of the Shares on the date the Option is
granted except in unusual circumstances.
5.2.2. TEN PERCENT SHAREHOLDERS.
The exercise price of each Option granted to a Participant who, at the
time the Option is granted, owns, as that term is defined in Section
424(d) of the Code, stock possessing more than 10% of the combined voting
power of all stock of the Company or of its Affiliates, shall be at least
110% of the fair market value of the Shares, as the Board may determine,
on the date the Option is granted.
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5.2.3. DETERMINATION OF FAIR MARKET VALUE.
The Board's determination of fair market value shall be final and
conclusive for the purposes of this Plan. In determining fair market
value, the Board may, but is not obligated to, obtain and rely upon an
independent appraisal. If the Company's common stock is publicly traded,
the fair market value of the Shares as of any date shall be determined as
follows: (a) if such stock is listed on a stock exchange or national
market system, fair market value shall be the closing sales price of a
share of the Company's common stock (or the closing bid price if no sales
were reported), as quoted on such exchange or system for the last market
trading day before the time of determination; or (b) if such stock is
quoted on the NASDAQ System (but not on its National Market System) or
regularly quoted by a recognized securities dealer but selling prices are
not reported, fair market value shall be the mean between the high and low
asked prices for such stock for the last market trading day before the
time of determination.
5.3. PAYMENT OF EXERCISE PRICE; TAXES.
5.3.1. FORM OF PAYMENT.
The Participant shall pay the per Share exercise price in full at the time
of exercise by bank cashier's check or, with the approval of the Board, a
promissory note or shares of common stock of the Company, or any
combination of the foregoing such that the aggregate fair market value of
such stock (as determined by the Board) plus cash and notes equals the
total exercise price.
5.3.2. PROMISSORY NOTES.
The Company may require a promissory note to be with full recourse, to be
adequately secured by collateral other than the Shares purchased, and to
bear interest at market or above market rates (if such rates are not
usurious). It is the Company's policy not to accept promissory notes
except in unusual circumstances. Inability to pay cash is not necessarily
an unusual circumstance.
5.3.3. WITHHOLDING TAXES.
The Participant shall pay by bank cashier's check or other form of payment
acceptable to the Company, the amount of any state or federal income or
other tax that the Company is required to pay or withhold upon exercise of
an Option unless the incidence of such tax cannot lawfully be placed on
the Participant.
5.4. CONDITIONS TO EXERCISE.
No Option may be exercised if the transfer of Shares upon such exercise or the
method of payment of consideration for such Shares would constitute a violation
of any applicable securities or other law or regulation. Unless the Shares are
registered under the Securities Act of 1933 and any applicable state securities
law, as a condition to exercising an Option, the Participant shall provide the
Company with such written assurances as the Company deems appropriate for the
Option grant and exercise to qualify for exemption from registration. Such
assurances may include, among others, a representation that the Participant
intends to hold the Shares for investment and not for distribution to the
public. The Company has no obligation to register the Options or Shares under
the Securities Act of 1933 or any other law.
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<PAGE>
5.5. NO EMPLOYMENT AGREEMENT.
No Option Agreement, nor anything contained in this Plan, shall alter a
Participant's status as an "at will" employee of the Company, confer upon any
Participant any right to continue in the employ of the Company, or limit the
right of the Company to terminate a Participant's employment at any time and for
any or no reason.
5.6. RESTRICTIONS ON TRANSFER.
If transfer of the Shares is restricted under any applicable law, each
certificate representing such Shares shall bear a legend in form and substance
satisfactory to the Company reflecting that such Shares are so restricted. The
Company may also place a notation on any certificate representing Shares
purchased upon exercise of an Incentive Option. To enforce any restrictions on
transfer of the Shares, the Company may set forth in its stock transfer records
a "stop transfer" order with respect to the Shares. The Company shall not be
liable for any refusal to transfer the Shares on the books of the Company unless
the transfer complies with all terms and conditions of any restrictions imposed
on such Shares.
5.7. MARKET STANDOFF REQUIREMENT.
Each Participant shall, upon the request of the Company or the underwriters
managing any public offering of the Company's securities, refrain form selling
or disposing of any Shares without the prior written consent of the Company and
such underwriters, as the case may be, for such period of time (not to exceed
180 days) after the effective date of such registration requested by such
managing underwriters and subject to all restrictions as the Company or the
underwriters may specify. The Participant and the Company shall cause any
certificates representing the Shares to bear a 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 THE 1995 STOCK OPTION PLAN OF
THE CORPORATION.
The legend shall be removed upon any resale of the Shares to the public in an
offering registered with the SEC or pursuant to Rule 144.
6. TERMS OF OPTION AGREEMENTS
6.1. LIMITATION ON INCENTIVE OPTION GRANTS.
The aggregate fair market value (determined at the time the Option is granted)
of the Shares for which one or more Incentive Options granted under this Plan
(or any other incentive stock option plan of the Company or any Affiliate)
become exercisable by a Participant for the first time during any calendar year
shall not exceed $100,000 or such other amount as may be permitted under
subsequent amendments to Section 422 of the Code. To the extent that any two or
more Incentive Options violate this limitation, such excess Options shall be
treated as Nonstatutory Options. For purposes of this Section 6.1, Incentive
Options shall be taken into account in the
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<PAGE>
order in which they were granted, and the fair market value of the Shares shall
be determined as of the time the Option with respect to such Shares was granted.
6.2. DURATION OF OPTION.
6.2.1. GENERAL RULE.
Except as provided in this Section 6.2 and Section 6.3, Options shall be
exercisable only for so long as the Participant has the same relationship
with the Company as an Employee, Consultant or Outside Director as the
Participant had when the Option was granted, but not longer than 10 years
after the date the Option is granted.
6.2.2. EXERCISE FOLLOWING TERMINATION OF EMPLOYMENT.
Upon termination of a Participant's employment or other relationship with
the Company by mason of the Participant's death or disability (within the
meaning of Section 22(e)(3)of the Code), the Participant or the
Participant's estate or any person who acquires the right to exercise the
option by bequest or inheritance, may exercise the Option at any time
within one year after such termination, but only to the extent that the
Option is exercisable for vested Shares on the date of such termination
and does not otherwise expire. Upon termination of a Participant's
employment or other relationship with the Company by reason of the
Participant's disability other than as defined in Section 22(e)(3) of
the Code, the Participant may exercise the Option at any time within 6
months after termination, but only to the extent that the Option is
exercisable for vested Shares on the date of such termination and does not
otherwise expire. Upon termination of a Participant's employment or other
relationship with the Company for any other reason, the Participant may
exercise the Option at any time within three months after such
termination, but only to the extent that the Option is exercisable for
vested Shares on the date of such termination and does not otherwise
expire. Employment shall not be considered terminated in the case of (a)
sick leave; (b) military leave; (c) any other leave of absence approved by
the Board; or (d) transfers between locations of the Company or between
the Company or its Affiliates. For Consultants, employment terminates when
such Consultant ceases to render services on a periodic basis to the
Company or any Affiliate.
6.2.3. EFFECT OF CHANGE OF RELATIONSHIP.
If a Participant's employment or other relationship with the Company
terminates but the Participant continues to be eligible under Section 4.1
of this Plan, the Board may, in its sole discretion, elect to permit one
or more of the Participant's Options to continue as if the Participant's
employment or other relationship had not terminated, except that any such
continued Option shall be a Nonstatutory Stock Option if the Participant
is no longer an Employee.
6.2.4. TEN PERCENT SHAREHOLDERS.
Any Option granted to a Participant who, at the time the Option is
granted, owns, as that term is defined in Section 424(d) of the Code,
stock possessing more than 10% of the combined voting power of all stock
of the Company or of its Affiliates, shall be exercisable as described in
this Section 6.2, but for no longer than 5 years after the date the Option
is granted.
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6.3. EXERCISABILITY.
6.3.1. MINIMUM VESTING RATE.
All Options granted under this Plan shall become exercisable at a rate
that, when considered in conjunction with all other then unexercisable
options to purchase common stock of the Company held by the optionee, is
not slower than in cumulative annual increments of 20% per year from the
date of grant. Nothing in this Plan requires Options to be exercisable
immediately upon grant.
6.3.2. EFFECT OF LEAVE OF ABSENCE.
The rate at which Options become exercisable shall be suspended during any
leave of absence that lasts for more than 60 days unless the Board
determines otherwise. A leave of absence shall not extend the term of the
Option. Options may be exercised during a leave of absence only to the
extent that the Options are exercisable on the date the leave of absence
begins unless the Board determines otherwise.
EXAMPLE: Assume that an option vests in five cumulative annual increments
of 20% each on January 1 of each year. The first 20% vested on January 1,
1996. During 1996, the optionee takes a six month leave of absence. The
remaining increments, instead of continuing to vest on January 1, will
instead vest on July 1, with the second increment vesting on July 1, 1997.
6.3.3. ELECTION TO RECEIVE RESTRICTED STOCK.
If permitted in the Option Agreement, a Participant may, at the
Participant's election, exercise an Option before it would otherwise be
exercisable. Shares received upon an early exercise shall be deemed
nonvested, and shall vest at the time the Options pursuant to which the
Shares were issued would otherwise have become exercisable. Nonvested
Shares are subject to repurchase pursuant to Article 7 at the exercise
price of the Option pursuant to which they were issued instead of the
Current Market Price.
6.4. EXERCISE OF OPTION.
To exercise an Option for all or part of the Shares, the Participant must do the
following: (a) provide the Chief Financial Officer of the Company with a written
notice of exercise that specifies the number of Shares for which the Option is
being exercised; (b) pay the total exercise price for that number of Shares and
any withholding taxes as provided in Section 5.3; (c) provide the Company with
any written representations as required under Section 5.4; and (d) furnish to
the Company appropriate documentation that the person(s) exercising the Option,
if other than the Participant named in the Option Agreement, have the right to
do so.
6.5. TRANSFERABILITY OF OPTION.
Options shall be transferable only by will or the laws of descent and
distribution. Only the Participant may exercise the Options during the
Participant's lifetime, except as provided in subsection 6.2.2. Any other
purported transfer or assignment of any Option shall be void and of no effect.
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<PAGE>
6.6. NOTICE OF DISQUALIFYING DISPOSITION OF INCENTIVE OPTIONS.
Participants shall give the Company written notice of any disposition of any
Share acquired pursuant to exercise of an Incentive Option if such disposition
occurs before the second anniversary of the date the Option was granted or the
first anniversary of the date of purchase of the Share disposed of, whichever
occurs later. A disposition includes any sale, exchange, gift, or other transfer
or attempted transfer of legal title. The notice shall include the Participant's
name, the number of Shares disposed of and the dates and prices the Shares were
both acquired and disposed of.
6.7. ADJUSTMENTS TO OPTION RIGHTS.
Subject to the general limitations of this Plan, the Board may adjust the
exercise price, term, or any other provision of an Option by canceling and
regranting the Option or by amending or substituting the Option. Options that
have been so adjusted may have higher or lower exercise prices, have longer or
shorter terms, or be subject to different rights and restrictions than prior
Options. The Board may also adjust the number of Options granted to a
Participant by canceling outstanding Options or granting additional Options.
Except for adjustments necessary to ensure compliance with any applicable state
or federal law, or adjustments deemed appropriate to reflect a change in a
Participant's duties, employment status, or other relationship with the Company,
no such adjustment shall impair a Participant's rights under any Option
Agreement without the consent of the Participant.
6.8. IDENTIFICATION OF INCENTIVE OPTIONS.
Each Option Agreement shall state whether or not the Option is intended to
qualify as an Incentive Option. If only a portion of an Option is intended to so
qualify, (a) the Option Agreement shall so state, and (b)the Option Agreement
shall not require that the number of Incentive Options exercised reduces the
size of the Nonstatutory Option portion, or vice-versa.
7. SHARE REPURCHASE RIGHT
7.1. RIGHT TO REPURCHASE SHARES.
In the event the Participant's employment or other relationship with the Company
terminates for any reason, with or without cause, the Company or its assignee
may, without the necessity of notice from the Participant, purchase all or, with
the Participant's consent, part of the Participant's nonvested Shares under the
terms and conditions of this Article 7 (the "Share Repurchase Right"). If the
Option Agreement so provides, vested Shares shall also be subject to repurchase
pursuant to this Article 7.
7.2. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP.
For purposes of this Plan, the phrase "employment or other relationship" refers
to the Participant's employment or other relationship with the Company on the
date the Option is granted, as follows:
(a) If the Participant was a full-time Employee, the Participant's
employment will be deemed terminated for the purpose of this Plan if
the Participant becomes a part-time Employee, a Consultant, or an
Outside Director.
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(b) If the Participant was a part-time Employee, the Participant's
employment will be deemed terminated for the purpose of this Plan if
the Participant becomes a Consultant or Outside Director but not if
the Participant becomes a full-time Employee.
(c) If the Participant was a Consultant or Outside Director, the
Participant's relationship will be deemed terminated for the purpose
of this Plan if the nature of such relationship changes, unless the
Participant becomes a full-time Employee.
7.3. EXERCISE OF SHARE REPURCHASE OPTION.
The Company or its assignee shall exercise the Share Repurchase Right by giving
written notice (the "Repurchase Notice") to the Participant. If some or all of
the Participant's Shares are held by a transferee when the Participant's
employment or other relationship with the Company terminates, the Company may
repurchase the transferred Shares by giving a Repurchase Notice to the
transferee. The Share Repurchase Right shall expire 60 days after the
Participant gives written notice to the Company of its right to purchase the
Shares.
7.4. SHARE REPURCHASE PRICE.
The price at which the Company may repurchase nonvested Shares shall be the
price at which they were originally issued pursuant to the Option. The price at
which the Company may repurchase vested Shares shall be the greater of price at
which they were originally issued pursuant to the Option or their Current Market
Price determined as of the date the Participant's employment or other
relationship with the Company terminates.
7.5 EFFECT OF FAILURE TO EXERCISE SHARE REPURCHASE RIGHT.
Company declines to exercise the Share Repurchase Right after a deemed
termination of a Participant's employment or other relationship with the
Company, it may exercise the Share Repurchase Right upon a subsequent
termination of the new employment or other relationship.
7.6. PAYMENT FOR SHARES AND RETURN OF SHARES.
Shares shall be deemed repurchased when the Participant or other holder of the
Shares receives a Repurchase Notice. All rights accorded a holder of such
Shares, other than the right to payment therefor, shall cease at that time. Upon
delivery of a Repurchase Notice, the Company shall as soon as practicable
thereafter deliver the purchase price to the Company's transfer agent. The
Company shall pay the purchase price of any Shares so purchased upon tender of
the certificates representing such Shares to the Company's transfer agent. Upon
delivery of a Repurchase Notice, the Company shall immediately thereafter
deliver the purchase price to the Company's transfer agent. For purposes of the
foregoing, cancellation of any promissory note of the Participant to the Company
shall be treated as payment to the Participant in cash to the extent of the
unpaid principal and any accrued interest canceled.
7.7. ASSIGNMENT OF SHARE REPURCHASE RIGHT.
The Company may assign the Share Repurchase Right to one or more persons as may
be selected by the Board. Any such assignee shall pay the Company upon
assignment of the right (unless the assignee is a 100% owned subsidiary of the
Company or is the parent of the Company owning
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100% of the Company) cash per Share equal to the difference between the
exercise price and the Current Market Value of the Share if the exercise
price is less than Current Market Value.
7.8. TERMINATION OF SHARE REPURCHASE RIGHT.
The Share Repurchase Right for vested Shares shall terminate when a public
market exists for the Shares. A public market shall be deemed to exist if any of
the Company's shares of common stock have been registered under Section 5 of the
Securities Act of 1933 or Section 12 of the Securities Exchange Act of 1934, and
(a) such stock is listed on a national securities exchange or national market
system or (b)such stock is traded in the over-the-counter market and prices
therefor are published daily for 90 days in a recognized financial journal.
7.9. LEGENDS.
Unless a public market exists for the Shares, each certificate representing the
Shares shall bear a legend in form and substance satisfactory to the Company to
the effect that the Shares are subject to the Share Repurchase Right.
7.10. "CURRENT MARKET PRICE."
"Current Market Price" means the fair market value of the Company's common stock
for the purpose of any employee benefit plan of the Company, including this
Plan, or any arm's length transaction, as most recently determined by the Board
of Directors or any committee thereof. If the Board of Directors or any
committee thereof has not determined the fair market value of the Company's
common stock within the previous year, or if the board of Directors determines
that the circumstances of the Company have changed materially from the last
determination of fair market value, the Board of Directors shall make a new
determination of fair market value. The fair market value of the Shares will be
the price that a shareholder would receive for the Shares based on the following
assumptions:
(a) Either 100% of the stock of the Company will be sold, or the assets
of the Company will be sold as a going concern subject to all
obligations and liabilities, whichever assumption will produce the
greater value, for cash as of the date giving rise to the Company's
right to buy the Shares.
(b) Any income tax consequences to the transaction will be deferred
indefinitely.
(c) The Company is not under pressure to sell and the buyer is not under
pressure to buy.
(d) The Company will continue to be operated in the manner that it has
been operated to the date of sale.
8. RIGHT OF FIRST REFUSAL
8.1. RESTRICTION ON TRANSFER.
Except as expressly permitted in an Option Agreement or this Plan, a Participant
shall not transfer, encumber or dispose of any Shares or any interest in the
Shares. Unless expressly permitted in this Plan, a Participant shall not
transfer (voluntarily or involuntarily), encumber, or dispose of any nonvested
Shares or any interest therein. If nonvested Shares are to be transferred
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notwithstanding the provisions of this Plan, the repurchase price shall be the
exercise price of the Shares.
8.2. RIGHT OF FIRST REFUSAL.
In the event a Participant proposes to sell, exchange, transfer, pledge or
otherwise dispose of any Shares (whether voluntarily or involuntarily)
(collectively referred to sometimes herein as a "Transfer"), the Company or its
assignees shall have the right to purchase such Shares under the terms and
conditions of this Article 8 (the "Right of First Refusal").
8.3. NOTICE OF PROPOSED TRANSFER.
Before any proposed Transfer of Shares, a Participant must deliver to the
Company at its principal office (a) a written notice describing the proposed
Transfer and stating the name of the proposed transferee, the number of Shares
to be transferred, and the consideration for which the Shares are to be
transferred (a "Transfer Notice") and (b) a written offer signed by the proposed
transferee (if the proposed transfer is voluntary) to acquire the Shares on the
terms specified in the Transfer Notice, subject only to the Right of First
Refusal.
8.4. EXERCISE OF RIGHT OF FIRST REFUSAL.
If the Company exercises the Right of First Refusal, the Company and the
Participant shall immediately consummate the sale of the Shares to the Company
at the purchase price and on the terms set forth in the Transfer Notice. To
exercise the Right of First Refusal, the Company shall deliver to the
Participant a notice of exercise of the Right of First Refusal within 60 days
after the date the Company receives the Transfer Notice. Shares shall be deemed
purchased by the Company when the Participant or other holder of the Shares
receives such notice of exercise of the Right of First Refusal. All rights
accorded a holder of such Shares, other than the right to payment therefor,
shall cease at that time. The Company shall pay the purchase price of any Shares
so purchased within 5 business days after tender of the certificates
representing such Shares to the Company's transfer agent. For this purpose,
cancellation of any promissory note from the Participant to the Company shall be
treated as payment to the Participant in cash to the extent of the unpaid
principal and any accrued interest canceled, if the Company purchases any Shares
pursuant to the Right of First Refusal, it must purchase all of the Shares
proposed to be transferred.
8.5. EXCHANGES OR OTHER TRANSFERS.
When the consideration specified in a Transfer Notice is property other than
cash, the Company may nonetheless pay the purchase price for the Shares in cash.
If the consideration so specified has a readily ascertainable fair market value,
the purchase price of the Shares shall be an amount equal to the fair market
value of such consideration. If the specified consideration does not have a
readily ascertainable fair market value, the purchase price shall be the Current
Market Price of the Shares determined as of the date the Company receives the
Transfer Notice.
8.6. FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL.
If the Company fails to exercise in full the Right of First Refusal within 60
days from the date the Company receives the Transfer Notice, the Participant may
not later than 120 days following delivery to the Company of the Transfer
Notice, conclude a Transfer of the Shares to the proposed transferee named in
the Transfer Notice on the terms and conditions described in the
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Transfer Notice. Any proposed Transfer on terms and conditions different from
those described in the Transfer Notice, as well as any subsequent proposed
Transfer by the Participant, shall again be subject to the Right of First
Refusal and shall require compliance by the Participant with the procedure
described in this Article 8.
8.7. TRANSFEREES OF THE TRANSFER SHARES.
All transferees of any Shares or any interest therein, other than the Company,
shall be required as a condition of such Transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Shares or interests subject to the provisions of this Plan, including without
limitation Article 7 providing for the Share Repurchase Right (with respect to
nonvested Shares only) and Article 8 providing for the Right of First Refusal.
Any sale or Transfer of any Shares shall be void unless the provisions of this
Article 8 are met.
8.8. SPECIAL TRANSFERS.
8.8.1. CREDITORS' PROCEEDINGS.
Upon any proposed Transfer of the Shares in connection with any
receivership, bankruptcy, extension, readjustment, stay, composition, or
other creditors' proceeding regarding a Participant, or the taking of any
of the Shares by legal process (such as levy of execution), the Right of
First Refusal shall expire 60 days after the Company receives a Transfer
Notice from the Participant. The time during which the Company may not
exercise its Right of First Refusal shall be tolled or extended during any
time when the Company may be prohibited or restricted from exercising the
Right of First Refusal under applicable laws or by court ruling. If the
Company or its assignee does not exercise the Right of First Refusal, the
Shares may be transferred only pursuant to the proceeding or transaction
that gave rise to the Right of First Refusal. Shares transferred pursuant
to this subsection 8.8.1 shall continue to be subject to the provisions of
the Option Agreement and this Plan, including without limitation Articles
7 and 8 of this Plan.
8.8.2. DISSOLUTION OF MARRIAGE.
If a Participant divides his or her marital, joint, or community property
in connection with a decree of divorce or a property settlement, the
Participant shall use his or her best efforts to retain the Shares and
transfer other assets to his or her spouse in lieu of the Shares. The
other assets the Participant may transfer may include a promissory note
from the Participant to the spouse. In the event of any distribution of
Shares to the Participant's spouse pursuant to a decree of divorce or
property settlement agreement, the Company shall have, without the
necessity of notice, an irrevocable option to purchase the nonvested
Shares at their exercise price and the vested Shares at their Current
Market Price by giving a Repurchase Notice to the Participant. The option
shall expire 60 days after the Company receives written notice of such
distribution or intended distribution advising the Company of its right to
purchase the Shares. If the transferee disagrees with the Company's
determination of Current Market Price, the transferee may request that an
appraisal be performed. Any appraisal shall be determined in accordance
with the assumptions set forth in Section 7.10. Unless the Company and the
transferee agree otherwise, the appraiser shall agree in writing to be
neutral, shall have been a full-time business appraiser for the previous
five years, and shall be an Accredited Senior
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Appraiser of the American Society of Appraisers. The Company and the
transferee shall share the cost of the appraisal equally.
8.8.3. PLEDGE.
A Participant may pledge Shares (including nonvested Shares) to the
Company or a bank or other financial institution if the pledge or security
agreement under which the Shares are pledged specifies that the pledgee
shall not sell or transfer the Shares (other than to the Participant on
termination of the pledge) without first offering them to the Company
pursuant to Section 8.2. The repurchase price of any nonvested Shares
shall be the exercise price of the Shares.
8.8.4. FAMILY TRANSFERS.
A Participant may transfer Shares (including nonvested Shares) to the
Participant's spouse, any parent, step-parent, child, or grandchild of the
Participant, or the Participant's spouse, any other relative of the
Participant or the Participant's spouse approved by the Board, or any
trust for the exclusive benefit of the Participant or any such person,
without first offering the same to the Company pursuant to Section 8.2.
Shares so transferred shall remain subject to the Option Agreement and
this Plan. The Right of First Refusal under subsection 8.8.1 shall then
arise when the transferee (as opposed to the Participant) proposes a
Transfer in connection with a creditor's proceeding. The Share Repurchase
Right shall arise when the Participant's employment or other similar
relationship terminates, regardless of whether the Shares have been
transferred.
8.9. ASSIGNMENT OF THE RIGHT OF FIRST REFUSAL.
The Company may assign the Right of First Refusal to one or more persons as may
be selected by the Board.
8.10. TERMINATION OF RIGHT OF FIRST REFUSAL.
The Right of First Refusal shall terminate when a public market exists for the
Shares. A public market shall be deemed to exist if any of the Company's shares
of common stock have been registered pursuant to Section 5 of the Securities Act
of 1933 or Section 12 of the Securities Exchange Act of 1934, and (a) such stock
is listed on a national securities exchange or national market system or (b)
such stock is traded in the over-the-counter market and prices therefor are
published daily for 90 days in a recognized financial journal.
8.11. LEGENDS.
Unless a public market exists for the Shares, each certificate representing the
Shares shall bear a legend in form and substance satisfactory to the Company to
the effect that the Shares are subject to the Right of First Refusal.
9. SHARE DEPOSIT
9.1. DEPOSIT.
As security for the faithful performance of the Option Agreement, and to ensure
the availability of the Shares for delivery upon exercise of the Share
Repurchase Option or the Right of First
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Refusal, the Company may require a Participant to deposit each certificate
representing Shares with the secretary of the Company, or such other person as
the Board may designate ("Custodian"), along with two stock assignments duly
endorsed (with date and number of shares blank) for each certificate. The
Company may require the signatures to be guaranteed by a national bank or a
member of a national Stock Exchange. The Custodian shall then hold the
certificates pursuant to the instructions set forth in this Article 9 and as
they may be modified in any Option Agreement.
9.2. COPIES OF NOTICES.
The Participant and the Company shall give the Custodian a copy of any Transfer
Notice, Repurchase Notice, notice from the Participant advising the Company of
its right to purchase the Shares, or any other notice required or permitted
under Article 7 or 8 at the same time they deliver such notices to the intended
parties. The Company shall deliver the purchase price of Shares held in escrow
to the Custodian along with any Repurchase Notice.
9.3. DELIVERY OF SHARES AND PURCHASE PRICE.
Promptly upon receipt of a Repurchase Notice or notice that the Company or its
assignee is exercising the Right of First Refusal, the Custodian shall (a) date
the stock assignments necessary for the transfer in question, (b) fill in the
number of Shares being transferred, and (c) deliver the same, together with the
certificate evidencing the Shares to be transferred, to the transfer agent of
the Company's common stock. The Custodian shall deliver the purchase price to
the Participant promptly after receiving it from the Company or its assignee.
9.4. ATTORNEY-IN-FACT.
Each Participant, by accepting the Option Agreement, irrevocably constitutes and
appoints the Custodian as the Participant's attorney-in-fact and agent to
execute all documents necessary or appropriate to transfer Shares as
contemplated in this Article 9.
9.5. OWNERSHIP OF THE SHARES.
Each Participant shall have the full right to vote all Shares held by the
Custodian and shall receive all distributions with respect to such Shares for so
long as such Participant is the record owner of the Shares.
9.6. RELEASE OF CERTIFICATES.
Upon a Participant's written request, the Custodian shall release the Share
certificates and stock assignments with respect thereto if, and to the extent
that, the restrictions on transfer of the Shares set forth in Articles 7 and 8
terminate.
9.7. POWERS AND RIGHTS OF CUSTODIAN.
9.7.1. CUSTODIAN'S RELIANCE.
The Custodian shall be obligated only to perform such duties as are
specifically set forth in this Plan and any applicable Option Agreement.
The Custodian may rely and shall be protected in relying or refraining
from acting on any instrument the Custodian reasonably believes to be
genuine and to have been signed or presented by the proper party or
parties. The Custodian shall not be personally liable for any act or
omission as Custodian or as attorney-in-fact for a Participant while
acting reasonably and in good faith. Any act or
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omission pursuant to the advice of counsel shall be deemed to be
reasonable and in good faith.
9.7.2. THIRD PARTY BENEFICIARY.
The Custodian is an intended third-party beneficiary of this Plan.
9.7.3. WARNINGS AND COURT ORDER.
The Custodian is expressly authorized to disregard any and all warnings
given by a Participant or by any other person, other than orders or
process of courts or arbitrators provided for in this Plan or the Option
Agreement. The Custodian is expressly authorized to comply with and obey
orders, judgments, or decrees of any court or the arbitrators provided for
in this Plan. The Custodian shall not be liable to any person by reason of
such compliance, even if such order, judgment, or decree is later
reversed, modified, annulled, set aside, vacated, or found to have been
entered without jurisdiction.
9.7.4. COUNSEL TO CUSTODIAN.
The Custodian may employ legal counsel and such other experts as the
Custodian deems necessary in connection with its duties and may pay such
experts reasonable compensation.
9.7.5. RESIGNATION.
The Custodian may resign by giving 10 days written notice to the Company.
9.7.6. FURTHER INSTRUCTIONS.
If the Custodian reasonably requires other or further instruments in
connection with the escrow, the Company shall furnish such instructions.
9.7.7. FEES.
The Company shall pay all of the Custodian's fees and expenses in such
amount as the Company and the Custodian may agree.
10. ADMINISTRATION AND AMENDMENT OF THE PLAN
10.1. ADMINISTRATION.
This Plan shall be administered by the Board and/or by a duly appointed
committee of the Board having such powers as the Board may delegate to such
committee. All references to the Board in this Plan shall also mean the
committee if one has been appointed.
10.2. RIGHTS AND POWERS.
Subject to this Plan and, in the case of a committee, the specific rights and
powers delegated by the Board to such committee, the Board shall have the
authority and discretion to:
(a) determine who shall be a Participant;
(b) determine when Options are granted;
(c) determine the terms and conditions of Option Agreements (which
terms and conditions may differ among Agreements);
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(d) interpret this Plan;
(e) adopt roles and regulations for implementing this Plan; and
(f) take such other action as is appropriate to the administration of
this Plan.
All decisions, determinations, and interpretations of the Board shall be final
and binding on all Participants.
10.3. TERMINATION; AMENDMENT.
The Board may from time to time suspend this Plan, terminate this Plan, or amend
this Plan as it deems desirable, without further action on the part of the
shareholders of the Company. The approval of the shareholders shall be required,
however, to (a) increase the total number of Shares that may be issued under
this Plan (except as otherwise provided herein); (b) change the description of
the persons eligible to be Participants; or (c) change the minimum exercise
price. Except as provided in Article 11, or in an Option Agreement, the
suspension, termination, or amendment of this Plan shall not, without the
consent of the Participant, alter or impair any rights of the Participant under
any Option Agreement.
10.4. REQUIREMENTS OF RULE 16b-3.
In the event that the Company becomes subject to Section 16 of the Securities
Exchange Act of 1934, this Plan shall be administered in accordance with Rule
16b-3 promulgated under such Act, or any successor role. Unless the Board
determines otherwise in a specific case, Options granted to persons subject to
Section 16(b) of the Securities Exchange Act of 1934 must comply with Rule 16b-3
and shall contain such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 with respect to
Plan transactions. In addition, to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any other applicable law or
regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
11. ADJUSTMENT OF AND CHANGES IN STOCK
11.1. RECAPITALIZATIONS.
If the number of the Company's outstanding shares of common stock is changed by
any stock dividend, stock split, reverse stock split, combination, or
reclassification, the number of Shares subject to this Plan and to outstanding
Options, and the exercise price for such Shares, shall be equitably adjusted as
determined by the Board.
11.2. LIQUIDATION.
In the event of the proposed liquidation or dissolution of the Company, the
Company shall notify the Participants at least 10 days before such proposed
action is taken. All unexercised Options shall terminate immediately before such
event.
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11.3. REORGANIZATIONS IN WHICH THE COMPANY DISAPPEARS.
11.3.1. NOTICE OF REORGANIZATION.
The Company shall give each holder of Options at least 10 days prior
written notice of (a) a sale of all or substantially all of the Company's
assets, (b) any reorganization, merger, or consolidation of the Company
with any other corporation in which the Company is not the surviving
entity (except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated), or (c)any other
corporate reorganization or business combination in which the beneficial
ownership of 50% or more of the Company's voting securities outstanding is
transferred.
11.3.2. RIGHT TO CANCEL OPTIONS.
If an exercisable Option is not exercised within 5 days before such event,
the Company may cancel the Option by paying the Participant an amount
equal to the fair market value of the consideration that the Participant
would receive in exchange for the Shares underlying the Option, less the
exercise price of the Option.
11.3.3. EXPIRATION OF OPTIONS.
Unless a successor corporation or parent or subsidiary thereof assumes the
unexercised Options or substitutes options to purchase substantially
equivalent securities of the successor or its parent or subsidiary for the
Options outstanding at the time of the closing of such event, all
outstanding Options shall terminate upon such event.
11.4. REORGANIZATIONS IN WHICH COMPANY SURVIVES.
Upon any other merger or consolidation of the Company in which there is any
adjustment in the common stock of the Company outstanding immediately before
such merger or consolidation, there shall be substituted for each Share then
subject to this Plan, the number and kind of shares of stock or other securities
or property into which each outstanding share of common stock of the Company is
converted by such merger or consolidation.
11.5. OTHER CHANGES.
Upon any other relevant change in the capitalization of the Company, the Board
may provide for an equitable adjustment in the number of Shares then subject to
this Plan, to any Options granted under this Plan, and to the exercise price for
such Shares as it deems appropriate.
11.6. NO FRACTIONAL SHARES.
No right to purchase fractional Shares shall result from any adjustment in
Options pursuant to this Article 11. Upon any such adjustment, the Shares
subject to Options of each Participant shall be rounded down to the nearest
whole Share. Alternatively, in the Company's discretion, the Shares subject to
Options of each Participant may be rounded up to the nearest whole Share. The
Company shall give notice of any adjustment to each holder of Options that have
been so adjusted. Such adjustment (whether or not such notice is given) shall be
effective and binding for all purposes of this Plan.
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12. SUSPENSION OF OPTIONS TO SATISFY SECURITIES LAWS
12.1. POWER TO SUSPEND.
The Board may suspend the exercisability of outstanding Options from time to
time if appropriate to satisfy an exemption from registration under the
Securities Act (such as SEC Rule 504) or any state securities law.
12.2. MINIMUM PERIOD.
The minimum period of suspension shall be long enough to ensure that, under
applicable federal or state securities regulations (such as SEC Rule 502(a)),
sales of stock made before the suspension will not be integrated with sales made
after the suspension.
12.3. MAXIMUM PERIOD.
The maximum period of suspension shall only be so long as needed to ensure that,
under applicable federal or state securities regulations (such as SEC Rule
504(b)(2)(i)), sales made before the suspension will not be aggregated with
sales made after the suspension, unless the Board, in its discretion, determines
that such aggregation will not be detrimental to the best interests of the
Company or the Participants.
12.4. OPTION GRANTS DURING SUSPENSION.
The Company may continue to grant Options during a period of suspension,
provided that such Options are not exercisable until after the suspension.
12.5. OPTION TERMINATION DURING PERIOD OF SUSPENSION
If an outstanding Option terminates during a period of suspension or during the
90 day period after the suspension, the Optionee shall have until 90 days after
the suspension to exercise the Option, but in no event later than 10 years after
the date of grant.
12.6. ALLOCATION OF EXERCISE RIGHTS BEFORE SUSPENSION.
If the Board believes that a number of Participants wish to exercise Options to
an extent that would result in non-compliance with an applicable federal or
state securities exemption, the Board may limit the right to exercise
outstanding Options and allocate such right among the Participants in a manner
that the Board determines to be fair.
12.7. ALL OPTIONS MUST BE SUSPENDED.
The Board shall not suspend any Options granted pursuant to this Plan under this
Article 12 unless it suspends all such outstanding Options.
12.8. ADVICE OF COUNSEL.
The Board may rely upon advice of counsel in determining whether to suspend
exercisability of the outstanding Options and in determining the period of
suspension. Nothing contained in this Plan requires the Board to determine the
length of the suspension in advance.
12.9. SUNSET PROVISION.
This Article 12 shall be void and of no force and effect beginning on the date
the Company becomes subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act.
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13. INFORMATION TO PARTICIPANTS
13.1. INFORMATION PROVIDED.
The Company shall provide to Participant on a periodic basis (but not less
frequently than annually), financial statements of the Company. The Company may
provide other information regarding the Company as determined by the Board in
its discretion.
13.2. INFORMATION CONFIDENTIAL.
No Participant shall disclose any confidential information about the Company
disclosed to the Participant in his or her capacity as a holder of Options. A
Participant may, however, disclose such information to his or her legal and
financial advisers in connection with advice to be rendered by them to the
Participant, or to any transferee of the Shares, but only if the advisor or
transferee agrees not to further disclose such information or to use the
information for the benefit of anyone other than the Participant, the transferee
as a holder of the Shares, or the Company.
14. TAX STATUS
The Company does not, by way of this Plan, any document, Option Agreement, or
otherwise, represent or warrant to any person, including the Participants, that
the grant or exercise of an Option or the subsequent disposition of Shares
obtained by the exercise of an Option pursuant to this Plan, or any other aspect
of this Plan, will have any particular tax effect.
15. MISCELLANEOUS
15.1. ADDITIONAL ACTIONS AND DOCUMENTS.
Each Participant 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 Plan or any Option
Agreement.
15.2. SUCCESSORS AND ASSIGNS.
All obligations imposed upon the Participants and all rights granted to the
Company under this Plan, including without limitation the provisions of Articles
7 and 8, shall be binding upon each Participant's heirs, legal representatives,
successors, and assigns. This Plan, and the Option Agreement with each
Participant, shall be the sole and exclusive source of any and all rights that a
Participant and his or her heirs, legal representatives, or successors shall
have in respect to this Plan or any Options.
15.3. NO THIRD-PARTY BENEFICIARIES.
Except with respect to the Custodian referenced in Article 9, nothing in this
Plan or any Option Agreement shall (a) confer any rights or remedies on any
persons other than the parties and their respective successors and assigns,
(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 action against any
party.
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15.4. AMENDMENTS, WAIVERS, AND CONSENTS.
Except as provided in this Plan, no Option Agreement shall be amended except in
a writing signed by the Participant and the Company. No waiver or consent shall
be binding except in a writing signed by the party making the waiver or giving
the consent. No waiver of any provision of an Option Agreement 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 in
writing. For the protection of all parties, amendments, waivers, and consents
concerning Option Agreements that are not in writing and signed 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.
15.5. NOTICE.
Any notice, instruction, or communication required or permitted to be given
under this Plan or any Option 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 days after deposit in the United States Mail by certified
mail, return receipt requested, postage prepaid, or two days after deposit with
a nationally recognized air courier, fees prepaid, addressed to the principal
office or residence of such party as shown on the books of the Company, or to
such other address as such party may request by written notice. The Company and
each Participant shall make an ordinary, good faith effort to ensure that the
person to be given notice actually receives such notice.
15.6. DISPUTE RESOLUTION.
15.6.1. NOTICE.
A party to an Option Agreement who desires money damages or equitable
relief from the other party because of a claim relating to Options,
Shares, this Plan, or an Option Agreement shall give written notice to the
other party of the facts constituting the breach or default (a "Dispute
Notice"). This Section 15.6 is intended to cover all aspects of the
relationship between the parties with respect to Options, Shares, this
Plan, and any Option Agreement, including any claims based on tort or
other theories. Any additional claims the parties have against each other
shall also be subject to this Section 15.6.
15.6.2. NEGOTIATION.
For fifteen (15) days following delivery of a Dispute Notice (the
"Negotiation Period") the parties shall negotiate to resolve the dispute
in good faith.
15.6.3. MEDIATION.
After the end of the Negotiation Period, either party may request
non-binding mediation with the assistance of a neutral mediator from a
recognized mediation service. The party requesting the mediation shall
arrange for the mediation service's, subject to the approval of the other
party which the other party shall not withhold unreasonably. Mediation
shall take place in Santa Clara County, California. Mediation may be
scheduled to begin any time after expiration of the Negotiation Period,
but with at least 10 days notice to all parties. The parties shall
participate in the mediation in good faith and shall devote reasonable
time and energy to the mediation so as to promptly resolve the dispute or
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conclude that they cannot resolve the dispute. The party requesting the
mediation shall bear the cost of mediation except as provided elsewhere in
this Agreement.
15.6.4. ARBITRATION.
If thirty (30) days after beginning mediation the parties have not
resolved the dispute, either party may submit the dispute to final and
binding arbitration pursuant to the commercial rules of the American
Arbitration Association. The arbitrator(s) shall apply the substantive law
of the State of California to the dispute, and shall have the power to
interpret such law to the extent it is unclear. At the request of any
party, the arbitrators, attorneys, parties to the arbitration, witnesses,
experts, court reporters, or other persons present at the arbitration
shall agree in writing to maintain the strict confidentiality of the
arbitration proceedings. At the election of any party, arbitration shall
be conducted by a three neutral arbitrators appointed in accordance with
the commercial rules of the American Arbitration Association if (a) the
amount in controversy is greater than $50,000 (exclusive of interest and
attorneys fees), or (b) a party sought to be enjoined disputes that he or
it has engaged in, or asserts that he or it should be able to engage in,
the actions sought to be enjoined. In all other cases, the matter shall be
arbitrated by a single neutral arbitrator. The parties surrender and waive
the right to submit any dispute to a court or jury, or to appeal to a
higher court. There shall be no arbitration of any claim that would
otherwise be barred by a statute of limitations if the claim were to be
brought in a court of law. The arbitrator shall not have the power to
award punitive, consequential, indirect, or special damages.
15.6.5. ARBITRABILITY.
The arbitrators shall have the power to determine what disputes between
the parties are the proper subject of arbitration.
15.6.6. PRELIMINARY REMEDIES.
Notwithstanding this Section 15.6, a party may apply to a court of
competent jurisdiction for prejudgment remedies and emergency relief in
the form of a temporary restraining order pending final determination of a
claim through arbitration in accordance with this Section 15.6.
15.6.7. COSTS AND ATTORNEYS FEES.
If the arbitrator determines that the actions of a party or its counsel
have unreasonably or unnecessarily delayed the resolution of the matter,
the arbitrator may in its discretion require such party to pay all or part
of cost of the mediation and arbitration proceedings payable by the other
party and may require such party to pay all or part of the attorneys fees
of the other party. This provision permits an award of attorneys fees
against a party regardless of which party is the prevailing party.
Otherwise, the parties shall share bear their own attorney's fees and
share the costs of arbitration equally.
15.6.8. ENFORCEMENT.
The award of the arbitrator shall be enforceable according to the
applicable provisions of the California Code of Civil Procedure, sections
1280 et seq. A party who fails to participate in a negotiation, mediation,
or arbitration instituted under this Section 15.6, or
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who admits to liability and the amount of damage, shall be deemed to have
defaulted. Such default may be entered and enforced the same manner as a
default in a civil lawsuit.
15.7. JURISDICTION AND VENUE.
Each Participant consents to the personal jurisdiction of all federal and state
courts in the state of the Participant's employment and the county of the
Company's principal place of business, and agrees that venue shall lie
exclusively in the county of the Participant's employment if the Participant is
an Employee or former Employee at the time of the dispute, or otherwise in the
county of the Company's principal place of business.
15.8. GOVERNING LAW.
The rights and obligations of the parties shall be governed by, and this Plan
and each Option Agreement shall be construed and enforced in accordance with,
the laws of the State of California, excluding its conflict of laws roles to the
extent such roles would apply the law of another jurisdiction. Incentive Options
granted under this Plan shall be interpreted and administered in accordance with
Section 422 of the Code. If any provision is susceptible of more than one
interpretation, it shall be interpreted in a manner consistent with this Plan
being an incentive stock option plan. If any provision of this Plan or any
Option Agreement is found by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions shall continue to be fully effective.
15.9. PLAN GOVERNS.
If there is any inconsistency between this Plan and any documents related to
this Plan, including any Option Agreement, this Plan shall govern. Nothing in
this Plan shall be construed to constitute, or be evidence of, any right in
favor of any person to receive Options hereunder or any obligation on the part
of the Company to issue Options with respect to its common stock.
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CERTIFICATE OF SECRETARY
KNOW ALL BY THESE PRESENTS:
That the undersigned does hereby certify that the undersigned is the
Secretary of AIMNET CORPORATION, a corporation duly organized and existing
under and by virtue of the laws of the State of California; that the above
and foregoing 1995 Stock Option Plan was duly and regularly adopted as such
by the Board of Directors on __________, 1995 and the shareholders of said
corporation on ______, 1995; and that the above and foregoing 1995 Stock
Option Plan is now in full force and effect.
Dated: ,19 .
---------------------- ---
--------------------------------------
Wayland M. Brill, Secretary
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GRIC COMMUNICATIONS, INC.
(formerly AIMQUEST CORPORATION)
1997 STOCK OPTION PLAN
AS ADOPTED NOVEMBER 10, 1997
1. PURPOSE. The purpose of this Plan is to provide incentives
to attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options. Capitalized terms not defined
in the text are defined in Section 21 hereof. This Plan is intended to be a
written compensatory benefit plan within the meaning of Rule 701 promulgated
under the Securities Act.
2. SHARES SUBJECT TO THE PLAN.
2.1 NUMBER OF SHARES AVAILABLE. Subject to Sections 2.2 and 16
hereof, the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 1,500,000 Shares or such lesser number of Shares
as permitted under Section 260.140.45 of Title 10 of the California Code of
Regulations. Subject to Sections 2.2 and 16 hereof, Shares that are subject to
issuance upon exercise of an Option but cease to be subject to such Option for
any reason other than exercise of such Option will be available for grant and
issuance in connection with future Options under this Plan. At all times the
Company will reserve and keep available a sufficient number of Shares as will be
required to satisfy the requirements of all outstanding Options granted under
this Plan.
2.2 ADJUSTMENT OF SHARES. In the event that the number of
outstanding shares of the Company's Common Stock is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company
without consideration, then (a) the number of Shares reserved for issuance under
this Plan and (b) the Exercise Prices of and number of Shares subject to
outstanding Options, will be proportionately adjusted, subject to any required
action by the Board or the shareholders of the Company and compliance with
applicable securities laws; provided, however, that fractions of a Share will
not be issued but will either be paid in cash at the Fair Market Value of such
fraction of a Share or will be rounded down to the nearest whole Share, as
determined by the Committee in its discretion.
3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be
granted only to employees (including officers and directors who are also
employees) of the Company or of a Parent or Subsidiary of the Company. NQSOs
(as defined in Section 5 hereof) may be granted to employees, officers,
directors and consultants of the Company or of any Parent or Subsidiary of
the Company; provided such consultants render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. A person may be granted more than one Option under this Plan.
4. ADMINISTRATION.
4.1 COMMITTEE AUTHORITY. This Plan will be administered by the
Committee or the Board acting as the Committee. Subject to the general purposes,
terms and conditions of this Plan, and to the direction of the Board, the
Committee has full power to implement and carry out this Plan. Without
limitation, the Committee has the authority to:
(a) construe and interpret this Plan, any Stock Option
Agreement or Exercise Agreement (each as defined in
Section 5 hereof) and any other agreement or document
executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations
relating to this Plan;
(c) select persons to receive Options;
<PAGE>
(d) determine the form and terms of Options;
(e) determine the number of Shares or other consideration
subject to Options;
(f) determine whether Options will be granted singly, in
combination with, in tandem with, in replacement of,
or as alternatives to, any Options granted under this
Plan or any awards under any other incentive or
compensation plan of the Company or any Parent or
Subsidiary of the Company;
(g) grant waivers of Plan or Option conditions;
(h) determine the vesting and exercisability of Options;
(i) correct any defect, supply any omission, or reconcile
any inconsistency in this Plan, any Option or any Stock
Option Agreement or Exercise Agreement (each as defined
in Section 5 hereof);
(j) determine whether an Option has been earned; and
(k) make all other determinations necessary or advisable for
the administration of this Plan.
4.2 COMMITTEE DISCRETION. Any determination made by the
Committee with respect to any Option will be made in its sole discretion at the
time of grant of the Option or, unless in contravention of any express term of
this Plan or Option, and subject to Section 5.9 hereof, at any later time, and
such determination will be final and binding on the Company and on all persons
having an interest in any Option under this Plan. The Committee may delegate to
one or more officers of the Company the authority to grant Options under this
Plan.
5. OPTIONS. The Committee may grant Options to eligible
persons and will determine whether such Options will be Incentive Stock
Options within the meaning of the Code ("ISOs") or Nonqualified Stock Options
("NQSOs"), the number of Shares subject to the Option, the Exercise Price of
the Option, the period during which the Option may be exercised, and all
other terms and conditions of the Option, subject to the following:
5.1 FORM OF OPTION GRANT. Each Option granted under this Plan
will be evidenced by an Agreement which will expressly identify the Option as an
ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and contain
such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 DATE OF GRANT. The date of grant of an Option will be the
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 EXERCISE PERIOD. Options may be exercisable immediately
(subject to repurchase pursuant to Section 10 hereof) or may be exercisable
within the times or upon the events determined by the Committee as set forth in
the Stock Option Agreement governing such Option; provided, however, that no
Option will be exercisable after the expiration of ten (10) years from the date
the Option is granted; and provided further that no ISO granted to a person who
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any Parent or
Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") will be exercisable after
the expiration of five (5) years from the date the ISO is granted. The Committee
may provide for Options to become exercisable at one time or from time to time,
periodically or otherwise, in such number of Shares or percentage of Shares as
the Committee determines. Subject to earlier termination of the Option as
provided herein, each Participant who is not an officer, director or consultant
of the Company or of a Parent or Subsidiary of the Company shall have the right
to exercise an Option granted hereunder at the rate of at least twenty percent
(20%) per year over five (5) years from the date such Option is granted.
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<PAGE>
5.4 EXERCISE PRICE. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may not be less than
eighty five percent (85%) of the Fair Market Value of the Shares on the date of
grant; provided that (a) the Exercise Price of an ISO will not be less than one
hundred percent (100%) of the Fair Market Value of the Shares on the date of
grant and (b) the Exercise Price of any Option granted to a Ten Percent
Shareholder will not be less than one hundred ten percent (110%) of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased must be made in accordance with Section 6 hereof.
5.5 METHOD OF EXERCISE. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price, and any applicable taxes, for the
number of Shares being purchased.
5.6 TERMINATION. Subject to earlier termination pursuant to
Sections 16 or 17 hereof and notwithstanding the exercise periods set forth in
the Stock Option Agreement, exercise of an Option will always be subject to the
following:
(a) If the Participant is Terminated for any reason
except death, Disability or Cause, then the
Participant may exercise such Participant's Options,
only to the extent that such Options are exercisable
on the Termination Date and such Options must be
exercised by the Participant, if at all, as to all or
some of the Vested Shares calculated as of the
Termination Date, within three (3) months after the
Termination Date (or within such shorter time period,
not less than thirty (30) days after the Termination
Date, or such longer time period not exceeding five
(5) years after the Termination Date as may be
determined by the Committee, with any exercise after
three (3) months after the Termination Date deemed to
be an NQSO), but in any event, no later than the
expiration date of the Options.
(b) If the Participant is Terminated because of
Participant's death or Disability (or the Participant
dies within three (3) months after Participant's
Termination other than for Cause), then Participant's
Options may be exercised, only to the extent that
such Options are exercisable by Participant on the
Termination Date and must be exercised by Participant
(or Participant's legal representative or authorized
assignee), if at all, as to all or some of the Vested
Shares calculated as of the Termination Date, within
twelve (12) months after the Termination Date (or
within such shorter time period, not less than six
(6) months after the Termination Date, or such longer
time period not exceeding five (5) years after the
Termination Date as may be determined by the
Committee, with any exercise after (i) three (3)
months after the Termination Date when the
Termination is for any reason other than the
Participant's death or disability, within the meaning
of Code Section 22(e)(3), or (ii) twelve (12) months
after the Termination Date when the Termination is
because of Participant's disability, within the
meaning of Code Section 22(e)(3), deemed to be an
NQSO), but in any event no later than the expiration
date of the Options.
(c) If the Participant is terminated for Cause, then
Participant's Options shall expire on such
Participant's Termination Date, or at such later time
and on such conditions as are determined by the
Committee.
5.7 LIMITATIONS ON EXERCISE. The Committee may specify a
reasonable minimum number of Shares that may be purchased on exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
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<PAGE>
5.8 LIMITATIONS ON ISOS. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Parent or Subsidiary of the Company) will not exceed $100,000. If the Fair
Market Value of Shares on the date of grant with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year exceeds
$100,000, then the Options for the first $100,000 worth of Shares to become
exercisable in such calendar year will be ISOs and the Options for the amount in
excess of $100,000 that become exercisable in that calendar year will be NQSOs.
In the event that the Code or the regulations promulgated thereunder are amended
after the Effective Date (as defined in Section 17 hereof) to provide for a
different limit on the Fair Market Value of Shares permitted to be subject to
ISOs, then such different limit will be automatically incorporated herein and
will apply to any Options granted after the effective date of such amendment.
5.9 MODIFICATION, EXTENSION OR RENEWAL. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. Subject to Section 5.10 hereof, the Committee may
reduce the Exercise Price of outstanding Options without the consent of
Participants affected by a written notice to them; provided, however, that the
Exercise Price may not be reduced below the minimum Exercise Price that would be
permitted under Section 5.4 hereof for Options granted on the date the action is
taken to reduce the Exercise Price.
5.10 NO DISQUALIFICATION. Notwithstanding any other provision
in this Plan, no term of this Plan relating to ISOs will be interpreted, amended
or altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. PAYMENT FOR SHARE PURCHASES.
6.1 PAYMENT. Payment for Shares purchased pursuant to this
Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that: (i) either (A) have been
owned by the Participant for more than six (6) months
and have been paid for within the meaning of SEC Rule
144 (and, if such shares were purchased from the
Company by use of a promissory note, such note has
been fully paid with respect to such shares) or (B)
were obtained by the Participant in the public market
and (ii) are clear of all liens, claims, encumbrances
or security interests;
(c) by tender of a full recourse promissory note having
such terms as may be approved by the Committee and
bearing interest at a rate sufficient to avoid
imputation of income under Sections 483 and 1274 of
the Code; provided, however, that Participants who
are not employees or directors of the Company will
not be entitled to purchase Shares with a promissory
note unless the note is adequately secured by
collateral other than the Shares.
(d) by waiver of compensation due or accrued to the
Participant for services rendered;
(e) provided that a public market for the Company's stock
exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a
member of the National Association of
Securities Dealers (an "NASD DEALER") whereby
the Participant irrevocably elects to exercise
the Option and to sell a portion of the Shares
so purchased to pay for the Exercise
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<PAGE>
Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward
the Exercise Price directly to the Company; or
(2) through a "margin" commitment from the
Participant and an NASD Dealer whereby the
Participant irrevocably elects to exercise the
Option and to pledge the Shares so purchased to
the NASD Dealer in a margin account as security
for a loan from the NASD Dealer in the amount
of the Exercise Price, and whereby the NASD
Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly
to the Company; or
(f) by any combination of the foregoing.
6.2 LOAN GUARANTEES. The Committee may help the Participant
pay for Shares purchased under this Plan by authorizing a guarantee by the
Company of a third-party loan to the Participant.
7. WITHHOLDING TAXES.
7.1 WITHHOLDING GENERALLY. Whenever Shares are to be issued in
satisfaction of Options granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Options are to be made in cash, such payment will be net of
an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
7.2 STOCK WITHHOLDING. When, under applicable tax laws, the
Participant incurs tax liability in connection with the exercise or vesting of
any Option that is subject to tax withholding and the Participant is obligated
to pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee.
8. PRIVILEGES OF STOCK OWNERSHIP.
8.1 VOTING AND DIVIDENDS. No Participant will have any of the
rights of a shareholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a shareholder and have all the rights of a shareholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that the
Participant will have no right to retain such stock dividends or stock
distributions with respect to Unvested Shares that are repurchased pursuant to
Section 10 hereof. The Company will comply with Section 260.140.1 of Title 10 of
the California Code of Regulations with respect to the voting rights of Common
Stock.
8.2 FINANCIAL STATEMENTS. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Options outstanding, or as otherwise required under Section
260.140.46 of Title 10 of the California Code of Regulations. Notwithstanding
the foregoing, the Company will not be required to provide such financial
statements to Participants when issuance is limited to key employees whose
services in connection with the Company assure them access to equivalent
information.
9. TRANSFERABILITY. Options granted under this Plan, and any
interest therein, will not be transferable or assignable by Participant, and
may not be made subject to execution, attachment or similar process,
otherwise than by will or by the laws of descent and distribution. During the
lifetime of the Participant an Option will be exercisable only by the
Participant or Participant's legal representative and any elections with
respect to an Option may be made only by the Participant or Participant's
legal representative.
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10. RESTRICTIONS ON SHARES.
10.1 RIGHT OF FIRST REFUSAL. At the discretion of the
Committee, the Company may reserve to itself and/or its assignee(s) in the Stock
Option Agreement a right of first refusal to purchase all Shares that a
Participant (or a subsequent transferee) may propose to transfer to a third
party, unless otherwise not permitted by Section 25102(o) of the California
Corporations Code, provided, that such right of first refusal terminates upon
the Company's initial public offering of Common Stock pursuant to an effective
registration statement filed under the Securities Act.
10.2 RIGHT OF REPURCHASE. At the discretion of the Committee,
the Company may reserve to itself and/or its assignee(s) in the Stock Option
Agreement a right to repurchase Unvested Shares held by a Participant following
such Participant's Termination at any time within ninety (90) days after
Participant's Termination Date (or in the case of securities issued upon
exercise of an Option after the Participant's Termination Date, within ninety
(90) days after the date of such exercise) for cash and/or cancellation of
purchase money indebtedness, at the Participant's Exercise Price, provided, that
to the extent the Participant is not an officer, director or consultant of the
Company or of a Parent or Subsidiary of the Company such right to repurchase
Unvested Shares lapses at the rate of at least twenty percent (20%) per year
over five (5) years from the date of grant of the Option.
11. CERTIFICATES. All certificates for Shares or other
securities delivered under this Plan will be subject to such stock transfer
orders, legends and other restrictions as the Committee may deem necessary or
advisable, including restrictions under any applicable federal, state or
foreign securities law, or any rules, regulations and other requirements of
the SEC or any stock exchange or automated quotation system upon which the
Shares may be listed or quoted.
12. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit
all certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in
escrow until such restrictions have lapsed or terminated, and the Committee
may cause a legend or legends referencing such restrictions to be placed on
the certificates. Any Participant who is permitted to execute a promissory
note as partial or full consideration for the purchase of Shares under this
Plan will be required to pledge and deposit with the Company all or part of
the Shares so purchased as collateral to secure the payment of Participant's
obligation to the Company under the promissory note; provided, however, that
the Committee may require or accept other or additional forms of collateral
to secure the payment of such obligation and, in any event, the Company will
have full recourse against the Participant under the promissory note
notwithstanding any pledge of the Participant's Shares or other collateral.
In connection with any pledge of the Shares, Participant will be required to
execute and deliver a written pledge agreement in such form as the Committee
will from time to time approve. The Shares purchased with the promissory note
may be released from the pledge on a pro rata basis as the promissory note is
paid.
13. EXCHANGE AND BUYOUT OF OPTIONS. The Committee may, at any
time or from time to time, authorize the Company, with the consent of the
respective Participants, to issue new Options in exchange for the surrender
and cancellation of any or all outstanding Options. The Committee may at any
time buy from a Participant an Option previously granted with payment in
cash, shares of Common Stock of the Company (including restricted stock) or
other consideration, based on such terms and conditions as the Committee and
the Participant may agree.
14. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. This Plan
is intended to comply with Section 25102(o) of the California Corporations
Code. Any provision of this Plan which is inconsistent with Section 25102(o)
shall, without further act or amendment by the Company or the Board, be
reformed to comply with the requirements of Section 25102(o). An Option will
not be effective unless such Option is in compliance with all applicable
federal and state securities laws, rules and regulations of any governmental
body, and the requirements of any stock exchange or automated quotation
system upon which the Shares may then be listed or quoted, as they are in
effect on the date of grant of the Option and also on the date of exercise or
other issuance. Notwithstanding any other provision in this Plan, the Company
will have no obligation to issue or deliver certificates for Shares under
this Plan prior to (a) obtaining any approvals from governmental agencies
that the
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Company determines are necessary or advisable, and/or (b) compliance with any
exemption, completion of any registration or other qualification of such
Shares under any state or federal law or ruling of any governmental body that
the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect
compliance with the exemption, registration, qualification or listing
requirements of any state securities laws, stock exchange or automated
quotation system, and the Company will have no liability for any inability or
failure to do so.
15. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent or Subsidiary of the Company or limit in any
way the right of the Company or any Parent or Subsidiary of the Company to
terminate Participant's employment or other relationship at any time, with or
without cause.
16. CORPORATE TRANSACTIONS.
16.1 ASSUMPTION OR REPLACEMENT OF OPTIONS BY SUCCESSOR OR
ACQUIRING COMPANY. In the event of (a) a dissolution or liquidation of the
Company, (b) a merger or consolidation in which the Company is not the surviving
corporation, (c) a merger in which the Company is the surviving corporation but
after which the shareholders of the Company immediately prior to such merger
(other than any shareholder which merges with the Company in such merger, or
which owns or controls another corporation which merges, with the Company in
such merger) cease to own their shares or other equity interests in the Company,
or (d) the sale of all or substantially all of the assets of the Company, any or
all outstanding Options may be assumed, converted or replaced by the successor
or acquiring corporation (if any), which assumption, conversion or replacement
will be binding on all Participants. In the alternative, the successor or
acquiring corporation may substitute equivalent Options or provide substantially
similar consideration to Participants as was provided to shareholders (after
taking into account the existing provisions of the Options). The successor or
acquiring corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions and other provisions no less favorable to the
Participant than those which applied to such outstanding Shares immediately
prior to such transaction described in this Section 16.1. In the event such
successor or acquiring corporation (if any) refuses to assume or substitute
Options, as provided above, pursuant to a transaction described in this Section
16.1, then notwithstanding any other provision in this Plan to the contrary,
such Options will expire on such transaction at such time and on such conditions
as the Board will determine.
16.2 OTHER TREATMENT OF OPTIONS. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 16, in
the event of the occurrence of any transaction described in Section 16.1 hereof,
any outstanding Options will be treated as provided in the applicable agreement
or plan of merger, consolidation, dissolution, liquidation or sale of assets.
16.3 ASSUMPTION OF OPTIONS BY THE COMPANY. The Company, from
time to time, also may substitute or assume outstanding options granted by
another company, whether in connection with an acquisition of such other company
or otherwise, by either (a) granting an Option under this Plan in substitution
of such other company's option, or (b) assuming such option as if it had been
granted under this Plan if the terms of such assumed option could be applied to
an Option granted under this Plan. Such substitution or assumption will be
permissible if the holder of the substituted or assumed option would have been
eligible to be granted an Option under this Plan if the other company had
applied the rules of this Plan to such grant. In the event the Company assumes
an option granted by another company, the terms and conditions of such option
will remain unchanged (EXCEPT that the exercise price and the number and nature
of shares issuable upon exercise of any such option will be adjusted
appropriately pursuant to Section 424(a) of the Code). In the event the Company
elects to grant a new Option rather than assuming an existing option, such new
Option may be granted with a similarly adjusted Exercise Price.
17. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become
effective on the date that it is adopted by the Board (the "EFFECTIVE DATE").
This Plan will be approved by the shareholders of the Company (excluding
Shares issued pursuant to this Plan), consistent with applicable laws, within
twelve (12) months before or after the Effective Date. Upon the Effective
Date, the Board may grant Options pursuant to this Plan; provided, however,
that: (a) no Option may be exercised prior to initial shareholder approval of
this Plan, and
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(b) no Option granted pursuant to an increase in the number of Shares
approved by the Board shall be exercised prior to the time such increase has
been approved by the shareholders of the Company. In the event that initial
shareholder approval is not obtained within twelve (12) months before or
after this Plan is adopted by the Board, all Options granted hereunder will
be canceled.
18. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as
provided herein, this Plan will terminate ten (10) years from the Effective
Date or, if earlier, the date of shareholder approval. This Plan and all
agreements hereunder shall be governed by and construed in accordance with
the laws of the State of California.
19. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9
hereof, the Board may at any time terminate or amend this Plan in any
respect, including without limitation amendment of any form of Stock Option
Agreement or instrument to be executed pursuant to this Plan; provided,
however, that the Board will not, without the approval of the shareholders of
the Company, amend this Plan in any manner that requires such shareholder
approval pursuant to Section 25102(o) of the California Corporations Code or
the Code or the regulations promulgated thereunder as such provisions apply
to ISO plans.
20. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this
Plan by the Board, the submission of this Plan to the shareholders of the
Company for approval, nor any provision of this Plan will be construed as
creating any limitations on the power of the Board to adopt such additional
compensation arrangements as it may deem desirable, including, without
limitation, the granting of stock options or any other equity awards outside
of this Plan, and such arrangements may be either generally applicable or
applicable only in specific cases.
21. DEFINITIONS. As used in this Plan, the following terms will
have the following meanings:
"BOARD" means the Board of Directors of the Company.
"CAUSE" means Termination because of (i) any willful material
violation by the Participant of any law or regulation applicable to the business
of the Company or a Parent or Subsidiary of the Company, the Participant's
conviction for or guilty plea to, a felony or a crime involving moral turpitude
or any willful perpetration by the Participant of a common law fraud, (ii) the
Participant's commission of an act of personal dishonesty which involves a
personal profit in connection with the Company or any other entity having a
business relationship with the Company, (iii) any material breach by the
Participant of any material provision of any agreement or understanding between
the Company or a Parent or Subsidiary of the Company and the Participant
regarding the terms of the Participant's service as an employee, director or
consultant to the Company or a Parent or Subsidiary of the Company, including
without limitation, the willful and continued failure or refusal of the
Participant to perform the material duties required of such Participant as an
employee, director or consultant of the Company or a Parent or Subsidiary of the
Company, other than as a result of having a Disability, or a breach of any
applicable invention assignment and confidentiality agreement or similar
agreement between the Company or a Parent or Subsidiary of the Company and the
Participant, (iv) Participant's intentional disregard of the policies of the
Company or a Parent or Subsidiary of the Company so as to cause loss, damage or
injury to the property, reputation or employees of the Company or a Parent or
Subsidiary of the Company, or (v) any other misconduct by the Participant which
is materially injurious to the financial condition or business reputation of, or
is otherwise materially injurious to, the Company or a Parent or Subsidiary of
the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to
administer this Plan, or if no committee is appointed, the Board.
"COMPANY" means AimQuest Corporation or any successor or
acquiring corporation.
"DISABILITY" means a disability, whether temporary or
permanent, partial or total, as determined by the Committee.
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<PAGE>
"EXERCISE PRICE" means the price at which a holder of an
Option may purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a
share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq
National Market, its closing price on the Nasdaq
National Market on the date of determination as
reported in THE WALL STREET JOURNAL;
(b) if such Common Stock is publicly traded and is then
listed on a national securities exchange, its closing
price on the date of determination on the principal
national securities exchange on which the Common
Stock is listed or admitted to trading as reported in
THE WALL STREET JOURNAL;
(c) if such Common Stock is publicly traded but is not
quoted on the Nasdaq National Market nor listed or
admitted to trading on a national securities
exchange, the average of the closing bid and asked
prices on the date of determination as reported by
THE WALL STREET JOURNAL (or, if not so reported, as
otherwise reported by any newspaper or other source
as the Board may determine); or
(d) if none of the foregoing is applicable, by the
Committee in good faith.
"OPTION" means an award of an option to purchase Shares
pursuant to Section 5 hereof.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
"PARTICIPANT" means a person who receives an Option under
this Plan.
"PLAN" means this AimQuest Corporation 1997 Stock Option Plan,
as amended from time to time.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved
for issuance under this Plan, as adjusted pursuant to Sections 2 and 16 hereof,
and any successor security.
"SUBSIDIARY" or "SUBSIDIARIES" means any corporation or
corporations (other than the Company) in an unbroken chain of corporations
beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director or consultant to the Company
or a Parent or Subsidiary of the Company. A Participant will not be deemed to
have ceased to provide services in the case of (i) sick leave, (ii) military
leave, or (iii) any other leave of absence approved by the Committee, provided
that such leave is for a period of not more than ninety (90) days, unless
reinstatement (or, in the case of an employee with an ISO, reemployment) upon
the expiration of such leave is guaranteed by contract or statute or unless
provided otherwise pursuant to formal policy adopted from time to time by the
Company and issued and promulgated in writing. In the case of any Participant on
(i) sick leave, (ii) military leave or (iii) an approved leave of absence, the
Committee may make such provisions respecting suspension of vesting of the
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Option while the Participant is on leave from the Company or a Parent or
Subsidiary of the Company as the Committee may deem appropriate, except that in
no event may an Option be exercised after the expiration of the term set forth
in the Stock Option Agreement. The Committee will have sole discretion to
determine whether a Participant has ceased to provide services and the effective
date on which the Participant ceased to provide services (the "TERMINATION
DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in
Section 2.2 of the Stock Option Agreement.
"VESTED SHARES" means "Vested Shares" as defined in Section
2.2 of the Stock Option Agreement.
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RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement (this "AGREEMENT") is made and
entered into as of July __, 1997 (the "EFFECTIVE DATE") between AimQuest
Corporation (the "COMPANY"), a California corporation, and Stanley J.
Meresman ("PURCHASER").
1. PURCHASE OF SHARES. On the Effective Date and subject to the terms
and conditions of this Agreement, Purchaser hereby purchases from the
Company, and Company hereby sells to Purchaser, an aggregate of Seventy
Thousand (70,000) shares of the Company's common stock (the "SHARES") at an
aggregate purchase price of $17,500 (the "PURCHASE PRICE") or $0.25 per Share
(the "PURCHASE PRICE PER SHARE"). As used in this Agreement, the term
"Shares" refers to the Shares purchased under this Agreement and includes all
securities received (a) in replacement of the Shares, (b) as a result of
stock dividends or stock splits in respect of the Shares, and (c) in
replacement of the Shares in a recapitalization, merger, reorganization or
the like.
2. PAYMENT OF PURCHASE PRICE; CLOSING.
(a) DELIVERIES BY PURCHASER. Purchaser hereby delivers to the
Company the full Purchase Price in cash in the amount of $17,500. Purchaser
also hereby delivers to the Company: (i) a blank Stock Power and Assignment
Separate from Stock Certificate in the form of EXHIBIT 1 attached hereto (the
"STOCK POWERS"), both executed by Purchaser (and Purchaser's spouse, if any),
and (ii) if Purchaser is married, a Consent of Spouse in the form of EXHIBIT
2 attached hereto (the "SPOUSE CONSENT") duly executed by Purchaser's spouse.
(b) DELIVERIES BY THE COMPANY. Upon its receipt of the entire
Purchase Price and all the documents to be executed and delivered by
Purchaser to the Company under Section 2(a), the Company will issue a duly
executed stock certificate evidencing the Shares in the name of Purchaser,
with such certificate to be placed in escrow as provided in Section 8 until
expiration or termination of both the Company's Repurchase Option and Right
of First Refusal described in Sections 5 and 6.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents
and warrants to the Company that:
(a) PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is
purchasing the Shares for Purchaser's own account for investment purposes
only and not with a view to, or for sale in connection with, a distribution
of the Shares within the meaning of the Securities Act of 1933, as amended
(the "1933 ACT"). Purchaser has no present intention of selling or otherwise
disposing of all or any portion of the Shares and no one other than Purchaser
has any beneficial ownership of any of the Shares.
<PAGE>
(b) ACCESS TO INFORMATION. Purchaser has had access to all
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably
considers important in making the decision to purchase the Shares, and
Purchaser has had ample opportunity to ask questions of the Company's
representatives concerning such matters and this investment.
(c) UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) the
highly speculative nature of the investment in the Shares; (ii) the financial
hazards involved; (iii) the lack of liquidity of the Shares and the
restrictions on transferability of the Shares (E.G., that Purchaser may not
be able to sell or dispose of the Shares or use them as collateral for
loans); (iv) the qualifications and backgrounds of the management of the
Company; and (v) the tax consequences of investment in the Shares.
(d) PURCHASER'S QUALIFICATIONS. Purchaser has a preexisting
personal or business relationship with the Company and/or certain of its
officers and/or directors of a nature and duration sufficient to make
Purchaser aware of the character, business acumen and general business and
financial circumstances of the Company and/or such officers and directors. By
reason of Purchaser's business or financial experience, Purchaser is capable
of evaluating the merits and risks of this investment, has the ability to
protect Purchaser's own interests in this transaction and is financially
capable of bearing a total loss of this investment.
(e) NO GENERAL SOLICITATION. At no time was Purchaser presented
with or solicited by any publicly issued or circulated newspaper, mail,
radio, television or other form of general advertising or solicitation in
connection with the offer, sale and purchase of the Shares.
(f) COMPLIANCE WITH SECURITIES LAWS. Purchaser understands and
acknowledges that, in reliance upon the representations and warranties made
by Purchaser herein, the Shares are not being registered with the Securities
and Exchange Commission ("SEC") under the 1933 Act or being qualified under
the California Corporate Securities Law of 1968, as amended (the "LAW"), but
instead are being issued under an exemption or exemptions from the
registration and qualification requirements of the 1933 Act and the Law which
impose certain restrictions on Purchaser's ability to transfer the Shares.
(g) RESTRICTIONS ON TRANSFER. Purchaser understands that Purchaser
may not transfer any Shares unless such Shares are registered under the 1933
Act or qualified under the Law or unless, in the opinion of counsel to the
Company, exemptions from such registration and qualification requirements are
available. Purchaser understands that only the Company may file a
registration statement with the SEC or the California Commissioner of
Corporations and that the Company is under no obligation to do so with
respect to the Shares. Purchaser has also been advised that exemptions from
registration and qualification may not be available or may not permit
Purchaser to transfer all or any of the Shares in the amounts or at the times
proposed by Purchaser.
(h) RULE 144. In addition, Purchaser has been advised that SEC
Rule 144 promulgated under the 1933 Act, which permits certain limited sales
of unregistered securities, is not presently available with respect to the
Shares and, in any event, requires that the Shares be
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held for a minimum of one year (decreasing to one year effective April 29,
1997), and in certain cases two years, after they have been purchased AND
PAID FOR (within the meaning of Rule 144), before they may be resold under
Rule 144.
4. COMPLIANCE WITH CALIFORNIA SECURITIES LAWS. THE SALE OF THE
SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT, IF NOT YET QUALIFIED WITH
THE CALIFORNIA COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH
QUALIFICATION, IS SUBJECT TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH
SECURITIES, AND THE RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR
TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE IS EXEMPT. THE RIGHTS OF
THE PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED OR AN EXEMPTION BEING AVAILABLE.
5. COMPANY'S REPURCHASE OPTION. The Company has the option to
repurchase all or a portion of the Unvested Shares (as defined below) on the
terms and conditions set forth in this Section (the "REPURCHASE OPTION") if
Purchaser ceases to be employed by the Company (as defined herein) for any
reason, or no reason, including without limitation Purchaser's death,
disability, voluntary resignation or termination by the Company with or
without cause.
(a) DEFINITION OF "EMPLOYED BY THE COMPANY"; "TERMINATION DATE".
For purposes of this Agreement, Purchaser will be considered to be "EMPLOYED
BY THE COMPANY" if the Board of Directors of the Company determines that
Purchaser is rendering substantial services as an officer, employee,
consultant or independent contractor to the Company or to any parent,
subsidiary or affiliate of the Company. In case of any dispute as to whether
Purchaser is employed by the Company, the Board of Directors of the Company
will have discretion to determine whether Purchaser has ceased to be employed
by the Company or any parent, subsidiary or affiliate of the Company and the
effective date on which Purchaser's employment terminated (the "TERMINATION
DATE").
(b) UNVESTED AND VESTED SHARES. Shares that are not Vested Shares
(as defined in this Section) are "UNVESTED SHARES". On the Effective Date all
Seventy Thousand (70,000) of the Shares will be Unvested Shares. If Purchaser
has been continuously employed by the Company at all times from the Effective
Date until July 8, 1998 (the "FIRST VESTING DATE"), then on the First Vesting
Date Twenty-Five percent (25%) of the Shares will become Vested Shares; and
thereafter, for so long (and only for so long) as Purchaser remains
continuously employed by the Company at all times after the First Vesting
Date, an additional 6.25% of the Shares will become Vested Shares upon the
expiration of each full calendar quarter elapsed after the First Vesting Date.
(c) ACCELERATION OF VESTING ON ACQUISITION. In the event of an
Acquisition (as defined in Section 20 below) if the services of Purchaser are
terminated by the Company or its successor (or any Parent or wholly-owned
Subsidiary of either) without Cause (as defined in Section 20 below) within
one year after the closing of such Acquisition, vesting of the Shares
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will accelerate in full, such that all of the Shares will become Vested
Shares upon the Termination Date. Notwithstanding the foregoing, if
accelerated vesting of any Shares would preclude accounting for the
Acquisition as a pooling of interests and such accounting treatment is relied
upon by the acquirer in the Acquisition, then vesting would not be
accelerated to the extent of such preclusion, and no Shares will become
Vested Shares after the Termination Date.
(d) ADJUSTMENTS. The number of Shares that are Vested Shares or
Unvested Shares will be proportionally adjusted to reflect any stock
dividend, stock split, reverse stock split or recapitalization of the common
stock of the Company occurring after the Effective Date.
(e) EXERCISE OF REPURCHASE OPTION AT ORIGINAL PRICE. At any time
within thirty (30) days after the Termination Date, the Company may elect to
repurchase any or all of the Unvested Shares by giving Purchaser written
notice of exercise of the Repurchase Option. The Company and/or its
assignee(s) will then have the option to repurchase from Purchaser (or from
Purchaser's personal representative as the case may be) any or all of the
Unvested Shares at the Purchaser's original Purchase Price Per Share (as
adjusted to reflect any stock dividend, stock split, reverse stock split or
recapitalization of the common stock of the Company occurring after the
Effective Date).
(f) PAYMENT OF REPURCHASE PRICE. The repurchase price payable to
purchase Unvested Shares upon exercise of the Repurchase Option will be
payable, at the option of the Company or its assignee(s), by check or by
cancellation of all or a portion of any outstanding indebtedness of Purchaser
to the Company (or to such assignee) or by any combination thereof. The
repurchase price will be paid without interest within sixty (60) days after
the Termination Date.
(g) RIGHT OF TERMINATION UNAFFECTED. Nothing in this Agreement
will be construed to limit or otherwise affect in any manner whatsoever the
right or power of the Company (or any parent, subsidiary or affiliate of the
Company) to terminate Purchaser's employment at any time for any reason or no
reason, with or without cause.
6. RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or
otherwise transferred by Purchaser without the Company's prior written
consent. Before any Vested Shares held by Purchaser or any transferee of such
Shares (either being sometimes referred to herein as the "HOLDER") may be
sold or otherwise transferred (including without limitation a transfer by
gift or operation of law), the Company and/or its assignee(s) will have a
right of first refusal to purchase the Shares to be sold or transferred (the
"OFFERED SHARES") on the terms and conditions set forth in this Section (the
"RIGHT OF FIRST REFUSAL").
(a) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares will
deliver to the Company a written notice (the "NOTICE") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer the Offered
Shares; (ii) the name of each proposed purchaser or other transferee
("PROPOSED TRANSFEREE"); (iii) the number of Offered Shares to be transferred
to each Proposed Transferee; (iv) the bona fide cash price or other
consideration for which the Holder proposes to transfer the Offered Shares
(the "OFFERED PRICE"); and (v) that the Holder will offer to
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sell the Offered Shares to the Company and/or its assignee(s) at the Offered
Price as provided in this Section.
(b) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty
(30) days after the date of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all (but not
less than all) of the Offered Shares proposed to be transferred to any one or
more of the Proposed Transferees named in the Notice, at the purchase price
determined in accordance with subsection (c) below.
(c) PURCHASE PRICE. The purchase price for the Offered Shares
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the value of the non-cash
consideration as determined in good faith by the Company's Board of Directors
will conclusively be deemed to be the cash equivalent value of such non-cash
consideration.
(d) PAYMENT. Payment of the purchase price for Offered Shares will
be payable, at the option of the Company and/or its assignee(s) (as
applicable), by check or by cancellation of all or a portion of any
outstanding indebtedness of the Holder to the Company (or to such assignee,
in the case of a purchase of Offered Shares by such assignee) or by any
combination thereof. The purchase price will be paid without interest within
sixty (60) days after the Company's receipt of the Notice, or, at the option
of the Company and/or its assignee(s), in the manner and at the time(s) set
forth in the Notice.
(e) HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares
proposed in the Notice to be transferred to a given Proposed Transferee are
not purchased by the Company and/or its assignee(s) as provided in this
Section, then the Holder may sell or otherwise transfer such Offered Shares
to that Proposed Transferee at the Offered Price or at a higher price,
PROVIDED that such sale or other transfer is consummated within 120 days
after the date of the Notice, and PROVIDED FURTHER, that: (i) any such sale
or other transfer is effected in compliance with all applicable securities
laws; and (ii) the Proposed Transferee agrees in writing that the provisions
of this Section will continue to apply to the Offered Shares in the hands of
such Proposed Transferee. If the Offered Shares described in the Notice are
not transferred to the Proposed Transferee within such 120 day period, then a
new Notice must be given to the Company, and the Company will again be
offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(f) EXEMPT TRANSFERS. Notwithstanding anything to the contrary in
this Section, the following transfers of Shares will be exempt from the Right
of First Refusal: (i) the transfer of any or all of the Shares during
Purchaser's lifetime by gift or on Purchaser's death by will or intestacy to
Purchaser's "immediate family" (as defined below) or to a trust for the
benefit of Purchaser or Purchaser's immediate family, provided that each
transferee or other recipient agrees in a writing satisfactory to the Company
that the provisions of this Section will continue to apply to the transferred
Shares in the hands of such transferee or other recipient; (ii) any transfer
of Shares made pursuant to a statutory merger or statutory consolidation of
the Company with or into another corporation or corporations (except that the
Right of First Refusal will
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continue to apply thereafter to such Shares, in which case the surviving
corporation of such merger or consolidation shall succeed to the rights or
the Company under this Section unless the agreement of merger or
consolidation expressly otherwise provides); or (iii) any transfer of Shares
pursuant to the winding up and dissolution of the Company. As used herein,
the term "IMMEDIATE FAMILY" will mean Purchaser's spouse, lineal descendant
or antecedent, father, mother, brother or sister, adopted child or
grandchild, or the spouse of any child, adopted child, grandchild or adopted
grandchild of Purchaser.
(g) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
Refusal will terminate as to all Shares on the effective date of the first
sale of common stock of the Company to the general public pursuant to a
registration statement filed with and declared effective by the SEC under the
1933 Act (other than a registration statement relating solely to the issuance
of common stock pursuant to a business combination or an employee incentive
or benefit plan).
(h) ENCUMBRANCES ON VESTED SHARES. Purchaser may grant a lien or
security interest in, or pledge, hypothecate or encumber Vested Shares only
if each party to whom such lien or security interest is granted, or to whom
such pledge, hypothecation or other encumbrance is made, agrees in a writing
satisfactory to the Company that: (i) such lien, security interest, pledge,
hypothecation or encumbrance will not apply to such Vested Shares after they
are acquired by the Company and/or its assignees) under this Section; and
(ii) the provisions of this Section will continue to apply to such Vested
Shares in the hands of such party and any transferee of such party. Purchaser
may not grant a lien or security interest in, or pledge, hypothecate or
encumber, any Unvested Shares.
7. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this
Agreement, Purchaser will have all of the rights of a shareholder of the
Company with respect to the Shares from and after the date that Purchaser
delivers payment of the Purchase Price until such time as Purchaser disposes
of the Shares or the Company and/or its assignee(s) exercise(s) the
Repurchase Option or Right of First Refusal. Upon an exercise of the
Repurchase Option or the Right of First Refusal, Purchaser will have no
further rights as a holder of the Shares so purchased upon such exercise,
except the right to receive payment for the Shares so purchased in accordance
with the provisions of this Agreement, and Purchaser will promptly surrender
the stock certificate(s) evidencing the Shares so purchased to the Company
for transfer or cancellation.
8. ESCROW. As security for Purchaser's faithful performance of this
Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s),
together with the Stock Powers executed by Purchaser and by Purchaser's
spouse, if any (with the date and number of Shares left blank), to the
Secretary of the Company or other designee of the Company ("ESCROW HOLDER"),
who is hereby appointed to hold such certificate(s) and Stock Powers in
escrow and to take all such actions and to effectuate all such transfers
and/or releases of such Shares as are in accordance with the terms of this
Agreement. Escrow Holder will act solely for the Company as its agent and not
as a fiduciary. Purchaser and the Company agree that Escrow Holder will not
be liable to any party to this Agreement (or to any other party) for any
actions or omissions unless Escrow Holder is grossly
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<PAGE>
negligent or intentionally fraudulent in carrying out the duties of Escrow
Holder under this Section. Escrow Holder may rely upon any letter, notice or
other document executed by any signature purported to be genuine and may rely
on the advice of counsel and obey any order of any court with respect to the
transactions contemplated by this Agreement. The Shares will be released from
escrow upon termination of both the Repurchase Option and the Right of First
Refusal.
9. TAX CONSEQUENCES. Purchaser hereby acknowledges that Purchaser has
been informed that, unless an election is filed by the Purchaser with the
Internal Revenue Service (and, if necessary, the proper state taxing
authorities), WITHIN 30 DAYS of the purchase of the Shares, electing pursuant
to Section 83(b) of the Internal Revenue Code (and similar state tax
provisions, if applicable) to be taxed currently on any difference between
the Purchase Price of the Shares and their fair market value on the date of
purchase, there will be a recognition of taxable income to the Purchaser,
measured by the excess, if any, of the fair market value of the Vested
Shares, at the time they cease to be Unvested Shares, over the purchase price
for such Shares. Purchaser represents that Purchaser has consulted any tax
consultant(s) Purchaser deems advisable in connection with Purchaser's
purchase of the Shares and the filing of the election under Section 83(b) and
similar tax provisions. A form of Election under Section 83(b) is attached
hereto as EXHIBIT 3 for reference. PURCHASER HEREBY ASSUMES ALL
RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM
SUCH ELECTION OR FOR FAILING TO FILE THE ELECTION AND PAYING TAXES RESULTING
FROM THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE UNVESTED SHARES.
10. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. Purchaser understands and agrees that the Company
will place the legends set forth below or similar legends on any stock
certificate(s) evidencing the Shares, together with any other legends that
may be required by state or federal securities laws, the Company's Articles
of Incorporation or Bylaws, any other agreement between Purchaser and the
Company or any agreement between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
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INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY
TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE
IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON PUBLIC RESALE, TRANSFER, RIGHT OF
REPURCHASE AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER
AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A FOUNDER'S RESTRICTED
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE
SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE
OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS AND
THE RIGHT OF REPURCHASE AND RIGHT OF FIRST REFUSAL ARE BINDING
ON TRANSFEREES OF THESE SHARES.
(b) STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, in order to
ensure compliance with the restrictions imposed by this Agreement, the
Company may issue appropriate "stop-transfer" instructions to its transfer
agent, if any, and if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company will not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares, or to accord the right to vote or pay dividends, to any
purchaser or other transferee to whom such Shares have been so transferred.
11. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any
registration of the Company's securities under the 1933 Act that, upon the
request of the Company or the underwriters managing any registered public
offering of the Company's securities, Purchaser will not sell or otherwise
dispose of any Shares without the prior written consent of the Company or
such managing underwriters, as the case may be, for a period of time not to
exceed 180 days after the effective date of such registration requested by
such managing underwriters and subject to all restrictions as the Company or
the managing underwriters may specify for employee-shareholders generally.
12. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of
the Shares will be subject to and conditioned upon compliance by the Company
and
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Purchaser with all applicable state and federal laws and regulations and with
all applicable requirements of any stock exchange or automated quotation
system on which the Company's common stock may be listed or quoted at the
time of such issuance or transfer.
13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement, including its rights to repurchase Shares under the
Repurchase Option and the Right of First Refusal. This Agreement will be
binding upon and inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer herein set forth, this
Agreement will be binding upon Purchaser and Purchaser's heirs, executors,
administrators, successors and assigns.
14. GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and
construed in accordance with the internal laws of the State of California,
excluding that body of laws pertaining to conflict of laws. If any provision
of this Agreement is determined by a court of law to be illegal or
unenforceable, then such provision will be enforced to the maximum extent
possible and the other provisions will remain fully effective and enforceable.
15. NOTICES. Any notice required or permitted hereunder will be given
in writing and will be deemed effectively given upon personal delivery, three
(3) days after deposit in the United States mail by certified or registered
mail (return receipt requested), one (1) business day after its deposit with
any return receipt express courier (prepaid), or one (1) business day after
transmission by telecopier, addressed to the other party at its address (or
facsimile number, in the case of transmission by telecopier) as shown below
its signature to this Agreement, or to such other address as such party may
designate in writing from time to time to the other party.
16. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
17. HEADINGS. The captions and headings of this Agreement are included
for ease of reference only and will be disregarded in interpreting or
construing this Agreement. All references herein to Sections will refer to
Sections of this Agreement.
18. ENTIRE AGREEMENT. This Agreement, together with all its Exhibits,
constitutes the entire agreement and understanding of the parties with
respect to the subject matter of this Agreement, and supersedes all prior
understandings and agreements, whether oral or written, between the parties
hereto with respect to the specific subject matter hereof.
19. TITLE TO SHARES. The exact spelling of the name(s) under which
Purchaser will take title to the Shares is:
-------------------------------------------------------------
-------------------------------------------------------------
Purchaser desires to take title to the Shares as follows:
[ ] Individual, as separate property
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[ ] Husband and wife, as community property
[ ] Joint Tenants
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<PAGE>
[ ] Alone or with spouse as trustee(s) of the following trust (including
date):
-------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
[ ] Other; please specify:
---------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
Purchaser's social security number is:
20. CERTAIN DEFINITIONS
20.1 "ACQUISITION" means:
(a) a merger or consolidation in which the Company is not the
surviving corporation (other than a merger or consolidation with a wholly
owned subsidiary, a reincorporation of the Company in a different
jurisdiction, or other transaction in which there is no substantial change in
the stockholders of the Company or their relative stock holdings);
(b) a merger in which the Company is the surviving corporation but
after which the stockholders of the Company (other than any stockholder which
merges (or which owns or controls another corporation which merges) with the
Company in such merger) cease to own at least 90% of the issued and
outstanding capital stock or other equity interests of the Company;
(C) the sale of all or substantially all of the assets of the
Company as a going concern in a single transaction or series of related
transactions; or
(d) the sale or transfer of a majority of the outstanding shares
of the Company by the stockholders of the Company in a single transaction or
a series of related transactions other than market transactions to unrelated
purchaser.
20.2 "CAUSE" for termination will exist at any time after the
happening of one or more of the following events:
(a) a failure or refusal to comply in any material respect with
the reasonable policies, standards or regulations of the Company;
(b) a failure or refusal in any material respect, faithfully or
diligently, to perform the duties previously set by the Company or the
customary duties of employment (whether due to ill health, disability or
otherwise);
(c) unprofessional, unethical or fraudulent conduct or conduct
that materially discredits the Company or is materially detrimental to the
reputation, character or standing of the Company;
(d) dishonest conduct or a deliberate attempt to do injury to the
Company;
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<PAGE>
(e) material breach of the terms of any invention assignment or
confidentiality agreement with the Company, including, without limitation,
theft or misappropriation of the Company's proprietary information;
(f) an unlawful or criminal act which would reflect badly on the
Company in the Company's reasonable judgment; or
(g) death.
The term "Company," as used in this paragraph, includes the Company and
any successor to the Company (and either of their Parents and wholly owned
Subsidiaries, if any).
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
in duplicate by its duly authorized representative and Purchaser has executed
this Agreement in duplicate, as of the Effective Date.
AIMQUEST CORPORATION PURCHASER
By:
---------------------------- ---------------------------------
Name: Hong Chen
-------------------------
Title: President Name: Stanley J. Meresman
------------------------- -------------------------
Address: 1381 McCarthy Blvd. Address: 2071 Huntington Lane
------------------------- -------------------------
Milpitas, CA 95051 Los Altos, CA 94024
------------------------- -------------------------
Fax: (408) 955-1968 Fax: ( )
------------------------- ---- ---------------------
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<TABLE>
<CAPTION>
LIST OF EXHIBITS
<S> <C>
Exhibit 1: Stock Power and Assignment Separate from Stock Certificate
Exhibit 2: Spousal Consent
Exhibit 3: Election Under Section 83(b) of the Internal Revenue Code
</TABLE>
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EXHIBIT 1
STOCK POWER AND ASSIGNMENT
SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock
Purchase Agreement dated as of July __, 1997, (the "AGREEMENT"), the
undersigned hereby sells, assigns and transfers unto _____________________,
__________ shares of the common stock of AimQuest Corporation, a California
corporation (the "COMPANY"), standing in the undersigned's name on the books
of the Company represented by Certificate No(s). ____ delivered herewith, and
does hereby irrevocably constitute and appoint the Secretary of the Company
as the undersigned's attorney-in-fact, with full power of substitution, to
transfer said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE
USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO.
Dated: ______________, 199__
PURCHASER
---------------------------------
(Signature)
Stanley J. Meresman
---------------------------------
(Please Print Name)
---------------------------------
(Spouse's Signature, if any)
---------------------------------
(Please Print Spouse's Name)
INSTRUCTION: Please do NOT fill in any blanks other than the signature line.
The purpose of this Stock Power and Assignment is to enable the Company
and/or its assignee(s) to acquire the shares upon exercise of its "Repurchase
Option" and/or "Right of First Refusal" set forth in the Agreement without
requiring additional signatures on the part of the Purchaser or Purchaser's
Spouse.
<PAGE>
EXHIBIT 2
CONSENT OF SPOUSE
I, the undersigned, am the spouse of Stanley J. Meresman
("PURCHASER"). I have read and hereby consent to and approve all the terms
and conditions of: the Restricted Stock Purchase Agreement (the "AGREEMENT")
dated July __, 1997 between Purchaser and AimQuest Corporation, a California
corporation (the "COMPANY"), pursuant to which Purchaser has purchased
Seventy Thousand (70,000) shares of the Company's Common Stock (the "SHARES").
In consideration of the Company granting my spouse the right to
purchase the Shares under the Agreement, I hereby agree to be irrevocably
bound by all the terms and conditions of the Agreement (including but not
limited to the Company's Repurchase Option, the Right of First Refusal and
the market standoff agreements contained therein) and further agree that any
community property interest I may have in the Shares will be similarly bound
by the Agreement.
I hereby appoint Purchaser as my attorney-in-fact, to act in my
name, place and stead with respect to any amendment of the Agreement and with
respect to the making and filing of an election under Internal Revenue Code
Section 83(b) in connection with the purchase of the Shares.
Dated: _____________, 1997
------------------------------
Signature of Spouse
------------------------------
Name of Spouse
<PAGE>
EXHIBIT 3
ELECTION UNDER SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in gross income for the Taxpayer's current
taxable year the excess, if any, of the fair market value of the property
described below at the time of transfer over the amount paid for such
property, as compensation for services.
1. TAXPAYER'S NAME: Stanley J. Meresman
-----------------------------------------------
TAXPAYER'S ADDRESS: 2071 Huntington Lane
-----------------------------------------------
Los Altos, CA 94024
-----------------------------------------------
SOCIAL SECURITY NUMBER:
-----------------------------------------------
2. The property with respect to which the election is made is described as
follows: Seventy Thousand (70,000) shares of Common Stock of AimQuest
Corporation, a California corporation (the "COMPANY"), which is Taxpayer's
employer or the corporation for whom the Taxpayer performs services.
3. The date on which the shares were transferred was July __, 1997 and this
election is made for calendar year 1997.
4. The shares are subject to the following restrictions: The Company may
repurchase all or a portion of the shares at the Taxpayer's original
purchase price under certain conditions at the time of Taxpayer's
termination of employment or services.
5. The fair market value of the shares (without regard to restrictions other
than restrictions which by their terms will never lapse) was $0.25 per
share at the time of transfer.
6. The amount paid for such shares was $0.25 per share.
7. The Taxpayer has submitted a copy of this statement to the Company.
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE
OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS
AFTER THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE
TAXPAYER'S INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE
REVOKED WITHOUT THE CONSENT OF THE IRS.
Dated: July __, 1997
<PAGE>
Taxpayer's Signature
<PAGE>
NEITHER THIS WARRANT NOR THE STOCK PURCHASABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION
OF SUCH SECURITIES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO; (ii) AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION,
(iii) AN OPINION OF COUNSEL FOR HOLDER, REASONABLY SATISFACTORY TO COMPANY, THAT
SUCH REGISTRATION IS NOT REQUIRED, (iv) RECEIPT OF A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION, OR (v) OTHERWISE COMPLYING WITH THE
PROVISIONS OF ARTICLE III OF THIS WARRANT. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AS HEREIN PROVIDED.
November 12, 1998
WARRANT TO PURCHASE COMMON STOCK
OF
GRIC COMMUNICATIONS, INC.
Void after November 11, 2003
GRIC Communications, Inc., a California corporation (the "COMPANY"),
with principal offices at 1421 McCarthy Blvd., Milpitas, CA 95035, hereby
acknowledges that America Online, Inc., a Delaware corporation ("AOL") or
registered assigns, is entitled, subject to the terms and conditions of this
Warrant, to purchase from the Company at any time after the above specified date
of this Warrant and prior to the Expiration Date (as defined below), up to
260,000 fully paid and non-assessable Warrant Shares (as hereinafter defined),
subject to adjustment of such number of shares pursuant to Article IV hereof, at
a price per share equal to the Warrant Price (as defined below), upon surrender
of this Warrant at the principal offices of the Company, together with a duly
executed subscription form in the form attached hereto as EXHIBIT 1 and
simultaneous payment of the full Warrant Price for each Warrant Share so
purchased in lawful money of the United States. The Warrant Price and the number
and character of Warrant Shares purchasable under this Warrant are subject to
adjustment as provided in Article IV herein.
This Warrant is issued pursuant to that certain Warrant Purchase Agreement
of even date herewith (the "PURCHASE AGREEMENT"), by and among the Company and
AOL.
ARTICLE I
DEFINITIONS
"ARTICLES OF INCORPORATION" means the Amended and Restated Articles of
Incorporation of Company, as filed with the California Secretary of State on
June 29, 1998.
1
<PAGE>
"COMMISSION" means the Securities and Exchange Commission, or any other
federal agency then administering the Exchange Act or the Securities Act, as
defined herein.
"COMMON STOCK" means Company's Common Stock, any stock into which such
stock shall have been changed or any stock resulting from any reclassification
of such stock, and any other capital stock of Company of any class or series now
or hereafter authorized having the right to share in distributions either of
earnings or assets of Company without limit as to amount or percentage.
"COMPANY" means GRIC COMMUNICATIONS, INC., a California corporation, and
any successor corporation.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"EXPIRATION DATE" means the earliest to occur of (i) the fifth anniversary
of the date first written above and (ii) the first anniversary of the date on
which the Roaming Services Agreement dated 6/11/98 between GRIC and AOL is
terminated.
"FAIR MARKET VALUE" means
(i) If shares of Common Stock are being sold pursuant to a
Registration and Fair Market Value is being determined as of the closing of the
public offering, the "price to public" specified for such shares in the final
prospectus for such public offering;
(ii) If shares of Common Stock are then listed or admitted to
trading on any national securities exchange or traded on any national market
system and Fair Market Value is not being determined as of the date described in
clause (i) of this definition, the average of the daily closing prices for the
ten (10) trading days before such date. The closing price for each day shall be
the last sale price on such date or, if no such sale takes place on such date,
the average of the closing bid and asked prices on such date, in each case as
officially reported on the principal national securities exchange or national
market system on which such shares are then listed, admitted to trading or
traded;
(iii) If no shares of Common Stock are then listed or admitted to
trading on any national securities exchange or traded on any national market
system or being offered to the public pursuant to a Registration, the average of
the reported closing bid and asked prices thereof on such date in the
over-the-counter market as shown by the National Association of Securities
Dealers automated quotation system or, if such shares are not then quoted in
such system, as published by the National Quotation Bureau, Incorporated or any
similar successor organization, and in either case as reported by any member
firm of the New York Stock Exchange selected in good faith by the Board of
Directors;
2
<PAGE>
(iv) If no shares of Common Stock are then listed or admitted to
trading on any national exchange or traded on any national market system, if no
closing bid and asked prices thereof are then so quoted or published in the
over-the-counter market and if no such shares are being offered to the public
pursuant to a Registration, the Fair Market Value of a share of Common Stock
shall be as determined in good faith by Company's Board of Directors after
taking into consideration all factors it deems appropriate, including, without
limitation, recent sale and offer prices of the capital stock of the Company in
a private transaction negotiated at arms-length.
"FISCAL YEAR" means the fiscal year of Company.
"HOLDER" means the person in whose name this Warrant is registered on the
books of Company maintained for such purpose.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, government entities and authorities and other organizations, whether or
not legal entities.
"PREFERRED STOCK" means the Preferred Stock of Company, as defined in the
Articles of Incorporation.
"PRINCIPAL EXECUTIVE OFFICE" means Company's office at 1421 McCarthy
Boulevard, Milpitas, California, 95035, or such other office as designated in
writing to Holder by Company.
"REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
"RIGHTS AGREEMENT" means the Third Amended and Restated Registration Rights
Agreement, dated as of December 24, 1997, as amended after December 24, 1997, by
and among Company and the shareholders of Company named therein, attached hereto
as EXHIBIT "D".
"RULE 144" means Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that the Commission may promulgate.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"SHAREHOLDER" means a holder of one or more Warrant Shares.
3
<PAGE>
"WARRANT" means this warrant and all warrants issued upon the partial
exercise, transfer or division of or in substitution for any Warrant.
"WARRANT PRICE" means a price per Warrant Share equal to the lower of (i)
the last price at which Series D Preferred Stock is issued by the Company or
(ii) $4.00 per share, subject to adjustment as provided in Article IV hereof.
"WARRANT SHARES" means the shares of Common Stock issuable upon the
exercise of this Warrant provided that if under the terms hereof there shall be
a change such that the securities purchasable hereunder shall be issued by an
entity other than Company or there shall be a change in the type or class of
securities purchasable hereunder, then the term shall mean the securities
issuable upon the exercise of the rights granted hereunder.
ARTICLE II
EXERCISE
2.1. EXERCISE RIGHT; MANNER OF EXERCISE. Holder may exercise this
Warrant, in whole or in part, at any time and from time to time on or prior to
the Expiration Date upon (i) surrender of this Warrant, together with an
executed Notice of Exercise, substantially in the form of EXHIBIT "A" attached
hereto, at the Principal Executive Office, and (ii) payment to Company of the
aggregate Warrant Price for the number of Warrant Shares specified in the Notice
of Exercise (such aggregate Warrant Price the "TOTAL WARRANT PRICE"). The Total
Warrant Price shall be paid in cash or by check. The issuance of Warrant
Shares upon exercise of this Warrant shall be made without charge to Holder for
any issuance tax with respect thereto or any other cost incurred by Company in
connection with the exercise of this Warrant and the related issuance of Warrant
Shares.
2.2. CONVERSION RIGHT. In lieu of exercising this Warrant as
specified in Section 2.1, Holder may from time to time convert this Warrant, in
whole or in part, into the number of Warrant Shares determined by dividing (a)
the aggregate Fair Market Value of the Warrant Shares issuable upon exercise of
this Warrant minus the Total Warrant Price of such Warrant Shares by (b) the
Fair Market Value of one Warrant Share. The Holder shall surrender this Warrant,
together with an executed Notice of Exercise, substantially in the form of
EXHIBIT "A" attached hereto, at the Principal Executive Office. In such event,
Holder will execute and deliver to Company the Investment Representation
Certificate attached as EXHIBIT "B." The issuance of Warrant Shares upon
exercise of this Warrant shall be made without charge to Holder for any issuance
tax with respect thereto or any other cost incurred by Company in connection
with the exercise of this Warrant and the related issuance of Warrant Shares.
2.3. DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, Company shall deliver to Holder certificates
for the Shares acquired and, if this Warrant has not been fully exercised or
converted and has not expired, a new Warrant representing the Shares not so
acquired.
4
<PAGE>
2.4. FRACTIONAL SHARES. Company shall not issue fractional shares
of Common Stock or scrip representing fractional shares of Common Stock upon any
exercise or conversion of this Warrant. As to any fractional share of Common
Stock which Holder would otherwise be entitled to purchase from Company upon
such exercise or conversion, Company shall purchase from Holder such fractional
share at a price equal to an amount calculated by multiplying such fractional
share (calculated to the nearest 1/100th of a share) by the Warrant Price of a
share of Common Stock on the date of the Notice of Exercise, as applicable, as
determined in good faith by Company's Board of Directors. Payment of such
amount shall be made in cash or by check payable to the order of Holder at the
time of delivery of any certificate or certificates arising upon such exercise
or conversion.
ARTICLE III
REGISTRATION, TRANSFER, EXCHANGE AND REPLACEMENT
3.1. MAINTENANCE OF REGISTRATION BOOKS. Company shall keep at the
Principal Executive Office a register in which, subject to such reasonable
regulations as it may prescribe, it shall provide for the registration, transfer
and exchange of this Warrant. Company and any Company agent may treat the
Person in whose name this Warrant is registered as the owner of this Warrant for
all purposes whatsoever and neither Company nor any Company agent shall be
affected by any notice to the contrary.
3.2. RESTRICTIONS ON TRANSFERS.
(a) COMPLIANCE WITH SECURITIES ACT. Holder, by acceptance
hereof, agrees: (i) that this Warrant and the Common Stock to be issued upon
exercise hereof are being acquired for investment, solely for Holder's own
account and not as a nominee for any other Person, (ii) that Holder is an
"Accredited Investor" as such term is defined in Rule 501 of the Securities Act,
and (iii) that Holder will not offer, sell or otherwise dispose of this Warrant
or any shares of Common Stock to be issued upon exercise hereof except under
circumstances which will not result in a violation of the Securities Act. Upon
exercise of this Warrant, Holder shall confirm in writing, by executing the form
attached as EXHIBIT "B" hereto, that the shares of Common Stock purchased upon
exercise hereof are being acquired for investment, solely for Holder's own
account and not as a nominee for any other Person, and not with a view toward
distribution or resale and that Holder is an Accredited Investor.
(b) CERTIFICATE LEGENDS. This Warrant, all shares of Common
Stock issued upon exercise of this Warrant (unless Registered under the
Securities Act) shall be stamped or imprinted with a legend in substantially the
following form (in addition to any legends required by applicable state
securities laws):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION
OF SUCH SECURITIES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATING
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THERETO, (ii) AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION, (iii) RECEIPT
OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION, OR (iv)
OTHERWISE COMPLYING WITH THE PROVISIONS OF ARTICLE III OF THE WARRANT
UNDER WHICH THIS SECURITY WAS ISSUED.
PROVIDED, HOWEVER, that such legend shall not be required if (i) in the
opinion of counsel registration of any future transfer is not required by the
applicable provisions of the Securities Act, (ii) the Company shall have waived
the requirements of such legends or (iii) the transfer of Warrant Shares shall
be made in compliance with the requirements of Rule 144(k).
(c) DISPOSITION OF WARRANT OR SHARES. With respect to any
offer, sale or other disposition of this Warrant, or of any shares of Common
Stock issued upon exercise of this Warrant prior to Registration of such shares,
Holder or the Shareholder, as the case may be, agrees to give written notice to
Company prior thereto, describing briefly the manner thereof, together with a
written opinion of Holder's or Shareholder's counsel, if reasonably requested by
Company, to the effect that such offer, sale or other disposition may be
effected without Registration under the Securities Act or qualification under
any applicable state securities laws of this Warrant or such shares, as the case
may be, and indicating whether or not under the Securities Act certificates for
this Warrant or such shares, as the case may be, to be sold or otherwise
disposed of require any restrictive legend as to applicable restrictions on
transferability in order to insure compliance with the Securities Act. Promptly
upon receiving such written notice and reasonably satisfactory opinion, if so
requested, Company, as promptly as practicable, shall notify Holder or the
Shareholder, as the case may be, that it may sell or otherwise dispose of this
Warrant or such shares, as the case may be, all in accordance with the terms of
the notice delivered to Company. If a determination has been made pursuant to
this subsection (c) that the opinion of counsel for Holder or the Shareholder,
as the case may be, is not reasonably satisfactory to Company, Company shall so
notify Holder or the Shareholder, as the case may be, promptly after such
determination has been made and shall specify the legal analysis supporting any
such conclusion. Notwithstanding the foregoing, the restrictions imposed by
Section 3.2(b) and (c) shall not apply if this Warrant or such shares, as the
case may be, may, in the opinion of counsel for Holder or the Shareholder, as
the case may be, reasonably satisfactory to Company, be offered, sold or
otherwise disposed of in accordance with Rule 144. Each certificate
representing this Warrant or the shares thus transferred (except a transfer
pursuant to Rule 144) shall bear a legend as to the applicable restrictions
on transferability in order to insure compliance with the Securities Act,
unless in the aforesaid reasonably satisfactory opinion of counsel for Holder
or the Shareholder, as the case may be, such legend is not necessary in order
to insure compliance with the Securities Act. Company may issue stop
transfer instructions to its transfer agent in connection with such
restrictions.
(d) WARRANT TRANSFER PROCEDURE; TRANSFER RESTRICTION.
Transfer of this Warrant to a third party, following compliance with the
preceding subsections of this Section 3.2, shall be effected by execution of the
Assignment Form attached hereto as EXHIBIT "C", and surrender for registration
of transfer of this Warrant at the Principal Executive Office, together
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with funds sufficient to pay any applicable transfer tax. Upon receipt of
the duly executed Assignment Form and the necessary transfer tax funds, if
any, Company, at its expense, shall execute and deliver, in the name of the
designated transferee or transferees, one or more new Warrants representing
the right to purchase a like aggregate number of shares of Common Stock.
NOTWITHSTANDING ANYTHING IN THIS WARRANT TO THE CONTRARY, NEITHER THIS
WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
MAY BE ASSIGNED OR TRANSFERRED TO ANY DIRECT COMPETITOR OF THE COMPANY UNLESS
THE COMPANY FIRST CONSENTS THERETO IN WRITING.
(e) TERMINATION OF RESTRICTIONS. The restrictions imposed
under this Section 3.2 upon the transferability of the Warrant and upon the
transferability of the shares of Common Stock acquired upon the exercise of this
Warrant (other than the restriction in the last sentence of Section 3.2(d))
shall cease when (i) a registration statement covering all shares of Common
Stock issued or issuable upon conversion of the Common Stock becomes effective
under the Securities Act, (ii) Company is presented with an opinion of counsel
reasonably satisfactory to Company that such restrictions are no longer required
in order to insure compliance with the Securities Act or with a Commission
"no-action" letter stating that future transfers of such securities by the
transferor or the contemplated transferee would be exempt from registration
under the Securities Act, or (iii) such securities may be transferred in
accordance with Rule 144(k). When such restrictions terminate, Company shall,
or shall instruct its transfer agent to, promptly, and without expense to Holder
or the Shareholder, as the case may be, issue new securities in the name of
Holder and/or the Shareholder, as the case may be, not bearing the legends
required under subsection (b) of this Section 3.2. In addition, new securities
shall be issued without such legends if such legends may be properly removed
under the terms of Rule 144(k).
3.3. EXCHANGE. At Holder's option, this Warrant may be exchanged
for other Warrants representing the right to purchase a like aggregate number of
shares of Common Stock upon surrender of this Warrant at the Principal Executive
Office. Whenever this Warrant is so surrendered to Company at the Principal
Executive Office for exchange, Company shall execute and deliver the Warrants
which Holder is entitled to receive. All Warrants issued upon any registration
of transfer or exchange of Warrants shall be the valid obligations of Company,
evidencing the same rights, and entitled to the same benefits, and subject to
the same restrictions, as the Warrants surrendered upon such registration of
transfer or exchange. No service charge shall be made for any exchange of this
Warrant.
3.4. REPLACEMENT. Upon receipt of evidence reasonably satisfactory
to Company of the loss, theft, destruction or mutilation of this Warrant and
(i) in the case of any such loss theft or destruction, upon delivery of
indemnity reasonably satisfactory to Company in form and amount, or (ii) in the
case of any such mutilation, upon surrender of such Warrant for cancellation at
the Principal Executive Office, Company, at its expense, shall execute and
deliver, in lieu thereof, a new Warrant.
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ARTICLE IV
ANTIDILUTION PROVISIONS
4.1. REORGANIZATION, RECLASSIFICATION OR RECAPITALIZATION OF
COMPANY. In case of (1) a capital reorganization, reclassification or
recapitalization of Company's capital stock (other than in the cases referred to
in of Section 4.3 hereof), (2) Company's consolidation or merger with or into
another corporation in which Company is not the surviving entity, or a reverse
triangular merger in which Company is the surviving entity but the shares of
Company's capital stock outstanding immediately prior to the merger are
converted, by virtue of the merger, into other property, whether in the form of
securities, cash or otherwise, or (3) the sale or transfer of Company's property
as an entirety or substantially as an entirety (collectively, a "Corporate
Transaction"), then, as part of such Corporate Transaction, lawful provision
shall be made so that there shall thereafter be deliverable upon the exercise of
this Warrant or any portion thereof (in lieu of or in addition to the number of
shares of Common Stock theretofore deliverable, as appropriate), and without
payment of any additional consideration, the number of shares of stock or other
securities or property to which the holder of the number of shares of Common
Stock which would otherwise have been deliverable upon the exercise of this
Warrant or any portion thereof at the time of such Corporate Transaction would
have been entitled to receive in such Corporate Transaction. This Section 4.1
shall apply to successive reorganizations, reclassifications, recapitalizations,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation that are at the time receivable upon the exercise of this
Warrant. If the per-share consideration payable to Holder for shares of Common
Stock in connection with any transaction described in this Section 4.1 is in a
form other than cash or marketable securities, then the value of such
consideration shall be determined in good faith by Company's Board of Directors.
4.2. SPLITS AND COMBINATIONS. If Company at any time subdivides any
of its outstanding shares of Common Stock into a greater number of shares, the
Warrant Price in effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely if the outstanding shares of Common
Stock are combined into a smaller number of shares, the Warrant Price in effect
immediately prior to such combination shall be proportionately increased. Upon
any adjustment of the Warrant Price under this Section 4.2, the number of shares
of Common Stock issuable upon exercise of this Warrant shall equal the number of
shares determined by dividing (i) the aggregate Warrant Price payable for the
purchase of all shares issuable upon exercise of this Warrant immediately prior
to such adjustment by (ii) the Warrant Price per share in effect immediately
after such adjustment.
4.3. RECLASSIFICATIONS. If Company changes any of the securities as
to which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Warrant Price
therefor shall be appropriately adjusted.
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No adjustment shall be made pursuant to this Section 4.4 upon any conversion
described in Section 4.1 hereof.
4.4. DIVIDENDS AND DISTRIBUTIONS. If Company declares a dividend or
other distribution on the Common Stock or if a dividend or other distribution on
the Common Stock occurs pursuant to the Articles of Incorporation (other than a
cash dividend or distribution), then, as part of such dividend or distribution,
lawful provision shall be made so that there shall thereafter be deliverable
upon the exercise of this Warrant or any portion thereof, in addition to the
number of shares of Common Stock receivable thereupon and without payment of any
additional consideration, the amount of the dividend or other distribution to
which the holder of the number of shares of Common Stock obtained upon exercise
hereof would have been entitled to receive had the exercise occurred as of the
record date for such dividend or distribution.
4.5. LIQUIDATION; DISSOLUTION. If Company shall dissolve, liquidate
or wind up its affairs, Holder shall have the right, but not the obligation, to
exercise this Warrant effective as of the date of such dissolution, liquidation
or winding up. If any such dissolution, liquidation or winding up results in
any cash distribution to Holder in excess of the aggregate Warrant Price for the
shares of Common Stock for which this Warrant is exercised, then Holder may, at
its option, exercise this Warrant without making payment of such aggregate
Warrant Price and, in such case, Company shall, upon distribution to Holder,
consider such aggregate Warrant Price to have been paid in full, and in making
such settlement to Holder, shall deduct an amount equal to such aggregate
Warrant Price from the amount payable to Holder.
4.6. WEIGHTED AVERAGE ANTIDILUTION ADJUSTMENT. If at any time or
from time to time after the date of this Warrant the Company issues or sells
"Additional Shares of Common Stock" for an Effective Price (as hereinafter
defined) that is less than the Warrant Price in effect immediately prior to such
issue or sale, then, and in each such case, the Warrant Price shall be reduced,
as of the close of business on the date of such issue or sale, by multiplying it
by a fraction (the "APPLICABLE FRACTION"):
(i) The numerator of which shall be the sum of (A) the number of
Common Stock Equivalents Outstanding (as hereinafter defined) immediately prior
to such issue or sale of additional shares of Common Stock or Common Stock
Equivalents plus (B) the quotient obtained by dividing the Aggregate
Consideration Received (as hereinafter defined) by the Company for the total
number of additional shares of Common Stock or Common Stock Equivalents so
issued or sold (or deemed so issued and sold) by the Warrant Price in effect
immediately prior to such issue or sale; and
(ii) The denominator of which shall be the sum of (A) the number of
Common Stock Equivalents Outstanding immediately prior to such issue or sale
plus (B) the number of additional shares of Common Stock or Common Stock
Equivalents so issued or sold (or deemed so issued and sold);
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and the total number of Warrant Shares shall be increased as of the close of
business on the date of such issue or sale, by multiplying it by a fraction
equal to the reciprocal of the Applicable Fraction.
(b) CERTAIN DEFINITIONS. For the purpose of making any
adjustment required under this Section 4.6:
(i) The "AGGREGATE CONSIDERATION RECEIVED" by the
Company for any issue or sale (or deemed issue or sale) of securities shall (A)
to the extent it consists of cash, be computed at the gross amount of cash
received by the Company before deduction of any underwriting or similar
commissions, compensation or concessions paid or allowed by the Company in
connection with such issue or sale and without deduction of any expenses payable
by the Company; (B) to the extent it consists of property other than cash, be
computed at the fair value of that property as determined in good faith by the
Board; and (C) if additional shares of Common Stock or Common Stock Equivalents
are issued or sold together with other stock or securities or other assets of
the Company for a consideration which covers both, be computed as the portion of
the consideration so received that may be reasonably determined in good faith by
the Board to be allocable to such additional shares of Common Stock or Common
Stock Equivalents. In the case of the issuance of (x) options to purchase or
rights to subscribe for Common Stock, (y) securities by their terms convertible
into or exchangeable for Common Stock or (z) options to purchase rights to
subscribe for such convertible or exchangeable securities:
a. the shares of Common Stock deliverable
upon exercise of such options to purchase or rights to subscribe for Common
Stock shall be deemed to have been issued at the time such options or rights
were issued and for a consideration equal to the consideration (determined in
the manner provided in subdivisions (A), (B) and (C) above), if any, received by
the Company upon the issuance of such options or rights plus the minimum
purchase price provided in such options or rights for the Common Stock covered
thereby;
b. the shares of Common Stock deliverable
upon conversion of or in exchange for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration received by the Company for any such securities and related
options or rights (excluding any cash received on account of accrued interest or
accrued dividends), plus the additional consideration, if any, to be received by
the Company upon the conversion or exchange of such securities or the exercise
of any related options or rights (the consideration in each case to be
determined in the manner provided in subdivisions (A), (B) and (C) above);
c. on any change in the exercise price of
Common Stock deliverable upon exercise of any such options or rights or
conversions of or exchanges for such securities, other than a change resulting
from the antidilution provisions thereof, the applicable Warrant Price shall
forthwith be readjusted to such Warrant Price as would have
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resulted had the adjustment made upon the issuance of such options, rights or
securities not converted prior to such change (or options or rights related
to such securities not converted prior to such change) been made upon the
basis of such change; PROVIDED, HOWEVER, that such readjustment shall not
result in a Warrant Price that is greater than the original Warrant Price; and
d. on the expiration of all such options or
rights, the termination of all such rights to convert or exchange or the
expiration of all options or rights related to such convertible or exchangeable
securities in each case having been issued by the Company for the same
consideration (as determined pursuant to subdivision (A), (B) and (C) above),
the applicable Warrant Price shall forthwith be readjusted to such Warrant Price
as would have resulted had the adjustment made upon the issuance of such
options, rights, securities or options or rights related to such securities not
been made.
(ii) "ADDITIONAL SHARES OF COMMON STOCK" shall mean
all Common Stock or Common Stock Equivalents issued by the Company otherwise
than (1) in connection with a Corporate Transaction of the Company as provided
in section 4.1; (2) in connection with splits or combinations as provided in
section 4.2; and (3) in connection with reclassifications as provided in section
4.3, (4) in connection with any liquidation or dissolution as provided in
section 4.5; (5) in connection with any acquisition of another corporation or
entity by the Company by consolidation, merger, purchase of all or substantially
all of the assets, or other reorganization in which the Company acquires, in a
single transaction or series of related transactions, all or substantially all
of the assets of such other corporation or entity or fifty percent (50%) or more
of the voting power of such other corporation or entity or fifty percent (50%)
or more of the equity ownership of such other entity; (6) to employees,
officers, consultants, or directors of the Company pursuant to employee benefit
plans, arrangements or agreements approved by the Board of Directors (whether by
issuance of shares or grant of options, warrants or rights therefor); or (7) to
banks or equipment lessors in connection with credit or equipment financing
arrangements (including by grant of warrants or issuance of stock upon exercise
thereof or upon conversion of stock issued upon exercise thereof) in each case
as approved by the Board of Directors; (8) Common Stock issued or issuable upon
conversion of shares of Preferred Stock from time to time outstanding (including
shares of Common Stock issued or issuable as a result of antidilution provisions
in the Company's Articles of Incorporation, as from time to time amended);
(iii) "COMMON STOCK EQUIVALENTS" shall mean shares of
shares of Common Stock, shares of Common Stock of the Company issuable upon
conversion of all shares of Preferred Stock or other Convertible Securities,
shares of Common Stock of the Company that are issuable upon the exercise of
Rights or Options.
(iv) "COMMON STOCK EQUIVALENTS OUTSTANDING" shall mean
the number of shares of Common Stock that is equal to the sum of (A) all shares
of Common Stock of the Company that are outstanding at the time in question,
plus (B) all shares of Common Stock of the Company issuable upon conversion of
all shares of Preferred Stock or other
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Convertible Securities that are outstanding at the time in question, plus (C)
all shares of Common Stock of the Company that are issuable upon the exercise
of Rights or Options that are outstanding at the time in question assuming
the full conversion or exchange into Common Stock of all such Rights or
Options that are Rights or Options to purchase or acquire Convertible
Securities into or for Common Stock.
(iv) "CONVERTIBLE SECURITIES" shall mean stock or
other securities convertible into or exchangeable for shares of Common Stock.
(v) The "EFFECTIVE PRICE" of any issuance of
additional shares of Preferred Stock shall mean the quotient determined by
dividing the total number of additional shares of Common Stock or Common Stock
Equivalents issued or sold by the Company under this Section 4.6, into the
Aggregate Consideration Received, or deemed to have been received, by the
Company under this Section 4.6, for the issue of such additional shares of
Common Stock or Common Stock Equivalents; and
(vi) "RIGHTS OR OPTIONS" shall mean warrants, options
or other rights to purchase or acquire shares of Common Stock or Convertible
Securities.
4.7. CERTIFICATES AND NOTICES.
(a) ADJUSTMENT CERTIFICATES. Upon any adjustment of the
Warrant Price and/or the number of shares of Common Stock purchasable upon
exercise of this Warrant, a certificate, signed by (i) Company's President and
Chief Financial Officer, or (ii) any independent firm of certified public
accountants of recognized national standing Company selects at its own expense,
setting forth in reasonable detail the events requiring the adjustment and the
method by which such adjustment was calculated, shall be mailed to Holder and
shall specify the adjusted Exercise Price and the number of shares of Common
Stock purchasable upon exercise of the Warrant after giving effect to the
adjustment.
(b) EXTRAORDINARY CORPORATE EVENTS. If Company, after the
date hereof, proposes to effect (i) any transaction described in Sections 4.1,
4.2 or 4.3 hereof, (ii) a liquidation, dissolution or winding up of Company
described in Section 4.5 hereof, or (iii) any payment of a dividend or
distribution with respect to Common Stock or Common Stock, then, in each such
case, Company shall mail to Holder a notice describing such proposed action and
specifying the date on which Company's books shall close, or a record shall be
taken, for determining the holders of Common Stock, as appropriate, entitled to
participate in such action, or the date on which such reorganization,
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution or winding up shall take place or commence, as the case may be, and
the date as of which it is expected that holders of Common Stock of record shall
be entitled to receive securities and/or other property deliverable upon such
action, if any such date is to be fixed. Such notice shall be mailed to Holder
at least fifteen (15) days prior to the record date for such action in the case
of any action described in clause (i) or clause (iii) above, and in the case of
any action described in clause (ii) above, at least fifteen (15) days prior to
the date on which
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the action described is to take place and at least fifteen (15) days prior to
the record date for determining holders of Common Stock entitled to receive
securities and/or other property in connection with such action.
4.8. NO IMPAIRMENT. Company shall not, by amendment of the Articles
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by Company, but shall at
all times in good faith assist in the carrying out of all the provisions of this
Article IV and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of Holder against impairment.
4.9. APPLICATION. Except as otherwise provided herein, all sections
of this Article IV are intended to operate independently of one another. If an
event occurs that requires the application of more than one section, all
applicable sections shall be given independent effect.
ARTICLE V
REGISTRATION RIGHTS
5.1 Concurrent with the execution and delivery of this Warrant,
Company shall use its best efforts to cause Holder, within 60 days of the date
of this Warrant, to become a party to the Rights Agreement and Holder shall be
deemed a 'Securityholder" and a "Holder", as defined in the Rights Agreement,
for purposes of the Rights Agreement and shall be entitled to all the rights,
and be subject to all the obligations, of a Holder under the Rights Agreement,
the Warrant Shares shall be deemed "Registrable Securities", as defined in the
Rights Agreement, for purposes of the Rights Agreement. Such actions shall be
effected by Company executing and delivering to Holder a fully-executed
Amendment to Rights Agreement substantially in the form of EXHIBIT "E" hereto
("AMENDMENT"). Other than as expressly set forth in the Rights Agreement, the
Company has not granted or promised to grant to any party any registration
rights on terms more favorable than those Holder will have under the Rights
Agreement by virtue of the Amendment.
ARTICLE VI
COVENANTS AND REPRESENTATION
6.1. FINANCIAL INFORMATION. Company shall deliver to Holder:
(a) As soon as practicable after the end of each fiscal
year, and in any event within ninety (90) days thereafter, consolidated balance
sheets of the Company and its subsidiaries, if any, as of the end of such fiscal
year, and consolidated statements of income and cash flows of the Company and
its subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles and setting forth in each case in comparative
form
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the figures for the previous fiscal year, all in reasonable detail and
certified by independent public accountants of national standing selected by
the Company; and
(b) As soon as practicable after the end of each calendar
quarter, and in any event within 45 days thereafter, consolidated balance sheets
of the Company and its subsidiaries, if any, as of the end of each calendar
quarter, and consolidated statements of income and cash flow for such period and
for the current fiscal year to date, together with a comparison of such
statements for the previous quarter and to the Company's operating plan then in
effect.
6.2 NON-FINANCIAL COVENANTS. Company covenants that:
(a) AUTHORIZED SHARES. Company will at all times have
authorized and reserved for the purpose of issue or transfer upon exercise of
the rights evidenced by this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant.
(b) PROPER ISSUANCE. Company, at its expense, will take all
such action as may be necessary to assure that the Common Stock issuable upon
the exercise of this Warrant may be so issued without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which any capital stock of Company may be listed. Such action may
include, but not be limited to, causing such shares to be duly registered or
approved or listed on relevant domestic securities exchanges; and
(c) FULLY PAID SHARES. Company will take all actions
necessary or appropriate to validly and legally issue fully paid and
non-assessable shares of Common Stock upon exercise of this Warrant. All such
shares will be free from all taxes, liens and charges with respect to the
issuance thereof, other than any stock transfer taxes in respect to any transfer
occurring contemporaneously with such issuance.
6.3 CAPITALIZATION REPRESENTATION. Attached as Annex "X" is a table
setting forth the capitalization of the Company as of September 30, 1998, as
defined therein.
ARTICLE VII
PARTICIPATION RIGHTS
7.1 GENERAL. Subject to the provisions of Section 7.5, AOL shall
have the participation right to purchase AOL's Pro Rata Share (as defined
below), of all (or any part) of any "New Securities" (as defined in Section 7.2)
that the Company may from time to time issue after the date of this Agreement.
AOL's "PRO RATA SHARE" for purposes of this participation right shall mean,
that percentage figure which, at the time of delivery by the Company of the
Purchase Notice (as hereinafter defined), expresses the ratio that (x) the
number of outstanding shares of
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Common Stock issued or issuable to AOL bears to (y) a number of shares of
Common Stock of the Company equal to the sum of (i) the total number of
shares of Common Stock of the Company then outstanding plus (ii) the total
number of shares of Common Stock of the Company into which all then
outstanding shares of Preferred Stock of the Company are then convertible
plus (iii) the number of shares of Common Stock of the Company then issuable
upon exercise of any then outstanding options and warrants or reserved for
future issuance or grants under stock purchase and stock option plans of the
Company.
7.2 NEW SECURITIES. "NEW SECURITIES" shall mean any Common Stock
or Preferred Stock of the Company, whether now authorized or not, and rights,
options or warrants to purchase such Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible or
exchangeable into such Common Stock or Preferred Stock; PROVIDED, HOWEVER, that
the term "New Securities" DOES NOT INCLUDE:
(i) shares of the Company's Common Stock (and/or options or
warrants therefor) issued to employees, officers, directors, contractors,
advisors or consultants (each an "EMPLOYEE PARTICIPANT") of the Company pursuant
to employee benefit plans, arrangements or agreements approved by the Board of
Directors of the Company.
(ii) any securities issuable upon conversion of or with
respect to any then outstanding shares of Preferred Stock;
(iii) any securities constituting or issuable upon exercise of
any options, warrants or rights to purchase any securities of the Company
outstanding on the date of this Agreement (as well as upon exercise of the
warrant to be granted to Silicon Valley Bank in November 1998) ("WARRANT
SECURITIES") and any securities issuable upon the conversion of any Warrant
Securities;
(iv) shares of the Company's Common Stock or Preferred Stock
issued in connection with any stock split or stock dividend;
(v) securities offered by the Company to the public pursuant
to a registration statement filed under the Securities Act;
(vi) shares of the Company's Common Stock or Preferred Stock
(and/or options or warrants therefor) issued or issuable after the date of this
Agreement to banks or equipment lessors pursuant to credit or equipment
financing arrangements (each a "SERVICE PROVIDER") in each case, approved by
the Company's Board of Directors. Each such issuance of Common Stock or
Preferred Stock to a Service Provider, excluding any Warrant Securities or
securities issuable upon conversion of Warrant Securities, shall be referred to
as an "EXCLUDED SERVICE PROVIDER ISSUANCE"; or
(vii) securities issued pursuant to the acquisition of another
corporation or entity by the Company by consolidation, merger, purchase of all
or substantially all of the assets, or other reorganization in which the Company
acquires, in a single transaction or series of
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related transactions, all or substantially all of the assets of such other
corporation or entity or fifty percent (50%) or more of the voting power of
such other corporation or entity or fifty percent (50%) or more of the equity
ownership of such other entity.
7.3 PROCEDURES. In the event that the Company proposes to
undertake an issuance of New Securities, it shall give to AOL written notice of
its intention to issue New Securities (the "NOTICE"), describing the type of New
Securities and the price and the general terms upon which the Company proposes
to issue such New Securities. AOL shall have thirty (30) days from the date
of mailing of any such Notice to deliver a written agreement to the Company to
purchase AOL's Pro Rata Share of such New Securities for the price and upon the
general terms specified in the Notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased (not to
exceed AOL's Pro Rata Share). If AOL fails to deliver such written agreement
to the Company within such thirty (30) day period to purchase AOL's full Pro
Rata Share of an offering of New Securities, then AOL shall forfeit the right
hereunder to purchase that part of AOL's Pro Rata Share of such New Securities
that AOL did not so agree to purchase. If AOL elects to participate, the sale of
New Securities shall be made on a business day, as designated by the Company.
7.4 FAILURE TO EXERCISE. In the event that AOL fails to exercise
in full the participation right within said thirty (30) day period, then the
Company shall have ninety (90) days thereafter to sell the New Securities with
respect to which AOL's rights of first refusal hereunder were not exercised, at
a price and upon general terms not materially more favorable to the purchasers
thereof than specified in the Company's Notice to AOL. In the event that the
Company has not issued and sold the New Securities within such ninety (90) day
period, then the Company shall not thereafter issue or sell any New Securities
without again first offering such New Securities to AOL pursuant to this Section
7.
7.5. AOL CATCH-UP RIGHTS.
(a) NO PRO-RATA SHARE OF NEW SECURITIES. Notwithstanding any
other provision of this Agreement, AOL shall not have any right to acquire any
of the New Securities issued in any Excluded Service Provider Issuance, but
AOL's rights to acquire additional securities as a result of such issuance
shall be governed exclusively by the provisions of this Section 7.5.
(b) CATCH-UP RIGHT IN NEXT ROUND FINANCINGS. AOL shall have
the participation right to purchase up to AOL's Catch-Up Share (as defined
below) of Securities Equivalents (as defined below) issued in a Next Round
Financing (as defined below), with respect to any Excluded Service Provider
Issuance which occurs after the date of this Agreement, as herein provided. As
used in this Section 7.5, the following terms have the following definitions:
(i) "AOL'S CATCH-UP SHARE" means, regardless of the
number
16
<PAGE>
of Next Round Financings involved, one but only one Common Stock Equivalent
for each Common Stock Equivalent of New Securities AOL would, but for the
prohibitions on acquisition of such New Securities in Section 7.5(a), have
had the right to acquire as AOL's Pro Rata Share of each Excluded Service
Provider Issuance under Section 7.1.
(ii) "SECURITIES EQUIVALENTS" means the number of
shares of Common Stock (A) actually issued in such issuance; plus (B) issuable
upon conversion of all shares of Preferred Stock or other Convertible Securities
so issued; plus (C) issuable upon the exercise of any options or warrants so
issued.
(iii) "NEXT ROUND FINANCING" means the sale by the
Company of Preferred Stock, any security initially convertible into Preferred
Stock, or any debt security convertible into either Preferred Stock or Common
Stock of the Company (but not of any other security of the Company) in one or a
series of related transactions occurring after the date of the Excluded Service
Provider Issuance.
(c) PROCEDURE. Subject to Section 7.5(d), if the Company
proposes to sell Preferred Stock in a Next Round Financing after the occurrence
of any Excluded Service Provider Issuance, it shall give to AOL written notice
(the "CATCH-UP NOTICE") of its intention to issue such Next Round Financing
securities, describing the price and the general terms upon which the Company
proposes to issue such Next Round Financing securities, at least thirty (30)
days before the anticipated initial closing of such sale. AOL shall have, in
addition to its rights under Section 7 as limited by Section 7.5(a), twenty (20)
days from the date of mailing of such Catch-Up Notice to deliver to the Company
a notice agreeing to purchase AOL's Catch-Up Share of such Next Round Financing
on such terms. If AOL fails to acquire any Catch-Up Shares in a Next Round
Financing which AOL then has the right to acquire in such financing pursuant to
this Section 7.5 then all Securities Equivalents which AOL had the right to
acquire but failed to acquire in such Next Round Financing shall be forfeited
and shall no longer be deemed Securities Equivalents subject to AOL's Catch-Up
Share under Section 7.5(b)(i) in any subsequent Next Round Financing.
7.6 TERMINATION. The participation rights in this Section 7 shall
terminate (i) immediately before the initial closing of the first underwritten
sale of Common Stock of the Company to the public pursuant to a registration
statement filed with, and declared effective by, the SEC under the Securities
Act, covering the offer and sale of Common Stock to the public; or (ii) upon
(A) the acquisition of all or substantially all the assets of the Company or (B)
an acquisition of the Company by another corporation or entity by consolidation,
merger or other reorganization in which the holders of the Company's outstanding
voting stock immediately prior to such transaction own, immediately after such
transaction, securities representing less than fifty percent (50%) or more of
the voting power of the corporation or other entity surviving such transaction
pursuant to this Section 7.
ARTICLE VIII
MISCELLANEOUS
17
<PAGE>
8.1. CERTAIN EXPENSES. Company shall pay all expenses in connection
with, and all taxes (other than stock transfer taxes) and other governmental
charges that may be imposed in respect of, the issuance, sale and delivery of
the Warrant and the Warrant Shares.
8.2. ENFORCEMENT COSTS. If any party to this Warrant seeks to
enforce its rights hereunder by legal proceedings or otherwise, then the
non-prevailing party shall pay all reasonable costs and expenses incurred by the
prevailing party, including, without limitation, all reasonable attorneys' fees.
8.3. NOTICES. Any notice, demand or delivery to be made pursuant to
this Warrant will be sufficiently given or made if sent by first class mail,
postage prepaid, addressed to (a) Holder and the Shareholders at their last
known addresses appearing on the books of Company maintained for such purpose or
(b) Company at its Principal Executive Office. Holder, the Shareholders and
Company may each designate a different address by notice to the other pursuant
to this section. A notice shall be deemed effective upon the earlier of (i)
receipt or (ii) the third day after mailing in accordance with the terms of this
Section 8.3.
8.4. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon
Company and any Person succeeding Company by merger, consolidation or
acquisition of all or substantially all of Company's assets, and all of the
obligations of Company with respect to the shares of Common Stock issuable upon
exercise of this Warrant, shall survive the exercise, expiration or termination
of this Warrant and all of the covenants and agreements of Company shall inure
to the benefit of Holder, each Shareholder and their respective permitted
successors and assigns.
8.5. MODIFICATION; SEVERABILITY. If, in any action before any court
or agency legally empowered to enforce any term, any term is found to be
unenforceable, then such term shall be deemed modified to the extent necessary
to make it enforceable by such court or agency. If any term is not curable as
set forth in this section, the unenforceability of such term shall not affect
the other provisions of this Warrant but this Warrant shall be construed as if
such unenforceable term had never been contained herein.
8.6. AMENDMENT. This Warrant may not be modified or amended except
by written agreement of Company and Holder.
8.7. HEADINGS. The headings of the Articles and Sections of this
Warrant are for the convenience of reference only and shall not, for any
purpose, be deemed a part of this Warrant.
8.8. GOVERNING LAW. This Warrant shall be governed by, and
construed in accordance with, the laws of the State of California, without
giving effect to conflicts of law principles.
18
<PAGE>
IN WITNESS WHEREOF, Company has caused this Warrant to be executed by its
duly authorized officer as of the date first set forth above and AOL accepts the
terms of this Warrant.
GRIC COMMUNICATIONS, INC. ACCEPTED BY HOLDER:
America Online, Inc.
Name of Holder:
------------------------
By: By:
----------------------------- ------------------------------------
Name: Name:
--------------------------- ----------------------------------
Title: Title:
-------------------------- ---------------------------------
[SIGNATURE PAGE TO WARRANT]
19
<PAGE>
SCHEDULE OF EXHIBITS
EXHIBIT "A" - Notice of Exercise (Section 2.1)
EXHIBIT "B" - Investment Representation Certificate (Section 3.2(a))
EXHIBIT "C" - Assignment Form (Section 3.2(d))
EXHIBIT "D" - Rights Agreement (Article I)
EXHIBIT "E" - Amendment to Rights Agreement (Article V)
<PAGE>
EXHIBIT "A"
NOTICE OF EXERCISE FORM
(To be executed only upon partial or full
exercise of the within Warrant)
To: GRIC Communications, Inc.
(1) The undersigned Holder hereby elects to purchase shares of
Common Stock of GRIC Communications, Inc. (the "WARRANT STOCK"), pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price for such shares in full.
{(1) NET ISSUE ELECTION. The undersigned Holder elects to convert the
Warrant into such shares of Warrant Stock by net issue election pursuant to
Section 2.1 of the Warrant. This conversion is exercised with respect to
shares of Common Stock of GRIC Communications, Inc. (the "WARRANT STOCK")
covered by the Warrant.
[STRIKE PARAGRAPH ABOVE THAT DOES NOT APPLY]}
(2) In exercising the Warrant, the undersigned Holder hereby confirms and
acknowledges that the representations and warranties set forth in Exhibit B to
the Warrant as they apply to the undersigned Holder are true and correct as of
this date.
(3) Please issue a certificate or certificates representing such shares of
Warrant Stock in the name or names specified below:
- ----------------------------------- -----------------------------------
(Name) (Name)
- ----------------------------------- -----------------------------------
(Address) (Address)
- ----------------------------------- -----------------------------------
(City, State, Zip Code) (City, State, Zip Code)
- ----------------------------------- -----------------------------------
(Federal Tax Identification Number) (Federal Tax Identification Number)
- ----------------------------------- -----------------------------------
(Date) (Signature of Holder)
NOTICE: The signature to this Notice of Exercise must correspond with the name
as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatever. The
signature to this Notice of Exercise
<PAGE>
must be guaranteed by a commercial bank or trust company in the
United States or a member firm of the New York Stock Exchange.
<PAGE>
EXHIBIT "B"
INVESTMENT REPRESENTATION CERTIFICATE
Purchaser:
Company: GRIC COMMUNICATIONS, INC.
Security: Warrants to purchase Common Stock and/or Common Stock
Amount:
Date:
In connection with the purchase of the above-listed securities (the
"SECURITIES"), the undersigned (the "PURCHASER") represents to Company as
follows:
The Purchaser is aware of Company's business affairs and financial condition,
and has acquired sufficient information about Company to reach an informed and
knowledgeable decision to acquire the Securities. The Purchaser is purchasing
the Securities for its own account for investment purposes only and not with a
view to, or for the resale in connection with, any "distribution" thereof for
purposes of the Securities Act of 1933, as amended (the "SECURITIES ACT");
The Purchaser understands that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefor, which exemption
depends upon, among other things, the bona fide nature of the Purchaser's
investment intent as expressed herein. In this connection, the Purchaser
understands that, in the view of the Securities and Exchange Commission ("SEC"),
the statutory basis for such exemption may be unavailable if the Purchaser's
representation was predicated solely upon a present intention to hold these
Securities for the minimum capital gains period specified under tax statutes,
for a deferred sale, for or until an increase or decrease in the market price of
the Securities, or for a period of one year or any other fixed period in the
future;
The Purchaser further understands that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, the Purchaser understands
that Company is under no obligation to register the Securities. In addition,
the Purchaser understands that the certificate evidencing the Securities will be
imprinted with the legend referred to in the Warrant under which the Securities
are being purchased;
1
<PAGE>
The Purchaser is aware of the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permit limited public resale of "restricted
securities" acquired, directly or indirectly, from the issuer thereof (or from
an affiliate of such issuer), in a non-public offering subject to the
satisfaction of certain conditions, if applicable, including, among other
things: (i) the availability of certain public information about Company; (ii)
the resale occurring not less than one (1) year after the party has purchased
and paid for the securities to be sold; (iii) the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934) and the amount of securities being sold during any three-month period not
exceeding the specified limitations stated therein;
The Purchaser further understands that at the time it wishes to sell the
Securities there may be no public market upon which to make such a sale, and
that, even if such a public market upon which to make such a sale then exists,
Company may not be satisfying the current public information requirements of
Rule 144, and that, in such event, the Purchaser may be precluded from selling
the Securities under Rule 144 even if the one (1) year minimum holding period
had been satisfied; and
The Purchaser further understands that in the event all of the requirements of
Rule 144 are not satisfied, registration under the Securities Act, compliance
with Regulation A, or some other registration exemption will be required; and
that, notwithstanding the fact that Rule 144 is not exclusive, the staff of the
SEC has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
2
<PAGE>
The Purchaser represents that it is an "Accredited Investor" as such term is
defined in Rule 501 of the Securities Act.
Date: _________________, ______
PURCHASER:
______________________
3
<PAGE>
EXHIBIT "C"
ASSIGNMENT FORM
(To be executed only upon the assignment of
the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the within
Warrant hereby sells, assigns and transfers unto ____________________________,
whose address is _____________________________________________ all of the
rights of the undersigned under the within Warrant, with respect to shares of
Common Stock of GRIC COMMUNICATIONS, INC. and, if such shares of Common Stock
shall not include all the shares of Common Stock issuable as provided in the
within Warrant, that a new Warrant of like tenor for the number of shares of
Common Stock of GRIC COMMUNICATIONS, INC. not being transferred hereunder be
issued in the name of and delivered to the undersigned, and does hereby
irrevocably constitute and appoint ______________________________________
attorney to register such transfer on the books of GRIC COMMUNICATIONS, INC.
maintained for the purpose, with full power of substitution in the premises.
Dated: _____________________, ______
Signature Guaranteed
----------------------------
By:
--------------------------------
(Signature of Registered Holder)
Title:
---------------------------------
NOTICE: The signature to this Assignment must correspond with the name upon
the face of the within Warrant in every particular, without alteration
or enlargement or any change whatever. The signature to this Notice
of Assignment must be guaranteed by a commercial bank or trust company
in the United States or a member firm of the New York Stock Exchange.
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: GRIC Communications, Inc., a California corporation
Number of Shares: 20,000 (subject to the provisions set forth below)
Class of Stock: Series D Preferred private placement.
Initial Exercise Price: The price given at the Series D private placement
financing.
Issue Date: December 31, 1998
Expiration Date: December 31, 2003
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
series of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the
provisions and upon the terms and conditions set forth in this Warrant.
For purposes of determining the foregoing, Holder shall be entitled to
purchase 20,000 Shares upon the execution of this Warrant. Notwithstanding
the foregoing or anything to the contrary provided herein, in the event the
Company closes its Series D private placement financing on or before
March 20, 1999, Holder shall only be entitled to purchase 5,000 Shares under
this Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder
is exercising the conversion right set forth in Section 1.2, Holder shall
also deliver to the Company a check for the aggregate Warrant Price for the
Shares being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this Warrant,
in whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise
issuable upon exercise of this Warrant minus the aggregate Warrant Price of
such Shares by (b) the fair market value of one Share. The fair market value
of the Shares shall be determined pursuant to Section 1.4.
1.3 INTENTIONALLY OMITTED
1.4 FAIR MARKET VALUE. If the Shares are traded in a public
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not traded in a
public market, the Board of Directors of the Company shall determine fair
market value in its reasonable good faith judgment.
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after
Holder exercises or converts this Warrant, the Company shall deliver to
Holder certificates for the Shares acquired and, if this Warrant has not been
fully exercised or converted and has not expired, a new Warrant representing
the Shares not so acquired.
1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of
an indemnity agreement reasonably satisfactory in form and amount to the
Company or, in the case of
<PAGE>
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense shall execute and deliver, in lieu of this Warrant, a new warrant of
like tenor.
1.7 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
1.7.1. "ACQUISITION". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
In the event of an Acquisition, as part of such Acquisition lawful provision
shall be made so that there shall thereafter be deliverable upon the exercise
of this Warrant or any portion thereof (in lieu of or in addition to the
number of Shares theretofore deliverable, as appropriate), and without
payment of any additional consideration, the number of shares of stock or
other securities or property to which the holder of the number of Shares
which would otherwise have been deliverable upon the exercise of this Warrant
or any portion thereof at the time of such Acquisition would have been
entitled to receive in such Acquisition. This Section 1.7 shall apply to
successive Acquisitions and to the stock or securities of any other
corporation that are at the time receivable upon the exercise of this
Warrant. If the per-share consideration payable to Holder for Shares in
connection with any transaction described in this Section 1.7 is in a form
other than cash or marketable securities, then the value of such
consideration shall be determined in good faith by Company's Board of
Directors.
1.7.2. ASSUMPTION OF WARRANT. Upon the closing of any
Acquisition the successor entity shall assume the obligations of this Warrant.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or
pays a dividend on its common stock (or the Shares if the Shares are
securities other than common stock) payable in common stock, or other
securities, subdivides the outstanding common stock into a greater amount of
common stock, or, if the Shares are securities other than common stock,
subdivides the Shares in a transaction that increases the amount of common
stock into which the Shares are convertible, then upon exercise of this
Warrant, for each Share acquired, Holder shall receive, without cost to
Holder, the total number and kind of securities to which Holder would have
been entitled had Holder owned the Shares of record as of the date the
dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon
exercise or conversion of this Warrant, the number and kind of securities and
property that Holder would have received for the Shares if this Warrant had
been exercised immediately before such reclassification, exchange,
substitution, or other event. Such an event shall include any automatic
conversion of the outstanding or issuable securities of the Company of the
same class or series as the Shares to common stock pursuant to the terms of
the Company's Articles of Incorporation upon the closing of a registered
public offering of the Company's common stock. The Company or its successor
shall promptly issue to Holder a new Warrant for such new securities or other
property. The new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in
this Article 2 including, without limitation, adjustments to the Warrant
Price and to the number of securities or property issuable upon exercise of
the new Warrant. The provisions of this Section 2.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding
Shares are combined or consolidated, by reclassification or otherwise, into a
lesser number of shares, the Warrant Price shall be proportionately increased.
2.4 WEIGHTED AVERAGE ANTIDILUTION ADJUSTMENT. If at any time or
from time to time after the date of this Warrant the Company issues or sells
additional shares of Preferred Stock (as defined in the Company's Articles of
Incorporation) otherwise than (1) in connection with an Acquisition as
provided in Section 1.7; (2) splits or combinations as provided in section
2.1; and (3) reclassifications as provided in section 2.2 or (4) any
liquidation or dissolution for an effective price (as hereinafter defined)
that is less than Warrant Price in effect immediately
<PAGE>
prior to such issue or sale, then, and in each such case, the Warrant Price
shall be reduced, as of the close of business on the date of such issue or
sale, by multiplying it by a fraction (the "APPLICABLE FRACTION"):
(i) The numerator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding (as hereinafter defined)
immediately prior to such issue or sale of additional shares of Preferred
Stock plus (B) the quotient obtained by dividing the Aggregate Consideration
Received (as hereinafter defined) by the Company for the total number of
additional shares of Preferred Stock so issued or sold (or deemed so issued
and sold) by the Warrant Price in effect immediately prior to such issue or
sale; and
(ii) The denominator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding immediately prior to such
issue or sale plus (B) the number of additional shares of Preferred Stock so
issued or sold (or deemed so issued and sold);
and the total number of Warrant Shares shall be increased as of the close of
business on the date of such issue or sale, by multiplying it by a fraction
equal to the reciprocal of the Applicable Fraction.
(b) CERTAIN DEFINITIONS. For the purpose of making
any adjustment required under this Section 2.4:
(i) The "AGGREGATE CONSIDERATION RECEIVED" by
the Company for any issue or sale (or deemed issue or sale) of securities
shall (A) to the extent it consists of cash, be computed at the gross amount
of cash received by the Company before deduction of any underwriting or
similar commissions, compensation or concessions paid or allowed by the
Company in connection with such issue or sale and without deduction of any
expenses payable by the Company; (B) to the extent it consists of property
other than cash, be computed at the fair value of that property as determined
in good faith by the Board; and (C) if additional shares of Preferred Stock
are issued or sold together with other stock or securities or other assets of
the Company for a consideration which covers both, be computed as the portion
of the consideration so received that may be reasonably determined in good
faith by the Board to be allocable to such additional shares of Preferred
Stock.
(iii) "COMMON STOCK EQUIVALENTS OUTSTANDING"
shall mean the number of shares of Common Stock that is equal to the sum of
(A) all shares of Common Stock of the Company that are outstanding at the
time in question, plus (B) all shares of Common Stock of the Company issuable
upon conversion of all shares of Preferred Stock or other Convertible
Securities that are outstanding at the time in question, plus (C) all shares
of Common Stock of the Company that are issuable upon the exercise of Rights
or Options that are outstanding at the time in question assuming the full
conversion or exchange into Common Stock of all such Rights or Options that
are Rights or Options to purchase or acquire Convertible Securities into or
for Common Stock.
(iv) "CONVERTIBLE SECURITIES" shall mean stock
or other securities convertible into or exchangeable for shares of Common
Stock.
(v) The "EFFECTIVE PRICE" of any issuance of
additional shares of Preferred Stock shall mean the quotient determined by
dividing the total number of additional shares of Preferred Stock issued or
sold by the Company under this Section 2.4, into the Aggregate Consideration
Received, or deemed to have been received, by the Company under this
Section 2.4, for the issue of such additional shares of Preferred Stock; and
(vi) "RIGHTS OR OPTIONS" shall mean warrants,
options or other rights to purchase or acquire shares of Common Stock or
Convertible Securities.
<PAGE>
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its
Articles of Incorporation or through a 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 under this Warrant by the Company,
but shall at all times in good faith assist in carrying out of all the
provisions of this Article 2 and in taking all such action as may be
necessary or appropriate to protect Holder's rights under this Article
against impairment. If the Company takes any action affecting the Shares or
its common stock other than as described above that adversely affects
Holder's rights under this Warrant, the Warrant Price shall be adjusted
downward and the number of Shares issuable upon exercise of this Warrant
shall be adjusted upward in such a manner that the aggregate Warrant Price of
this Warrant is unchanged.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable
upon exercise or conversion of the Warrant and the number of Shares to be
issued shall be rounded down to the nearest whole Share. If a fractional
share interest arises upon any exercise or conversion of the Warrant, the
Company shall eliminate such fractional share interest by paying Holder
amount computed by multiplying the fractional interest by the fair market
value of a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial
Officer setting forth such adjustment and the facts upon which such
adjustment is based. The Company shall, upon written request, furnish Holder
a certificate setting forth the Warrant Price in effect upon the date thereof
and the series of adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first
page of this Warrant is not greater than (i) the price per share at which the
Shares were last issued in an arms-length transaction in which at least
$500,000 of the Shares were sold and (ii) the fair market value of the Shares
as of the date of this Warrant.
(b) All Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any
liens and encumbrances except for restrictions on transfer provided for
herein or under applicable federal and state securities laws.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any
time (a) to declare any dividend or distribution upon its common stock,
whether in cash, property, stock, or other securities and whether or not a
regular cash dividend; (b) 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; (c) to effect any reclassification or
recapitalization of common stock; (d) to merge or consolidate with or into
any other corporation, or sell, lease, license, or convey all or
substantially all of its assets, or to liquidate, dissolve or wind up; or
(e) offer holders of registration rights the opportunity to participate in an
underwritten public offering of the company's securities for cash, then, in
connection with each such event, the Company shall give Holder (1) at least
20 days prior written notice of the date on which a record will be taken for
such dividend, distribution, or subscription rights (and specifying the date
on which the holders of common stock will be entitled thereto) or for
determining rights to vote, if any, in respect of the matters referred to in
(c) and (d) above; (2) in the case of the matters referred to in (c) and (d)
above at least 20 days prior written notice of the date when the same will
take place (and specifying the date on which the holders of common stock will
be entitled to exchange their common stock for securities or other property
deliverable upon the occurrence of such event); and (3) in the case of the
matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this
Warrant and/or any of the Shares, the Company shall deliver to the Holder (a)
promptly after mailing, copies of all notices or other written communications
to the shareholders of the Company, (b) within ninety (90) days after the
end of each fiscal year of the Company, the annual audited financial
statements of the Company certified by independent public accountants of
recognized standing and (c) such other financial statements required under
and in accordance with any loan
<PAGE>
documents between Holder and the Company (or if there are no such
requirements [or if the subject loan(s) no longer are outstanding]), then
within forty-five (45) days after the end of each of the first three quarters
of each fiscal year, the Company's quarterly, unaudited financial statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. Within
sixty (60) days after the execution and delivery of this Warrant, Company
shall use its best efforts to cause Holder to become a party to the Third
Amended and Restated Registration Rights Agreement, dated as of December 24,
1997, as amended after December 24, 1997, by and among Company and the
shareholders of Company named therein, attached hereto as EXHIBIT "A".
("Rights Agreement") and Holder shall be deemed a "Securityholder" and a
"Holder", as defined in the Rights Agreement, for purposes of the Rights
Agreement and shall be entitled to all the rights, and be subject to all the
obligations, of a Holder under the Rights Agreement, the Shares shall be
deemed "Series D Preferred Stock", as defined in the Rights Agreement, and
the Common Stock issuable upon conversion of the Shares shall be deemed
"Registrable Securities", as defined in the Rights Agreement, for purposes of
the Rights Agreement. Such actions shall be effected by Company executing and
delivering to Holder a fully-executed Amendment to Rights Agreement
substantially in the form of EXHIBIT "B" hereto.
ARTICLE 4. MISCELLANEOUS.
4.1 TERM; NOTICE OF EXPIRATION. This Warrant is exercisable, in
whole or in part, at any time and from time to time on or before the
Expiration Date set forth above.
4.2 LEGENDS. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any)
shall be imprinted with a legend in substantially the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION OF
SUCH SECURITIES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO, (ii) AN OPINION OF COUNSEL FOR HOLDER,
REASONABLY SATISFACTORY TO COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF
ARTICLE 4 OF THE WARRANT UNDER WHICH THIS SECURITY WAS ISSUED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant
and the Shares issuable upon exercise this Warrant (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) may
not be transferred or assigned in whole or in part without compliance with
applicable federal and state securities laws by the transferor and the
transferee (including, without limitation, the delivery of investment
representation letters and legal opinions reasonable satisfactory to the
Company, as reasonably requested by the Company). The Company shall not
require Holder to provide an opinion of counsel if the transfer is to an
affiliate of Holder or if there is no material question as to the
availability of current information as referenced in Rule 144(c), Holder
represents that it has complied with Rule 144(d) and (e) in reasonable
detail, the selling broker represents that it has complied with Rule 144(f),
and the Company is provided with a copy of Holder's notice of proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section
4.3 Holder may transfer all or part of this Warrant or the Shares issuable
upon exercise of this Warrant (or the securities issuable, directly or
indirectly, upon conversion of the Shares, if any) at any time to Silicon
Valley Bancshares or The Silicon Valley Bank Foundation, or, to any other
transferee by giving the Company notice of the portion of the Warrant being
transferred setting forth the name, address and taxpayer identification
number of the transferee and surrendering this Warrant to the Company for
reissuance to the transferee(s) (and Holder if applicable). Unless the
Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse
to transfer any portion of this Warrant (and in such event Holder shall not
transfer the Shares issuable upon exercise of this Warrant) to any person who
directly competes with the Company.
4.5 NOTICES. All notices and other communications from the
Company to the Holder, or vice versa, shall be deemed delivered and effective
when given personally or mailed by first-class registered or certified
<PAGE>
mail, postage prepaid, at such address as may have been furnished to the
Company or the Holder, as the case may be, in writing by the Company or such
holder from time to time.
4.6 WAIVER. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by
the party against which enforcement of such change, waiver, discharge or
termination is sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the
parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other party
all costs incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of California, without
giving effect to its principles regarding conflicts of law.
"COMPANY"
GRIC Communications, Inc.
By: /s/ John Jacquay
----------------------------------
Name: John Jacquay, President and COO
--------------------------------
(Print)
Chairman of the Board, President or Vice
President
By: /s/ David L. Teichmann
Vice President, General Counsel
and Secretary
GRIC Communications, Inc.
----------------------------------
Name: David L. Teichmann
--------------------------------
(Print)
Chief Financial Officer, Secretary,
Assistant Treasurer or Assistant Secretary
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase __________ shares of
the Common/Preferred Series _____ [Strike one] Stock of GRIC Communications,
Inc. pursuant to the terms of the attached Warrant, and tenders herewith
payment of the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant
into Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to ________________________ of the
Shares covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name as is specified
below:
(Name)
--------------------------------------
--------------------------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for
its own account and not as a nominee for any other party and not with a view
toward the resale or distribution thereof except in compliance with
applicable securities laws.
(Signature)
(Date)
<PAGE>
EXHIBIT A
Third Amended and Restated Registration Rights Agreement
[Copy Attached]
<PAGE>
EXHIBIT B
Amendment No. 2 to Third Amended and Restated Registration Rights Agreement
<PAGE>
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: GRIC Communications, Inc.
LOAN OFFICER: Paul Kao
DATE: January 28, 1999
Loan Fee $2,500.00
TOTAL FEE DUE $2,500.00
------------- ---------
---------
( ) A check for the total amount is attached.
(X) Debit DDA #3300024990 for the total amount.
Borrower:
/s/ David L. Teichmann David L. Teichmann
- ---------------------------------- Vice President, General Counsel
(Authorized Signer) and Secretary
GRIC Communications, Inc.
Silicon:
/s/ Paul Kao 1/28/99
- ----------------------------------
Silicon Valley Bank (Date)
Account Officer's Signature
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: GRIC Communications, Inc., a California corporation
Number of Shares: 45,000 (subject to the provisions set forth below)
Class of Stock: Series D Preferred
Initial Exercise Price: $4.00 per share
Issue Date: October __, 1998
Expiration Date: October __, 2003
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
series of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this Warrant.
For purposes of determining the foregoing, Holder shall be entitled to
purchase 15,000 Shares upon the execution of this Warrant. An additional 10,000
Shares shall be available for purchase by Holder upon Company's advance of at
least $750,000 under its loan with Holder as evidenced by that certain Loan and
Security Agreement of even date herewith (the "Loan Agreement"). The remaining
20,000 Shares (the "Final Shares") shall be available for purchase by Holder
upon the Company's advance of at least $1,500,000 in the aggregate under the
Loan Agreement. Notwithstanding the foregoing, in the event the Company closes
its private placement round of financing on or before October 31, 1998, Holder
shall only be entitled to purchase 10,000 shares of the Final Shares.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Section 1.4.
1.3 INTENTIONALLY OMITTED
1.4 FAIR MARKET VALUE. If the Shares are traded in a public
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not traded in a public
market, the Board of Directors of the Company shall determine fair market value
in its reasonable good faith judgment.
<PAGE>
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
1.7.1. "ACQUISITION". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction. In
the event of an Acquisition, as part of such Acquisition lawful provision shall
be made so that there shall thereafter be deliverable upon the exercise of this
Warrant or any portion thereof (in lieu of or in addition to the number of
Shares theretofore deliverable, as appropriate), and without payment of any
additional consideration, the number of shares of stock or other securities or
property to which the holder of the number of Shares which would otherwise have
been deliverable upon the exercise of this Warrant or any portion thereof at the
time of such Acquisition would have been entitled to receive in such
Acquisition. This Section 1.7 shall apply to successive Acquisitions and to the
stock or securities of any other corporation that are at the time receivable
upon the exercise of this Warrant. If the per-share consideration payable to
Holder for Shares in connection with any transaction described in this Section
1.7 is in a form other than cash or marketable securities, then the value of
such consideration shall be determined in good faith by Company's Board of
Directors.
1.7.2. ASSUMPTION OF WARRANT. Upon the closing of any
Acquisition the successor entity shall assume the obligations of this Warrant.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays
a dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to
2
<PAGE>
Holder a new Warrant for such new securities or other property. The new
Warrant shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article 2
including, without limitation, adjustments to the Warrant Price and to the
number of securities or property issuable upon exercise of the new Warrant.
The provisions of this Section 2.2 shall similarly apply to successive
reclassifications, exchanges, substitutions, or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares
are combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased.
2.4 WEIGHTED AVERAGE ANTIDILUTION ADJUSTMENT. If at any time or
from time to time after the date of this Warrant the Company issues or sells
additional shares of Preferred Stock (as defined in the Company's Articles of
Incorporation) otherwise than (1) in connection with an Acquisition as provided
in Section 1.7; (2) splits or combinations as provided in section 2.1; and (3)
reclassifications as provided in section 2.2 or (4) any liquidation or
dissolution for an effective price (as hereinafter defined) that is less than
the Warrant Price in effect immediately prior to such issue or sale, then, and
in each such case, the Warrant Price shall be reduced, as of the close of
business on the date of such issue or sale, by multiplying it by a fraction (the
"APPLICABLE FRACTION"):
(i) The numerator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding (as hereinafter defined)
immediately prior to such issue or sale of additional shares of Preferred Stock
plus (B) the quotient obtained by dividing the Aggregate Consideration Received
(as hereinafter defined) by the Company for the total number of additional
shares of Preferred Stock so issued or sold (or deemed so issued and sold) by
the Warrant Price in effect immediately prior to such issue or sale; and
(ii) The denominator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding immediately prior to such issue
or sale plus (B) the number of additional shares of Preferred Stock so issued or
sold (or deemed so issued and sold);
and the total number of Warrant Shares shall be increased as of the close of
business on the date of such issue or sale, by multiplying it by a fraction
equal to the reciprocal of the Applicable Fraction.
(b) CERTAIN DEFINITIONS. For the purpose of making
any adjustment required under this Section 2.4:
(i) The "AGGREGATE CONSIDERATION RECEIVED" by
the Company for any issue or sale (or deemed issue or sale) of securities shall
(A) to the extent it consists of cash, be computed at the gross amount of cash
received by the Company before deduction of any underwriting or similar
commissions, compensation or concessions paid or allowed by the Company in
connection with such issue or sale and without deduction of any expenses payable
by the Company; (B) to the extent it consists of property other than cash, be
computed at the fair value of that property as determined in good faith by the
Board; and (C) if additional shares of Preferred Stock are issued or sold
together with other stock or securities or other assets of the Company for a
consideration which covers both, be computed as the portion of the consideration
so received that may be reasonably determined in good faith by the Board to be
allocable to such additional shares of Preferred Stock.
(iii) "COMMON STOCK EQUIVALENTS OUTSTANDING"
shall mean the number of shares of Common Stock that is equal to the sum of (A)
all shares of Common Stock of the Company that are outstanding at the time in
question, plus (B) all shares of Common Stock of the Company issuable upon
conversion of all shares of Preferred Stock or other Convertible Securities that
are outstanding at the time in question, plus (C) all shares of Common Stock of
the Company that are issuable upon the exercise of Rights or Options that are
outstanding at the time in question assuming the
3
<PAGE>
full conversion or exchange into Common Stock of all such Rights or Options
that are Rights or Options to purchase or acquire Convertible Securities into
or for Common Stock.
(iv) "CONVERTIBLE SECURITIES" shall mean stock
or other securities convertible into or exchangeable for shares of Common Stock.
(v) The "EFFECTIVE PRICE" of any issuance of
additional shares of Preferred Stock shall mean the quotient determined by
dividing the total number of additional shares of Preferred Stock issued or sold
by the Company under this Section 2.4, into the Aggregate Consideration
Received, or deemed to have been received, by the Company under this Section
2.4, for the issue of such additional shares of Preferred Stock; and
(vi) "RIGHTS OR OPTIONS" shall mean warrants,
options or other rights to purchase or acquire shares of Common Stock or
Convertible Securities.
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its
Articles of Incorporation or through a 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 under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the
Company takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable
upon exercise or conversion of the Warrant and the number of Shares to be
issued shall be rounded down to the nearest whole Share. If a fractional
share interest arises upon any exercise or conversion of the Warrant, the
Company shall eliminate such fractional share interest by paying Holder
amount computed by multiplying the fractional interest by the fair market
value of a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial
Officer setting forth such adjustment and the facts upon which such
adjustment is based. The Company shall, upon written request, furnish Holder
a certificate setting forth the Warrant Price in effect upon the date thereof
and the series of adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents
and warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page
of this Warrant is not greater than (i) the price per share at which the Shares
were last issued in an arms-length transaction in which at least $500,000 of the
Shares were sold and (ii) the fair market value of the Shares as of the date of
this Warrant.
(b) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
4
<PAGE>
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time
(a) to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) 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; (c) to effect any reclassification or recapitalization of common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) such other financial statements required under and in accordance with any
loan documents between Holder and the Company (or if there are no such
requirements [or if the subject loan(s) no longer are outstanding]), then within
forty-five (45) days after the end of each of the first three quarters of each
fiscal year, the Company's quarterly, unaudited financial statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. Within
sixty (60) days after the execution and delivery of this Warrant, Company shall
use its best efforts to cause Holder to become a party to the Third Amended and
Restated Registration Rights Agreement, dated as of December 24, 1997, as
amended after December 24, 1997, by and among Company and the shareholders of
Company named therein, attached hereto as EXHIBIT "A". ("Rights Agreement") and
Holder shall be deemed a 'Securityholder" and a "Holder", as defined in the
Rights Agreement, for purposes of the Rights Agreement and shall be entitled to
all the rights, and be subject to all the obligations, of a Holder under the
Rights Agreement, the Shares shall be deemed "Series D Preferred Stock", as
defined in the Rights Agreement, and the Common Stock issuable upon conversion
of the Shares shall be deemed "Registrable Securities", as defined in the Rights
Agreement, for purposes of the Rights Agreement. Such actions shall be effected
by Company executing and delivering to Holder a fully-executed Amendment to
Rights Agreement substantially in the form of EXHIBIT "B" hereto.
ARTICLE 4. MISCELLANEOUS.
4.1 TERM; NOTICE OF EXPIRATION. This Warrant is exercisable, in
whole or in part, at any time and from time to time on or before the Expiration
Date set forth above.
4.2 LEGENDS. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR
5
<PAGE>
DISPOSITION OF SUCH SECURITIES MAY BE EFFECTED WITHOUT (i) AN
EFFECTIVE REGISTRATION STATEMENT RELATING THERETO, (ii) AN OPINION OF
COUNSEL FOR HOLDER, REASONABLY SATISFACTORY TO COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION, OR (iv) OTHERWISE COMPLYING WITH
THE PROVISIONS OF ARTICLE 4 OF THE WARRANT UNDER WHICH THIS SECURITY WAS
ISSUED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and
the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder s notice of
proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.3
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) at any time to Silicon Valley Bancshares
or The Silicon Valley Bank Foundation, or, to any other transferree by giving
the Company notice of the portion of the Warrant being transferred setting forth
the name, address and taxpayer identification number of the transferee and
surrendering this Warrant to the Company for reissuance to the transferee(s)
(and Holder if applicable). Unless the Company is filing financial information
with the SEC pursuant to the Securities Exchange Act of 1934, the Company shall
have the right to refuse to transfer any portion of this Warrant (and in such
event Holder shall not transfer the Shares issuable upon exercise of this
Warrant) to any person who directly competes with the Company.
4.5 NOTICES. All notices and other communications from the Company
to the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 WAIVER. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the
parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other party all
costs incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and construed
in accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
6
<PAGE>
"COMPANY"
GRIC Communications, Inc.
By: ______________________________
Name: ______________________________
(Print)
Title: Chairman of the Board, President or Vice President
By: ______________________________
Name: ______________________________
(Print)
Title: Chief Financial Officer, Secretary, Assistant Treasurer or
Assistant Secretary
7
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase shares of the
Common/Preferred Series ___ [Strike one] Stock of GRIC Communications, Inc.
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to _____________________ of the Shares
covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
___________________________________________
(Name)
___________________________________________
___________________________________________
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
__________________________________
(Signature)
____________________
(Date)
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EXHIBIT A
Third Amended and Restated Registration Rights Agreement
[Copy Attached]
<PAGE>
EXHIBIT B
Amendment No. 2 to Third Amended and Restated Registration Rights Agreement
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THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE
OR DISPOSITION OF SUCH SECURITIES MAY BE EFFECTED WITHOUT (i) AN
EFFECTIVE REGISTRATION STATEMENT RELATING THERETO, (ii) AN
OPINION OF COUNSEL FOR HOLDER, REASONABLY SATISFACTORY TO
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF
A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION,
OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF ARTICLE III OF
THIS WARRANT.
WARRANT
TO PURCHASE SHARES OF SERIES D PREFERRED STOCK
Dated August 10, 1998
This certifies that for value received, PHOENIX LEASING INCORPORATED, or
registered assigns, is entitled as of August 10, 1998, (the "Closing Date"),
subject to the terms set forth herein, to purchase from GRIC COMMUNICATIONS,
INC., a California corporation (the "Company"), up to Twenty-Three Thousand
Eight Hundred (23,800) fully paid and non-assessable shares of Company's Series
D Preferred Stock, at the price of Four Dollars ($4) per share. The initial
exercise price of Four Dollars ($4) per share, and the number of shares
purchasable hereunder, are subject to adjustment in certain events, all as more
fully set forth under Article IV herein.
ARTICLE I
DEFINITIONS
"ARTICLES OF INCORPORATION" means the Amended and Restated Articles of
Incorporation of Company, as filed with the California Secretary of State on
June 29, 1998.
"COMMISSION" means the Securities and Exchange Commission, or any other
federal agency then administering the Exchange Act or the Securities Act, as
defined herein.
"COMMON STOCK" means Company's Common Stock, any stock into which such
stock shall have been changed or any stock resulting from any reclassification
of such stock, and any other capital stock of Company of any class or series now
or hereafter authorized having the right to share in distributions either of
earnings or assets of Company without limit as to amount or percentage.
"COMPANY" means GRIC COMMUNICATIONS, INC., a California corporation, and
any successor corporation.
"CONVERSION PRICE" means the Conversion Price for Series D Preferred Stock,
as determined in accordance with the Articles of Incorporation.
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"CONVERTIBLE SECURITIES" means evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable for, with or
without payment of additional consideration, shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event or both.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"EXERCISE PERIOD" means the period commencing on the Closing Date and
terminating at the earlier to occur of: (i) 5:00 p.m., Pacific Time on the tenth
(10th) anniversary of the Closing Date, or (ii) 5:00 p.m., Pacific Time on the
fifth (5th) anniversary of the closing of Company's initial sale and issuance of
shares of Common Stock in an underwritten public offering, pursuant to a
Registration.
"EXERCISE PRICE" means the price per share of Series D Preferred Stock set
forth in the Preamble to this Warrant, as such price may be adjusted pursuant to
Article IV hereof.
"FAIR MARKET VALUE" means
(i) If shares of Series D Preferred Stock or Common Stock, as the
case may be, are being sold pursuant to a Registration and Fair Market Value is
being determined as of the closing of the public offering, the "price to public"
specified for such shares in the final prospectus for such public offering;
(ii) If shares of Series D Preferred Stock or Common Stock, as the
case may be, are then listed or admitted to trading on any national securities
exchange or traded on any national market system and Fair Market Value is not
being determined as of the date described in clause (i) of this definition, the
average of the daily closing prices for the ten (10) trading days before such
date. The closing price for each day shall be the last sale price on such date
or, if no such sale takes place on such date, the average of the closing bid and
asked prices on such date, in each case as officially reported on the principal
national securities exchange or national market system on which such shares are
then listed, admitted to trading or traded;
(iii) If no shares of Series D Preferred Stock or Common Stock, as
the case may be, are then listed or admitted to trading on any national
securities exchange or traded on any national market system or being offered to
the public pursuant to a Registration, the average of the reported closing bid
and asked prices thereof on such date in the over-the-counter market as shown by
the National Association of Securities Dealers automated quotation system or, if
such shares are not then quoted in such system, as published by the National
Quotation Bureau, Incorporated or any similar successor organization, and in
either case as reported by any member firm of the New York Stock Exchange
selected in good faith by the Board of Directors;
(iv) If no shares of Series D Preferred Stock or Common Stock, as
the case may be, are then listed or admitted to trading on any national exchange
or traded on any national market system,
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if no closing bid and asked prices thereof are then so quoted or published in
the over-the-counter market and if no such shares are being offered to the
public pursuant to a Registration, the Fair Market Value of a share of Series
D Preferred Stock or Common Stock, as the case may be, shall be as determined
in good faith by Company's Board of Directors.
"FISCAL YEAR" means the fiscal year of Company.
"HOLDER" means the person in whose name this Warrant is registered on the
books of Company maintained for such purpose.
"OPTION" means any right, warrant or option to subscribe for or purchase
shares of Common Stock or Convertible Securities.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, government entities and authorities and other organizations, whether or
not legal entities.
"PREFERRED STOCK" means the Preferred Stock of Company, as defined in the
Articles of Incorporation.
"PRINCIPAL EXECUTIVE OFFICE" means Company's office at 1421 McCarthy
Boulevard, Milpitas, California, 95035, or such other office as designated in
writing to Holder by Company.
"REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
"RIGHTS AGREEMENT" means the Third Amended and Restated Registration Rights
Agreement, dated as of December 24, 1997, as amended after December 24, 1997, by
and among Company and the shareholders of Company named therein, attached hereto
as EXHIBIT "D".
"RULE 144" means Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that the Commission may promulgate.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"SERIES D PREFERRED STOCK" means the Series D Preferred Stock of Company,
as defined in the Articles of Incorporation.
"SHAREHOLDER" means a holder of one or more Warrant Shares or shares of
Common Stock acquired upon conversion of Warrant Shares.
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"WARRANT" means the warrant dated as of Closing Date issued to Holder and
all warrants issued upon the partial exercise, transfer or division of or in
substitution for any Warrant.
"WARRANT SHARES" means the shares of Series D Preferred Stock issuable upon
the exercise of this Warrant provided that if under the terms hereof there shall
be a change such that the securities purchasable hereunder shall be issued by an
entity other than Company or there shall be a change in the type or class of
securities purchasable hereunder, then the term shall mean the securities
issuable upon the exercise of the rights granted hereunder.
ARTICLE II
EXERCISE
2.1. EXERCISE RIGHT; MANNER OF EXERCISE. Holder may exercise this
Warrant, in whole or in part, at any time and from time to time during the
Exercise Period upon (i) surrender of this Warrant, together with an executed
Notice of Exercise, substantially in the form of EXHIBIT "A" attached hereto, at
the Principal Executive Office, and (ii) payment to Company of the aggregate
Exercise Price for the number of Warrant Shares specified in the Notice of
Exercise (such aggregate Exercise Price the "TOTAL EXERCISE PRICE"). The Total
Exercise Price shall be paid by check. Certificates for the Warrant Shares so
purchased shall be delivered to Holder within a reasonable time, not exceeding
fifteen (15) days after this Warrant is exercised. The issuance of Warrant
Shares upon exercise of this Warrant shall be made without charge to Holder for
any issuance tax with respect thereto or any other cost incurred by Company in
connection with the exercise of this Warrant and the related issuance of Warrant
Shares.
2.2. CONVERSION RIGHT. In lieu of exercising this Warrant as
specified in Section 2.1, Holder may from time to time convert this Warrant, in
whole or in part, into the number of Warrant Shares determined by dividing (a)
the aggregate Fair Market Value of the Warrant Shares issuable upon exercise of
this Warrant minus the aggregate Exercise Price of such Warrant Shares by (b)
the Fair Market Value of one Warrant Share. If, as of the last day of the
Exercise Period, this Warrant has not been fully exercised, then as of such date
this Warrant shall be automatically converted, in full, in accordance with this
Section 2.2, without any action or notice by Holder. In such event, Holder will
execute and deliver to Company the Investment Representation Certificate
attached as EXHIBIT "B."
2.3. DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, Company shall deliver to Holder certificates
for the Shares acquired and, if this Warrant has not been fully exercised or
converted and has not expired, a new Warrant representing the Shares not so
acquired.
2.4. FRACTIONAL SHARES. Company shall not issue fractional shares
of Series D Preferred Stock or Common Stock or scrip representing fractional
shares of Series D Preferred Stock or Common Stock upon any exercise or
conversion of this Warrant. As to any fractional share of Series D Preferred
Stock or Common Stock which Holder would otherwise be entitled to purchase from
Company upon such exercise or conversion, Company shall purchase from Holder
such fractional share at a price equal to an amount calculated by multiplying
such fractional share (calculated to the nearest 1/100th of a share) by the fair
market value of a share of Series D Preferred Stock or Common Stock, as
applicable, on the date of the Notice of Exercise or the Conversion Date, as
applicable, as determined in good faith
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<PAGE>
by Company's Board of Directors. Payment of such amount shall be made in cash
or by check payable to the order of Holder at the time of delivery of any
certificate or certificates arising upon such exercise or conversion.
ARTICLE III
REGISTRATION, TRANSFER, EXCHANGE AND REPLACEMENT
3.1. MAINTENANCE OF REGISTRATION BOOKS. Company shall keep at the
Principal Executive Office a register in which, subject to such reasonable
regulations as it may prescribe, it shall provide for the registration, transfer
and exchange of this Warrant. Company and any Company agent may treat the
Person in whose name this Warrant is registered as the owner of this Warrant for
all purposes whatsoever and neither Company nor any Company agent shall be
affected by any notice to the contrary.
3.2. RESTRICTIONS ON TRANSFERS.
(a) COMPLIANCE WITH SECURITIES ACT. Holder, by acceptance
hereof, agrees: (i) that this Warrant, the Series D Preferred Stock to be issued
upon exercise hereof and the shares of Common Stock to be issued upon conversion
of such shares of Series D Preferred Stock are being acquired for investment,
solely for Holder's own account and not as a nominee for any other Person, (ii)
that Holder is an "Accredited Investor" as such term is defined in Rule 501 of
the Securities Act, and (iii) that Holder will not offer, sell or otherwise
dispose of this Warrant, any such shares of Series D Preferred Stock or any such
shares of Common Stock except under circumstances which will not result in a
violation of the Securities Act. Upon exercise of this Warrant, Holder shall
confirm in writing, by executing the form attached as EXHIBIT "B" hereto, that
the shares of Series D Preferred Stock or Common Stock purchased thereby are
being acquired for investment, solely for Holder's own account and not as a
nominee for any other Person, and not with a view toward distribution or resale
and that Holder is an Accredited Investor.
(b) CERTIFICATE LEGENDS. This Warrant, all shares of Series
D Preferred Stock issued upon exercise of this Warrant (unless Registered under
the Securities Act), and all shares of Common Stock issued upon conversion of
such shares of Series D Preferred Stock (unless Registered under the Securities
Act) shall be stamped or imprinted with a legend in substantially the following
form (in addition to any legends required by applicable state securities laws):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION
OF SUCH SECURITIES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATING THERETO, (ii) AN OPINION OF COUNSEL
FOR HOLDER, REASONABLY SATISFACTORY TO COMPANY, THAT SUCH REGISTRATION
IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION, OR (iv) OTHERWISE COMPLYING WITH
THE PROVISIONS OF ARTICLE III OF THE WARRANT UNDER WHICH THIS SECURITY
WAS ISSUED.
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(c) DISPOSITION OF WARRANT OR SHARES. With respect to any
offer, sale or other disposition of this Warrant, any shares of Series D
Preferred Stock issued upon exercise of this Warrant or shares of Common Stock
acquired pursuant to conversion of such shares of Series D Preferred Stock prior
to Registration of such shares, Holder or the Shareholder, as the case may be,
agrees to give written notice to Company prior thereto, describing briefly the
manner thereof, together with a written opinion of Holder's or Shareholder's
counsel, if reasonably requested by Company, to the effect that such offer, sale
or other disposition may be effected without Registration under the Securities
Act or qualification under any applicable state securities laws of this Warrant
or such shares, as the case may be, and indicating whether or not under the
Securities Act certificates for this Warrant or such shares, as the case may be,
to be sold or otherwise disposed of require any restrictive legend as to
applicable restrictions on transferability in order to insure compliance with
the Securities Act. Promptly upon receiving such written notice and reasonably
satisfactory opinion, if so requested, Company, as promptly as practicable,
shall notify Holder or the Shareholder, as the case may be, that it may sell or
otherwise dispose of this Warrant or such shares, as the case may be, all in
accordance with the terms of the notice delivered to Company. If a
determination has been made pursuant to this subsection (c) that the opinion of
counsel for Holder or the Shareholder, as the case may be, is not reasonably
satisfactory to Company, Company shall so notify Holder or the Shareholder, as
the case may be, promptly after such determination has been made and shall
specify the legal analysis supporting any such conclusion. Notwithstanding the
foregoing, this Warrant or such shares, as the case may be, may be offered, sold
or otherwise disposed of in accordance with Rule 144, provided that Company
shall have been furnished with such information as Company may reasonably reques
to provide reasonable assurance that the provisions of Rule 144 have been
satisfied. Each certificate representing this Warrant or the shares thus
transferred (except a transfer pursuant to Rule 144) shall bear a legend as to
the applicable restrictions on transferability in order to insure compliance
with the Securities Act, unless in the aforesaid reasonably satisfactory opinion
of counsel for Holder or the Shareholder, as the case may be, such legend is not
necessary in order to insure compliance with the Securities Act. Company may
issue stop transfer instructions to its transfer agent in connection with such
restrictions.
(d) WARRANT TRANSFER PROCEDURE. Transfer of this Warrant to
a third party, following compliance with the preceding subsections of this
Section 3.2, shall be effected by execution of the Assignment Form attached
hereto as EXHIBIT "C", and surrender for registration of transfer of this
Warrant at the Principal Executive Office, together with funds sufficient to pay
any applicable transfer tax. Upon receipt of the duly executed Assignment Form
and the necessary transfer tax funds, if any, Company, at its expense, shall
execute and deliver, in the name of the designated transferee or transferees,
one or more new Warrants representing the right to purchase a like aggregate
number of shares of Series D Preferred Stock. Notwithstanding the foregoing,
Company reserves the right to reasonably disapprove transfers to its direct
competitors so long as Company is not subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the Exchange Act.
(e) TERMINATION OF RESTRICTIONS. The restrictions imposed
under this Section 3.2 upon the transferability of the Warrant, the shares of
Series D Preferred Stock acquired upon the exercise of this Warrant and the
shares of Common Stock issuable upon conversion of such shares of Series D
Preferred Stock shall cease when (i) a registration statement covering all
shares of Common Stock issued or issuable upon conversion of the Series D
Preferred Stock becomes effective under the Securities Act, (ii) Company is
presented with an opinion of counsel reasonably satisfactory to Company
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that such restrictions are no longer required in order to insure compliance
with the Securities Act or with a Commission "no-action" letter stating that
future transfers of such securities by the transferor or the contemplated
transferee would be exempt from registration under the Securities Act, or
(iii) such securities may be transferred in accordance with Rule 144(k).
When such restrictions terminate, Company shall, or shall instruct its
transfer agent to, promptly, and without expense to Holder or the
Shareholder, as the case may be, issue new securities in the name of Holder
and/or the Shareholder, as the case may be, not bearing the legends required
under subsection (b) of this Section 3.2. In addition, new securities shall
be issued without such legends if such legends may be properly removed under
the terms of Rule 144(k).
3.3. EXCHANGE. At Holder's option, this Warrant may be exchanged
for other Warrants representing the right to purchase a like aggregate number of
shares of Series D Preferred Stock upon surrender of this Warrant at the
Principal Executive Office. Whenever this Warrant is so surrendered to Company
at the Principal Executive Office for exchange, Company shall execute and
deliver the Warrants which Holder is entitled to receive. All Warrants issued
upon any registration of transfer or exchange of Warrants shall be the valid
obligations of Company, evidencing the same rights, and entitled to the same
benefits, and subject to the same restrictions, as the Warrants surrendered upon
such registration of transfer or exchange. No service charge shall be made for
any exchange of this Warrant.
3.4. REPLACEMENT. Upon receipt of evidence reasonably satisfactory
to Company of the loss, theft, destruction or mutilation of this Warrant and
(i) in the case of any such loss theft or destruction, upon delivery of
indemnity reasonably satisfactory to Company in form and amount, or (ii) in the
case of any such mutilation, upon surrender of such Warrant for cancellation at
the Principal Executive Office, Company, at its expense, shall execute and
deliver, in lieu thereof, a new Warrant.
ARTICLE IV
ANTIDILUTION PROVISIONS
4.1. CONVERSION OF SERIES D PREFERRED STOCK. If all of the Series D
Preferred Stock is converted into shares of Common Stock in connection with a
Registration, then this Warrant shall automatically become exercisable for that
number of shares of Common Stock equal to the number of shares of Common Stock
that would have been received if this Warrant had been exercised in full and the
shares of Series D Preferred Stock received thereupon had been simultaneously
converted into shares of Common Stock immediately prior to such event, and the
Exercise Price shall be automatically adjusted to equal the amount obtained by
dividing (i) the aggregate Exercise Price of the shares of Series D Preferred
Stock for which this Warrant was exercisable immediately prior to such
conversion, by (ii) the number of shares of Common Stock for which this Warrant
is exercisable immediately after such conversion.
4.2. REORGANIZATION, RECLASSIFICATION OR RECAPITALIZATION OF
COMPANY. In case of (1) a capital reorganization, reclassification or
recapitalization of Company's capital stock (other than in the cases referred to
in of Section 4.4 hereof), (2) Company's consolidation or merger with or into
another corporation in which Company is not the surviving entity, or a reverse
triangular merger in which Company is the surviving entity but the shares of
Company's capital stock outstanding immediately prior
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to the merger are converted, by virtue of the merger, into other property,
whether in the form of securities, cash or otherwise, or (3) the sale or
transfer of Company's property as an entirety or substantially as an
entirety, then, as part of such reorganization, reclassification,
recapitalization, merger, consolidation, sale or transfer, lawful provision
shall be made so that there shall thereafter be deliverable upon the exercise
of this Warrant or any portion thereof (in lieu of or in addition to the
number of shares of Series D Preferred Stock theretofore deliverable, as
appropriate), and without payment of any additional consideration, the number
of shares of stock or other securities or property to which the holder of the
number of shares of Series D Preferred Stock which would otherwise have been
deliverable upon the exercise of this Warrant or any portion thereof at the
time of such reorganization, reclassification, recapitalization,
consolidation, merger, sale or transfer would have been entitled to receive
in such reorganization, reclassification, recapitalization, consolidation,
merger, sale or transfer.
This Section 4.2 shall apply to successive reorganizations, reclassifications,
recapitalizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporation that are at the time receivable upon the
exercise of this Warrant. If the per-share consideration payable to Holder for
shares of Series D Preferred Stock in connection with any transaction described
in this Section 4.2 is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by Company's
Board of Directors.
4.3. SPLITS AND COMBINATIONS. If Company at any time subdivides any
of its outstanding shares of Series D Preferred Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced, and, conversely if the outstanding shares of Series
D Preferred Stock are combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased. Upon any adjustment of the Exercise Price under this Section 4.3,
the number of shares of Series D Preferred Stock issuable upon exercise of this
Warrant shall equal the number of shares determined by dividing (i) the
aggregate Exercise Price payable for the purchase of all shares issuable upon
exercise of this Warrant immediately prior to such adjustment by (ii) the
Exercise Price per share in effect immediately after such adjustment.
4.4. RECLASSIFICATIONS. If Company changes any of the securities as
to which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted. No adjustment shall be made
pursuant to this Section 4.4 upon any conversion described in Section 4.1
hereof.
4.5. DIVIDENDS AND DISTRIBUTIONS. If Company declares a dividend or
other distribution on the Series D Preferred Stock or if a dividend or other
distribution on the Series D Preferred Stock occurs pursuant to the Articles of
Incorporation (other than a cash dividend or distribution), then, as part of
such dividend or distribution, lawful provision shall be made so that there
shall thereafter be deliverable upon the exercise of this Warrant or any portion
thereof, in addition to the number of shares of Series D Preferred Stock
receivable thereupon and without payment of any additional consideration, the
amount of the dividend or other distribution to which the holder of the
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number of shares of Series D Preferred Stock obtained upon exercise hereof
would have been entitled to receive had the exercise occurred as of the
record date for such dividend or distribution.
4.6. LIQUIDATION; DISSOLUTION. If Company shall dissolve, liquidate
or wind up its affairs, Holder shall have the right, but not the obligation, to
exercise this Warrant effective as of the date of such dissolution, liquidation
or winding up. If any such dissolution, liquidation or winding up results in
any cash distribution to Holder in excess of the aggregate Exercise Price for
the shares of Series D Preferred Stock for which this Warrant is exercised, then
Holder may, at its option, exercise this Warrant without making payment of such
aggregate Exercise Price and, in such case, Company shall, upon distribution to
Holder, consider such aggregate Exercise Price to have been paid in full, and in
making such settlement to Holder, shall deduct an amount equal to such aggregate
Exercise Price from the amount payable to Holder.
4.7. CERTIFICATES AND NOTICES.
(a) ADJUSTMENT CERTIFICATES. Upon any adjustment of the
Exercise Price and/or the number of shares of Series D Preferred Stock
purchasable upon exercise of this Warrant, a certificate, signed by (i)
Company's President and Chief Financial Officer, or (ii) any independent firm of
certified public accountants of recognized national standing Company selects at
its own expense, setting forth in reasonable detail the events requiring the
adjustment and the method by which such adjustment was calculated, shall be
mailed to Holder and shall specify the adjusted Exercise Price and the number of
shares of Series D Preferred Stock purchasable upon exercise of the Warrant
after giving effect to the adjustment.
(b) EXTRAORDINARY CORPORATE EVENTS. If Company, after the
date hereof, proposes to effect (i) any transaction described in Sections 4.2 or
4.4 hereof, (ii) a liquidation, dissolution or winding up of Company described
in Section 4.6 hereof, or (iii) any payment of a dividend or distribution with
respect to Series D Preferred Stock or Common Stock, then, in each such case,
Company shall mail to Holder a notice describing such proposed action and
specifying the date on which Company's books shall close, or a record shall be
taken, for determining the holders of Series D Preferred Stock or Common Stock,
as appropriate, entitled to participate in such action, or the date on which
such reorganization, reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up shall take place or commence, as the case
may be, and the date as of which it is expected that holders of Series D
Preferred Stock and Common Stock of record shall be entitled to receive
securities and/or other property deliverable upon such action, if any such date
is to be fixed. Such notice shall be mailed to Holder at least fifteen (15)
days prior to the record date for such action in the case of any action
described in clause (i) or clause (iii) above, and in the case of any action
described in clause (ii) above, at least fifteen (15) days prior to the date on
which the action described is to take place and at least fifteeen (15) days
prior to the record date for determining holders of Series D Preferred Stock or
Common Stock, as appropriate, entitled to receive securities and/or other
property in connection with such action.
4.8. NO IMPAIRMENT. Company shall not, by amendment of the Articles
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the
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observance or performance of any of the terms to be observed or performed
hereunder by Company, but shall at all times in good faith assist in the
carrying out of all the provisions of this Article IV and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of Holder against impairment.
4.9. APPLICATION. Except as otherwise provided herein, all sections
of this Article IV are intended to operate independently of one another. If an
event occurs that requires the application of more than one section, all
applicable sections shall be given independent effect.
ARTICLE V
REGISTRATION RIGHTS
Concurrent with the execution and delivery of this Warrant, Company shall use
its best efforts to cause Holder to become a party to the Rights Agreement
and Holder shall be deemed a 'Securityholder" and a "Holder", as defined in
the Rights Agreement, for purposes of the Rights Agreement and shall be
entitled to all the rights, and be subject to all the obligations, of a
Holder under the Rights Agreement, the Warrant Shares shall be deemed "Series
D Preferred Stock", as defined in the Rights Agreement, and the Common Stock
issuable upon conversion of the Warrant Shares shall be deemed "Registrable
Securities", as defined in the Rights Agreement, for purposes of the Rights
Agreement. Such actions shall be effected by Company executing and
delivering to Holder a fully-executed Amendment to Rights Agreement
substantially in the form of EXHIBIT "E" hereto.
ARTICLE VI
COVENANTS
6.1. FINANCIAL INFORMATION. Company shall deliver to Holder:
(a) As soon as practicable after the end of each fiscal
year, and in any event within ninety (90) days thereafter, consolidated balance
sheets of the Company and its subsidiaries, if any, as of the end of such fiscal
year, and consolidated statements of income and cash flows of the Company and
its subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail and
certified by independent public accountants of national standing selected by the
Company;
(b) As soon as practicable after the end of each calendar
quarter, and in any event within 45 days thereafter, consolidated balance sheets
of the Company and its subsidiaries, if any, as of the end of each calendar
quarter, and consolidated statements of income and cash flow for such period and
for the current fiscal year to date, together with a comparison of such
statements to the Company's operating plan then in effect; and
(c) Such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as Holder may
from time to time reasonably request.
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6.2 NON-FINANCIAL COVENANTS. Company covenants that:
(a) AUTHORIZED SHARES. Company will at all times have
authorized, and reserved for the purpose of issue or transfer upon exercise of
the rights evidenced by this Warrant, a sufficient number of shares of Series D
Preferred Stock to provide for the exercise of the rights represented by this
Warrant (for purposes of determining compliance with this covenant, the shares
of Series D Preferred Stock issuable upon exercise of all other options and
warrants shall be deemed issued and outstanding), and a sufficient number of
shares of Common Stock to provide for the conversion into Common Stock of all
the shares of Series D Preferred Stock issued and issuable upon the exercise of
this Warrant but theretofore unconverted (for purposes of determining compliance
with this covenant, the shares of Common Stock issuable upon exercise of all
options and warrants to acquire Common Stock and upon conversion of all
instruments convertible into Common Stock shall be deemed issued and
outstanding);
(b) PROPER ISSUANCE. Company, at its expense, will take all
such action as may be necessary to assure that the Series D Preferred Stock
issuable upon the exercise of this Warrant, and the Common Stock issuable upon
the conversion of such Series D Preferred Stock, may be so issued without
violation of any applicable law or regulation, or of any requirements of any
domestic securities exchange upon which any capital stock of Company may be
listed. Such action may include, but not be limited to, causing such shares to
be duly registered or approved or listed on relevant domestic securities
exchanges; and
(c) FULLY PAID SHARES. Company will take all actions
necessary or appropriate to validly and legally issue (i) fully paid and
non-assessable shares of Series D Preferred Stock upon exercise of this Warrant
and (ii) fully paid and non-assessable shares of Common Stock upon conversion of
such shares of Series D Preferred Stock. All such shares will be free from all
taxes, liens and charges with respect to the issuance thereof, other than any
stock transfer taxes in respect to any transfer occurring contemporaneously with
such issuance.
ARTICLE VII
MISCELLANEOUS
7.1. CERTAIN EXPENSES. Company shall pay all expenses in connection
with, and all taxes (other than stock transfer taxes) and other governmental
charges that may be imposed in respect of, the issuance, sale and delivery of
the Warrant, the Warrant Shares and the shares of Common Stock issuable upon
conversion of the Warrant Shares.
7.2. REMEDIES. Company stipulates that the remedies at law of
Holder in the event of any default or threatened default by Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate to the fullest extent permitted by law, and that such terms
may be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof or otherwise.
7.3. ENFORCEMENT COSTS. If any party to, or beneficiary of, this
Warrant seeks to
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enforce its rights hereunder by legal proceedings or otherwise, then the
non-prevailing party shall pay all reasonable costs and expenses incurred by
the prevailing party, including, without limitation, all reasonable
attorneys' fees (including the allocable costs of in-house counsel).
7.4. NOTICES. Any notice, demand or delivery to be made pursuant to
this Warrant will be sufficiently given or made if sent by first class mail,
postage prepaid, addressed to (a) Holder and the Shareholders at their last
known addresses appearing on the books of Company maintained for such purpose or
(b) Company at its Principal Executive Office. Holder, the Shareholders and
Company may each designate a different address by notice to the other pursuant
to this section. A notice shall be deemed effective upon the earlier of (i)
receipt or (ii) the third day after mailing in accordance with the terms of this
Section 7.3.
7.5. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon
Company and any Person succeeding Company by merger, consolidation or
acquisition of all or substantially all of Company's assets, and all of the
obligations of Company with respect to the shares of Series D Preferred Stock
issuable upon exercise of this Warrant and the shares of Common Stock issuable
upon the conversion of such shares of Series D Preferred Stock, shall survive
the exercise, expiration or termination of this Warrant and all of the covenants
and agreements of Company shall inure to the benefit of Holder, each Shareholder
and their respective successors and assigns.
7.6. MODIFICATION; SEVERABILITY. If, in any action before any court
or agency legally empowered to enforce any term, any term is found to be
unenforceable, then such term shall be deemed modified to the extent necessary
to make it enforceable by such court or agency. If any term is not curable as
set forth in this section, the unenforceability of such term shall not affect
the other provisions of this Warrant but this Warrant shall be construed as if
such unenforceable term had never been contained herein.
7.7. AMENDMENT. This Warrant may not be modified or amended except
by written agreement of Company and Holder.
7.8. HEADINGS. The headings of the Articles and Sections of this
Warrant are for the convenience of reference only and shall not, for any
purpose, be deemed a part of this Warrant.
7.9. GOVERNING LAW. This Warrant shall be governed by, and
construed in accordance with, the laws of the State of California, without
giving effect to conflicts of law principles.
IN WITNESS WHEREOF, Company has caused this Warrant to be executed by its
duly authorized officer as of August 10, 1998.
GRIC COMMUNICATIONS, INC.
By:_________________________________
Name:_______________________________
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Title:______________________________
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SCHEDULE OF EXHIBITS
EXHIBIT "A" - Notice of Exercise (Section 2.1)
EXHIBIT "B" - Investment Representation Certificate (Section 3.2(a))
EXHIBIT "C" - Assignment Form (Section 3.2(d))
EXHIBIT "D" - Rights Agreement (Article I)
EXHIBIT "E" - Amendment to Rights Agreement (Article V)
<PAGE>
EXHIBIT "A"
NOTICE OF EXERCISE FORM
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered Holder of the within Warrant hereby irrevocably
exercises the within Warrant for and purchases shares of Series D Preferred
Stock of GRIC COMMUNICATIONS, INC. and herewith makes payment therefor in the
amount of $___________, all at the price and on the terms and conditions
specified in the within Warrant and requests that a certificate (or __________
certificates in denominations of shares) for the shares of Series D Preferred
Stock of GRIC COMMUNICATIONS, INC. hereby purchased be issued in the name of and
delivered to (choose one) (a) the undersigned, or (b) *[NAME], whose address is
_______________________________and, if such shares of Series D Preferred Stock
shall not include all the shares of Series D Preferred Stock issuable as
provided in the within Warrant, that a new Warrant of like tenor for the number
of shares of Series D Preferred Stock of GRIC COMMUNICATIONS, INC. not being
purchased hereunder be issued in the name of and delivered to (choose one) (a)
the undersigned, or (b) *[NAME], whose address is ____________________________.
Dated: _________________, 199___
Signature Guaranteed __________________________________
By:_______________________________________
(Signature of Registered Holder)
Title:____________________________
NOTICE: The signature to this Notice of Exercise must correspond with the name
as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatever.
The signature to this Notice of Exercise must be guaranteed by a
commercial bank or trust company in the United States or a member
firm of the New York Stock Exchange.
<PAGE>
EXHIBIT "B"
INVESTMENT REPRESENTATION CERTIFICATE
Purchaser:
Company: GRIC COMMUNICATIONS, INC.
Security: Series D Preferred Stock
Amount:
Date:
In connection with the purchase of the above-listed securities (the
"SECURITIES"), the undersigned (the "PURCHASER") represents to Company as
follows:
The Purchaser is aware of Company's business affairs and financial condition,
and has acquired sufficient information about Company to reach an informed and
knowledgeable decision to acquire the Securities. The Purchaser is purchasing
the Securities for its own account for investment purposes only and not with a
view to, or for the resale in connection with, any "distribution" thereof for
purposes of the Securities Act of 1933, as amended (the "SECURITIES ACT");
The Purchaser understands that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefor, which exemption
depends upon, among other things, the bona fide nature of the Purchaser's
investment intent as expressed herein. In this connection, the Purchaser
understands that, in the view of the Securities and Exchange Commission ("SEC"),
the statutory basis for such exemption may be unavailable if the Purchaser's
representation was predicated solely upon a present intention to hold these
Securities for the minimum capital gains period specified under tax statutes,
for a deferred sale, for or until an increase or decrease in the market price of
the Securities, or for a period of one year or any other fixed period in the
future;
The Purchaser further understands that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, the Purchaser understands
that Company is under no obligation to register the Securities. In addition,
the Purchaser understands that the certificate evidencing the Securities will be
imprinted with the legend referred to in the Warrant under which the Securities
are being purchased;
The Purchaser is aware of the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permit limited public resale of "restricted
securities" acquired, directly or indirectly, from the issuer thereof (or from
an affiliate of such issuer), in a non-public offering subject to the
satisfaction of certain conditions, if applicable, including, among other
things: (i) the availability of certain public information about Company; (ii)
the resale occurring not less than one (1) year after the party has purchased
and paid for the securities to be sold; (iii) the sale being made through a
broker in an
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unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934) and
the amount of securities being sold during any three-month period not
exceeding the specified limitations stated therein;
The Purchaser further understands that at the time it wishes to sell the
Securities there may be no public market upon which to make such a sale, and
that, even if such a public market upon which to make such a sale then exists,
Company may not be satisfying the current public information requirements of
Rule 144, and that, in such event, the Purchaser may be precluded from selling
the Securities under Rule 144 even if the one (1) year minimum holding period
had been satisfied; and
The Purchaser further understands that in the event all of the requirements of
Rule 144 are not satisfied, registration under the Securities Act, compliance
with Regulation A, or some other registration exemption will be required; and
that, notwithstanding the fact that Rule 144 is not exclusive, the staff of the
SEC has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
The Purchaser represents that it is an "Accredited Investor" as such term is
defined in Rule 501 of the Securities Act.
Date: _________________, 199___
PURCHASER:
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EXHIBIT "C"
ASSIGNMENT FORM
(To be executed only upon the assignment of
the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the within Warrant
hereby sells, assigns and transfers unto ______________________________________,
whose address is _____________________________________________ all of the rights
of the undersigned under the within Warrant, with respect to shares of Series D
Preferred Stock of GRIC COMMUNICATIONS, INC. and, if such shares of Series D
Preferred Stock shall not include all the shares of Series D Preferred Stock
issuable as provided in the within Warrant, that a new Warrant of like tenor for
the number of shares of Series D Preferred Stock of GRIC COMMUNICATIONS, INC.
not being transferred hereunder be issued in the name of and delivered to the
undersigned, and does hereby irrevocably constitute and appoint _______________
_______________________ attorney to register such transfer on the books of
GRIC COMMUNICATIONS, INC. maintained for the purpose, with full power
of substitution in the premises.
Dated: _____________________, 199___
Signature Guaranteed __________________________________
By:_____________________________________
(Signature of Registered Holder)
Title:____________________________
NOTICE: The signature to this Assignment must correspond with the name upon
the face of the within Warrant in every particular, without alteration
or enlargement or any change whatever.
The signature to this Notice of Assignment must be guaranteed by a
commercial bank or trust company in the United States or a member
firm of the New York Stock Exchange.
<PAGE>
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE
OR DISPOSITION OF SUCH SECURITIES MAY BE EFFECTED WITHOUT (i) AN
EFFECTIVE REGISTRATION STATEMENT RELATING THERETO, (ii) AN
OPINION OF COUNSEL FOR HOLDER, REASONABLY SATISFACTORY TO
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF
A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION,
OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF ARTICLE III OF
THIS WARRANT.
WARRANT
TO PURCHASE SHARES OF SERIES D PREFERRED STOCK
Dated August 10, 1998
This certifies that for value received, ROBERT A. KINGSBOOK, or registered
assigns, is entitled as of August 10, 1998, (the "Closing Date"), subject to the
terms set forth herein, to purchase from GRIC COMMUNICATIONS, INC., a California
corporation (the "Company"), up to Four Thousand Two Hundred (4,200) fully paid
and non-assessable shares of Company's Series D Preferred Stock, at the price of
Four Dollars ($4) per share. The initial exercise price of Four Dollars ($4)
per share, and the number of shares purchasable hereunder, are subject to
adjustment in certain events, all as more fully set forth under Article IV
herein.
ARTICLE I
DEFINITIONS
"ARTICLES OF INCORPORATION" means the Amended and Restated Articles of
Incorporation of Company, as filed with the California Secretary of State on
June 29, 1998.
"COMMISSION" means the Securities and Exchange Commission, or any other
federal agency then administering the Exchange Act or the Securities Act, as
defined herein.
"COMMON STOCK" means Company's Common Stock, any stock into which such
stock shall have been changed or any stock resulting from any reclassification
of such stock, and any other capital stock of Company of any class or series now
or hereafter authorized having the right to share in distributions either of
earnings or assets of Company without limit as to amount or percentage.
"COMPANY" means GRIC COMMUNICATIONS, INC., a California corporation, and
any successor corporation.
"CONVERSION PRICE" means the Conversion Price for Series D Preferred Stock,
as determined in accordance with the Articles of Incorporation.
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"CONVERTIBLE SECURITIES" means evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable for, with or
without payment of additional consideration, shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event or both.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"EXERCISE PERIOD" means the period commencing on the Closing Date and
terminating at the earlier to occur of: (i) 5:00 p.m., Pacific Time on the tenth
(10th) anniversary of the Closing Date, or (ii) 5:00 p.m., Pacific Time on the
fifth (5th) anniversary of the closing of Company's initial sale and issuance of
shares of Common Stock in an underwritten public offering, pursuant to a
Registration.
"EXERCISE PRICE" means the price per share of Series D Preferred Stock set
forth in the Preamble to this Warrant, as such price may be adjusted pursuant to
Article IV hereof.
"FAIR MARKET VALUE" means
(i) If shares of Series D Preferred Stock or Common Stock, as the
case may be, are being sold pursuant to a Registration and Fair Market Value is
being determined as of the closing of the public offering, the "price to public"
specified for such shares in the final prospectus for such public offering;
(ii) If shares of Series D Preferred Stock or Common Stock, as the
case may be, are then listed or admitted to trading on any national securities
exchange or traded on any national market system and Fair Market Value is not
being determined as of the date described in clause (i) of this definition, the
average of the daily closing prices for the ten (10) trading days before such
date. The closing price for each day shall be the last sale price on such date
or, if no such sale takes place on such date, the average of the closing bid and
asked prices on such date, in each case as officially reported on the principal
national securities exchange or national market system on which such shares are
then listed, admitted to trading or traded;
(iii) If no shares of Series D Preferred Stock or Common Stock, as
the case may be, are then listed or admitted to trading on any national
securities exchange or traded on any national market system or being offered to
the public pursuant to a Registration, the average of the reported closing bid
and asked prices thereof on such date in the over-the-counter market as shown by
the National Association of Securities Dealers automated quotation system or, if
such shares are not then quoted in such system, as published by the National
Quotation Bureau, Incorporated or any similar successor organization, and in
either case as reported by any member firm of the New York Stock Exchange
selected in good faith by the Board of Directors;
(iv) If no shares of Series D Preferred Stock or Common Stock, as
the case may be, are then listed or admitted to trading on any national exchange
or traded on any national market system,
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if no closing bid and asked prices thereof are then so quoted or published in
the over-the-counter market and if no such shares are being offered to the
public pursuant to a Registration, the Fair Market Value of a share of Series
D Preferred Stock or Common Stock, as the case may be, shall be as determined
in good faith by Company's Board of Directors.
"FISCAL YEAR" means the fiscal year of Company.
"HOLDER" means the person in whose name this Warrant is registered on the
books of Company maintained for such purpose.
"OPTION" means any right, warrant or option to subscribe for or purchase
shares of Common Stock or Convertible Securities.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, government entities and authorities and other organizations, whether or
not legal entities.
"PREFERRED STOCK" means the Preferred Stock of Company, as defined in the
Articles of Incorporation.
"PRINCIPAL EXECUTIVE OFFICE" means Company's office at 1421 McCarthy
Boulevard, Milpitas, California, 95035, or such other office as designated in
writing to Holder by Company.
"REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
"RIGHTS AGREEMENT" means the Third Amended and Restated Registration Rights
Agreement, dated as of December 24, 1997, as amended after December 24, 1997, by
and among Company and the shareholders of Company named therein, attached hereto
as EXHIBIT "D".
"RULE 144" means Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that the Commission may promulgate.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"SERIES D PREFERRED STOCK" means the Series D Preferred Stock of Company,
as defined in the Articles of Incorporation.
"SHAREHOLDER" means a holder of one or more Warrant Shares or shares of
Common Stock acquired upon conversion of Warrant Shares.
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"WARRANT" means the warrant dated as of Closing Date issued to Holder and
all warrants issued upon the partial exercise, transfer or division of or in
substitution for any Warrant.
"WARRANT SHARES" means the shares of Series D Preferred Stock issuable upon
the exercise of this Warrant provided that if under the terms hereof there shall
be a change such that the securities purchasable hereunder shall be issued by an
entity other than Company or there shall be a change in the type or class of
securities purchasable hereunder, then the term shall mean the securities
issuable upon the exercise of the rights granted hereunder.
ARTICLE II
EXERCISE
2.1. EXERCISE RIGHT; MANNER OF EXERCISE. Holder may exercise this
Warrant, in whole or in part, at any time and from time to time during the
Exercise Period upon (i) surrender of this Warrant, together with an executed
Notice of Exercise, substantially in the form of EXHIBIT "A" attached hereto, at
the Principal Executive Office, and (ii) payment to Company of the aggregate
Exercise Price for the number of Warrant Shares specified in the Notice of
Exercise (such aggregate Exercise Price the "TOTAL EXERCISE PRICE"). The Total
Exercise Price shall be paid by check. Certificates for the Warrant Shares so
purchased shall be delivered to Holder within a reasonable time, not exceeding
fifteen (15) days after this Warrant is exercised. The issuance of Warrant
Shares upon exercise of this Warrant shall be made without charge to Holder for
any issuance tax with respect thereto or any other cost incurred by Company in
connection with the exercise of this Warrant and the related issuance of Warrant
Shares.
2.2. CONVERSION RIGHT. In lieu of exercising this Warrant as
specified in Section 2.1, Holder may from time to time convert this Warrant, in
whole or in part, into the number of Warrant Shares determined by dividing (a)
the aggregate Fair Market Value of the Warrant Shares issuable upon exercise of
this Warrant minus the aggregate Exercise Price of such Warrant Shares by (b)
the Fair Market Value of one Warrant Share. If, as of the last day of the
Exercise Period, this Warrant has not been fully exercised, then as of such date
this Warrant shall be automatically converted, in full, in accordance with this
Section 2.2, without any action or notice by Holder. In such event, Holder will
execute and deliver to Company the Investment Representation Certificate
attached as EXHIBIT "B."
2.3. DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, Company shall deliver to Holder certificates
for the Shares acquired and, if this Warrant has not been fully exercised or
converted and has not expired, a new Warrant representing the Shares not so
acquired.
2.4. FRACTIONAL SHARES. Company shall not issue fractional shares
of Series D Preferred Stock or Common Stock or scrip representing fractional
shares of Series D Preferred Stock or Common Stock upon any exercise or
conversion of this Warrant. As to any fractional share of Series D Preferred
Stock or Common Stock which Holder would otherwise be entitled to purchase from
Company upon such exercise or conversion, Company shall purchase from Holder
such fractional share at a price equal to an amount calculated by multiplying
such fractional share (calculated to the nearest 1/100th of a share) by the fair
market value of a share of Series D Preferred Stock or Common Stock, as
applicable, on the date of the Notice of Exercise or the Conversion Date, as
applicable, as determined in good faith
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by Company's Board of Directors. Payment of such amount shall be made in cash
or by check payable to the order of Holder at the time of delivery of any
certificate or certificates arising upon such exercise or conversion.
ARTICLE III
REGISTRATION, TRANSFER, EXCHANGE AND REPLACEMENT
3.1. MAINTENANCE OF REGISTRATION BOOKS. Company shall keep at the
Principal Executive Office a register in which, subject to such reasonable
regulations as it may prescribe, it shall provide for the registration, transfer
and exchange of this Warrant. Company and any Company agent may treat the
Person in whose name this Warrant is registered as the owner of this Warrant for
all purposes whatsoever and neither Company nor any Company agent shall be
affected by any notice to the contrary.
3.2. RESTRICTIONS ON TRANSFERS.
(a) COMPLIANCE WITH SECURITIES ACT. Holder, by acceptance
hereof, agrees: (i) that this Warrant, the Series D Preferred Stock to be issued
upon exercise hereof and the shares of Common Stock to be issued upon conversion
of such shares of Series D Preferred Stock are being acquired for investment,
solely for Holder's own account and not as a nominee for any other Person, (ii)
that Holder is an "Accredited Investor" as such term is defined in Rule 501 of
the Securities Act, and (iii) that Holder will not offer, sell or otherwise
dispose of this Warrant, any such shares of Series D Preferred Stock or any such
shares of Common Stock except under circumstances which will not result in a
violation of the Securities Act. Upon exercise of this Warrant, Holder shall
confirm in writing, by executing the form attached as EXHIBIT "B" hereto, that
the shares of Series D Preferred Stock or Common Stock purchased thereby are
being acquired for investment, solely for Holder's own account and not as a
nominee for any other Person, and not with a view toward distribution or resale
and that Holder is an Accredited Investor.
(b) CERTIFICATE LEGENDS. This Warrant, all shares of Series
D Preferred Stock issued upon exercise of this Warrant (unless Registered under
the Securities Act), and all shares of Common Stock issued upon conversion of
such shares of Series D Preferred Stock (unless Registered under the Securities
Act) shall be stamped or imprinted with a legend in substantially the following
form (in addition to any legends required by applicable state securities laws):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION
OF SUCH SECURITIES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATING THERETO, (ii) AN OPINION OF COUNSEL
FOR HOLDER, REASONABLY SATISFACTORY TO COMPANY, THAT SUCH REGISTRATION
IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION, OR (iv) OTHERWISE COMPLYING WITH
THE PROVISIONS OF ARTICLE III OF THE WARRANT UNDER WHICH THIS SECURITY
WAS ISSUED.
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(c) DISPOSITION OF WARRANT OR SHARES. With respect to any
offer, sale or other disposition of this Warrant, any shares of Series D
Preferred Stock issued upon exercise of this Warrant or shares of Common Stock
acquired pursuant to conversion of such shares of Series D Preferred Stock prior
to Registration of such shares, Holder or the Shareholder, as the case may be,
agrees to give written notice to Company prior thereto, describing briefly the
manner thereof, together with a written opinion of Holder's or Shareholder's
counsel, if reasonably requested by Company, to the effect that such offer, sale
or other disposition may be effected without Registration under the Securities
Act or qualification under any applicable state securities laws of this Warrant
or such shares, as the case may be, and indicating whether or not under the
Securities Act certificates for this Warrant or such shares, as the case may be,
to be sold or otherwise disposed of require any restrictive legend as to
applicable restrictions on transferability in order to insure compliance with
the Securities Act. Promptly upon receiving such written notice and reasonably
satisfactory opinion, if so requested, Company, as promptly as practicable,
shall notify Holder or the Shareholder, as the case may be, that it may sell or
otherwise dispose of this Warrant or such shares, as the case may be, all in
accordance with the terms of the notice delivered to Company. If a
determination has been made pursuant to this subsection (c) that the opinion of
counsel for Holder or the Shareholder, as the case may be, is not reasonably
satisfactory to Company, Company shall so notify Holder or the Shareholder, as
the case may be, promptly after such determination has been made and shall
specify the legal analysis supporting any such conclusion. Notwithstanding the
foregoing, this Warrant or such shares, as the case may be, may be offered, sold
or otherwise disposed of in accordance with Rule 144, provided that Company
shall have been furnished with such information as Company may reasonably
request to provide reasonable assurance that the provisions of Rule 144 have
been satisfied. Each certificate representing this Warrant or the shares
thus transferred (except a transfer pursuant to Rule 144) shall bear a legend
as to the applicable restrictions on transferability in order to insure
compliance with the Securities Act, unless in the aforesaid reasonably
satisfactory opinion of counsel for Holder or the Shareholder, as the case
may be, such legend is not necessary in order to insure compliance with the
Securities Act. Company may issue stop transfer instructions to its transfer
agent in connection with such restrictions.
(d) WARRANT TRANSFER PROCEDURE. Transfer of this Warrant to
a third party, following compliance with the preceding subsections of this
Section 3.2, shall be effected by execution of the Assignment Form attached
hereto as EXHIBIT "C", and surrender for registration of transfer of this
Warrant at the Principal Executive Office, together with funds sufficient to pay
any applicable transfer tax. Upon receipt of the duly executed Assignment Form
and the necessary transfer tax funds, if any, Company, at its expense, shall
execute and deliver, in the name of the designated transferee or transferees,
one or more new Warrants representing the right to purchase a like aggregate
number of shares of Series D Preferred Stock. Notwithstanding the foregoing,
Company reserves the right to reasonably disapprove transfers to its direct
competitors so long as Company is not subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the Exchange Act.
(e) TERMINATION OF RESTRICTIONS. The restrictions imposed
under this Section 3.2 upon the transferability of the Warrant, the shares of
Series D Preferred Stock acquired upon the exercise of this Warrant and the
shares of Common Stock issuable upon conversion of such shares of Series D
Preferred Stock shall cease when (i) a registration statement covering all
shares of Common Stock issued or issuable upon conversion of the Series D
Preferred Stock becomes effective under the Securities Act, (ii) Company is
presented with an opinion of counsel reasonably satisfactory to Company
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that such restrictions are no longer required in order to insure compliance
with the Securities Act or with a Commission "no-action" letter stating that
future transfers of such securities by the transferor or the contemplated
transferee would be exempt from registration under the Securities Act, or
(iii) such securities may be transferred in accordance with Rule 144(k).
When such restrictions terminate, Company shall, or shall instruct its
transfer agent to, promptly, and without expense to Holder or the
Shareholder, as the case may be, issue new securities in the name of Holder
and/or the Shareholder, as the case may be, not bearing the legends required
under subsection (b) of this Section 3.2. In addition, new securities shall
be issued without such legends if such legends may be properly removed under
the terms of Rule 144(k).
3.3. EXCHANGE. At Holder's option, this Warrant may be exchanged
for other Warrants representing the right to purchase a like aggregate number of
shares of Series D Preferred Stock upon surrender of this Warrant at the
Principal Executive Office. Whenever this Warrant is so surrendered to Company
at the Principal Executive Office for exchange, Company shall execute and
deliver the Warrants which Holder is entitled to receive. All Warrants issued
upon any registration of transfer or exchange of Warrants shall be the valid
obligations of Company, evidencing the same rights, and entitled to the same
benefits, and subject to the same restrictions, as the Warrants surrendered upon
such registration of transfer or exchange. No service charge shall be made for
any exchange of this Warrant.
3.4. REPLACEMENT. Upon receipt of evidence reasonably satisfactory
to Company of the loss, theft, destruction or mutilation of this Warrant and
(i) in the case of any such loss theft or destruction, upon delivery of
indemnity reasonably satisfactory to Company in form and amount, or (ii) in the
case of any such mutilation, upon surrender of such Warrant for cancellation at
the Principal Executive Office, Company, at its expense, shall execute and
deliver, in lieu thereof, a new Warrant.
ARTICLE IV
ANTIDILUTION PROVISIONS
4.1. CONVERSION OF SERIES D PREFERRED STOCK. If all of the Series D
Preferred Stock is converted into shares of Common Stock in connection with a
Registration, then this Warrant shall automatically become exercisable for that
number of shares of Common Stock equal to the number of shares of Common Stock
that would have been received if this Warrant had been exercised in full and the
shares of Series D Preferred Stock received thereupon had been simultaneously
converted into shares of Common Stock immediately prior to such event, and the
Exercise Price shall be automatically adjusted to equal the amount obtained by
dividing (i) the aggregate Exercise Price of the shares of Series D Preferred
Stock for which this Warrant was exercisable immediately prior to such
conversion, by (ii) the number of shares of Common Stock for which this Warrant
is exercisable immediately after such conversion.
4.2. REORGANIZATION, RECLASSIFICATION OR RECAPITALIZATION OF
COMPANY. In case of (1) a capital reorganization, reclassification or
recapitalization of Company's capital stock (other than in the cases referred to
in of Section 4.4 hereof), (2) Company's consolidation or merger with or into
another corporation in which Company is not the surviving entity, or a reverse
triangular merger in which Company is the surviving entity but the shares of
Company's capital stock outstanding immediately prior
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to the merger are converted, by virtue of the merger, into other property,
whether in the form of securities, cash or otherwise, or (3) the sale or
transfer of Company's property as an entirety or substantially as an
entirety, then, as part of such reorganization, reclassification,
recapitalization, merger, consolidation, sale or transfer, lawful provision
shall be made so that there shall thereafter be deliverable upon the exercise
of this Warrant or any portion thereof (in lieu of or in addition to the
number of shares of Series D Preferred Stock theretofore deliverable, as
appropriate), and without payment of any additional consideration, the number
of shares of stock or other securities or property to which the holder of the
number of shares of Series D Preferred Stock which would otherwise have been
deliverable upon the exercise of this Warrant or any portion thereof at the
time of such reorganization, reclassification, recapitalization,
consolidation, merger, sale or transfer would have been entitled to receive
in such reorganization, reclassification, recapitalization, consolidation,
merger, sale or transfer.
This Section 4.2 shall apply to successive reorganizations, reclassifications,
recapitalizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporation that are at the time receivable upon the
exercise of this Warrant. If the per-share consideration payable to Holder for
shares of Series D Preferred Stock in connection with any transaction described
in this Section 4.2 is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by Company's
Board of Directors.
4.3. SPLITS AND COMBINATIONS. If Company at any time subdivides any
of its outstanding shares of Series D Preferred Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced, and, conversely if the outstanding shares of Series
D Preferred Stock are combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased. Upon any adjustment of the Exercise Price under this Section 4.3,
the number of shares of Series D Preferred Stock issuable upon exercise of this
Warrant shall equal the number of shares determined by dividing (i) the
aggregate Exercise Price payable for the purchase of all shares issuable upon
exercise of this Warrant immediately prior to such adjustment by (ii) the
Exercise Price per share in effect immediately after such adjustment.
4.4. RECLASSIFICATIONS. If Company changes any of the securities as
to which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted. No adjustment shall be made
pursuant to this Section 4.4 upon any conversion described in Section 4.1
hereof.
4.5. DIVIDENDS AND DISTRIBUTIONS. If Company declares a dividend or
other distribution on the Series D Preferred Stock or if a dividend or other
distribution on the Series D Preferred Stock occurs pursuant to the Articles of
Incorporation (other than a cash dividend or distribution), then, as part of
such dividend or distribution, lawful provision shall be made so that there
shall thereafter be deliverable upon the exercise of this Warrant or any portion
thereof, in addition to the number of shares of Series D Preferred Stock
receivable thereupon and without payment of any additional consideration, the
amount of the dividend or other distribution to which the holder of the
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number of shares of Series D Preferred Stock obtained upon exercise hereof
would have been entitled to receive had the exercise occurred as of the
record date for such dividend or distribution.
4.6. LIQUIDATION; DISSOLUTION. If Company shall dissolve, liquidate
or wind up its affairs, Holder shall have the right, but not the obligation, to
exercise this Warrant effective as of the date of such dissolution, liquidation
or winding up. If any such dissolution, liquidation or winding up results in
any cash distribution to Holder in excess of the aggregate Exercise Price for
the shares of Series D Preferred Stock for which this Warrant is exercised, then
Holder may, at its option, exercise this Warrant without making payment of such
aggregate Exercise Price and, in such case, Company shall, upon distribution to
Holder, consider such aggregate Exercise Price to have been paid in full, and in
making such settlement to Holder, shall deduct an amount equal to such aggregate
Exercise Price from the amount payable to Holder.
4.7. CERTIFICATES AND NOTICES.
(a) ADJUSTMENT CERTIFICATES. Upon any adjustment of the
Exercise Price and/or the number of shares of Series D Preferred Stock
purchasable upon exercise of this Warrant, a certificate, signed by (i)
Company's President and Chief Financial Officer, or (ii) any independent firm of
certified public accountants of recognized national standing Company selects at
its own expense, setting forth in reasonable detail the events requiring the
adjustment and the method by which such adjustment was calculated, shall be
mailed to Holder and shall specify the adjusted Exercise Price and the number of
shares of Series D Preferred Stock purchasable upon exercise of the Warrant
after giving effect to the adjustment.
(b) EXTRAORDINARY CORPORATE EVENTS. If Company, after the
date hereof, proposes to effect (i) any transaction described in Sections 4.2 or
4.4 hereof, (ii) a liquidation, dissolution or winding up of Company described
in Section 4.6 hereof, or (iii) any payment of a dividend or distribution with
respect to Series D Preferred Stock or Common Stock, then, in each such case,
Company shall mail to Holder a notice describing such proposed action and
specifying the date on which Company's books shall close, or a record shall be
taken, for determining the holders of Series D Preferred Stock or Common Stock,
as appropriate, entitled to participate in such action, or the date on which
such reorganization, reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up shall take place or commence, as the case
may be, and the date as of which it is expected that holders of Series D
Preferred Stock and Common Stock of record shall be entitled to receive
securities and/or other property deliverable upon such action, if any such date
is to be fixed. Such notice shall be mailed to Holder at least fifteen (15)
days prior to the record date for such action in the case of any action
described in clause (i) or clause (iii) above, and in the case of any action
described in clause (ii) above, at least fifteen (15) days prior to the date on
which the action described is to take place and at least fifteeen (15) days
prior to the record date for determining holders of Series D Preferred Stock or
Common Stock, as appropriate, entitled to receive securities and/or other
property in connection with such action.
4.8. NO IMPAIRMENT. Company shall not, by amendment of the Articles
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the
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observance or performance of any of the terms to be observed or performed
hereunder by Company, but shall at all times in good faith assist in the
carrying out of all the provisions of this Article IV and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of Holder against impairment.
4.9. APPLICATION. Except as otherwise provided herein, all sections
of this Article IV are intended to operate independently of one another. If an
event occurs that requires the application of more than one section, all
applicable sections shall be given independent effect.
ARTICLE V
REGISTRATION RIGHTS
Concurrent with the execution and delivery of this Warrant, Company shall use
its best efforts to cause Holder to become a party to the Rights Agreement and
Holder shall be deemed a 'Securityholder" and a "Holder", as defined in the
Rights Agreement, for purposes of the Rights Agreement and shall be entitled to
all the rights, and be subject to all the obligations, of a Holder under the
Rights Agreement, the Warrant Shares shall be deemed "Series D Preferred Stock",
as defined in the Rights Agreement, and the Common Stock issuable upon
conversion of the Warrant Shares shall be deemed "Registrable Securities", as
defined in the Rights Agreement, for purposes of the Rights Agreement. Such
actions shall be effected by Company executing and delivering to Holder a
fully-executed Amendment to Rights Agreement substantially in the form of
EXHIBIT "E" hereto.
ARTICLE VI
COVENANTS
6.1. FINANCIAL INFORMATION. Company shall deliver to Holder:
(a) As soon as practicable after the end of each fiscal
year, and in any event within ninety (90) days thereafter, consolidated balance
sheets of the Company and its subsidiaries, if any, as of the end of such fiscal
year, and consolidated statements of income and cash flows of the Company and
its subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail and
certified by independent public accountants of national standing selected by the
Company;
(b) As soon as practicable after the end of each calendar
quarter, and in any event within 45 days thereafter, consolidated balance sheets
of the Company and its subsidiaries, if any, as of the end of each calendar
quarter, and consolidated statements of income and cash flow for such period and
for the current fiscal year to date, together with a comparison of such
statements to the Company's operating plan then in effect; and
(c) Such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as Holder may
from time to time reasonably request.
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6.2 NON-FINANCIAL COVENANTS. Company covenants that:
(a) AUTHORIZED SHARES. Company will at all times have
authorized, and reserved for the purpose of issue or transfer upon exercise of
the rights evidenced by this Warrant, a sufficient number of shares of Series D
Preferred Stock to provide for the exercise of the rights represented by this
Warrant (for purposes of determining compliance with this covenant, the shares
of Series D Preferred Stock issuable upon exercise of all other options and
warrants shall be deemed issued and outstanding), and a sufficient number of
shares of Common Stock to provide for the conversion into Common Stock of all
the shares of Series D Preferred Stock issued and issuable upon the exercise of
this Warrant but theretofore unconverted (for purposes of determining compliance
with this covenant, the shares of Common Stock issuable upon exercise of all
options and warrants to acquire Common Stock and upon conversion of all
instruments convertible into Common Stock shall be deemed issued and
outstanding);
(b) PROPER ISSUANCE. Company, at its expense, will take all
such action as may be necessary to assure that the Series D Preferred Stock
issuable upon the exercise of this Warrant, and the Common Stock issuable upon
the conversion of such Series D Preferred Stock, may be so issued without
violation of any applicable law or regulation, or of any requirements of any
domestic securities exchange upon which any capital stock of Company may be
listed. Such action may include, but not be limited to, causing such shares to
be duly registered or approved or listed on relevant domestic securities
exchanges; and
(c) FULLY PAID SHARES. Company will take all actions
necessary or appropriate to validly and legally issue (i) fully paid and
non-assessable shares of Series D Preferred Stock upon exercise of this Warrant
and (ii) fully paid and non-assessable shares of Common Stock upon conversion of
such shares of Series D Preferred Stock. All such shares will be free from all
taxes, liens and charges with respect to the issuance thereof, other than any
stock transfer taxes in respect to any transfer occurring contemporaneously with
such issuance.
ARTICLE VII
MISCELLANEOUS
7.1. CERTAIN EXPENSES. Company shall pay all expenses in connection
with, and all taxes (other than stock transfer taxes) and other governmental
charges that may be imposed in respect of, the issuance, sale and delivery of
the Warrant, the Warrant Shares and the shares of Common Stock issuable upon
conversion of the Warrant Shares.
7.2. REMEDIES. Company stipulates that the remedies at law of
Holder in the event of any default or threatened default by Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate to the fullest extent permitted by law, and that such terms
may be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof or otherwise.
7.3. ENFORCEMENT COSTS. If any party to, or beneficiary of, this
Warrant seeks to
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enforce its rights hereunder by legal proceedings or otherwise, then the
non-prevailing party shall pay all reasonable costs and expenses incurred by
the prevailing party, including, without limitation, all reasonable
attorneys' fees (including the allocable costs of in-house counsel).
7.4. NOTICES. Any notice, demand or delivery to be made pursuant to
this Warrant will be sufficiently given or made if sent by first class mail,
postage prepaid, addressed to (a) Holder and the Shareholders at their last
known addresses appearing on the books of Company maintained for such purpose or
(b) Company at its Principal Executive Office. Holder, the Shareholders and
Company may each designate a different address by notice to the other pursuant
to this section. A notice shall be deemed effective upon the earlier of (i)
receipt or (ii) the third day after mailing in accordance with the terms of this
Section 7.3.
7.5. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon
Company and any Person succeeding Company by merger, consolidation or
acquisition of all or substantially all of Company's assets, and all of the
obligations of Company with respect to the shares of Series D Preferred Stock
issuable upon exercise of this Warrant and the shares of Common Stock issuable
upon the conversion of such shares of Series D Preferred Stock, shall survive
the exercise, expiration or termination of this Warrant and all of the covenants
and agreements of Company shall inure to the benefit of Holder, each Shareholder
and their respective successors and assigns.
7.6. MODIFICATION; SEVERABILITY. If, in any action before any court
or agency legally empowered to enforce any term, any term is found to be
unenforceable, then such term shall be deemed modified to the extent necessary
to make it enforceable by such court or agency. If any term is not curable as
set forth in this section, the unenforceability of such term shall not affect
the other provisions of this Warrant but this Warrant shall be construed as if
such unenforceable term had never been contained herein.
7.7. AMENDMENT. This Warrant may not be modified or amended except
by written agreement of Company and Holder.
7.8. HEADINGS. The headings of the Articles and Sections of this
Warrant are for the convenience of reference only and shall not, for any
purpose, be deemed a part of this Warrant.
7.9. GOVERNING LAW. This Warrant shall be governed by, and
construed in accordance with, the laws of the State of California, without
giving effect to conflicts of law principles.
IN WITNESS WHEREOF, Company has caused this Warrant to be executed by its
duly authorized officer as of August 10, 1998.
GRIC COMMUNICATIONS, INC.
By:___________________________________
Name:_________________________________
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Title:________________________________
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SCHEDULE OF EXHIBITS
EXHIBIT "A" - Notice of Exercise (Section 2.1)
EXHIBIT "B" - Investment Representation Certificate (Section 3.2(a))
EXHIBIT "C" - Assignment Form (Section 3.2(d))
EXHIBIT "D" - Rights Agreement (Article I)
EXHIBIT "E" - Amendment to Rights Agreement (Article V)
<PAGE>
EXHIBIT "A"
NOTICE OF EXERCISE FORM
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered Holder of the within Warrant hereby irrevocably
exercises the within Warrant for and purchases shares of Series D Preferred
Stock of GRIC COMMUNICATIONS, INC. and herewith makes payment therefor in the
amount of $____________, all at the price and on the terms and conditions
specified in the within Warrant and requests that a certificate (or ___________
certificates in denominations of shares) for the shares of Series D Preferred
Stock of GRIC COMMUNICATIONS, INC. hereby purchased be issued in the name of and
delivered to (choose one) (a) the undersigned, or (b) *[NAME], whose address is
_______________________________and, if such shares of Series D Preferred Stock
shall not include all the shares of Series D Preferred Stock issuable as
provided in the within Warrant, that a new Warrant of like tenor for the number
of shares of Series D Preferred Stock of GRIC COMMUNICATIONS, INC. not being
purchased hereunder be issued in the name of and delivered to (choose one) (a)
the undersigned, or (b) *[NAME], whose address is ____________________________.
Dated: _________________, 199___
Signature Guaranteed __________________________________
By:_______________________________________
(Signature of Registered Holder)
__________________________________
NOTICE: The signature to this Notice of Exercise must correspond with the name
as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatever.
The signature to this Notice of Exercise must be guaranteed by a
commercial bank or trust company in the United States or a member
firm of the New York Stock Exchange.
<PAGE>
EXHIBIT "B"
INVESTMENT REPRESENTATION CERTIFICATE
Purchaser:
Company: GRIC COMMUNICATIONS, INC.
Security: Series D Preferred Stock
Amount:
Date:
In connection with the purchase of the above-listed securities (the
"SECURITIES"), the undersigned (the "PURCHASER") represents to Company as
follows:
The Purchaser is aware of Company's business affairs and financial condition,
and has acquired sufficient information about Company to reach an informed and
knowledgeable decision to acquire the Securities. The Purchaser is purchasing
the Securities for its own account for investment purposes only and not with a
view to, or for the resale in connection with, any "distribution" thereof for
purposes of the Securities Act of 1933, as amended (the "SECURITIES ACT");
The Purchaser understands that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefor, which exemption
depends upon, among other things, the bona fide nature of the Purchaser's
investment intent as expressed herein. In this connection, the Purchaser
understands that, in the view of the Securities and Exchange Commission ("SEC"),
the statutory basis for such exemption may be unavailable if the Purchaser's
representation was predicated solely upon a present intention to hold these
Securities for the minimum capital gains period specified under tax statutes,
for a deferred sale, for or until an increase or decrease in the market price of
the Securities, or for a period of one year or any other fixed period in the
future;
The Purchaser further understands that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, the Purchaser understands
that Company is under no obligation to register the Securities. In addition,
the Purchaser understands that the certificate evidencing the Securities will be
imprinted with the legend referred to in the Warrant under which the Securities
are being purchased;
The Purchaser is aware of the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permit limited public resale of "restricted
securities" acquired, directly or indirectly, from the issuer thereof (or from
an affiliate of such issuer), in a non-public offering subject to the
satisfaction of certain conditions, if applicable, including, among other
things: (i) the availability of certain public information about Company; (ii)
the resale occurring not less than one (1) year after the party has purchased
and paid for the securities to be sold; (iii) the sale being made through a
broker in an
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unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934) and
the amount of securities being sold during any three-month period not
exceeding the specified limitations stated therein;
The Purchaser further understands that at the time it wishes to sell the
Securities there may be no public market upon which to make such a sale, and
that, even if such a public market upon which to make such a sale then exists,
Company may not be satisfying the current public information requirements of
Rule 144, and that, in such event, the Purchaser may be precluded from selling
the Securities under Rule 144 even if the one (1) year minimum holding period
had been satisfied; and
The Purchaser further understands that in the event all of the requirements of
Rule 144 are not satisfied, registration under the Securities Act, compliance
with Regulation A, or some other registration exemption will be required; and
that, notwithstanding the fact that Rule 144 is not exclusive, the staff of the
SEC has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
The Purchaser represents that it is an "Accredited Investor" as such term is
defined in Rule 501 of the Securities Act.
Date: _________________, 199___
PURCHASER:
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<PAGE>
EXHIBIT "C"
ASSIGNMENT FORM
(To be executed only upon the assignment of
the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the within Warrant
hereby sells, assigns and transfers unto ______________________________________,
whose address is _____________________________________________ all of the rights
of the undersigned under the within Warrant, with respect to shares of Series D
Preferred Stock of GRIC COMMUNICATIONS, INC. and, if such shares of Series D
Preferred Stock shall not include all the shares of Series D Preferred Stock
issuable as provided in the within Warrant, that a new Warrant of like tenor for
the number of shares of Series D Preferred Stock of GRIC COMMUNICATIONS, INC.
not being transferred hereunder be issued in the name of and delivered to the
undersigned, and does hereby irrevocably constitute and appoint ______________
________________________ attorney to register such transfer on the books of
GRIC COMMUNICATIONS, INC. maintained for the purpose, with full power
of substitution in the premises.
Dated: _____________________, 199___
Signature Guaranteed ______________________________
By:______________________________________
(Signature of Registered Holder)
Title:________________________
NOTICE: The signature to this Assignment must correspond with the name upon
the face of the within Warrant in every particular, without
alteration or enlargement or any change whatever.
The signature to this Notice of Assignment must be guaranteed by a
commercial bank or trust company in the United States or a member
firm of the New York Stock Exchange.
<PAGE>
EXHIBIT "D"
RIGHTS AGREEMENT
(Article I)
<PAGE>
EXHIBIT "E"
AMENDMENT TO RIGHTS AGREEMENT
(Article V)
<PAGE>
_______________________________________________________________________________
LOAN AND SECURITY AGREEMENT
GRIC COMMUNICATIONS, INC.
_______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
1 ACCOUNTING AND OTHER TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2 LOAN AND TERMS OF PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.1 Credit Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.2 Interest Rate, Payments.. . . . . . . . . . . . . . . . . . . . . . . . . .4
2.3 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3 CONDITIONS OF LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.1 Conditions Precedent to Initial Credit Extension. . . . . . . . . . . . . .5
3.2 Conditions Precedent to all Credit Extensions.. . . . . . . . . . . . . . .5
4 CREATION OF SECURITY INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . .5
4.1 Grant of Security Interest. . . . . . . . . . . . . . . . . . . . . . . . .5
5 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . .5
5.1 Due Organization and Authorization. . . . . . . . . . . . . . . . . . . . .5
5.2 Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.3 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.4 No Material Adverse Change in Financial Statements. . . . . . . . . . . . .6
5.5 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.6 Regulatory Compliance.. . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.7 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.8 Full Disclosure.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6 AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
6.1 Government Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . .7
6.2 Financial Statements, Reports, Certificates.. . . . . . . . . . . . . . . .7
6.3 Inventory; Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
6.4 Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
6.5 Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
6.6 Primary Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
6.7 Registration of Intellectual Property Rights. . . . . . . . . . . . . . . .8
6.8 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
7 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
7.1 Dispositions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
7.2 Changes in Business, Ownership, Management or Business Locations. . . . . .8
7.3 Mergers or Acquisitions.. . . . . . . . . . . . . . . . . . . . . . . . . .8
7.4 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
7.5 Encumbrance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
7.6 Distributions; Investments. . . . . . . . . . . . . . . . . . . . . . . . .9
7.7 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . .9
7.8 Subordinated Debt.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
7.9 Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
8 EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
8.1 Payment Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
8.2 Covenant Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
8.3 Material Adverse Change.. . . . . . . . . . . . . . . . . . . . . . . . . .9
2
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8.4 Attachment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.5 Insolvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.6 Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.7 Judgments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.8 Misrepresentations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9 BANK'S RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.1 Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.2 Power of Attorney.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.3 Accounts Collection.. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.4 Bank Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.5 Bank's Liability for Collateral.. . . . . . . . . . . . . . . . . . . . . 12
9.6 Remedies Cumulative.. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.7 Demand Waiver.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
11 CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER . . . . . . . . . . . . . . . . . . 12
12 GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . 12
12.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.3 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.4 Severability of Provision. . . . . . . . . . . . . . . . . . . . . . . . 13
12.5 Amendments in Writing, Integration.. . . . . . . . . . . . . . . . . . . 13
12.6 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.7 Survival.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.8 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.9 Attorneys' Fees, Costs and Expenses. . . . . . . . . . . . . . . . . . . 13
13 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
13.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
3
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THIS LOAN AND SECURITY AGREEMENT dated November 5, 1998, between SILICON
VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara,
California 95054 and GRIC COMMUNICATIONS, INC. ("Borrower"), whose address is
1421 McCarthy Boulevard, Milpitas, California 95035 provides the terms on
which Bank will lend to Borrower and Borrower will repay Bank. The parties
agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed
following GAAP Calculations and determinations must be made following GAAP.
The term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. This Agreement shall be construed
to impart upon Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS.
Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit
Extensions.
2.1.1 BRIDGE LOAN.
(a) Bank will make advances ("Bridge Loan Advance" and, collectively,
"Bridge Loan Advances"), not exceeding the Committed Bridge Loan through the
Bridge Loan Maturity Date when all outstanding Bridge Loan Advances plus all
accrued interest will be due and payable. Bridge Loan Advances, when repaid,
may not be reborrowed.
(b) To obtain a Bridge Loan Advance, Borrower must notify Bank (the
notice is irrevocable) by facsimile no later than 3:00 p.m. Pacific time 1
Business Day before the day on which the Bridge Loan Advance is to be made.
The notice must be in the form of Exhibit B. The notice must be signed by a
Responsible Officer or designee.
2.2 INTEREST RATE, PAYMENTS.
(a) Interest Rate. Bridge Loan Advances accrue interest on the
outstanding principal balance at a per annum rate of 0.5 percentage points
above the Prime Rate. After an Event of Default, Obligations shall accrue
interest at 5 percent above the rate effective immediately before the Event
of Default. The interest rate increases or decreases when the Prime Rate
changes. Interest is computed on a 360 day year for the actual number of
days elapsed.
(b) Payments. Interest due on the Bridge Loan is payable on the last
day of each month. Bank may debit any of Borrower's deposit accounts
including Account Number 3300024990 for principal and interest
payments or any amounts Borrower owes Bank. Bank will notify Borrower when
it debits Borrower's accounts. These debits are not a set-off. Payments
received after 12:00 noon Pacific time are considered received at the opening
of business on the next Business Day. When a payment is due on a day that is
not a Business Day, the payment is due the next Business Day and additional
fees or interest accrue.
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2.3 FEES.
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Fee of
$7,500 due on the Closing Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys'
fees and expenses) incurred through and after the date of this Agreement, are
payable when due.
3 CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the agreements, documents and fees it
requires and
Borrower meets the criteria described in the definition of Committed
Bridge Loan.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of
each Credit Extension and no Event of Default may have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on that date that the representations
and warranties of Section 5 remain true.
4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and
performance of each of Borrower's duties under the Loan Documents. Except
for Permitted Liens, any security interest will be a first priority security
interest in the Collateral. Bank may place a "hold" on any deposit account
pledged as Collateral.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in
good standing in, any state in which the conduct of its business or its
ownership of property requires that it be qualified.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower
is bound. Borrower is not in default under any agreement to which or by
which it is bound in which the default could cause a Material Adverse Change.
5
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5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except
Permitted Liens. All Inventory is in all material respects of good and
marketable quality, free from material defects. Borrower is the sole owner
of the Intellectual Property, except for non-exclusive licenses granted to
its customers in the ordinary course of business. Each Patent is valid and
enforceable and no part of the Intellectual Property has been judged invalid
or unenforceable, in whole or in part, and no claim has been made that any
part of the Intellectual Property violates the rights of any third party.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 SOLVENCY.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; and Borrower is
able to pay its debts (including trade debts) as they mature.
5.6 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not
engaged as one of its important activities in extending credit for margin
stock (under Regulations G, T and U of the Federal Reserve Board of
Governors). Borrower has complied with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of
which could cause a Material Adverse Change. None of Borrower's or any
Subsidiary's properties or assets has been used by Borrower or any Subsidiary
or, to the best of Borrower's knowledge, by previous Persons, in disposing,
producing, storing, treating, or transporting any hazardous substance other
than legally. Borrower and each Subsidiary has timely filed all required tax
returns and paid, or made adequate provision to pay, all taxes, except those
being contested in good faith with adequate reserves under GAAP. Borrower
and each Subsidiary has obtained all consents, approvals and authorizations
of, made all declarations or filings with, and given all notices to, all
government authorities that are necessary to continue its business as
currently conducted.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
6
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6 AFFIRMATIVE COVENANTS
Borrower will do all of the following:
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and
good standing in its jurisdiction of formation and maintain qualification in
each jurisdiction in which the failure to so qualify could have a material
adverse effect on Borrower's business or operations. Borrower will comply,
and have each Subsidiary comply, with all laws, ordinances and regulations to
which it is subject, noncompliance with which could have a material adverse
effect on Borrower's business or operations or cause a Material Adverse
Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no
later than 30 days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's
consolidated operations during the period, in a form and certified by a
Responsible Officer acceptable to Bank; (ii) a prompt report of any legal
actions pending or threatened against Borrower or any Subsidiary that could
result in damages or costs to Borrower or any Subsidiary of $100,000 or more;
(iii) budgets, sales projections, operating plans or other financial
information Bank requests; and (iv) prompt notice of any material change in
the composition of the Intellectual Property, including any subsequent
ownership right of Borrower in or to any Copyright, Patent or Trademark not
shown in any intellectual property security agreement between Borrower and
Bank or knowledge of an event that materially adversely affects the value of
the Intellectual Property.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its
account debtors will follow Borrower's customary practices as they exist at
execution of this Agreement. Borrower must promptly notify Bank of all
returns, recoveries, disputes and claims, that involve more than $50,000.
6.4 TAXES.
Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments and will deliver
to Bank, on demand, appropriate certificates attesting to the payment.
6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks and
in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property
policies will have a lender's loss payable endorsement showing Bank as an
additional loss payee and all liability policies will show the Bank as an
additional insured and provide that the insurer must give Bank at least 20
days notice before canceling its policy. At Bank's request, Borrower will
deliver certified copies of policies and evidence of all premium payments.
Proceeds payable under any policy will, at Bank's option, be payable to Bank
on account of the Obligations.
6.6 DEPOSITORY ACCOUNT.
Borrower will maintain a depository account with Bank.
7
<PAGE>
6.7 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
Upon receipt of a written request from Bank, Borrower will register with
the United States Patent and Trademark Office or the United States Copyright
Office Intellectual Property rights on Exhibits A, B, C, and D to the
Intellectual Property Security Agreement within 30 days of the date of the
notice, and additional Intellectual Property rights developed or acquired
including revisions or additions with any product before the sale or
licensing of the product to any third party.
Borrower will (i) protect, defend and maintain the validity and
enforceability of the Intellectual Property and promptly advise Bank in
writing of material infringements and (ii) not allow any Intellectual
Property to be abandoned, forfeited or dedicated to the public without Bank's
written consent.
6.8 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action as
Bank requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
Borrower will not do any of the following:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part
of its business or property, other than Transfers (i) of Inventory in the
ordinary course of business; (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in
the ordinary course of business; or (iii) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or have a material
change in its ownership of greater than 25%. Borrower will not, without at
least 30 days prior written notice, relocate its chief executive office or
add any new office or business locations.
7.3 MERGERS OR ACQUISITIONS.
(i) Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, provided that this clause (i) will not apply if
no Event of Default has occurred and is continuing and such transaction would
not result in a decrease of more than 25% of Tangible Net Worth; or (ii)
merge or consolidate a Subsidiary into another Subsidiary or into Borrower.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or
permit any Collateral not to be subject to the first priority security
interest granted here.
8
<PAGE>
7.6 DISTRIBUTIONS; INVESTMENTS.
Except as permitted by the provisions of clause (i) of Section 7.3,
directly or indirectly acquire or own any Person, or make any Investment in
any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment
or redeem, retire or purchase any capital stock.
7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter or permit any material transaction with any
Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an
arm's length transaction with a non-affiliated Person.
7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document
relating to the Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an "investment
company," under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or
use the proceeds of any Advance for that purpose; fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal
Fair Labor Standards Act or violate any other law or regulation, if the
violation could have a material adverse effect on Borrower's business or
operations or cause a Material Adverse Change, or permit any of its
Subsidiaries to do so.
8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations and has not cured such
failure within 3 days after receipt of written notice from Bank of its
failure to pay such Obligation;
8.2 COVENANT DEFAULT.
If Borrower violates any covenant in Section 7 or does not perform or
observe any other material term, condition or covenant in this Agreement, any
Loan Documents, or in any agreement between Borrower and Bank and as to any
default under a term, condition or covenant that can be cured, has not cured
the default within 10 days after it occurs, or if the default cannot be cured
within 10 days or cannot be cured after Borrower's attempts within 10 day
period, and the default may be cured within a reasonable time, then Borrower
has an additional period (of not more than 30 days) to attempt to cure the
default. During the additional time, the failure to cure the default is not
an Event of Default (but no Credit Extensions will be made during the cure
period);
8.3 MATERIAL ADVERSE CHANGE.
(i) If there occurs a material impairment in the perfection or priority
of the Bank's security interest in the Collateral or in the value of such
Collateral which is not covered by adequate insurance or (ii) if the
9
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Bank determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the covenants in Section 6 during the next
succeeding financial reporting period.
8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of
its business or if a judgment or other claim becomes a Lien on a material
portion of Borrower's assets, or if a notice of lien, levy, or assessment is
filed against any of Borrower's assets by any government agency and not paid
within 10 days after Borrower receives notice. These are not Events of
Default if stayed or if a bond is posted pending contest by Borrower (but no
Credit Extensions will be made during the cure period);
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 45 days (but no Credit Extensions will be made
before any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $100,000 or that could cause a Material Adverse Change;
8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or
8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are
immediately due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that Bank considers advisable;
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(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take
and maintain possession of any part of the Collateral (subject to any
Permitted Liens), and pay, purchase, contest, or compromise any Lien which
appears to be prior or superior to its security interest and pay all expenses
incurred. Borrower grants Bank a license to enter and occupy any of its
premises, without charge, to exercise any of Bank's rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral. Bank is granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, Patents, Copyrights, Mask Works, rights of use of any
name, trade secrets, trade names, Trademarks, service marks, and advertising
matter, or any similar property as it pertains to the Collateral, in
completing production of, advertising for sale, and selling any Collateral
and, in connection with Bank's exercise of its rights under this Section,
Borrower's rights under all licenses and all franchise agreements inure to
Bank's benefit; and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's
name on any checks or other forms of payment or security; (ii) sign
Borrower's name on any invoice or bill of lading for any Account or drafts
against account debtors, (iii) make, settle, and adjust all claims under
Borrower's insurance policies; (iv) settle and adjust disputes and claims
about the Accounts directly with account debtors, for amounts and on terms
Bank determines reasonable; and (v) transfer the Collateral into the name of
Bank or a third party as the Code permits. Bank may exercise the power of
attorney to sign Borrower's name on any documents necessary to perfect or
continue the perfection of any security interest regardless of whether an
Event of Default has occurred. Bank's appointment as Borrower's attorney in
fact, and all of Bank's rights and powers, coupled with an interest, are
irrevocable until all Obligations have been fully repaid and performed and
Bank's obligation to provide Credit Extensions terminates.
9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and
verify the amount of the Account. Borrower must collect all payments in
trust for Bank and, if requested by Bank, immediately deliver the payments to
Bank in the form received from the account debtor, with proper endorsements
for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to
make similar payments in the future or Bank's waiver of any Event of Default.
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9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices it is not liable for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other person. Borrower bears all risk of
loss, damage or destruction of the Collateral.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.
9.7 DEMAND WAIVER.
Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10 NOTICES
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice.
11 CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Clara County, California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
This Agreement binds and is for the benefit of the successors and permitted
assigns of each party. Borrower may not assign this Agreement or any rights
under it without Bank's prior written consent which may be granted or withheld
in Bank's discretion. Bank has the right, without the consent of or notice to
Borrower, to sell, transfer, negotiate, or grant participation in all or any
part of, or any interest in, Bank's obligations, rights and benefits under this
Agreement.
12
<PAGE>
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other provision in
determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by Borrower
and Bank. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement and
the Loan Documents.
12.6 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 12.2 to indemnify Bank will survive until all
statutes of limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information
that either: (a) is in the public domain or in Bank's possession when disclosed
to Bank, or becomes part of the public domain after disclosure to Bank; or (b)
is disclosed to Bank by a third party, if Bank does not know that the third
party is prohibited from disclosing the information.
12.9 ATTORNEYS' FEES, COSTS AND EXPENSES.
13
<PAGE>
In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other costs and expenses incurred, in addition to any other
relief to which it may be entitled.
13 DEFINITIONS
13.1 DEFINITIONS.
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"BANK EXPENSES" are all reasonable audit fees and expenses and reasonable
out of pocket costs or expenses (including reasonable attorneys' fees and
expenses) for defending and enforcing the Loan Documents (including appeals or
Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.
"BRIDGE LOAN ADVANCE" is defined in Section 2.1.1.
"BRIDGE LOAN MATURITY DATE" is the earlier of (i) the date of the Equity
Event or (ii) November 30, 1998.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the California Uniform Commercial Code.
"COLLATERAL" is the property described on EXHIBIT A.
"COMMITTED BRIDGE LOAN" is a Credit Extension of up to $1,500,000 provided,
however, the Bridge Loan Advances will be available as follows: (i) up to
$750,000 shall be available to Borrower at such time as Borrower delivers to
Bank an executed engagement letter from an investment bank acceptable to Bank;
and (ii) .the remaining $750,000 shall be available to Borrower upon Bank's
receipt of documentation from Borrower showing that it has received commitments
or received actual proceeds of a minimum of $1,500,000 from existing investors
since August 14, 1998.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to
14
<PAGE>
protect a Person against fluctuation in interest rates, currency exchange
rates or commodity prices; but "Contingent Obligation" does not include
endorsements in the ordinary course of business. The amount of a Contingent
Obligation is the stated or determined amount of the primary obligation for
which the Contingent Obligation is made or, if not determinable, the maximum
reasonably anticipated liability for it determined by the Person in good
faith; but the amount may not exceed the maximum of the obligations under the
guarantee or other support arrangement.
"COPYRIGHTS" are all copyright rights, applications or registrations and
like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.
"CREDIT EXTENSION" is each Bridge Loan Advance or any other extension of
credit by Bank for Borrower's benefit.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"EQUITY EVENT" is Borrower's receipt of new equity from the sale of its
Series D Preferred stock in an amount equal to or greater than the Bridge Loan
Advances.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"GAAP" is generally accepted accounting principles.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred price
of property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INTELLECTUAL PROPERTY" is:
(a) Copyrights, Trademarks, Patents, and Mask Works including
amendments, renewals, extensions, and all licenses or other rights to use and
all license fees and royalties from the use;
(b) Any trade secrets and any intellectual property rights in
computer software and computer software products now or later existing, created,
acquired or held;
(c) All design rights which may be available to Borrower now or later
created, acquired or held;
(d) Any claims for damages (past, present or future) for infringement
of any of the rights above, with the right, but not the obligation, to sue and
collect damages for use or infringement of the intellectual property rights
above;
All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments.
"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
15
<PAGE>
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MASK WORKS" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.
"PATENTS" are patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other Loan
Document;
(b) Indebtedness existing on the Closing Date and shown on the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
16
<PAGE>
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, IF they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower or
its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, IF the Lien is confined to the
property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease or license, IF the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), BUT any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to Borrower's
debt to Bank (and identified as subordinated by Borrower and Bank).
"SUBSIDIARY" is for any Person, or any other business entity of which more
than 50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by the Person or one or more Affiliates of the Person.
"TRADEMARKS" are trademark and servicemark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Assignor connected with the trademarks.
BORROWER: BANK:
GRIC Communications, Inc. Silicon Valley Bank
By: By:
Title: Title:
17
<PAGE>
SCHEDULE OF EXCEPTIONS
to Section 13 of Agreement
PERMITTED INDEBTEDNESS
Borrower has an outstanding equipment lease financing line with Phoenix
Leasing Incorporated ("Phoenix") in the aggregate amount of $2 million ("Phoenix
Lease").
Borrower has received an aggregate of $2.7 million from three of its
existing stockholders pursuant to convertible promissory notes dated on or about
September 3, 1998 ("Investor Notes"). The indebtedness represented by the
Investor Notes is expressly subordinated in right of payment to the prior
payment in full of all of Borrower's indebtedness to Phoenix Leasing
Incorporated and Silicon Valley Bank.
PERMITTED INVESTMENTS
Borrower holds 100% of the shares of GRIC International Corporation, a
Delaware Corporation.
PERMITTED LIENS
Borrower has deposited the source code for its GRICbilling 3.0 software
with Data Securities International, Inc., a source code escrow agent, in
connection with a license agreement entered into between Borrower and AUNET
Corporation.
Equipment purchased with proceeds from the Phoenix Lease is subject to a
first priority purchase money lien in favor of Phoenix ("Phoenix Lien").
NEW OFFICES
Borrower is in the process of establishing branch offices of its
subsidiary, GRIC International Corporation, in Taiwan and Korea.
<PAGE>
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds covering inventory losses, resulting from the sale or
disposition of any of the foregoing and any documents of title representing any
of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
2
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
------------------------
FAX#: (408) 496-2426 TIME:
------------------------
- ------------------------------------------------------------------------------
FROM: GRIC Communications, Inc.
-----------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
----------------------------------------------------------
PHONE NUMBER: (408) 955-1920
FROM ACCOUNT # TO ACCOUNT #
------------------ --------------------------
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $
--------------------------------------
PRINCIPAL PAYMENT (ONLY) $
--------------------------------------
INTEREST PAYMENT (ONLY) $
--------------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
--------------------------------------
OTHER INSTRUCTIONS:
----------------------------------------------------------
- ------------------------------------------------------------------------------
All Borrower's representations and warranties in the Loan and Security
Agreement are true, correct and complete in all material respects on the date
of the telephone request for and Advance confirmed by this Borrowing
Certificate; but those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as
of that date.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- --------------------------------- -----------------------------------
Authorized Requester Phone #
- --------------------------------- -----------------------------------
Received By (Bank) Phone #
------------------------------
Authorized Signature (Bank)
- ------------------------------------------------------------------------------
<PAGE>
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
<TABLE>
<S> <C>
BORROWER: GRIC COMMUNICATIONS, INC.
LOAN OFFICER: PAUL KAO
DATE: NOVEMBER 5, 1998
BRIDGE LOAN FEE $6,200.00
CREDIT REPORT 35.00
UCC SEARCH FEE 150.00
UCC FILING FEE 40.00
INTELLECTUAL PROPERTY FILING FEES 550.00
DOCUMENTATION FEE 750.00
TOTAL FEE DUE $7,725.00
</TABLE>
PLEASE INDICATE THE METHOD OF PAYMENT:
{ } A CHECK FOR THE TOTAL AMOUNT IS ATTACHED.
{ } DEBIT DDA # __________________ FOR THE TOTAL AMOUNT.
{ } LOAN PROCEEDS
BORROWER:
BY:
--------------------------------------------
(AUTHORIZED SIGNER)
- ----------------------------------------------
SILICON VALLEY BANK (DATE)
ACCOUNT OFFICER'S SIGNATURE
<PAGE>
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of
November 5, 1998 by and between SILICON VALLEY BANK ("Bank") and
GRIC Communications, Inc. ("Grantor").
RECITALS
A. Bank has agreed to make certain advances of money and to extend
certain financial accommodation to Grantor (the "Loans") in the amounts and
manner set forth in that certain Loan and Security Agreement by and between Bank
and Grantor dated October __, 1998 (as the same may be amended, modified or
supplemented from time to time, the "Loan Agreement"; capitalized terms used
herein are used as defined in the Loan Agreement). Bank is willing to make the
Loans to Grantor, but only upon the condition, among others, that Grantor shall
grant to Bank a security interest in certain Copyrights, Trademarks, Patents,
and Mask Works to secure the obligations of Grantor under the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
AGREEMENT
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including
without limitation those Copyrights, Patents, Trademarks and Mask Works listed
on Schedules A, B, C, and D hereto), and including without limitation all
proceeds thereof (such as, by way of example but not by way of limitation,
license royalties and proceeds of infringement suits), the right to sue for
past, present and future infringements, all rights corresponding thereto
throughout the world and all re-issues, divisions continuations, renewals,
extensions and continuations-in-part thereof.
This security interest is granted in conjunction with the security interest
granted to Bank under the Loan Agreement. The rights and remedies of Bank with
respect to the security interest granted hereby are in addition to those set
forth in the Loan Agreement and the other Loan Documents, and those which are
now or hereafter available to Bank as a matter of law or equity. Each right,
power and remedy of Bank provided for herein or in the Loan Agreement or any of
the Loan Documents, or now or hereafter existing at law or in equity shall be
cumulative and concurrent and shall be in addition to every right, power or
remedy provided for herein and the exercise by Bank of any one or more of the
rights, powers or remedies provided for in this Intellectual Property Security
Agreement, the Loan Agreement or any of the other Loan Documents, or now or
hereafter existing at law or in equity, shall not preclude the simultaneous or
later exercise by any person, including Bank, of any or all other rights, powers
or remedies.
<PAGE>
IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
GRANTOR:
Address of Grantor: GRIC Communications, Inc.
1421 McCarthy Boulevard By:
- ---------------------------- ----------------------------
Milpitas, CA 95035 Title:
- ---------------------------- --------------------------
Attn:
------------------------
BANK:
Address of Bank: SILICON VALLEY BANK
3003 Tasman Drive By:
Santa Clara, CA 95054-1191 -----------------------------
Title:
Attn: --------------------------
-----------------------
<PAGE>
EXHIBIT A
Copyrights
Borrower has no registered copyrights
EXHIBIT B
Patents
On October 9, 1996, Borrower filed a patent application with the U.S. P.T.O for
"Apparatus and Method for Authorizing Remote Internet Access," which has been
assigned Serial No. 08/727,996. The application has not yet been adjudicated.
On October 10, 1997, Borrower filed a patent application for "Internet
Settlement System," which has been assigned Serial No. 08/949,068. The
application has not yet been adjudicated.
No patent filings have been made outside the United States.
<PAGE>
EXHIBIT C
Trademarks
Borrower has made trademark filings for the mark "GRIC" in the U.S. and several
foreign jurisdictions. No filings have been made for any of Borrower's other
marks.
In the U.S., an application to register the GRIC mark was filed in the name of
Aimquest Corporation on Janaury 23, 1997. A request to record the change of
name to GRIC Communications, Inc. was filed on March 17, 1998 and the name
change was recorded with the Assignment Branch as of March 19, 1998 (Frame No.
1707-0206). Borrower recently was notified that the mark will be published for
opposition on October 13, 1998.
The foreign applications have been filed for protection in one or more of
Classes 9, 35, 38 and 42, depending on the jurisdiction.
<PAGE>
EXHIBIT D
Mask Works
Not Applicable
<PAGE>
CORPORATE BORROWING RESOLUTION
BORROWER: GRIC COMMUNICATIONS, INC. BANK: SILICON VALLEY BANK
1421 MCCARTHY BOULEVARD 3003 TASMAN DRIVE
MILPITAS, CA 95035 SANTA CLARA, CA 95054-1191
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF GRIC COMMUNICATIONS, INC.
("BORROWER"), HEREBY CERTIFY that Borrower is a corporation duly organized and
existing under and by virtue of the laws of the State of California.
I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by other
duly authorized corporate action in lieu of a meeting), duly called and held, at
which a quorum was present and voting, the following resolutions were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers, employees, or
agents of Borrower, whose actual signatures are shown below:
<TABLE>
<CAPTION>
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
<S> <C> <C>
Tom Oswold Senior Vice President
and Chief Financial
Officer
David Teichmann Vice President, General
Counsel and Secretary
</TABLE>
acting for and on behalf of Borrower and as its act and deed be, and they hereby
are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers of
Borrower and Bank, such sum or sums of money as in their judgment should be
borrowed.
EXECUTE LOAN DOCUMENTS. To execute and deliver to Bank the loan documents
of Borrower, on Bank's forms, at such rates of interest and on such terms
as may be agreed upon, evidencing the sums of money so borrowed or any
indebtedness of Borrower to Bank, and also to execute and deliver to Bank
one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the loan documents, or
any portion of the loan documents.
GRANT SECURITY. To grant a security interest to Bank in any of Borrower's
assets, which security interest shall secure all of Borrower's obligations
to Bank
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to Borrower or in which Borrower may have an
interest, and either to receive cash for the same or to cause such proceeds
to be credited to the account of Borrower with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
LETTERS OF CREDIT. To execute letter of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.
FOREIGN EXCHANGE CONTRACTS. To execute and deliver foreign exchange
contracts, either spot or forward, from time to time, in such amount as, in
the judgment of the officer or officers herein authorized.
<PAGE>
ISSUE WARRANTS. To issue warrants to purchase Borrower's capital stock,
for such class, series and number, and on such terms, as an officer of
Borrower shall deem appropriate.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and perform such other acts and things, to pay any
and all fees and costs, and to execute and deliver such other documents and
agreements, including agreements waiving the right to a trial by jury, as
they may in their discretion deem reasonably necessary or proper in order
to carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of Borrower's agreements or commitments in effect at the
time notice is given.
I FURTHER CERTIFY that the persons named above are principal officers of the
Borrower and occupy the positions set opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Borrower; and that
they are in full force and effect and have not been modified or revoked in any
manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on October __, 1998 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X
----------------------------------------
*Secretary
X
----------------------------------------
Chief Financial Officer
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.
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EXHIBIT 10.22
SENIOR LOAN AND SECURITY AGREEMENT NO. 6170
THIS SENIOR LOAN AND SECURITY AGREEMENT NO. 6170 (this "Security Agreement") is
dated as of August 10, 1998 between GRIC COMMUNICATIONS, INC., a California
corporation ("Borrower") and PHOENIX LEASING INCORPORATED, a California
corporation ("Lender").
RECITALS
A. Borrower desires to borrow from Lender in one or more borrowings an
amount not to exceed $2,000,000 in the aggregate, and Lender desires to loan,
subject to the terms and conditions herein set forth, such amount to Borrower
(each, a "Loan" and collectively, the "Loans"). Such borrowings shall be
evidenced by one or more Senior Secured Promissory Notes (each, a "Note" and
collectively, the "Notes"), in the form attached hereto.
B. As security for Borrower's obligations to Lender under this Security
Agreement, the Notes and any other agreement between Borrower and Lender,
Borrower will grant to Lender hereunder a first priority security interest in
certain of its equipment, machinery, fixtures, other items and intangibles, and
also certain custom use equipment, installation and delivery costs, purchase
tax, toolings, software and other items generally considered fungible or
expendable ("Soft Costs") whether now owned by Borrower or hereafter acquired,
and all substitutions and replacements of and additions, improvements,
accessions and accumulations to said equipment, machinery and fixtures and other
items, together with all rents, issues, income, profits and proceeds therefrom
(collectively, the "Collateral") which is described on the Note attached hereto
or any subsequently-executed Note entered into by Lender and Borrower and which
incorporates this Security Agreement by reference.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
SECTION 1. TERM OF AGREEMENT. The term of this Security Agreement begins on
the date set forth above and shall continue thereafter and be in effect so long
as and at any time any Note entered into pursuant to this Security Agreement is
in effect. The Term and monthly payment amount payable with respect to each
item of Collateral shall be as set forth in and as stated in the respective
Note(s). The terms of each Note hereto are subject to all conditions and
provisions of this Security Agreement as it may at any time be amended. Each
Note shall constitute a separate and independent Loan and contractual obligation
of Borrower and shall incorporate the terms and conditions of this Security
Agreement and any additional provisions contained in such Note. In the event of
a conflict between the terms and conditions of this Security Agreement and any
provisions of such Note, the provisions of such Note shall prevail with respect
to such Note only.
SECTION 2. NON-CANCELABLE LOAN. This Security Agreement and each Note cannot
be canceled or terminated except as expressly provided herein. Borrower agrees
that its obligations to pay all monthly payment amounts and other sums payable
hereunder (and under any Note) and the rights of Lender and any assignee in and
to such rent and other sums, are absolute and unconditional and are not subject
to any abatement, reduction, setoff, defense, counterclaim or recoupment due or
alleged to be due to, or by reason of, any past, present or future claims which
Borrower may have against Lender, any assignee, the manufacturer or seller of
the Collateral, or against any person for any reason whatsoever.
SECTION 3. LENDER COMMITMENT. (a) GENERAL TERMS. Subject to the terms and
conditions of
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this Security Agreement and so long as no Event of Default or event which
with the giving of notice or passage of time, or both, could become an Event
of Default has occurred or is continuing, Lender hereby agrees to make one or
more senior secured Loans to Borrower, subject to the following conditions:
(i) each Loan shall be evidenced by a Note; (ii) the total principal amount
of the Loans shall not exceed $2,000,000 in the aggregate (the "Commitment")
provided that no more than 10% of the amount of the utilized Commitment may
be used to finance Soft Costs; (iii) at the time of each Loan, no Event of
Default or event which with the giving of notice or passage of time, or both,
could become an Event of Default shall have occurred and be continuing, as
reasonably determined by Lender, and certified by Borrower; (iv) the amount
of each Loan shall be at least $20,000 except for a final Loan which may be
less than $20,000; (v) Lender shall not be obligated to make any Loan after
December 31, 1998 provided that the funding period may be extended to April
30, 1999 if Lender has received and approved in its sole discretion
Borrower's monthly 1999 business plan; (vi) for each Loan, Borrower shall
present to Lender a list of proposed Collateral for approval by Lender in its
sole discretion; (vii) for each Loan, Borrower shall have provided Lender
with each of the closing documents not marked by an asterisk described in
Exhibit A hereto (which documents shall be in form and substance reasonably
acceptable to Lender); (viii) Borrower is performing substantially according
to its business plan referred to as "GRIC Communications 1998 Operating Plan,
GRIC Communications 1998 Operating Plan Balance Sheet and GRIC Communications
1998 Operating Plan Cash Flow Statement" dated February 19, 1998, viable
through December 31, 1998 only (the "Business Plan"), as may be amended from
time to time in form and substance acceptable to Lender; (ix) there shall be
no material adverse change in Borrower's condition, financial or otherwise,
that would materially impair the ability of Borrower to meet its payment and
other obligations under this Loan (a "Material Adverse Effect") as reasonably
determined by Lender, and Borrower so certifies, from (yy) the date of the
most recent financial statements delivered by Borrower to Lender to (zz) the
date of the proposed Loan; (x) Borrower shall use the proceeds of all Loans
hereunder to purchase or reimburse the purchase of Collateral; (xi) at the
time of each Loan, Borrower has reimbursed Lender for all UCC filing and
search costs, inspection and labeling costs, if any; (xii) all Collateral has
been marked and labeled by Lender or Lender's agent; (xiii) Borrower has
caused the First Amendment to Third Amended and Restated Registration Rights
Agreement dated as of August 10, 1998 to be executed by the necessary parties
by October 30, 1998; and (xiv) Lender has received in form and substance
acceptable to Lender: (a) Borrower's interim financial statements signed by a
financial officer of Borrower, (b) prior to the first funding, evidence of
Borrower's receipt of $5,500,000 equity by June 1998; (c) prior to the first
funding, evidence of Borrower's $6,100,000 cash position as of March 31,
1998; (d) prior to the first funding evidence of Borrower's receipt and
acceptance of an engagement letter from a reputable investment banker for
proceeding into a private placement of $20,000,000 of Borrower's stock; and
(e) when and as they become available complete copies of the Borrower's audit
reports for its most recent fiscal year, which shall include at least
Borrower's balance sheet as of the close of such year, and Borrower's
statement of income and retained earnings and of changes in financial
position for such year, prepared on a consolidated basis and certified by
independent public accountants. Such certificate shall not be qualified or
limited because of restricted or limited examination by such accountant of
any material portion of the company's records. Such reports shall be
prepared in accordance with generally accepted accounting principles and
practices consistently applied.
(b) THE NOTES. Each Loan shall be evidenced by a Note. Each Note shall
bear interest and be payable at the times and in the manner provided therein.
Following payment of the Indebtedness related to each Note, Lender shall return
such Note, marked "cancelled," to Borrower. Borrower has the ability to prepay
all outstanding Notes in whole but not in part only in the event that Lender
declines to consent to Borrower's merger into, consolidation with or conveyance
or transfer of its properties substantially as
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an entirety to any other person or entity. The prepayment amount shall be
the sum of (i) and (ii) below, discounting the amounts in (ii) at a rate of
6% per annum compounded monthly on the basis of a 360 day year: (i) all
amounts which may be then due or accrued to the payment date for all
outstanding Notes; (ii) as of such payment date, an amount equal to: (A) all
remaining monthly payments due under all outstanding Notes, and (B) 12
additional monthly payments for all outstanding Notes, the amounts of which
will be calculated in accordance with Election No. 2 in Section 30. The
prepayment conditions are as follows: (a) Borrower must provide Lender with
at least five (5) days' advance written notice of its intention to early
terminate; and (b) the early termination payment date must fall on a regular
monthly payment date.
SECTION 4. SECURITY INTERESTS. (a) Borrower hereby grants to Lender a first
security interest in all Collateral; (b) This Security Agreement secures (i)
the payment of the principal of and interest on the Notes and all other sums due
thereunder and under this Security Agreement (the "Indebtedness") and (ii) the
performance by Borrower of all of its other covenants now or hereafter existing
under the Notes, this Security Agreement and any other obligation owed by
Borrower to Lender (the "Obligations").
SECTION 5. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants that (a) it is in good standing under the laws of the state of its
formation, duly qualified to do business and will remain duly qualified during
the term of each Loan in each state where necessary to carry on its present
business and operations, including the jurisdiction(s) where the Collateral will
be located as specified on each Exhibit A to each Note, except where failure to
be so qualified would not have a Material Adverse Effect; (b) it has full
authority to execute and deliver this Security Agreement and the Notes and
perform the terms hereof and thereof, and this Security Agreement and the Notes
have been duly authorized, executed and delivered and constitute valid and
binding obligations of Borrower enforceable in accordance with their terms; (c)
the execution and delivery of this Security Agreement and the Notes will not
contravene any law, regulation or judgment affecting Borrower or result in any
breach of any material agreement or other instrument binding on Borrower; (d) no
consent of Borrower's shareholders or holder of any indebtedness, or filing
with, or approval of, any governmental agency or commission, which has not
already been obtained or performed, as appropriate, is a condition to the
performance of the terms of this Security Agreement or the Notes; (e) there is
no action or proceeding pending or threatened against Borrower before any court
or administrative agency which might have a Material Adverse Effect on the
business, financial condition or operations of Borrower; (f) at the time any
Loan is made hereunder, Borrower owns and will keep all of the Collateral free
and clear of all liens, claims and encumbrances, and, except for this Security
Agreement, there is no deed of trust, mortgage, security agreement or other
third party interest against any of the Collateral; (g) at the time any Loan is
made hereunder, Borrower has good and marketable title to the Collateral; (h) at
the time any Loan is made hereunder, all Collateral has been received, instaled
and is ready for use and is satisfactory in all respects for the purposes of
this Security Agreement; (i) the Collateral is, and will remain at all times
under applicable law, removable personal property, which is free and clear of
any lien or encumbrance except in favor of Lender, notwithstanding the manner in
which the Collateral may be attached to any real property; (j) all credit and
financial information submitted to Lender herewith or at any other time is and
will at the time given be true and correct in all material respects; and (k) the
security interest granted to Lender hereunder is a first priority security
interest.
SECTION 6. METHOD AND PLACE OF PAYMENT. Borrower shall pay to Lender, at such
address as Lender specifies in writing, all amounts payable to it under this
Security Agreement and the Notes.
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SECTION 7. LOCATION; INSPECTION; LABELS. All of the Collateral shall be
located at the address (the "Collateral Location") shown on Exhibit A to each
Note and shall not be moved without Lender's prior written consent which
location shall in all events be within the United States. All of the records
regarding the Collateral shall be located at 1421 McCarthy Blvd., Milpitas, CA
95035, or such other location of which Borrower has given notice to Lender in
accordance with this Security Agreement. Lender shall have the right to inspect
Collateral, including records relating thereto, and Borrower's books and records
at any time (upon reasonable notification) during regular business hours, such
books and records to be maintained in accordance with generally accepted
accounting principles. Borrower shall be responsible for all labor, material
and freight charges incurred in connection with any removal or relocation of
Collateral which is requested by Borrower and consented to by Lender, as well as
for any charges due to the installation or moving of the Collateral. Payments
under the Notes and under this Security Agreement shall continue during any
period in which the Collateral is in transit during a relocation. During
Borrower's regular business hours and upon at least two days' notice to
Borrower, Lender or its agent shall mark and label Collateral, which labels (to
be provided by Lender) shall state that such Collateral is subject to a security
interest of Lender, and Borrower shall keep such labels on the Collateral as so
labeled.
SECTION 8. COLLATERAL MAINTENANCE. (a) GENERAL. Borrower will reasonably
permit Lender to inspect each item of Collateral and its maintenance records
during Borrower's regular business hours. Borrower will at its sole expense
comply with all applicable laws, rules, regulations, requirements and orders
with respect to the use, maintenance, repair, condition, storage and operation
of each item of Collateral. Any addition or improvement that is so required or
cannot be so removed will immediately become Collateral of Lender. (b) SERVICE
AND REPAIR. Borrower will at its sole expense maintain and service and repair
any damage to each item of Collateral in a manner consistent with prudent
industry practice and Borrower's own practice so that such item of Collateral is
at all times (i) in the same condition as when delivered to Borrower, except for
ordinary wear and tear, and (ii) in good operating order for the function
intended by its manufacturer's warranties and recommendations.
SECTION 9. LOSS OR DAMAGE. Borrower assumes the entire risk of loss to the
Collateral through use, operation or otherwise. Borrower hereby indemnifies and
holds harmless Lender from and against all claims, loss of Loan payments, costs,
damages, and expenses relating to or resulting from any loss, damage or
destruction of the Collateral, any such occurrence being hereinafter called a
"Casualty Occurrence." No later than the first payment date following such
Casualty Occurrence, or, if there is no such payment date, no later than thirty
(30) days after such Casualty Occurrence, Borrower shall, at its election,
either: (a) repair the Collateral returning it to good operating condition, or
(b) replace the Collateral with Collateral acceptable to Lender in its
reasonable discretion, in good condition and repair taking all steps required by
Lender to perfect Lender's first priority security interest therein, which
replacement Collateral shall be subject to the terms of this Security Agreement,
or (c) on the first day payment is due on any Note following the Casualty
Occurrence, or if there is no such payment date, thirty (30) days after such
Casualty Occurrence, pay to Lender an amount equal to the Balance Due (as
defined below) for each lost or damaged item of Collateral. The Balance Due for
each such item is the sum of: (i) all amounts for each item which may be then
due or accrued to the payment date, plus (ii) as of such payment date, an amount
equal to the product of the fraction specified below times the sum of all
remaining payments under the respective Note, including the amount of any
mandatory or optional payment required or permitted to be paid by Borrower to
Lender at the maturity of the Note. The numerator of the fraction shall be the
collateral value (as set forth on the applicable Note) of the item and the
denominator shall be the aggregate collateral value of all items under the Note.
Upon the making of such payments, Lender shall release such item of Collateral
from its lien hereunder.
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SECTION 10. INSURANCE. Borrower at its expense shall keep the Collateral
insured against all risks of physical loss for at least the replacement value of
the Collateral (including, in the case of Collateral which is vehicles,
comprehensive and collision coverage) and in no event for less than the amount
payable following a Casualty Occurrence (as provided in Section 9). Such
insurance shall provide for a loss payable endorsement to Lender and/or any
assignee of Lender. Borrower shall maintain commercial general liability
insurance, including products liability and completed operations coverage, with
respect to loss or damage for personal injury, death or property damage in an
amount not less than $2,000,000 in the aggregate, (and in the case of Collateral
which is vehicles, in an amount not less than $1,000,000 covering bodily injury
and property damage in a combined single limit) naming Lender and/or Lender's
assignee as additional insured. Such insurance shall contain insurer's
agreement to give thirty (30) days' advance written notice to Lender before
cancellation or material change of any policy of insurance. Borrower will
provide Lender and any assignee of Lender with a certificate of insurance from
the insurer evidencing Lender's or such assignee's interest in the policy of
insurance. Such insurance shall cover any Casualty Occurrence to any unit of
Collateral. Notwithstanding anything in Section 9 or this Section 10 to the
contrary, this Security Agreement and Borrower's obligations hereunder shall
remain in full force and effect with respect to any unit of Collateral which is
not subject to a Casualty Occurrence. If Borrower fails to provide or maintain
insurance as required herein, Lender shall have the right, but shall not be
obligated, to obtain such insurance. In that event, Borrower shall pay to
Lender the cost thereof.
SECTION 11. MISCELLANEOUS AFFIRMATIVE COVENANTS. So long as any portion of the
Indebtedness is unpaid and as long as any of the Obligations are outstanding
Borrower will: (a) duly pay all governmental taxes and assessments at the time
they become due and payable; provided, however, Borrower may contest the same in
good faith so long as no payment default by Borrower has occurred and is
continuing; (b) comply with all applicable material governmental laws, rules
and regulations relating to its business and the Collateral where a failure to
comply would have a Material Adverse Effect; (c) take no action to adversely
affect Lender's security interest in the Collateral as a first and prior
perfected security interest; (d) furnish Lender with its annual audited
financial statements within ninety (90) days following the end of Borrower's
fiscal year, unaudited quarterly financial statements within forty-five (45)
days after the end of each fiscal quarter, and within thirty (30) days of the
end of each month a financial statement for that month prepared by Borrower, and
including an income statement and balance sheet, all of which shall be certified
by an officer of Borrower as true and correct and shall be prepared in
accordance with generally accepted accounting principles consistently applied,
and such other information as Lender may reasonably request; and (e) promptly
(but in no event more than five (5) days after the occurrence of such event)
notify Lender of any change in Borrower's condition during the commitment period
which constitutes a Material Adverse Effect, and of the occurrence of any Event
of Default.
SECTION 12. INDEMNITIES. Borrower will protect, indemnify and save harmless
Lender and any assignees from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including reasonable
attorneys' fees and expenses), imposed upon or incurred by or asserted against
Lender or any assignee of Lender by Borrower or any third party by reason of the
occurrence or existence (or alleged occurrence or existence) of any act or event
relating to or caused by any portion of the Collateral, or its purchase,
acceptance, possession, use, maintenance or transportation, including without
limitation, consequential or special damages of any kind, any failure on the
part of Borrower to perform or comply with any of the terms of this Security
Agreement or any Note, claims for latent or other defects, claims for patent,
trademark or copyright infringement and claims for personal injury, death or
property damage, including those based on Lender's negligence or strict
liability in tort
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and excluding only those based on Lender's gross negligence or willful
misconduct. In the event that any action, suit or proceeding is brought
against Lender by reason of any such occurrence, Borrower, upon Lender's
request, will, at Borrower's expense, resist and defend such action, suit or
proceeding or cause the same to be resisted and defended by counsel
designated and approved by Lender. Borrower's obligations under this Section
12 shall survive the payment in full of all the Indebtedness and the
performance of all Obligations with respect to acts or events occurring or
alleged to have occurred prior to the payment in full of all the Indebtedness
and the performance of all Obligations.
SECTION 13. TAXES. Borrower agrees to reimburse Lender (or pay directly if
instructed by Lender) and any assignee of Lender for, and to indemnify and hold
Lender and any assignee harmless from, all fees (including, but not limited to,
license, documentation, recording and registration fees), and all sales, use,
gross receipts, personal property, occupational, value added or other taxes,
levies, imposts, duties, assessments, charges, or withholdings of any nature
whatsoever, together with any penalties, fines, additions to tax, or interest
thereon (the foregoing collectively "Impositions"), except same as may be
attributable to Lender's income, arising at any time prior to or during the term
of any Notes or of this Security Agreement, or upon termination or early
termination of this Security Agreement and levied or imposed upon Lender
directly or otherwise by any Federal, state or local government in the United
States or by any foreign country or foreign or international taxing authority
upon or with respect to (a) the Collateral, (b) the exportation, importation,
registration, purchase, ownership, delivery, leasing, financing, possession,
use, operation, storage, maintenance, repair, return, sale, transfer of title,
or other disposition thereof, (c) the rentals, receipts, or earnings arising
from the Collateral, or any disposition of the rights to such rentals, receipts,
or earnings, (d) any payment pursuant to this Security Agreement or the Notes,
or (e) this Security Agreement, the Notes or any transaction or any part hereof
or thereof.
SECTION 14. RELEASE OF LIENS. Upon payment of all of the Indebtedness and
performance of all of the Obligations, Lender shall execute UCC termination
statements and such other documents as Borrower shall reasonably request to
evidence the release of Lender's lien relating to the Collateral.
SECTION 15. ASSIGNMENT. WITHOUT LENDER'S PRIOR WRITTEN CONSENT WHICH CONSENT
WILL NOT BE UNREASONABLY WITHHELD OR DELAYED, BORROWER SHALL NOT (a) ASSIGN,
TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS SECURITY AGREEMENT,
ANY NOTE, ANY COLLATERAL, OR ANY INTEREST THEREIN, (b) LEASE OR LEND COLLATERAL
OR PERMIT IT TO BE USED BY ANYONE OTHER THAN BORROWER OR BORROWER'S EMPLOYEES,
CONTRACTORS AND AGENTS OR (c) MERGE INTO, CONSOLIDATE WITH OR CONVEY OR TRANSFER
ITS PROPERTIES SUBSTANTIALLY AS AN ENTIRETY TO ANY OTHER PERSON OR ENTITY.
LENDER MAY ASSIGN ANY OF THE NOTES, THIS SECURITY AGREEMENT OR ITS SECURITY
INTEREST IN ANY OR ALL COLLATERAL, OR ANY OR ALL OF THE ABOVE, IN WHOLE OR IN
PART TO ONE OR MORE ASSIGNEES OR SECURED PARTIES WITHOUT NOTICE TO BORROWER. If
Borrower is given notice of such assignment it agrees to acknowledge receipt
thereof in writing and Borrower shall execute such additional documentation as
Lender's assignee and/or secured party shall reasonably require at Lender's
expense. Each such assignee and/or secured party shall have all of the rights,
but (except as provided in this Section 15) none of the obligations, of Lender
under this Security Agreement, unless such assignee or secured party expressly
agrees to assume such obligations in writing. Borrower shall not assert against
any assignee and/or secured party any defense, counterclaim or offset that
Borrower may have against Lender. Notwithstanding any such assignment, and
providing no Event of Default has occurred and is continuing, Lender, or its
assignees, secured parties, or their agents or assigns, shall not interfere with
Borrower's right to quietly enjoy use of Collateral subject to the terms and
conditions of
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this Security Agreement. Subject to the foregoing, the Notes and this
Security Agreement shall inure to the benefit of, and are binding upon, the
successors and assignees of the parties hereto. Borrower acknowledges that
any such assignment by Lender will not change Borrower's duties or
obligations under this Security Agreement and the Notes or increase any
burden or risk on Borrower.
SECTION 16. DEFAULT. (a) EVENTS OF DEFAULT. Any of the following events or
conditions shall constitute an "Event of Default" hereunder: (i) Borrower's
failure to pay any monies due to Lender hereunder or under any Note beyond the
tenth (10th) day after the same is due; (ii) Borrower's failure to comply with
its obligations under Section 10 or Section 15; (iii) any representation or
warranty of Borrower made in this Security Agreement or the Notes or in any
other agreement, statement or certificate furnished to Lender in connection with
this Security Agreement or the Notes shall prove to have been incorrect in any
material respect when made or given; (iv) Borrower's failure to comply with or
perform any material term, covenant or condition of this Security Agreement or
any Note or under any other agreement between Borrower and Lender or under any
lease or mortgage of real property covering the location of the Collateral if
such failure to comply or perform is not cured by Borrower within thirty (30)
days after Borrower knows of the noncompliance or nonperformance or notice from
Lender or such longer period that Borrower is diligently attempting to effect
such cure; (v) seizure of any of the Collateral under legal process; (vi) the
filing by or against Borrower or any guarantor under any guaranty executed in
connection with this Security Agreement ("Guarantor") of a petition for
reorganization or liquidation under the Bankruptcy Code or any amendment thereto
or under any other insolvency law providing for the relief of debtors; (vii) the
voluntary or involuntary making of an assignment of a substantial portion of its
assets by Borrower or by any Guarantor for the benefit of its creditors, the
appointment of a receiver or trustee for Borrower or any Guarantor or for any of
Borrower's or Guarantor's assets, the institution by or against Borrower or any
Guarantor of any formal or informal proceeding for dissolution, liquidation,
settlement of claims against or winding up of the affairs of Borrower or any
Guarantor provided that in the case of all such involuntary proceedings, same
are not dismissed within sixty (60) days after commencement; (viii) the making
by Borrower or by any Guarantor of a transfer of all or a material portion of
Borrower's or Guarantor's assets or inventory not in the ordinary course of
business; or (ix) any default or breach by any Guarantor of any of the terms of
its guaranty to Lender in connection with this Security Agreement.
(b) REMEDIES. If any Event of Default has occurred, Lender may in its
sole discretion exercise one or more of the following remedies with respect to
any or all of the Collateral: (i) declare due any or all of the aggregate sum
of all remaining payments under the Notes, including the amount of any mandatory
or optional payment required or permitted to be paid by Borrower to Lender at
the maturity of the Notes ("Remaining Payments"); (ii) proceed by appropriate
court action or actions either at law or in equity to enforce Borrower's
performance of the applicable covenants of the Notes and this Security Agreement
or to recover all damages and expenses incurred by Lender by reason of an Event
of Default; (iii) except as provided by law, without court order or prior
demand, enter upon the premises where the Collateral is located and take
immediate possession of and remove it without liability of Lender to Borrower or
any other person or entity; (iv) terminate this Security Agreement and sell the
Collateral at public or private sale, or otherwise dispose of, hold, use or
lease any or all of the Collateral in a commercially reasonable manner; or (v)
exercise any other right or remedy available to it under applicable law. If
Lender has declared due any or all of the Remaining Payments, Borrower will pay
immediately to Lender, without duplication, (A) the Remaining Payments, (B) all
amounts which may be then due or accrued, and (C) all other amounts due under
this Security Agreement and under the Notes (Lender's Return, as referred to
below, means the amounts described in clauses (A), (B) and (C) above). The net
proceeds of any sale or lease of such Collateral will be credited against
Lender's Return. The net
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proceeds of a sale of the Collateral pursuant to this Section 16(b) is
defined as the sales price of the Collateral less selling expenses,
including, without limitation, costs of remarketing the Collateral with
respect to such remarketing. The net proceeds of a lease of the Collateral
pursuant to this Section 16(b) is defied as the amount equal to the monthly
payments due under such lease (discounted at 6% per annum compounded monthly
on the basis of a 360 day year (the "Discount Rate") plus the residual value
of the Collateral at the end of the basic term of such lease, as reasonably
determined by Lender, and discounted at the Discount Rate.
Borrower agrees to pay all reasonable out-of-pocket costs of Lender incurred in
enforcement of this Security Agreement, the Notes or any instrument or agreement
required under this Security Agreement, including, but not limited to reasonable
attorneys' fees and litigation expenses and fees of collection agencies ("Remedy
Expenses"). At Lender's request, Borrower shall assemble the Collateral and
make it available to Lender at such time and location as Lender may reasonably
designate. Borrower waives any right it may have to redeem the Collateral.
Declaration that any or all amounts under this Security Agreement and/or the
Notes are immediately due and payable and Lender's taking possession of any or
all Equipment shall not terminate this Security Agreement or any of the Notes
unless Lender so notifies Borrower in writing. None of the above remedies is
intended to be exclusive but each is cumulative and may be enforced separately
or concurrently.
In addition to the foregoing remedies, if an Event of Default hereunder shall
have occurred and be continuing, Lender shall have the right to cause its
representative or representatives to attend any meeting of Borrower's Board of
Directors or any committee thereof. In such case, Borrower shall provide Lender
with the same notice of any such Board or committee meeting that is given to the
members of Borrower's Board or committee thereof.
(c) APPLICATION OF PROCEEDS. The proceeds of any sale of all or any
part of the Collateral and the proceeds of any remedy afforded to Lender by this
Security Agreement shall be paid to and applied as follows:
FIRST, to the payment of reasonable costs and expenses of suit or
foreclosure, if any, and of the sale, if any, including, without limitation,
refurbishing costs, costs of remarketing and commissions related to remarketing,
all Remedy Expenses, all expenses, liabilities and advances incurred or made
pursuant to this Security Agreement or any Note by Lender in connection with
foreclosure, suit, sale or enforcement of this Security Agreement or the Notes,
and taxes, assessments or liens superior to Lender's security interest granted
by this Security Agreement;
SECOND, to the payment of all other amounts not described in item
THIRD below due under this Security Agreement and all Notes;
THIRD, to pay Lender an amount equal to Lender's Return, to the
extent not previously paid by Borrower; and
FOURTH, to the payment of any surplus to Borrower or to whomever
may lawfully be entitled to receive it.
(d) EFFECT OF DELAY; WAIVER; FORECLOSURE ON COLLATERAL. No delay or
omission of Lender, in
8
<PAGE>
exercising any right or power arising from any Event of Default shall prevent
Lender from exercising that right or power if the Event of Default continues.
No waiver of an Event of Default, whether full or partial, by Lender or such
holder shall be taken to extend to any subsequent Event of Default, or to
impair the rights of Lender in respect of any damages suffered as a result of
the Event of Default. The giving, taking or enforcement of any other or
additional security, collateral or guaranty for the payment or discharge of
the Indebtedness and performance of the Obligations shall in no way operate
to prejudice, waive or affect the security interest created by this Security
Agreement or any rights, powers or remedies exercised hereunder or
thereunder. Lender shall not be required first to foreclose on the Collateral
prior to bringing an action against Borrower for sums owed to Lender under
this Security Agreement or under any Note.
SECTION 17. LATE PAYMENTS. Borrower shall pay Lender a late charge of 10% of
any payment owed Lender by Borrower which is not paid when due (taking into
account applicable grace periods), for every month such payment is not paid when
due, but in no event an amount greater than the highest rate permitted by
applicable law. If such amounts have not been received by Lender at Lender's
place of business or by Lender's designated agent by the date such amounts are
due under this Security Agreement or the Notes, Lender shall bill Borrower for
such charges. Borrower acknowledges that invoices for amounts due hereunder or
under the Notes are sent by Lender for Borrower's convenience only. Borrower's
non-receipt of an invoice will not relieve Borrower of its obligation to make
payments hereunder or under the Notes.
SECTION 18. PAYMENTS BY LENDER. If Borrower shall fail to make any payment or
perform any act required hereunder (including, but not limited to, maintenance
of any insurance required by Section 10), then Lender may, but shall not be
required to, after such notice to Borrower as is reasonable under the
circumstances, make such payment or perform such act with the same effect as if
made or performed by Borrower. Borrower will upon demand reimburse Lender for
all sums paid and all reasonable costs and expenses incurred in connection with
the performance of any such act.
SECTION 19. FINANCING STATEMENTS. Borrower hereby appoints Lender (and each of
Lender's officers, employees or agents designated by Lender) with full power of
substitution by Lender, as Borrower's attorney, with power to execute and
deliver on Borrower's behalf, financing statements and other documents necessary
to perfect and/or give notice of Lender's security interest in any of the
Collateral. Notwithstanding the above, Borrower will, upon Lender's request,
execute all financing statements pursuant to the Uniform Commercial Code and all
such other documents reasonably requested by Lender to perfect Lender's security
interests hereunder. Borrower authorizes Lender to file financing statements
signed only by Lender (where such authorization is permitted by law) at all
places where Lender deems necessary.
SECTION 20. NATURE OF TRANSACTION. Lender makes no representation whatsoever,
express or implied, concerning the legal character of the transaction evidenced
hereby, for tax or any other purpose.
SECTION 21. SUSPENSION OF LENDER'S OBLIGATIONS. The obligations of Lender
hereunder will be suspended to the extent that Lender is hindered or prevented
from complying therewith because of labor disturbances, including but not
limited to strikes and lockouts, acts of God, fires, floods, storms, accidents,
industrial unrest, acts of war, insurrection, riot or civil disorder, any order,
decree, law or governmental regulations or interference, failure of the
manufacturer to deliver any item of Collateral or any cause whatsoever not
within the sole and exclusive control of Lender.
9
<PAGE>
SECTION 22. LENDER'S EXPENSE. Borrower shall pay Lender all reasonable costs
and expenses including reasonable attorney's fees and the fees of collection
agencies, incurred by Lender (a) in enforcing any of the terms, conditions or
provisions hereof and related to the exercise of its remedies, and (b) in
connection with any bankruptcy or post-judgment proceeding, whether or not suit
is filed and, in each and every action, suit or proceeding, including any and
all appeals and petitions therefrom.
SECTION 23. ALTERATIONS; ATTACHMENTS. No alterations or attachments shall be
made to the Collateral without Lender's prior written consent, which shall not
be given for changes that will affect the reliability and utility of the
Collateral or which cannot be removed without damage to the Collateral, or which
in any way affect the value of the Collateral for purposes of resale or lease.
All attachments and improvements to the Collateral shall be deemed to be
"Collateral" for purposes of the Security Agreement, and a first priority
security interest therein shall immediately vest in Lessor.
SECTION 24. CHATTEL PAPER. (a) One executed copy of the Security Agreement
will be marked "Original" and all other counterparts will be duplicates. To the
extent, if any, that this Security Agreement constitutes chattel paper (as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in the Security Agreement may be created in
any documents other than the "Original." (b) There shall be only one original
of each Note and it shall be marked "Original," and all other counterparts will
be duplicates. To the extent, if any, that any Notes to this Security Agreement
constitutes chattel paper (or as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction) no security interest in any
Note(s) may be created in any documents other than the "Original."
SECTION 25. STOCK WARRANT. Borrower agrees that it will issue to Lender upon
execution of this Security Agreement a Warrant in the form of the Warrant
Agreement attached hereto as Exhibit B. Borrower and Lender agree that the
value of the Warrant hereunder is nominal.
SECTION 26. COMMITMENT FEE. Borrower has paid to Lender a commitment fee
("Fee") of $20,000. The Fee shall be applied by Lender first to reimburse
Lender for all out-of-pocket UCC and other search costs, inspections and
labeling costs and appraisal fees, if any, incurred by Lender, and then
proportionally to the first monthly payment for each Note hereunder in the
proportion that the Collateral value for such Note bears to Lender's entire
commitment. However, the portion of the Fee which is not applied to such
monthly payments shall be non-refundable except if Lender defaults in its
obligation to fund Loans pursuant to Section 3.
SECTION 27. NOTICES. All notices hereunder shall be in writing, by registered
mail, or reliable messenger or delivery service (including overnight service)
and shall be directed, as the case may be, to Lender at 2401 Kerner Boulevard,
San Rafael, California 94901, Attention: Asset Management and to Borrower at
1421 McCarthy Blvd., Milpitas, CA 95035, Attention: John Blank, V.P. Finance.
SECTION 28. MISCELLANEOUS. (a) Borrower shall provide Lender with such
corporate resolutions, financial statements and other documents as Lender shall
reasonably request from time to time. (b) Borrower represents that the
Collateral hereunder is used solely for business purposes. (c) Time is of the
essence with respect to this Security Agreement. (d) Borrower acknowledges that
Borrower has read this Security Agreement and the Notes, understands them and
agrees to be bound by their terms and further agrees that this Security
Agreement and the Notes constitute the entire agreement between Lender and
Borrower with respect to the subject matter hereof and supersede all previous
agreements, promises, or representations. (e) This Security Agreement and the
Notes may not be
10
<PAGE>
changed, altered or modified except by an instrument signed by an officer or
authorized representative of Lender and Borrower. (f) Any failure of Lender
to require strict performance by Borrower or any waiver by Lender of any
provision herein or in a Note shall not be construed as a consent or waiver
of any other breach of the same or any other provision. (g) If any provision
of this Security Agreement or any Note is held invalid, such invalidity shall
not affect any other provisions hereof or thereof. (h) The obligations of
Borrower to pay the Indebtedness and perform the Obligations shall survive
the expiration or earlier termination of this Security Agreement and each
Note until all Obligations of Borrower to Lender have been met and all
liabilities of Borrower to Lender and any assignee have been paid in full.
(i) Borrower will notify Lender at least 30 days before changing its name,
principal place of business or chief executive office. (j) Borrower will, at
its expense, promptly execute and deliver to Lender such documents and
assurances (including financing statements) and take such further action as
Lender may reasonably request in order to carry out the intent of this
Security Agreement and Lender's rights and remedies.
SECTION 29. JURISDICTION AND WAIVER OF JURY TRIAL. This Security Agreement and
the Notes shall be deemed to have been negotiated, entered into and performed in
the State of California and it is understood and agreed that the validity of
this Security Agreement and of any of the terms and provisions, of the Security
Agreement and Notes, as well as the rights and duties of Lender and Borrower,
shall be construed pursuant to and in accordance with the laws of the State of
California, without giving effect to conflicts of law principles. It is agreed
that exclusive jurisdiction and venue for any legal action between the parties
arising out of or relating to this Security Agreement and each Note shall be in
the Superior Court for Marin County, California, or, in cases where federal
diversity jurisdiction is available, in the United States District Court for the
Northern District of California situated in San Francisco. BORROWER, TO THE
EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY
ACTION BROUGHT ON OR WITH RESPECT TO THIS SECURITY AGREEMENT, ANY NOTE, ANY
SECURITY DOCUMENTS, OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION HEREWITH.
SECTION 30. ADDITIONAL INTEREST COMPENSATION: (a) GENERAL. Borrower shall be
required to choose a final payment or Note extension election ("Additional
Interest Compensation") at the expiration of the first Note's term. Borrower
shall provide written notice of its election to Lender at least 60 days prior to
the end of the term of the first Note. That choice shall be an election of
Borrower's additional interest compensation election for all, but not less than
all, of the Collateral under all Notes under the Security Agreement.
In the event Borrower does not provide 60 days' prior written notice of its
election, Borrower shall be deemed to have elected Election No. 2.
(b) END OF LOAN POSITION ELECTIONS. As Additional Interest Compensation,
Borrower shall be required to:
ELECTION NO. 1: Make a final payment equal to 15% of the Note's original
principal amount.
ELECTION NO. 2: Extend the Note's term for an additional 12 months ("Extended
Term") for a monthly rate of 1.5% of the Note's original principal amount.
IN WITNESS WHEREOF, Borrower and Lender have caused this Security Agreement to
be executed as of the date and year first above written.
11
<PAGE>
PHOENIX LEASING INCORPORATED GRIC COMMUNICATIONS, INC.
By: By:
--------------------------- ---------------------------
Name: Name (Print):
------------------------- -----------------
Title: Title:
------------------------ -----------------------
HEADQUARTERS LOCATION:
1421 McCarthy Blvd.
Milpitas, CA 95035
County of Santa Clara
EXHIBITS AND SCHEDULES:
Exhibit A -- Closing Memorandum
Exhibit B -- Stock Warrant
12
<PAGE>
EXHIBIT A TO
SENIOR LOAN AND SECURITY AGREEMENT NO. 6170
DATED August 10, 1998
CLOSING MEMORANDUM
1* Duly executed Senior Loan and Security Agreement.
2. Duly executed Senior Security Promissory Note with Exhibit A Collateral
description attached.
3. Insurance certificates reflecting coverage required under Section 10 of
the Senior Loan and Security Agreement (required for subsequent fundings
only if there is a need for change in coverage).
4.* Resolutions of Borrower's board of directors.
5. Real Property Waiver.**
6. UCC-1 Financing Statements with respect to the Collateral.
7.* Stock warrant.
8. UCC search (Lender will obtain).
9. Certificate of Chief Financial Officer stating that (i) there are no
liens, charges, security interests or other encumbrances that may affect
Lender's right, title and interest in the Collateral and there are no
UCC-1 financing statements filed or in the process of being filed against
any of the Collateral, (ii) Borrower is performing according to
Borrower's business plan, (iii) no change which is a Material Adverse
Effect has occurred in the financial condition of Borrower, (iv) no
default has occurred, and (v) the representations and warranties in
Section 5 of the Senior Loan and Security Agreement are true and correct
as if made on the date of the Loan.
10.* Certificate from the Secretary of State of Borrower's state of
incorporation, and from the state in which Borrower's chief executive
office is located, if different, stating the Borrower is in good standing
or is authorized to transact business, as the case may be, dated not more
than thirty days prior to the first Loan (Lender will obtain).
11.* Borrower's Business Plan.
12. Borrower's most recent financial statements.
13. List of proposed Collateral.
14. Purchase documentation verifying Borrower's ownership of equipment.
15. See Section 3 of the Senior Loan and Security Agreement for additional
conditions to closing.
16. Intercreditor Agreement, if applicable.
* First Loan only.
** Required if any Equipment is a fixture, i.e., attached to real property,
or located in certain states.
<PAGE>
EXHIBIT B TO
SENIOR LOAN AND SECURITY AGREEMENT NO. 6170
FORM OF STOCK WARRANT
<PAGE>
NOTE NO._______________
TO SENIOR LOAN AND SECURITY AGREEMENT
NO. 6170
BETWEEN GRIC COMMUNICATIONS, INC.
AS BORROWER AND
PHOENIX LEASING INCORPORATED AS LENDER
SENIOR SECURED PROMISSORY NOTE
$_____________________ _________________, 199___
FOR VALUE RECEIVED, the undersigned, GRIC COMMUNICATIONS, INC., a California
corporation ("Borrower"), hereby promises to pay to the order of PHOENIX
LEASING INCORPORATED, or its assigns (the "Lender") the principal sum of
_____________________________________________________, together with interest
thereon until the principal is fully repaid. Principal and interest shall be
payable in consecutive monthly installments, each of which shall be equal to
the percentage specified below of the principal sum and in the amounts each
month specified below.
<TABLE>
<CAPTION>
Month Payment Amount Percentage
----- -------------- ----------
<S> <C> <C>
___ ____________ _____
___ ____________ _____
</TABLE>
The first and last payments shall be due on the first day of the month
immediately following the date of this Note (unless the date of this Note is the
first day of the month in which case such payments are due on that day), and
each succeeding payment shall be made on the first day of each succeeding month.
An interim payment will be due on the same date as the first payment for the
period from the date Lender funds the principal amount of this Note until the
first day of the following month and shall be equal to 1/30 of the monthly loan
payment multiplied by the number of days, if any, between (and including) the
funding date and the first day of the following month.
Borrower's Additional Interest Compensation shall be due on the first day of the
forty-third (43rd) month as provided below: (a) GENERAL. Borrower shall be
required to choose a final payment or Note extension election ("Additional
Interest Compensation") at the expiration of the first Note's term. Borrower
shall provide written notice of its election to Lender at least 90 days prior to
the end of the term of the first Note. That choice shall be an election of
Borrower's additional interest compensation election for all, but not less than
all, of the Collateral under all Notes under the Security Agreement.
In the event Borrower does not provide 60 days' prior written notice of its
election, Borrower shall be deemed to have elected Election No. 2.
(b) END OF LOAN POSITION ELECTIONS. As Additional Interest Compensation,
Borrower shall be required to:
ELECTION NO. 1: Make a final payment equal to 15% of the Note's original
principal amount.
ELECTION NO. 2: Extend the Note's term for an additional 12 months ("Extended
Term") for a monthly
<PAGE>
rate of 1.5% of the Note's original principal amount.
This Note may not be prepaid in whole or in part.
Borrower shall pay Lender a late charge of 10% of any payment owed Lender by
Borrower which is not paid when due (taking into account applicable grace
periods), for every month such payment is not paid when due, but in no event an
amount greater than the highest rate permitted by applicable law.
Payments of principal and interest hereunder shall be made in lawful money of
the United States of America at the offices of Lender at 2401 Kerner Boulevard,
San Rafael, California 94901, or such other place as the Lender shall designate
to the Borrower in writing.
This Note is secured by a Senior Loan and Security Agreement, dated as of August
10, 1998 between Borrower and Lender (the "Security Agreement") and is entitled
to the benefits of the Security Agreement which contains, among other things,
provisions for (i) events of default and the Lender's rights and remedies
following an event of default (which include, but are not limited to,
acceleration of this Note), (ii) Collateral which secures the repayment of this
Note and is more particularly described on Exhibit A, and (iii) other rights and
remedies of Lender.
This Note may be declared due prior to its expressed maturity date only in the
events, on the terms and in the manner provided in the Security Agreement.
This Note shall be construed and enforced in accordance with the laws of the
State of California, excluding principles of conflicts of laws. Borrower agrees
that any action or proceeding arising out of or relating to this Note shall be
in the Superior Court for Marin County, California, or, in cases where federal
diversity jurisdiction is available, in the United States District Court for the
Northern District of California situated in San Francisco.
The Borrower hereby expressly waives presentment for payment, demand for
payment, notice of dishonor, protest, notice of protest, notice of nonpayment,
and all lack of diligence or delays in collection or enforcement of this Note.
BORROWER:
GRIC COMMUNICATIONS, INC.
By:
-------------------------------------
Name (Print):
----------------------------
Title:
-----------------------------------
<PAGE>
OFFICER'S CERTIFICATE
The undersigned, ____________________, hereby certifies that:
(i) I am the __________________ of GRIC COMMUNICATIONS, INC., a California
corporation (the "Borrower");
(ii) as such officer, I am familiar with the terms and conditions of that
certain Senior Loan and Security Agreement (the "Security Agreement")
dated as of August 10, 1998 between Borrower and PHOENIX LEASING
INCORPORATED ("Lender");
(iii) the equipment, machinery, furniture, fixtures and other items on the
attached list are free and clear of any and all liens, charges, security
interests or other encumbrances that may affect Lender's right, title or
interest in and to the equipment and other items, and no UCC-1 financing
statements or other grants of security interests have been or are in the
process of being filed against any of such equipment or other items;
(iv) Borrower's business is substantially performing according to Borrower's
business plan described in Section 3 of the Security Agreement, a true
copy of which business plan has been delivered to Lender;
(v) there has been no material adverse change in the financial condition of
Borrower from the date of its most recent financial statements, true
copies of which have been delivered to Lender;
(vi) as of the date hereof, no Event of Default (as defined in the Security
Agreement) or event which with the giving of notice or passage of time,
or both, could become an Event of Default has occurred and is continuing;
and
(vii) the representations and warranties in Section 5 of the Security Agreement
are true and correct as if made on the date of the Loan.
IN WITNESS WHEREOF, I hereby execute this certificate on this ______ day of
_______________, 19__.
___________________________________
<PAGE>
BLDG: Milpitas 2
OWNER: 500
PROP: 202
UNIT 1
TENANT: 20204
LEASE AGREEMENT
THIS LEASE, Made this 6th day of January 1998 between JOHN ARRILLAGA,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (JOHN ARRILLAGA
SURVIVOR'S TRUST) as amended, and RICHARD T. PEERY, Trustee, or his Successor
Trustee, UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as
amended, hereinafter called Landlord, and AIMQUEST CORPORATION; a California
corporation, hereinafter called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit "A"
attached hereto and incorporated herein by this reference thereto more
particularly described as follows:
All of that certain 31,165+ square foot, one-story building located at 1421
McCarthy Blvd., Milpitas, California 95035. Said Premises is more particularly
shown within the area outlined in Red on EXHIBIT A attached hereto. The entire
parcel, of which the Premises is a part, is shown within the area outlined in
Green on EXHIBIT A attached. The Premises shall be improved by Landlord as shown
on EXHIBIT B attached hereto, and is leased on an "as-is" basis, in its present
condition, and in the configuration as shown in Red on EXHIBIT B attached
hereto.
As used herein the Complex shall mean and include all of the land outlined in
Green and described in Exhibit "A", attached hereto, and all of the buildings,
improvements, fixtures and equipment now or hereafter situated on said land.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.
1. USE. Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of
general office, light manufacturing, research and development, and storage
and other uses necessary for Tenant to conduct Tenant's business, provided
that such uses shall be in accordance with all applicable governmental laws
and ordinances and for no other purpose. Tenant shall not do or permit to be
done in or about the Premises or the Complex nor bring or keep or permit to
be brought or kept in or about the Premises or the Complex anything which is
prohibited by or will in any way increase the existing rate of (or otherwise
affect) fire or any insurance covering the Complex or any part thereof, or
any of its contents, or will cause a cancellation of any insurance covering
the Complex or any part thereof, or any of its contents. Tenant shall not do
or permit to be done anything in, on or about the Premises or the Complex
which will in any way obstruct or interfere with the rights of other tenants
or occupants of the Complex or injure or annoy them, or use or allow the
Premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or
about the Premises or the Complex. No sale by auction shall be permitted on
the Premises. Tenant shall not place any loads upon the floors, walls, or
ceiling, which endanger the structure, or place any harmful fluids or other
materials in the drainage system of the building, or overload existing
electrical or other mechanical systems. No waste materials or refuse shall be
dumped upon or permitted to remain upon any part of the Premises or outside
of the building in which the Premises are a part, except in trash containers
placed inside exterior enclosures designated by Landlord for that purpose or
inside of the building proper where designated by Landlord. No materials,
supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature shall be stored upon or permitted to
remain outside the Premises or on any portion of common area of the Complex.
No loudspeaker or other device, system or apparatus which can be heard
outside the Premises shall be used in or at the Premises without the prior
written consent of Landlord. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises. Tenant shall indemnify, defend
and hold Landlord harmless against any loss, expense, damage, attorneys' fees
or liability arising out of failure of Tenant to comply with any applicable
law. Tenant shall comply with any covenant, condition, or restriction
("CC&R's") affecting the Premises. The provisions of this paragraph are for
the benefit of Landlord only and shall not be construed to be for the benefit
of any tenant or occupant of the Complex.
2. TERM. *
A. The term of this Lease shall be for a period of FIVE (5) years
FOURTEEN (14) days (unless sooner terminated as hereinafter provided) and,
subject to Paragraphs 2(B) and 3, shall commence on the 15th day of February,
1998 and end on the 28th day of February, 2003.
B. Possession of the Premises shall be deemed tendered and the term of this
Lease shall commence when the tint of the following occurs:
(a) One day after a Certificate of Occupancy is granted by the proper
governmental agency, or, if the governmental agency having jurisdiction over the
area in which the Premises are situated does not issue certificates of
occupancy, then the same number of days after certification by Landlord's
architect or contractor that Landlord's construction work has been completed; or
(b) Upon the occupancy of the Premises by any of Tenant's operating
personnel; or
(c) When the Tenant Improvements have been substantially completed for
Tenant's use and occupancy in accordance and compliance with Exhibit B of this
Lease Agreement; or
(d) As otherwise agreed in writing.
3. POSSESSION. If Landlord, for any reason whatsoever, cannot deliver
possession of said premises to Tenant at the commencement of the said term,
as hereinbefore specified, this Lease shall not be void or voidable; no
obligation of Tenant shall be affected thereby; nor shall Landlord or
Landlord's agents be liable to Tenant for any loss or damage resulting
therefrom; but in that event the commencement and termination dates of the
Lease, and all other dates affected thereby shall be revised to conform to the
date of Landlord's delivery of possession, as specified in Paragraph 2(b),
above. The above is, however, subject to the provision that the period of
delay, of delivery of the premises shall not exceed 30 days from the
commencement date herein (except those delays caused by Acts of God, strikes,
war, utilities, governmental bodies, weather, unavailable materials, and
delays beyond Landlord's control shall be excluded in calculating such
period) in which instance Tenant, at its option, may, by written notice to
Landlord, terminate this Lease.
* It is agreed in the event said Lease commences on a date other
than the first day of the month the term of the Lease will be extended
to account for the number of days in the partial month. The Basic Rent
during the resulting partial month will be pro-rated (for the number
of days in the partial month) at the Basic Rent scheduled for the
projected commencement date as shown in Paragraph 43.
[SEAL]
Page 1 of 8
<PAGE>
4. RENT
A. BASIC RENT. Tenant agrees to pay to Landlord at such place
as Landlord may designate without deduction, offset, prior notice, or demand,
and Landlord agrees to accept as Basic Rent for the leased Premises the total
sum of THREE MILLION NINE HUNDRED FIFTY THOUSAND NINE HUNDRED FIFTY TWO AND
25/100 ($8,950,952.25) Dollars in lawful money of the
United States of America, payable as follows:
See Paragraph 43 for Basic Rent Schedule
B. TIME FOR PAYMENT. In the event that the term of this Lease commences on
a date other than the first day of a calendar month, on the date of the
commencement of the term hereof Tenant shall pay to landlord as rent for the
period from such date of commencement to the first day of the next succeeding
calendar month that proportion of the monthly rent hereunder which the number of
days between such date of commencement and the first day of the next succeeding
calendar month bears to thirty (30). In the event that the term of this Lease
for any reason ends on a date other than the last day of a calendar month, on
the first day of the last calendar month of the term hereof Tenant shall pay to
Landlord as rent for the period from said first day of said last calendar month
to and including the last day of the term hereof that proportion of the monthly
rent hereunder which the number of days between said first day of said last
calendar month and the last day of the term hereof bears to thirty (30).
C. LATE CHARGE. Notwithstanding any other provision of this Lease, if
Tenant is in default in the payment of rental as set forth in this paragraph 4
when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the
delinquent rental due, a late charge for each rental payment in default ten (10)
days. Said late charge shall equal ten (10%) percent of each rental payment so
in default.
D. ADDITIONAL RENT. Beginning with the commencement date of the term of
this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as
Additional Rent the following:
(a) Tenant's proportionate share of all Taxes relating to the Complex as
set forth in Paragraph 12, and
(b) Tenant's proportionate share of all insurance premiums relating to the
Complex, as set forth in Paragraph 15, and
(c) Tenant's proportionate share of expenses for the operation,
management, maintenance and repair of the Building (including common
areas of the Building) and Common Areas of the Complex in which the
Premises are located as set forth in Paragraph 7, and
(d) All charges, costs and expenses, which Tenant is required to pay
hereunder, together with all interest and penalties, costs and
expenses including attorney's fees and legal expenses, that may accrue
thereto in the event of Tenant's failure to pay such amounts, and all
damages, reasonable costs and expenses which Landlord may incur by
reason of default of Tenant or failure on Tenant's part to comply with
the terms of this Lease. In the event of nonpayment by Tenant of
Additional Rent, Landlord shall have all the rights and remedies with
respect thereto as Landlord has for nonpayment of rent.
The Additional Rent due hereunder shall be paid to Landlord or Landlord's agent
(i) within five days for taxes and insurance and within thirty days for all
other Additional Rent items after presentation of invoice from Landlord or
Landlord's agent setting forth such Additional Rent and/or (ii) at the option of
Landlord. Tenant shall pay to Landlord monthly, in advance, Tenant's prorata
share of an amount estimated by Landlord to be Landlord's approximate average
monthly expenditure for such Additional Rent items, which estimated amount shall
be reconciled within 120 days of the end of each calendar year as compared to
Landlord's actual expenditure for said Additional Rent items, with Tenant paying
to Landlord, upon demand, any amount of actual expenses expended by Landlord in
excess of said estimated amount, or Landlord crediting to Tenant (providing
Tenant is not in default in the performance of any of the terms, covenants and
conditions of this Lease) any amount of estimated payments made by Tenant
(providing Tenant is not in default in the performance of any of the terms,
covenants and conditions of this Lease) any amount of estimated payments made by
Tenant in excess of Landlord's actual expenditures for said Additional Rent
items.
The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of the term of this Lease, and
if the term hereof shall expire or shall otherwise terminate on a day other than
the last day of a calendar year, the actual Additional Rent incurred for the
calendar year in which the term hereof expires or otherwise terminates shall be
determined and settled on the basis of the statement of actual Additional Rent
for such calendar year and shall be prorated in the proportion which the number
of days in such calendar year preceding such expiration or termination bears to
365.
F. PLACE OF PAYMENT OF RENT AND ADDITIONAL RENT. All Basic Rent hereunder
and all payments hereunder for Additional Rent shall be paid to Landlord at
the office of Landlord at Peery/Arrillaga, File 1504, Box 60000, San
Francisco, CA 94160 or to such other person or to such other place as
Landlord may from time to time designate in writing.
G. SECURITY DEPOSIT. No later than March 31, 1998, Tenant shall deposit
the sum of ONE HUNDRED FORTY NINE THOUSAND FIVE HUNDRED NINETY TWO AND
NO/100 ($149,592.00) Dollars. Said sum shall be held by Landlord as a
Security Deposit for the faithful performance by Tenant of all of the
terms, covenants, and conditions of this Lease to be kept and performed by
Tenant during the term hereof. If Tenant defaults with respect to any
provision of this Lease, including, but not limited to, the provisions
relating to the payment of rent and any of the monetary sums due herewith,
Landlord may (but shall not be required to) use. apply or retain all or any
part of this Security Deposit for the payment of any other amount which
Landlord may spend by reason of Tenant's default or to compensate Landlord
for any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of said Deposit is so used or applied, Tenant shall,
within ten (10) days after written demand therefor, deposit cash with
Landlord in the amount sufficient to restore the Security Deposit to its
original amount. Tenant's failure to do so shall be a material breach of this
Lease. Landlord shall not be required to keep this Security Deposit separate
from its general funds, and Tenant shall not be entitled to interest on such
Deposit. If Tenant fully and faithfully performs every provision of this
Lease to be performed by it, the Security Deposit or any balance thereof
shall be returned to Tenant (or at Landlord's option, to the last assignee of
Tenant's interest hereunder) at the expiration of the Lease term and after
Tenant has vacated the Premises. In the event or termination of Landlord's
interest in this Lease, Landlord shall transfer said Deposit to Landlord's
successor in interest whereupon Tenant agrees to release Landlord from
liability for the return of such Deposit or the accounting therefor.
5. RULES AND REGULATIONS AND COMMON AREA. Subject to the terms and
conditions of this Lease and such Rules and Regulations as Landlord may from
time to time prescribe, Tenant and Tenant's employees, invitees and customers
shall, in common with other occupants of the Complex in which the Premises
are located, and their respective employees, invitees and customers, and
others entitled to the use thereof, have the non-exclusive right to use the
access roads, parking areas, and facilities provided and designated by
Landlord for the general use and convenience of the occupants of the Complex
in which the Premises are located, which areas and facilities are referred to
herein as "Common Area". This right shall terminate upon the termination of
this Lease. Landlord reserves the right from time to time to make changes in
the shape, size, location, amount and extent of Common Area. Landlord further
reserves the right to promulgate such reasonable rules and regulations
relating to the use of the Common Area, and any part or parts thereof, as
Landlord may deem appropriate for the best interests of the occupants of the
Complex. The Rules and Regulations shall be binding upon Tenant upon delivery
of a copy of them to Tenant, and Tenant shall abide by them and cooperate in
their observance. Such Rules and Regulations may be amended by Landlord from
time to time, with or without advance notice, and all amendments shall be
effective upon delivery of a copy to Tenant. Landlord shall not be
responsible to Tenant for the non-performance by any other tenant or occupant
of the Complex of any of said Rules and Regulations.
Landlord shall operate, manage and maintain the Common Area. The manner in
which the Common Area shall be maintained and the expenditures for such
maintenance shall be at the discretion of Landlord.
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6. PARKING. Tenant shall have the right to use with other tenants or
occupants of the Complex 115 parking spaces in the common parking areas of
the Complex. Tenant agrees that Tenant, Tenant's employees, agents,
representatives and/or invitees shall not use parking spaces in excess of
said 115 spaces allocated to Tenant hereunder. Landlord shall have the right,
at Landlord's sole discretion, to specifically designate the location of
Tenant's parking spaces within the common parking areas of the Complex in the
event of a dispute among the tenants occupying the building and/or Complex
referred to herein, in which event Tenant agrees that Tenant, Tenant's
employees, agents, representatives and/or invitees shall not use any parking
spaces other than those parking spaces specifically designated by Landlord
for Tenant's use. Said parking spaces, if specifically designated by Landlord
to Tenant, may be relocated by Landlord at any time, and from time to time.
Landlord reserves the right, at Landlord's sole discretion, to rescind any
specific designation of parking spaces, thereby returning Tenant's parking
spaces to the common parking area. Landlord shall give Tenant written notice
of any change in Tenant's parking spaces. Tenant shall not, at any time, park,
or permit to be parked, any trucks or vehicles adjacent to the loading areas
so as to interfere in any way with the use of such areas, nor shall Tenant at
any time park, or permit the parking of Tenant's trucks or other vehicles or
the trucks and vehicle's of Tenant's suppliers or others, in any portion of
the common area not designated by Landlord for such use by Tenant. Tenant
shall not park nor permit to be parked, any inoperative vehicles or equipment
on any portion of the common parking area or other common areas of the
Complex. Tenant agrees to assume responsibility for compliance by its
employees with the parking provision contained herein. If Tenant or its
employees park in other than such designated parking areas, then Landlord may
charge Tenant, as an additional charge, and Tenant agrees to pay, ten
($10.00) Dollars per day for each day or partial day each such vehicle is
parked in any area other than that designated. Tenant hereby authorizes
Landlord at Tenant's sole expense to tow away from the Complex any vehicle
belonging to Tenant or Tenant's employees parked in violation of these
provisions or to attach violation stickers or notices to such vehicles.
Tenant shall use the parking areas for vehicle parking only, and shall not
use the parking areas for storage.
7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF
THE COMPLEX. As Additional Rent and in accordance with Paragraph 4 D of this
Lease, Tenant shall pay to Landlord Tenant's proportionate share (calculated
on a square footage or other equitable basis as calculated by Landlord) of
all expenses of operation, management, maintenance and repair of the Common
Areas of the Complex including, but not limited to, license, permit, and
inspection fees; security; utility charges associated with exterior
landscaping and lighting (including water and sewer charges); all charges
incurred in the maintenance and replacement of landscaped areas, lakes,
parking lots and paved areas (including repairs, replacement, resealing and
restriping), sidewalks, driveways; maintenance, repair and replacement of all
fixtures and electrical, mechanical, and plumbing systems; structural
elements and exterior surfaces of the buildings; salaries and employee
benefits of personnel and payroll taxes applicable thereto; supplies,
materials, equipment and tools; the cost of capital expenditures which have
the effect of reducing operating expenses, provided, however, that in the
event Landlord makes such capital improvements, Landlord may amortize its
investments in said improvements (together with interest at the rate of
fifteen (15%) percent per annum on the unamortized balance) as an operating
expense in accordance with standard accounting practices, provided, that such
amortization is not at a rate greater than the anticipated savings in the
operating expenses.
"Additional Rent" as used shall not include Landlord's debt repayments;
interest on charges; expenses directly or indirectly by Landlord for the benefit
of any other tenant; cost for the installation of partitioning or any other
tenant improvements; cost of attracting tenants; depreciation; interest, or
executive salaries.
8. ACCEPTANCE AND SURRENDER OF PREMISES. By entry hereunder, Tenant accepts
the Premises as being in good and sanitary order, condition and repair and
accepts the building and improvements included in the Premises in their
present condition and without representation or warranty by Landlord as to
the condition of such building or as to the use or occupancy which may be
made thereof. Any exceptions to the foregoing must be by written agreement
executed by Landlord and Tenant. Tenant agrees on the last day of the Lease
term, or on the sooner termination of this Lease, to surrender the Premises
promptly and peaceably to Landlord in good condition and repair (damage by
Acts of God, fire, normal wear and tear excepted), with all interior walls
painted, or cleaned so that they appear freshly painted, and repaired and
replaced, if damaged, all floors cleaned and waxed; all carpets cleaned and
shampooed; the air-conditioning and heating equipment serviced by a reputable
and licensed service firm and in good operating condition (provided the
maintenance of such equipment has been Tenant's responsibility during the
term of this Lease) together with all alterations, additions, and
improvements which may have been made in, to, or on the Premises (except
movable trade fixtures installed at the expense of Tenant) except that Tenant
shall ascertain from Landlord within thirty (30) days before the end of the
term of this Lease whether Landlord desires to have the Premises or any part
or parts thereof restored to their condition and configuration as when the
Premises were delivered to Tenant and if Landlord shall so desire, then
Tenant shall restore said Premises or such part or parts thereof before the
end of this Lease at Tenant's sole cost and expense. Tenant, on or before the
end of the term or sooner termination of this Lease, shall remove all of
Tenant's personal property and trade fixtures from the Premises, and all
property not so removed on or before the end of the term or sooner
termination of this Lease shall be deemed abandoned by Tenant and title to
same shall thereupon pass to Landlord without compensation to Tenant.
Landlord may, upon termination of this Lease, remove all moveable furniture
and equipment so abandoned by Tenant, at Tenant's sole cost, and repair any
damage caused by such removal at Tenant's solo cost. If the Premises be not
surrendered at the end of the term or sooner termination of this Lease,
Tenant shall indemnify Landlord against loss or liability resulting from the
delay by Tenant in so surrendering the Premises including, without
limitation, any claims made by any succeeding tenant founded on such delay.
Nothing contained herein shall be construed as an extension of the term
hereof or as a consent of Landlord to any holding over, by Tenant. The
voluntary or other surrender of this Lease or the Premises by Tenant or a
mutual cancellation of this Lease shall not work as a merger and, at the
option of Landlord, shall either terminate all or any existing subleases or
subtenancies or operate as an assignment to Landlord of all or any such
subleases or subtenancies.
9. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises, or any part thereof, without the written
consent of Landlord first had and obtained by Tenant, but at the cost of Tenant,
and any addition to or alteration of, the Premises, except moveable furniture
and trade fixtures, shall at once become a part of the Premises and belong to
Landlord. Landlord reserves the right to approve all contractors and mechanics
proposed by Tenant to make such alterations and additions. Tenant shall retain
title to all moveable furniture and trade fixtures placed in the Premises. All
heating, lighting, electrical, air-conditioning, floor to ceiling partitioning,
drapery, carpeting, and floor installations made by Tenant, together with all
property that has become an integral part of the Premisis, shall not be deemed
trade fixtures. Tenant agrees that it will not proceed to make such alteration
or additions, without having obtained consent from Landlord to do so, and until
five (5) days from the receipt of such consent, in order that Landlord may post
appropriate notices to avoid any liability to contractors or material suppliers
for payment for Tenant's improvements. Tenant will at all times permit such
notices to be posted and to remain posted until the completion of work. Tenant
shall, if required by Landlord, secure at Tenant's own cost and expense, a
completion and lien indemnity bond, satisfactory to Landlord, for such work.
Tenant further covenants and agrees that any mechanic's lien filed against the
Premises or against the Complex for work claimed to have been done for, or
materials claimed to have been furnished to Tenant, will be discharged by
Tenant, by bond or otherwise, within ten (10) days after the filing thereof, at
the cost and expense of Tenant. Any exceptions to the foregoing must be made in
writing and executed by both Landlord and Tenant.
10. TENANT MAINTENANCE Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a high
standard of maintenance and repair, and in good and sanitary condition. Tenant's
maintenance repair responsibilities herein referred to include, but are not
limited to, all windows, window frames, plate glass, glazing, truck doors,
plumbing systems (such as water and drain lines, sinks, toilets, faucets,
drains, showers and water fountains), electrical systems (such as panels,
conduits, outlets, lighting fixtures, lamps, bulbs, tubes, ballasts), heating
and air-conditioning systems (such as compressors, fans, air handlers, ducts,
mixing boxes, thermostats, time clocks, boilers, heaters, supply and return
grills), store fronts, roofs, downspouts, all interior improvements within the
premises including but not limited to wall coverings, window coverings, carpet,
floor coverings, partitioning, ceilings, doors (both interior and exterior,
including closing mechanisms, latches, locks, skylights (if any), automatic fire
extinguishing systems, and elevators and all other interior improvements of any
nature whatsoever. Tenant agrees to provide carpet shields under all rolling
chairs or to otherwise be responsible for wear and tear of the carpet caused by
such rolling chairs if such wear and tear exceeds that caused by normal foot
traffic in surrounding areas. Areas of excessive wear shall be replaced at
Tenant's sole expense upon Lease termination. Tenant hereby waives all rights
under, and benefits of, subsection 1 of Section 1932 and Section 1941 and 1942
of the California Civil Code and under any similar law, statute or ordinance.
11. UTILITIES. Tenant shall pay promptly, as the same become due, all charges
for water, gas, electricity, telephone, telex and other electronic
communications service, sewer service, waste pick-up and any other utilities,
materials or services furnished directly to or used by Tenant on or about the
Premises during the term of this Lease, including, without limitation, any
temporary or permanent utility surcharge or other exactions whether or not
hereinafter imposed.
Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of rent by reason of any interruption or failure of
utility services to the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances or
labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.
12. TAXES. A. As Additional Rent and in accordance with Paragraph 4 D of this
Lease, Tenant shall pay to Landlord Tenant's proportionate share of all Real
Property Taxes, which prorata share shall be allocated to the leased Premises by
square footage or other equitable basis, as calculated by Landlord. The term
"Real Property Taxes", as used herein, shall mean (i) all taxes, assessments,
levies and other charges of any kind or nature whatsoever, general and special,
foreseen and unforeseen (including all installments or principal and interest
required to pay any general or special assessments for public improvements and
any increases resulting from reassessments caused by,
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any change in ownership of the Complex) now or hereafter imposed by any
governmental or quasi-governmental authority or special district having the
director indirect power to tax or levy assessments, which are levied or assessed
against, or with respect to the value, occupancy or use of, all or any portion
of the Complex (as now constructed or as may at any time hereafter be
constructed, altered, or otherwise changed) or Landlord's interest therein; any
improvements located within the Complex (regardless of ownership); the fixtures,
equipment and other property of Landlord, real or personal, that are an integral
part of and located in the Complex; or parking areas, public utilities, or
energy within the Complex; (ii) all charges, levies or fees imposed by reason of
environmental regulation or other governmental control of the Complex; and (iii)
all costs and fees (including attorneys' fees) incurred by Landlord in
contesting any Real Property Tax and in negotiating with public authorities as
to any Real Property Tax. If at any time during the term of this Lease the
taxation or assessment of the Complex prevailing as of the commencement date of
this Lease shall be altered so that in lieu of or in addition to any Real
Property Tax described above there shall be levied, assessed or imposed (whether
by reason of a change in the method of taxation or assessment, creation of a new
tax or charge, or any other cause) an alternate or additional tax or charge (i)
on the value, use or occupancy of the Complex or Landlord's interest therein or
(ii) on or measured by the gross receipts, income or rentals from the Complex,
on Landlord's business of leasing the Complex, or computed in any manner with
respect to the operation of the Complex, then any such tax or charge, however
designated, shall be included within the meaning of the term "Real Property
Taxes" for purposes of this Lease. If any Real Property Tax is based upon
property or rents unrelated to the Complex, then only that part of such real
Property Tax that is fairly allocable to the Complex shall be included within
the meaning of the term "Real Property Taxes". Notwithstanding the foregoing,
the term "Real Property Taxes" shall not include estate, inheritance, gift or
franchise taxes of Landlord or the federal or state net income tax imposed on
Landlord's income from all sources.
B. TAXES ON TENANTS PROPERTY
(a) Tenant shall be liable for and shall pay ten days before delinquency, taxes
levied against any personal property or trade fixtures placed by Tenant in or
about the Premises. If any such taxes on Tenant's personal property or trade
fixtures are levied against Landlord or Landlord's property or if the assessed
value of the Premises is increased by the inclusion therein of a value placed
upon such personal property or trade fixtures of Tenant and if Landlord, after
written notice to Tenant, pays the taxes based on such increased assessment,
which Landlord shall have the right to do regardless of the validity thereof,
but only under proper protest if requested by Tenant, Tenant shall upon demand,
as the case may be, repay to Landlord the taxes so levied against Landlord or
the proportion of such taxes resulting from such in, case in the assessment;
provided that in any such event Tenant shall have the right, in the name of
Landlord and with Landlord's full cooperation, to bring suit in any court of
competent jurisdiction to recover the amount of any such taxes so paid under
protest, and any amount so recovered shall belong to Tenant.
(b) if the Tenant improvements in the Premises whether installed, and/or paid
for by Landlord or Tenant and whether or not affixed to the real property so as
to become a part thereof, are assessed for real property tax purposes at a
valuation higher than the valuation at which standard office improvements in
other space in the Complex are assessed, then the real property taxes and
assessments levied against Landlord or the Complex by reason of such excess
assessed valuation shall be deemed to be taxes levied against personal property
of Tenant and shall be governed by the provisions of 12a above, if the records
of the County Assessor are available and sufficiently detailed to serve as a
basis for determining whether said Tenant improvements are assessed at a higher
valuation than standard office improvements in other space in. the Complex, such
records shall be binding on both the Landlord and the Tenant. If the records of
the County Assessor are not available or sufficiently detailed to serve as a
basis for making said determination, the actual cost of construction shall be
used.
13. LIABILITY INSURANCE Tenant at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of commercial general liability insurance
with a combined single limit coverage of not less than Two Million Dollars
($2,000,000) per occurrence for injuries to or death of persons occurring in, or
about the Premises or the Complex, and property damage insurance with limits of
$500,000. The policy or policies affecting such insurance certificates of
insurance of which shall be furnished to Landlord, as additional insureds, and
shall insure any liability of Landlord, contingent or otherwise, as respects
acts or omissions of Tenant, its agents, employees or invitees or otherwise by
any conduct or transactions of any of said persons in or about or concerning the
Premises, including any failure of Tenant to observe or perform any of its
obligations hereunder, shall be issued by an insurance company admitted to
transact business in the State of California and shall provide that the
insurance effected thereby shall not be canceled, except upon thirty (30) days'
prior written notice to Landlord. If, during the term of this Lease in the
considered opinion of Landlord's Lender, insurance advisor, or counsel, the
amount of insurance described in this paragraph 13 is not adequate. Tenant
agrees to increase said coverage to such reasonable amount as Landlord's Lender,
insurance advisor, or counsel shall deem adequate,
14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE
Tenant shall maintain a policy or policies of fire and property damage insurance
in "all risk" form with a sprinkler leakage endorsement insuring the real
property, inventory, trade fixtures, and leasehold improvements within the
leased Premises for the full placement value thereof. The proceeds from any of
such policies shall be used for the repair or replacement of such items so
insured.
Tenant shall also maintain a policy or policies of workman's compensation
insurance and any other employee benefit insurance sufficient to comply with all
laws.
15. PROPERTY INSURANCE Landlord shall purchase and keep in force and as
Additional Rent and in accordance with paragraph 4D of this Lease, Tenant shall
pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (calculated on a square footage or other equitable basis as
calculated by Landlord) of the deductibles on insurance claims and the cost of
policy or policies of insurance covering loss or damage to the Premises and
Complex in the amount of the full replacement value thereof, providing
protection against those perils included within the classification of "all
risks" insurance and flood and/or earthquake insurance, if available, plus a
policy of rental income insurance in the amount of one hundred (100%) percent of
twelve (12) months Basic Rent, plus sums paid as Additional Rent and any
deductible related thereto. If such insurance cost is increased due to Tenant's
use of the Premises or the Complex, Tenant agrees to pay to landlord the full
cost of such increase. Tenant shall have no interest in nor any right to the
proceeds of any insurance procured by Landlord for the Complex.
Landlord and Tenant do each hereby respectively release the other, to the
extent of insurance coverage of the releasing party, from any liability for loss
or damage caused by fire or any of the extended coverage casualties included in
the releasing party's insurance policies, irrespective of the cause of such fire
or casualty; provided, however, that if the insurance policy of either releasing
party prohibits such waiver, then this waiver shall not take effect until
consent to such waiver is obtained. If such waiver is so prohibited the insured
party affected shall promptly notify the other party thereof.
16. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about the Premises or the Complex by
or from any cause whatsoever, including, without limitation, gas, fire, oil,
electricity or leakage of any character from the roof, walls, basement or other
portion of the Premises or the Complex but excluding however, the willful
misconduct or negligence of Landlord, its agents, servants, employees, invitees,
or contractors of which negligence Landlord has knowledge and reasonable time to
correct. Except as to injury persons or damage to property to the extent
arising from the willful misconduct or the negligence of Landlord its agents,
servants, employees, invitees, or contractors. Tenant shall hold Landlord
harmless from and defend Landlord against any and all expenses, including
reasonable attorneys' fees, in connection therewith, arising out of any injury
to or death of any person or damage to or destruction of property occurring in,
on or about the Premises, or any part thereof, from any cause whatsoever.
17. COMPLIANCE Tenant at its sole cost and expense shall promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any direction or occupancy certificate issued pursuant to law by any public
either, provided, however, that no such failure shall be deemed a breach of the
provisions if Tenant immediately upon notification, commences to remedy or
rectify said failure. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action against Tenant, whether Landlord be a party
thereto not that Tenant has violated any such law, statute, ordinance or
governmental rule, regulation, requirement, direction or provision shall be
conclusive of that fact as between Landlord and Tenant. This paragraph shall not
be interpreted as requiring Tenant to make structural changes or improvements,
except to the extent such changes or improvements are required as a result of
Tenant's use of the Premises. Tenant shall, at its sole cost and expense, comply
with any and all requirements pertaining to said Premises of any insurance
organization or company, necessary for the maintenance of reasonable fire and
public liability insurance covering the Premises.
18. LIENS Tenant shall keep the Premises and the Complex free from any liens
arising out of any work performed, materials furnished or obligation incurred by
Tenant. In the event that Tenant shall not within ten (10) days following the
imposition of such lien cause the same to be released of record. Landlord shall
have in addition to all other remedies provided herein and by law, the right,
but no obligation, to cause the same to be released by such means as it shall
deem proper, including payment of the claim giving rise to such lien. All sums
paid by Landlord for such purpose, and all expenses incurred by it in connection
therewith, shall be payable to Landlord by Tenant on demand with interest at the
prime rate or interest as quoted by the Bank of America.
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19. ASSIGNMENT AND SUBLETTING Tenant shall not assign; transfer, or hypothecate
the leasehold estate under this Lease, or any interest herein, and shall not
sublet the Premises, or any part thereof, or any right or privilege appurtenant
thereto, or suffer any other person or entity to occupy or use the Premises, or
any portion thereof, without, in each case, the prior written consent of
Landlord which consent will not be unreasonably withheld. As a condition for
granting this consent to any assignment, transfer, or subletting, Landlord shall
require that Tenant agrees to pay to landlord, as Additional Rent, all rents
and/or additional consideration due Tenant from its assignees, transferees, or
subtenants in excess of Rent payable by Tenant to Landlord hereunder. Tenant
shall by thirty (30) days written notice, advise Landlord of its intent to
assign or transfer Tenant's interest in the Lease or sublet the Premises or any
portion thereof for any part of the term hereof. Within thirty (30) days after
receipt of said written notice, Landlord may, in its sole discretion, elect to
terminate this Lease as to the portion of the Premises described in Tenant's
notice on the date specified in Tenant's notice by giving written notice of such
election to terminate. If no such notice to terminate is given to Tenant within
said thirty (30) day period, Tenant may proceed to locate an acceptable
sublessee, assignee, or other transferee for presentment to Landlord for
Landlord's approval, all in accordance with the terms, covenants, and conditions
of this paragraph 19. If Tenant intends to sublet the entire Premises and
Landlord elects to terminate this Lease, this Lease shall be terminated on the
date specified in Tenant's notice. If, however, this Lease shall terminate
pursuant to the foregoing with respect to less than all the Premises, the rent,
as defined and reserved hereinabove shall be adjusted on a pro rata basis to the
number of square feet retained by Tenant, and this Lease as so amended shall
continue in full force and effect. In the event Tenant is allowed to assign,
transfer or sublet the whole or any part of the Premises, with the prior written
consent of Landlord, no assignee, transferee or subtenant shall assign or
transfer this Lease, either in whole or in part, or sublet the whole or any part
of the Premises, without also having obtained the prior written consent of
Landlord. A consent of Landlord to one assignment, transfer, hypothecation,
subletting, occupation or use by any other person shall not release Tenant from
any of Tenant's obligations hereunder or be deemed to be a consent to any
subsequent similar or dissimilar assignment, transfer, hypothecation,
subletting, occupation or use by any other person. Any such assignment,
transfer, hypothecation, subletting, occupation or use without such consent
shall be void and shall constitute a breach of this Lease by Tenant and shall,
at the option of Landlord exercised by written notice to Tenant, terminate this
Lease. The leasehold estate under this Lease shall not, nor shall any interest
therein, be assignable for any purpose by operation of law without the written
consent of Landlord. As a condition to its consent, Landlord shall require
Tenant to pay all expenses in connection with the assignment, and Landlord shall
require Tenant's assignee or transferee (or other assignees or transferees) to
assume in writing all of the obligations under this Lease and for Tenant to
remain liable to Landlord under the Lease. Notwithstanding the above, in no
event will Landlord consent to a sub-sublease.
20. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest
of Landlord in the land and buildings in which the demised Premises are located,
to secure a loan from a lender (hereinafter referred to as "Lender") to
Landlord, Tenant shall, at the request of Landlord or Lender, execute in writing
an agreement subordinating its rights under this Lease to the lien of such deed
of trust, or, if so requested, agreeing that the lien of Lender's deed of trust
shall be or remain subject and subordinate to the rights of Tenant under this
Lease. Notwithstanding any such subordination, Tenant's possession under this
Lease shall not be disturbed if Tenant is not in default and so long as Tenant
shall pay all rent and observe and perform all of the provisions set forth in
this Lease.
21. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times
after at least 24 hours notice (except in emergencies) have, the right to
enter the Premises to insect them; to perform any services to be provided by
Landlord hereunder; to submit the Premises to prospective purchasers,
mortgagers or tenants; to post notices of nonresponsibility; and to alter,
improve or repair the Premises and any portion of the Complex, all without
abatement of rent; and may erect scaffolding and other necessary structures
in or through the Premises where reasonably required by the character of the
work to be performed; provided, however that the business of Tenant shall be
interfered with to the least extent that is reasonably practical. Landlord
shall also have the right at any time to change the arrangement or location
of entrances or passageways, doors and doorways, and corridors, elevator,,
stairs, toilets or other public parts of the Complex and to change the name,
number or designation by which the Complex is commonly known, and none of the
foregoing shall be deemed an actual or constructive eviction of Tenant, or
shall entitle Tenant to any reduction of rent hereunder.
22. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to
the reasonable satisfaction of Landlord that the trustee or receiver shall
cure) any and all previous defaults under the unexpired Lease and shall
compensate Landlord for all actual pecuniary loss and shall provide adequate
assurance of future performance under said Lease to the reasonable
satisfaction of Landlord. Adequate assurance of future performance, as used
herein, includes, but shall not be limited to: (i) assurance of source and
payment of rent, and other consideration due under this Lease; (ii) assurance
that the assumption or assignment of this Lease will not breach substantially
any provision, such as radius, location, use, or exclusivity provision, in
any agreement relating to the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in
connection with a bankruptcy, liquidation, reorganization or insolvency
action or an assignment of Tenant for the benefit of creditors or other
similar act. Nothing contained in this Lease shall be construed as giving or
granting or creating an equity in the demised Premises to Tenant. In no event
shall the leasehold estate under this Lease, or any interest therein, be
assigned by voluntary or involuntary bankruptcy proceeding without the prior
written consent of Landlord. In no event shall this Lease or any rights or
privileges hereunder be an asset of Tenant under any bankruptcy, insolvency
or reorganization proceedings.
The failure to perform or honor any covenant, condition or representation
made under this Lease shall constitute a default hereunder by Tenant upon
expiration of the appropriate grace period hereinafter provided. Tenant shall
have a period of five (5) days from the date of written notice from Landlord
within which to cure any default in the payment of rental or adjustment
thereto. Tenant shall have a period of thirty (30) days from the date of
written notice from Landlord within which to cure any other default under
this Lease; provided, however, that if the nature of Tenant's failure is such
that more than thirty (30) days is reasonably required to cure the same,
Tenant shall not be in default so long as Tenant commences performance within
such thirty (30) day period and thereafter prosecutes the same to completion.
Upon an uncured default of this Lease by Tenant. Landlord shall have the
following rights and remedies in addition to any other rights or remedies
available to Landlord at law or in equity:
(a). The rights and remedies provided for by California Civil Code Section
1951.2, including but not limited to recovery of the worth at the time of award
of the amount by which the unpaid rent for the balance of the term after the
time of award exceeds the amount of rental loss for the same period that Tenant
proves could be reasonably avoided, as computed pursuant to subsection (b) of
said Section 1951.2. Any proof by Tenant under subparagraphs (2) and (3) of
Section 1951.2 of the California Civil Code of the amount of rental loss that
could be reasonably avoided shall be made in the following manner: Landlord and
Tenant shall each select a licensed real estate broker in the business of
renting property of the same type and use as the Premises and in the same
geographic vicinity. Such two real estate brokers shall select a third licensed
real estate broker, and the three licensed real estate brokers so selected shall
determine the amount of the rental loss that could be reasonably avoided from
the balance of the term of this Lease after the time of award. The decision of
the majority of said licensed real estate broken shall be final and binding upon
the parties hereto.
(b). The rights and remedies provided by California Civil Code Section which
allows Landlord to continue the Lease in effect and to enforce all of its rights
and remedies, under this Lease, including the right to recover rent as it
becomes due for so long as Landlord does not terminate Tenant's right to
possession; acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver upon Landlord's initiative to protect its
interest under this Lease shall not constitute a termination of Tenant's right
to possession.
(c). The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(d). To the extent permitted by law the right and power to enter the
Premises and remove therefrom all persons and property, to store such
property in a public warehouse or elsewhere at the cost of and for the
account of Tenant. and to sell such property and apply such proceeds
therefrom pursuant to applicable California law. Landlord may from time to
time sublet the Premises or any part thereof for such term or terms (which
may extend beyond the term of this Lease) and at such rent and such other
terms as Landlord in its sole discretion may deem advisable, with the right
to make alterations and repairs to the Premises. Upon each subletting. (i)
Tenant shall be immediately liable to pay Landlord, in addition to
indebtedness other than rent due hereunder, the cost of such subletting,
including, but not limited to, reasonable attorneys' fees, and any real
estate commissions actually paid, and the cost of such alterations and
repairs incurred by Landlord and the amount, if any, by which the rent
hereunder for the period of such subletting (to the extent such period does
not exceed the term hereof) exceeds the amount to be paid as rent for the
Premises for such period or (ii) at the option of Landlord, rents received
from such subletting shall be applied first to payment of indebtedness other
than rent due hereunder from Tenant to Landlord; second, to the payment of
any costs of such subletting and of such alterations and repairs; third to
payment of rent due and unpaid hereunder; and the residue, if any, shall be
held by Landlord and applied in payment of future rent as the same becomes
due hereunder, If Tenant has been credited with any rent to be received by
such subletting under option (i) and such rent shall not be promptly paid to
Landlord by the subtenant(s), or if such rentals received from such
subletting under option (ii) during any month be less than that to be paid
during that month by Tenant hereunder. Tenant shall pay any such deficiency
to Landlord. Such deficiency shall be calculated and paid monthly. No taking
possession of the Premises by Landlord shall be construed as an election on
its part to terminate this Lease unless a written notice of such
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intention be given to Tenant. Notwithstanding any such subletting without
termination. Landlord may at time hereafter elect to terminate this Lease for
such previous breach
(e). The right to have a receiver appointed for Tenant upon application by
Landlord, to take possession of the Premises and to apply any rental collected
from the Premises and to exercise all other rights and remedies granted to
Landlord pursuant to subparagraph d. above (except that Tenant may vacate so
long as it pays rent, provides an on-site security guard during normal business
hours from Monday through Friday, and otherwise performs its obligations
hereunder).
23. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease and if Tenant shall abandon, vacate or surrender
said Premises, or be dispossessed by the process of law, or otherwise, any
personal property belonging to Tenant and left on the Premises shall be deemed
to be abandoned, at the option of Landlord, except such property as may be
mortgaged to Landlord.
24. DESTRUCTION in the event the Premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental damage
and destruction caused from vandalism and accidents for which Tenant is
responsible for under Paragraph 10. Landlord may. at its option:
(a) Rebuild or restore the Premises to their condition prior to the damage or
destruction, or
(b) Terminate this Lease. (providing that the Premises is damaged to the
extent of 33 1/3% of the replacement cost)
If Landlord does not give Tenant notice in writing within thirty (30) days
from the destruction of the Premises of its election to either rebuild and
restore them, or to terminate this Lease. Landlord shall be deemed to have
elected to rebuild or restore them, in which event Landlord agrees, at its
expense, promptly to rebuild or restore the Premises to their condition prior
to the damage or destruction. Tenant shall be entitled to a reduction in
rent while such repair is being made in the proportion that the area of the
Premises rendered untenantable by such damage bears to the total area of the
Premises. If Landlord does not complete the rebuilding or restoration within
one hundred eighty (180) days following the date of destruction (such period
of time to be extended for delays caused by the fault or neglect of Tenant or
because of Acts of God, acts of public agencies, labor disputes, strikes,
fires, freight embargoes, rainy or stormy weather, inability to obtain
materials, supplies or fuels, acts of contractors or subcontractors, or delay
of the contractors or subcontractors due to such causes or other
contingencies beyond the control of Landlord), then Tenant shall have the
right to terminate this Lease by giving fifteen (15) days prior written
notice to Landlord. Notwithstanding anything herein to the contrary,
Landlord's obligation to rebuild or restore shall be limited to the building
and interior improvements constructed by Landlord as they existed as of the
commencement date of the Lease and shall not include restoration of Tenant's
trade fixtures, equipment, merchandise, or any improvements, alterations or
additions made by Tenant to the Premises, which Tenant shall forthwith
replace or fully repair at Tenant's sole cost and expense provided this Lease
is not cancelled according to the provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions, this
Lease shall remain in full force and effect. Tenant hereby expressly waives the
provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of the
California Civil Code.
In the event that the building in which the Premises are situated is damaged
or destroyed to the extent of not less than 33 1/3% of the replacement cost
thereof. Landlord may elect to terminate this Lease, whether the Premises be
injured or not. Notwithstanding anything to the contrary herein, Landlord may
terminate this Lease in the event of an uninsured event or if insurance proceeds
are insufficient to cover one hundred percent of the rebuilding costs net of the
deductible; provided, however, Tenant shall have the right to elect, in its
discretion, to contribute such excess funds to permit Landlord to repair the
Premises.
25. EMINENT DOMAIN If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises so
taken or conveyed on the date when title vests in the condemnor, and Landlord
shall be entitled to any and all payment, income, rent, award, or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this Lease. Notwithstanding the foregoing
paragraph, any compensation specifically awarded Tenant for loss of business.
Tenant's personal property, moving cost or loss of goodwill, shall be and remain
the property of Tenant.
If (i) any action or proceeding is commenced for such taking of the Premises
or any part thereof, or if Landlord is advised in writing by any entity or body
having the right or power of condemnation of its intention to condemn the
premises or any portion thereof, or (ii) any of the foregoing events occur with
respect to the taking of any space in the Complex not leased hereby, or if any
such spaces so taken or conveyed in lieu of such taking and Landlord shall
decide to discontinue the use and operation of the Complex, or decide to
demolish, alter or rebuild the Complex, then, in any of such events Landlord
shall have the right to terminate this Lease by giving Tenant written notice
thereof within sixty (60) days of the date of receipt of said written advice, or
commencement of said action or proceeding, or taking conveyance, which
termination shall take place as of the first to occur of the last day of the
calendar month next following the month in which such notice is given or the
date on which title to the Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if the
portion of the Premises taken or conveyed is so substantial that the Tenant can
no longer reasonably conduct its business, Tenant shall have the privilege of
terminating this Lease within sixty (60) days from the date of such taking or
conveyance, upon written notice to Landlord of its intention so to do, and upon
giving of such notice this Lease shall terminate on the last day of the calendar
month next following the month in which such notice is given, upon payment by
Tenant of the rent from the date of such taking or conveyance to the date of
termination.
If a portion of the Premises be taken by condemnation or conveyance in lieu
thereof and neither Landlord nor Tenant shall terminate this Lease as provided
herein, this Lease shall continue in full force and effect as to the part of the
Premises not so taken or conveyed, and the rent herein shall be apportioned as
of the date of such taking or conveyance so that thereafter the rent to be paid
by Tenant shall be in the ratio that the area of the portion of the Premises not
so taken or conveyed bears to the total area of the Premises prior to such
taking.
26. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the
Complex or any interest therein, by any owner of the reversion then constituting
Landlord, the transferor shall thereby be released from any further liability
upon any of the terms, covenants or conditions (express or implied) herein
contained in favor of Tenant, and in such event, insofar as such transfer is
concerned. Tenant agrees to look solely to the responsibility of the successor
in interest of such transferor in and to the Complex and this Lease. This Lease
shall not be affected by any such sale or conveyance, and Tenant agrees to
attorn to the successor in interest of such transferor.
27. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord
in the land and buildings in which the leased Premises are located (whether such
interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale. Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the Lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.
28. HOLDING OVER Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease
or give Tenant any rights in or to the leased Premises except as expressly
provided in this Lease. Any holding over after the expiration or other
termination of the term of this Lease, with the consent of Landlord, shall be
construed to be a tenancy from month to month, on the same terms and conditions
herein specified insofar as applicable except that the monthly Basic Rent shall
be increased to an amount equal to one hundred fifty (150%) percent of the
monthly Basic Rent required during the last month of the Lease term.
29. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten
(10) days' prior written notice to Landlord execute, acknowledge and deliver to
Landlord a statement in writing (i) certifying that this Lease is unmodified and
in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults, if any, are claimed. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of the Premises.
Tenant's failure to deliver such statement within such time shall be conclusive
upon Tenant that this Lease is in full force and effect, without modification
except as may be represented by Landlord; that there are no uncured defaults in
Landlord's performance, and that not more than one month's rent has been paid in
advance.
30. CONSTRUCTION CHANGES It is understood that the description of the Premises
and the location of ductwork, plumbing and other facilities therein are subject
to such minor changes as Landlord or Landlord's architect determines to be
desirable in the course of construction of the Premises, and no such changes, or
any changes in plans for any other portions of the Complex shall affect this
Lease or entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any
drawings supplied to Tenant and verification of the accuracy of such drawings
rests with Tenant.
31. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid by
it hereunder and such failure shall continue for five (5) days after written
notice thereof by Landlord, or shall fail to perform any other term or covenant
hereunder on its part to be performed, and such failure shall continue for
thirty (30) days after written notice thereof by Landlord, Landlord, without
waiving or releasing Tenant from any obligation of Tenant hereunder, may, but
shall not be obligated to, make any such payment or perform
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any such other term or covenent on Tenant's part to be performed. All sums so
paid by Landlord and all necessary costs of such performance by Landlord
together with interest thereon at the rate of the prime rate of interest per
annum as quoted by the Bank of America from the date of such payment or
performance by Landlord, shall be paid (and Tenant covenants to make such
payment) to Landlord on demand by Landlord, and Landlord shall have (in addition
to any other right or remedy of Landlord) the same rights and remedies in the
event of nonpayment by Tenant as in the case of failure by Tenant in the payment
of rent hereunder.
32. ATTORNEYS' FEES.
(A) In the event that either Landlord or Tenant should bring suit for the
possession of the Premises, for the recovery of any sum due under this Lease, or
because of the breach of any provision of this Lease, or for any other relief
against the other party hereunder, then all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party therein shall be
paid by the other party, which obligation on the part of the other party shall
be deemed to have accrued on the date of the commencement of such action and
shall be enforceable whether or not the action is prosecuted to judgement.
(B) Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant
shall pay to Landlord its costs and expenses incurred in such suit, including a
reasonable attorney's fee.
33. WAIVER The waiver by either party of the other party's failure to perform
or observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
covenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, covenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of, or in any way
affect, the right of either party to insist upon performance and observance by
the other party in strict accordance with the terms hereof.
34. NOTICES All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if personally served on
Tenant by leaving the same at the Premises or if sent by United States certified
or registered mail, postage prepaid, addressed to Tenant at the Premises. All
notices demands, requests, advices or designations by Tenant to Landlord shall
be sent by United States certified or registered mail, postage prepaid,
addressed to Landlord at its offices at Peery/Arrillaga, 2560 Mission College
Blvd, Suite 101, Santa Clara, CA 95054.
Each notice, request, demand, advice or designation referred to in this
paragraph shall be deemed received on the date of the personal service or
mailing thereof in the manner herein provided, as the case may be.
35. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant.
36. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event earlier than thirty (30) days after written notice by Tenant to Landlord
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have heretofore been furnished to Tenant in
writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion.
37. CORPORATE AUTHORITY If Tenant is a corporation, (or a partnership) each
individual executing this Lease on behalf of said corporation (or
partnership) represents and warrants that he is duly authorized to execute
and deliver this Lease on behalf of said corporation (or partnership) in
accordance with the by-laws of said corporation (or partnership in accordance
with the partnership agreement) and that this Lease is binding upon said
corporation (or partnership) in accordance with its terms. If Tenant is a
corporation, Tenant shall, within thirty (30) days after execution of this
Lease, deliver to Landlord a certified copy of the resolution of the Board
of Directors of said corporation authorizing or ratifying the execution of
this Lease.
39. LIMITATION OF LIABILITY In consideration of the benefits accruing hereunder,
Tenant and all successors and assigns covenant and agree that, in the event of
any actual or alleged failure, breach or default hereunder by Landlord:
(i) the sole and exclusive remedy shall be against Landlord's interest in the
Premises leased herein;
(ii) no partner of Landlord shall be sued or named as a party in any suit or
action (except as may be necessary to secure jurisdiction of the partnership)
(iii) no service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the partnership)
(iv) no partner of Landlord shall be required to answer or otherwise plead to
any service of process;
(v) no judgment will be taken against any partner of Landlord;
(vi) any judgment taken against any partner of Landlord may be vacated and
set aside at any time without hearing;
(vii) no writ of execution will ever be levied against the assets of any
partner of Landlord;
(viii) these covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall be
applicable to any covenant or agreement either expressly contained in this Lease
or imposed by statute or at common law.
40. MISCELLANEOUS AND GENERAL PROVISIONS
a. Tenant shall not, without the written consent of Landlord, use the name
of the building for any purpose other than as the address of the business
conducted by Tenant in the Premises.
b. This Lease shall in all respects be governed by and construed in
accordance with the laws of the State of California. If any provision of
this Lease shall be invalid, unenforceable or ineffective for any reason
whatsoever, all other provisions hereof shall be and remain in full force
and effect.
c. The term "Premises" includes the space leased hereby and any
improvements now or hereafter installed therein or attached thereto. The
term "Landlord" or any pronoun used in place thereof includes the plural as
well as the singular and the successors and assigns of Landlord. The term
"Tenant" or any pronoun used in place thereof includes the plural as well
as the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and
bind such heirs, executors, administrators, successors and permitted
assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used
in any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph
headings of this Lease are for convenience of reference only and shall have
no effect upon the construction or interpretation of any provision hereof.
d. Time is of the essence of this Lease and of each and all of its
provisions.
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e. At the expiration or earlier termination of this Lease, Tenant shall
execute, acknowledge and deliver to Landlord, within ten (10) days after
written demand from Landlord to Tenant, any quitclaim deed or other
document required by any reputable title company, licensed to operate in
the State of California, to remove the cloud or encumbrance created by this
Lease from the real property of which Tenant's Premises are a part.
f. This instrument along with any exhibits and attachments hereto
constitutes the entire agreement between Landlord and Tenant relative to
the Premises and this agreement and the exhibits and attachments may be
altered, amended or revoked only by an instrument in writing signed by both
Landlord and Tenant. Landlord and Tenant agree hereby that all prior or
contemporaneous oral agreements between and among themselves and their
agents or representatives relative to the leasing of the Premises are
merged in or revoked by this agreement.
g. Neither Landlord nor Tenant shall record this Lease or a short form
memorandum hereof without the consent of the other.
h. Tenant further agrees to execute any amendments required by a lender to
enable Landlord to obtain financing, so long as Tenant's rights hereunder
are not substantially affected.
i. Paragraphs 43 through 55 are added hereto and are included as a part
of this lease.
j. Clauses, plats and riders, if any, signed by Landlord and Tenant and
endorsed on or affixed to this Lease are a part hereof.
k. Tenant covenants and agrees that no diminution or shutting off of light,
air or view by any structure which may be hereafter erected (whether or not
by Landlord) shall in any way affect his Lease, entitle Tenant to any
reduction of rent hereunder or result in any liability of Landlord to
Tenant.
41. BROKERS Tenant warrants that it had dealings with only the following real
estate brokers or agents in connection with the negotiation of this Lease:
none ______________________________________________________________________
and that it knows of no other real estate broker or agent who is entitled to a
commission in connection with this Lease.
42. SIGNS No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any such sign, placard, picture, advertisement, name or notice without notice to
and at the expense of Tenant. If Tenant is allowed to print or affix or in any
way place a sign in, on, or about the Premises, upon expiration or other sooner
termination of this Lease. Tenant at Tenant's sole cost and expense shall both
remove such sign and repair all damage in such a manner as to restore all
aspects of the appearance of the Premises to the condition prior to the
placement of said sign.
All approved signs or lettering on outside doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Premises.
IN WITNESS WHEREOF. Landlord and Tenant have executed and delivered this
Lease as of the day and year, last written below.
LANDLORD: TENANT:
JOHN ARRILLAGA SURVIVOR'S TRUST AIMQUEST CORPORATION
a California corporation
By /s/ John Arrilaga, Trustee By /s/ John Blank
---------------------------- ----------------------------
John Arrillaga, Trustee John Blank, Vice President
Finance and Administration
Date: 1/27/98 Date: 23 January
-------------------------- -----------------------------
RICHARD T. PEERY SEPARATE PROPERTY TRUST
By
------------------------------
Richard T. Peery, Trustee
Date: 1/27/98
----------------------------
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Paragraphs 43 through 55 to Lease Agreement dated January 6, 1998, By and
Between the John Arrillaga Survivor's Trust and the Richard T. Peery Separate
Property Trust, as Landlord, and AIMQUEST CORPORATION, a California corporation,
as Tenant for 31,165+ Square Feet of Space Located at 1421 McCarthy Blvd.,
Milpitas, California.
43. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate sum
of THREE MILLION NINE HUNDRED FIFTY THOUSAND NINE HUNDRED FIFTY TWO AND 25/100
DOLLARS ($3,950,952.25), shall be payable as follows:
On February 15, 1998, the sum of TWENTY NINE THOUSAND THREE HUNDRED EIGHTY
FIVE AND 25/100 DOLLARS ($29,385.25) shall be due, representing the rental for
the period February 15, 1998 through February 28, 1998.
On March l, 1998, the sum of FIFTY EIGHT THOUSAND SEVEN HUNDRED SEVENTY AND
50/100 DOLLARS ($58,770.50) shall be due, and a like sum due on the first day of
each month thereafter, through and including November l, 1998.
On December l, 1998, the sum of FIFTY NINE THOUSAND THREE HUNDRED SIXTY
THREE AND 75/100 DOLLARS ($59,363.75) shall be due, and a like sum due on the
first day of each month thereafter, through and including February 1, 1999.
On March 1, 1999, the sum of SIXTY ONE THOUSAND TWO HUNDRED NINETY THREE
AND 75/100 DOLLARS ($61,293.75) shall be due, and a like sum due on the first
day of each month thereafter, through and including November 1, 1999.
On December 1, 1999, the sum of SIXTY ONE THOUSAND EIGHT HUNDRED EIGHTY
SEVEN AND NO/100 DOLLARS ($61,887.00) shall be due, and a like sum due on the
first day of each month thereafter, through and including February 1, 2000.
On March 1, 2000, the sum of SIXTY THREE THOUSAND EIGHT HUNDRED SEVENTEEN
AND NO/100 DOLLARS ($63,817.00) shall be due, and a like sum due on the first
day of each month thereafter, through and including November l, 2000.
On December l, 2000, the sum of SIXTY FOUR THOUSAND FOUR HUNDRED TEN AND
25/100 DOLLARS ($64,410.25) shall be due, and a like sum due on the first day of
each month thereafter, through and including February l, 2001.
On March 1, 2001, the sum of SIXTY SIX THOUSAND THREE HUNDRED FORTY AND
25/100 DOLLARS ($66,340.25) shall be due, and a like sum due on the first day of
each month thereafter, through and including November l, 2001.
On December l, 2001, the sum of SEVENTY ONE THOUSAND SIX HUNDRED SEVENTY
NINE AND 50/100 DOLLARS ($71,679.50) shall be due, and a like sum due on the
first day of each month thereafter, through and including February 1, 2002.
On March 1, 2002, the sum of SEVENTY FOUR THOUSAND SEVEN HUNDRED
NINETY SIX AND NO/100 DOLLARS ($74,796.00) shall be due, and a like sum due on
the first day of each month thereafter, through and including February 1, 2003;
or until the entire aggregate sum of THREE MILLION NINE HUNDRED FIFTY THOUSAND
NINE HUNDRED FIFTY TWO AND 25/100 DOLLARS ($3,950,952.25) has been paid.
44. "AS-IS" BASIS: Subject only to Paragraph 54 and to Landlord making the
improvements shown on EXHIBIT B attached hereto, it is hereby agreed that the
Premises leased hereunder is leased strictly on an "as-is" basis and in its
present condition, and in the configuration as shown on EXHIBIT B attached
hereto, and by reference made a part hereof. It is specifically agreed
between the parties that after Landlord makes the interior improvements as
shown on EXHIBIT B, Landlord shall not be required to make, nor be
responsible for any cost, in connection with any repair, restoration, and/or
improvement to the Premises in order for this Lease to commence, or
thereafter, throughout the Term of this Lease. Notwithstanding anything to
the contrary within this Lease, Landlord makes no warranty or representation
of any kind or nature whatsoever as to the condition or repair of the
Premises, nor as to the use or occupancy
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which may be made thereof.
45. CONSENT: Whenever the consent of one party to the other is required
hereunder, such consent shall not be unreasonably withheld.
46. CHOICE OF LAW; SEVERABILITY. This Lease shall in all respects be governed
by and construed in accordance with the laws of the State of California. If any
provisions of this Lease shall be invalid, unenforceable, or ineffective for any
reason whatsoever, all other provisions hereof shall be and remain in full force
and effect.
47. AUTHORITY TO EXECUTE. The parties executing this Lease Agreement hereby
warrant and represent that they are properly authorized to execute this Lease
Agreement and bind the parties on behalf of whom they execute this Lease
Agreement and to all of the terms, covenants and conditions of this Lease
Agreement as they relate to the respective parties hereto.
48. ASSESSMENT CREDITS: The demised property herein is subject to a special
assessment levied by the City of Milpitas in Improvement District No. 9. As a
part of said special assessment proceedings, additional bonds were sold and
assessments levied to provide for construction contingencies and reserve funds.
Interest will be earned on such funds created for contingencies and on reserve
funds which will be credited for the benefit of said assessment district. To the
extent surpluses are created in said district through unused contingency funds,
interest earnings or reserve funds, such surpluses shall be deemed the property
of Landlord. Notwithstanding that such surpluses may be credited on assessments
otherwise due against the demised premises, Tenant shall pay to Landlord, as
additional rent if, and at the time of any such credit of surpluses, an amount
equal to all such surpluses so credited. For example: if (i) the property is
subject to an annual assessment of $1,000.00, and (ii) a surplus of $200.00 is
credited towards the current year's assessment which reduces the assessment
amount shown on the property tax bill from $1,000.00 to $800.00, Tenant shall,
upon receipt of notice from Landlord, pay to Landlord said $200.00 credit as
Additional Rent.
49. ASSIGNMENT AND SUBLETTING (CONTINUED): Any and all sublease agreement(s)
between Tenant and any and all subtenant(s) (which agreements must be consented
to by Landlord, pursuant to the requirements of this Lease) shall contain the
following language: terminate me Master Lease prior to the scheduled Master
Lease termination date, then this Sublease (if then still in effect) shall
terminate concurrently with the termination of the Master Lease. Subtenant
expressly acknowledges and agrees that (1) the voluntary termination of the
Master Lease by Landlord and Tenant and the resulting termination of this
Sublease shall not give Subtenant any right or power to make any legal or
equitable claim against Landlord, including without limitation any claim for
interference with contract or interference with prospective economic advantage,
and (2) Subtenant hereby waives any and all rights it may have under law or at
equity against Landlord to challenge such an early termination of the Sublease,
and unconditionally releases and relieves Landlord, and its officers, directors,
employees and agents, from any and all claims, demands, and/or causes of action
whatsoever (collectively, "Claims"), whether such matters are known or unknown,
latent or apparent, suspected or unsuspected, foreseeable or unforeseeable,
which Subtenant may have arising out of or in connection with any such early
termination of this Sublease. Subtenant knowingly and intentionally waives any
and all protection which is or may be given by Section 1542 of the California
Civil Code which provides as follows: "A general release does not extend to
claims which the creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have materially
affected his settlement with debtor.
The term of this Sublease is therefore subject to early termination.
Subtenant's initials here below evidence (a) Subtenant's consideration of and
agreement to this early termination provision, (b) Subtenant's acknowledgment
that, in determining the net benefits to be derived by Subtenant under the terms
of this Sublease, Subtenant has anticipated the potential for early termination,
and (c) Subtenant's agreement to the general waiver and release of Claims above.
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Initials: Initials:
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Subtenant Tenant
50. BANKRUPTCY AND DEFAULT: Paragraph 22 is modified to provide that with
respect to non-monetary defaults not involving Tenant's failure to pay Basic
Rent or Additional Rent, Tenant shall not be in default of any non-monetary
obligation if (i) more than thirty (30) days is required to cure such
non-monetary default, and (ii) Tenant commences cure of such default as soon
as reasonably practicable after receiving written notice of such default from
Landlord and thereafter continuously and with due diligence prosecutes such
cure to completion.
51. ABANDONMENT: Paragraph 23 is modified to provide that Tenant shall not be
in default under the Lease if it leaves all or any part of Premises vacant so
long as (i) Tenant is performing all of its other obligations under the Lease
including the obligation to pay Basic Rent and Additional Rent (ii) Tenant
provides on-site security during normal business hours for those parts of the
Premises left vacant, (iii) such vacancy does not materially and adversely
affect the validity or coverage of any policy of insurance carried by Landlord
with respect to the Premises, and (iv) the utilities and heating and ventilation
system are operated and maintained to the extent necessary to prevent damage to
the Premises or its systems.
52. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to
the existence or use of "Hazardous Materials" (as defined herein) on, in, under
or about the Premises and real property located beneath said Premises and the
common areas of the Complex (hereinafter collectively referred to as the
"Property"):
A. As used herein, the term "Hazardous Materials" shall mean any material,
waste, chemical, mixture or byproduct which is or hereafter is defined, listed
or designated under Environmental Laws (defined below) as a pollutant, or as a
contaminant, or as a toxic or hazardous substance, waste or material, or any
other unwholesome, hazardous, toxic, biohazardous, or radioactive material,
waste, chemical, mixture or byproduct, or which is listed, regulated or
restricted by any Environmental Law (including, without limitation, petroleum
hydrocarbons or any distillates or derivatives or fractions thereof,
polychlorinated biphenyls, or asbestos). As used herein, the term "Environmental
Laws" shall mean any applicable Federal, State of California or local government
law (including common law), statute, regulation, rule, ordinance, permit,
license, order, requirement, agreement, or approval, or any determination,
judgment, directive, or order of any executive or judicial authority at any
level of Federal, State of California or local government (whether now existing
or subsequently adopted or promulgated) relating to pollution or the protection
of the environment, ecology, natural resources, or public health and safety.
Landlord's discretion, prior to the occurrence of any Tenant's Hazardous
Materials Activities (defined below); provided, however, that Landlord's consent
shall not be required for normal use in compliance with applicable Environmental
Laws of customary household and office supplies (Tenant shall first provide
Landlord with a list of said materials use), such as mild cleaners, lubricants
and copier toner. As used herein, the term "Tenant's Hazardous Materials
Activities" shall mean any and all use, handling, generation, storage, disposal,
treatment, transportation, release, discharge, or emission of any Hazardous
Materials on, in, beneath, to, from, at or about the Property, in connection
with Tenant's use of the Property, or by Tenant or by any of Tenant's agents,
employees, contractors, vendors, invitees, visitors or its future subtenants or
assignees. Tenant agrees that any and all Tenant's Hazardous Materials
Activities shall be conducted in strict, full compliance with applicable
Environmental Laws at Tenant's expense, and shall not result in any
contamination of the Property or the environment. Tenant agrees to provide
Landlord with prompt written notice of any spill or release of Hazardous
Materials at the Property during the term of the Lease of which Tenant becomes
aware, and further agrees to provide Landlord with prompt written notice of any
violation of Environmental Laws in connection with Tenant's Hazardous Materials
Activities of which Tenant becomes aware. If Tenant's Hazardous Materials
Activities involve Hazardous Materials other than normal use of customary
household and office supplies, Tenant also agrees at Tenant's expense: (i) to
install such Hazardous Materials monitoring, storage and containment devices as
Landlords reasonably deems necessary (Landlord shall have no obligation to
evaluate the need for any such installation or to require any such
installation); (ii) provide Landlord with a written inventory of
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such Hazardous Materials, including an update of same each year upon the
anniversary date of the Commencement Date of the Lease ("Anniversary Date"); and
(iii) on each Anniversary Date, to retain a qualified environmental consultant,
acceptable to Landlord, to evaluate whether Tenant is in compliance with all
applicable Environmental Laws with respect to Tenant's Hazardous Materials
Activities. Tenant, at its expense, shall submit to Landlord a report from such
environmental consultant which discusses the environmental consultant's findings
within two (2) months of each Anniversary Date. Tenant, at its expense, shall
promptly undertake and complete any and all steps necessary, and in full
compliance with applicable Environmental Laws, to fully correct any and all
problems or deficiencies identified by the environmental consultant, and
promptly provide Landlord with documentation of all such corrections.
C. Prior to termination or expiration of the Lease, Tenant, at its
expense, shall (i) properly remove from the Property all Hazardous Materials
which come to be located at the Property in connection with Tenant's Hazardous
Materials Activities, and (ii) fully comply with and complete all facility
closure requirements of applicable Environmental Laws regarding Tenant's
Hazardous Materials Activities, including but not limited to (x) properly
restoring and repairing the Property to the extent damaged by such closure
activities, and (y) obtaining from the local Fire Department or other
appropriate governmental authority with jurisdiction a written concurrence that
closure has been completed in compliance with applicable Environmental Laws.
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
such closure activities.
D. If Landlord, in its sole discretion, believes that the Property has
become contaminated as a result of Tenant's Hazardous Materials Activities,
Landlord in addition to any other rights it may have under this Lease or under
Environmental Laws or other laws, may enter upon the Property and conduct
inspection, sampling and analysis, including but not limited to obtaining and
analyzing samples of soil and groundwater, for the purpose of determining the
nature and extent of such contamination. Tenant shall promptly reimburse
Landlord for the costs of such an investigation, including but not limited to
reasonable attorneys' fees Landlord incurs with respect to such investigation,
that discloses Hazardous Materials contamination for which Tenant is liable
under this Lease. Except as may be required of Tenant by applicable
Environmental Laws, Tenant shall not perform any sampling, testing, or drilling
to identify the presence of any Hazardous Materials at the Property, without
Landlord's prior written consent which may be withheld in Landlord's discretion.
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
sampling, testing or drilling performed pursuant to the preceding sentence.
E. To the best of Landlord's knowledge, the Property, including all
underlying land and groundwater, are free from contamination by toxic or
otherwise hazardous substances; however, Landlord shall have no obligation to
investigate. Tenant shall indemnify, defend (with legal counsel acceptable to
Landlord, whose consent shall not unreasonably be withheld) and hold harmless
Landlord, its employees, assigns, successors, successors-in-interest, agents and
representatives from and against any and all claims (including but not limited
to third party claims from a private party or a government authority),
liabilities, obligations, losses, causes of action, demands, governmental
proceedings or directives, fines, penalties, expenses, costs (including but not
limited to reasonable attorneys', consultants' and other experts' fees and
costs), and damages, which arise from or relate to: (i) Tenant's Hazardous
Materials Activities; (ii) any Hazardous Materials contamination caused by
Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any
obligation of Tenant under this Paragraph 52 (collectively, "Tenant's
Environmental Indemnification"). Tenant's Environmental Indemnification shall
include but is not limited to the obligation to promptly and fully reimburse
Landlord for losses in or reductions to rental income, and diminution in fair
market value of the Property. Tenant's Environmental Indemnification shall
further include but is not limited to the obligation to diligently and properly
implement to completion, at Tenant's expense, any and all environmental
investigation, removal, remediation, monitoring, reporting, closure activities,
or other environmental response action (collectively, "Response Actions").
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
Response Actions.
It is agreed that the Tenant's responsibilities related to Hazardous Materials
will survive the expiration or termination of this Lease and that Landlord may
obtain specific performance of Tenant's responsibilities under this Paragraph
52.
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53. TERMINATION OF PREVIOUS LEASE UPON COMMENCEMENT OF THIS
LEASE: It is understood that Tenant is currently occupying approximately
11,865 square feet of space located at 1381 McCarthy Blvd., Milpitas,
California, leased under separate Lease dated October 3, 1996 between Landlord
and Tenant. It is therefore agreed that upon commencement of this Lease, said
October 3, 1996 Lease shall terminate and this Lease shall be considered the
only Lease between the parties for the Premises leased hereunder.
54. MAINTENANCE OF THE PREMISES: Notwithstanding anything to the contrary in
Paragraph 10, Landlord shall repair, including replacement related to, damage to
the structural shell, foundation, and roof structure (but not the interior
improvements, roof membrane, or glazing) of the building leased hereunder at
Landlord's cost, however, Landlord shall amortize the cost of the repair over
the useful life of said repair, and Tenant shall be responsible for paying to
Landlord one hundred percent (100%) of Tenant's pro rata share of the
amortization of said cost over the full Term remaining in the Lease at the time
the repair and/or replacement is made; provided Tenant has not caused such
damage, in which event Tenant shall be responsible for 100 percent of any such
costs for repair and/or replacement or damage so caused by the Tenant. For
Example: In the event (i) the roof purlin is repaired at a cost of $10,000, and
(ii) said repair purlin has a useful life of twenty years, and (iii) Tenant has
one year remaining in its Lease Term at the time said repair was made, Tenant
would be charged its prorata share of $500 ($10,000 / 20 years x 1 year = $500)
as Additional Rent, in which case said amount would be due within thirty (30)
days of notice from Landlord. Tenant hereby waives all rights under, and
benefits of subsection I of Section 1932 and Sections 1941 and 1942 of the
California Civil Code and under any similar law, statute or ordinance now or
hereafter in effect. Notwithstanding the foregoing, a crack in the foundation or
exterior walls, or any other defect in the Building that does not endanger the
structural integrity of the building for which Tenant is not responsible, or
which is not life-threatening, shall not be considered material, and Landlord
may elect, in its sole and absolute discretion, not to repair and/or replace the
same.
In the event the Term of the Lease is extended by any other agreement between
Landlord and Tenant, Tenant's pro rata share of the earlier repair and/or
replacement cost shall be increased to include the additional amount payable to
Landlord due to the Extended Term of the Lease. For Example: In the event: (i)
the roof purlin was repaired as illustrated above; and (ii) Tenant exercises its
Option to Extend this Lease for an additional five year period, Tenant would be
liable for an additional payment to Landlord of $2,500 as Additional Rent. Said
payment would be due in full immediately upon Tenant's exercise of its Option to
Extend.
55. TENANT'S RIGHT TO CONTEST REAL ESTATE TAX ASSESSMENTS: In addition to and
notwithstanding anything to the contrary contained in Paragraph 12, it is agreed
that Tenant shall have the right to contest the real estate taxes and/or
assessments levied against the Premises leased hereunder with the specific
understanding and agreement that any such contest shall in no way and in no
event relieve Tenant from Tenant's responsibility to pay all real estate taxes
and assessments as they appear on the tax bill as they become due. In the event
any such tax contest by Tenant is successful, the proportionate portion of the
net refund, once received by Landlord, relating to real estate taxes and
assessments actually paid by Tenant shall be refunded to Tenant. It is further
understood and agreed that Landlord shall in no event be responsible for any
liability or for any cost or expense incurred by Tenant by reason of Tenant's
contest of such taxes and/or assessments.
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AMENDMENT NO. 1
TO LEASE
THIS AMENDMENT NO. 1 is made and entered into this 6th day of January,
1998, by and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated
7/20/77 (JOHN ARRILLAGA SURVIVOR'S TRUST) (previously known as the "Arrillaga
Family Trust") as amended, and RICHARD T. PEERY, Trustee, or his Successor
Trustee UTA dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended,
collectively as LANDLORD, and AIMQUEST CORPORATION, a California corporation, as
TENANT.
RECITALS
A. WHEREAS, by Lease Agreement dated October 3, 1996 Landlord leased to
Tenant approximately 11,865+ square feet of that certain 30,170+ square foot
building located at 1381 McCarthy Blvd., Milpitas, California, the details of
which are more particularly set forth in said October 3, 1996 Lease Agreement,
and
B. WHEREAS, said Lease was amended by the Commencement Letter dated
December 9, 1996 which changed the Commencement Date of the Lease from November
1, 1996 to November 25, 1996, and changed the Termination Date from October
31,2001 to November 30, 2001, and,
C. WHEREAS, said Lease was amended by Letter Agreement dated March 25,
1997 whereby Landlord acknowledged Tenant's name change from Aimnet Corporation,
a California corporation to Aimquest Corporation, a California corporation, and
D. WHEREAS, it is now the desire of the parties hereto to amend the Lease
by terminating said Lease effective February 14, 1998 subject to the terms of
this Amendment No. 1 and amending the Basic Rent schedule and Aggregate Rent of
said Lease Agreement as hereinafter set forth.
AGREEMENT
NOW THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, and in consideration of the hereinafter mutual promises, the
parties hereto do agree as follows:
1. TERMINATION OF LEASE: Subject to Paragraph 2 below and the terms and
conditions stated herein, Landlord has agreed to the early termination of said
Lease Agreement effective February 14, 1998. Tenant shall be responsible for
relinquishing the Premises in the condition required under Lease Paragraph 8
("Acceptance and Surrender of Premises") and Lease Paragraph 9 ("Alterations and
Additions"). Prior to Lease Termination, Landlord and Tenant shall conduct a
joint inspection of the Premises to determine the extent of the work required by
Tenant to comply with the provisions of said Paragraphs 8 and 9 ("Restoration
Work"). Tenant may elect to perform said Restoration Work and have all
Restoration Work completed by the Termination Date. If Tenant has not completed
said Restoration Work by the Termination Date, Tenant agrees to pay to Landlord
a fee equal to the total of the estimates received from Landlord's contractors
for the Restoration Work not completed by Tenant ("Restoration Fee"). Said
Restoration Fee shall be paid by Tenant to Landlord within ten days after Tenant
receives Landlord's statement of said Restoration Fee. Tenant shall be
responsible for paying all Basic Rent and Additional Rent and fulfilling all
Lease obligations as contained in said Lease through the date of termination.
Notwithstanding the above, Tenant's obligations as stated in Lease Paragraphs 17
("Compliance") and 50 ("Hazardous Materials") shall survive the Termination Date
of the early termination of this Lease is subject to and conditional upon
Landlord obtaining an executed agreement from Tenant to lease space adjacent to
the Premises located at 1421 McCarthy Blvd., Milpitas California (the "New
Premises Lease"), commencing the day following the early Termination Date of
this Lease. In the event Landlord is unable to obtain the executed New Premises
Lease with Tenant on or
Initial: [ILLEGIBLE]
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before February 14, 1998 and/or in the event said New Premises Lease does not
commence on February 15, 1998, the Termination Date of this Lease shall be
modified to reflect the date Landlord so obtains the executed New Premises Lease
and said New Premises Lease commences. In the event Landlord does not obtain the
executed New Premises Lease with Tenant, this Lease shall continue in full force
and effect through the scheduled Lease Termination Date of November 30, 2001 and
this Amendment No. 1 shall be automatically rescinded. In no event, shall
Tenant's termination date exceed the original Termination Date of November 30,
2001 (provided Tenant fully complies with the terms and conditions in Paragraph
8, "Acceptance and Surrender of Premises", of the Lease Agreement).
3. BASIC RENT SCHEDULE: The monthly Basic Rental shall be adjusted as
follows:
On February 1, 1998, the sum of TEN THOUSAND EIGHTY FIVE AND 25/100 DOLLARS
($10,085.25) shall be due, representing the prorated Basic Rent due for the
period of February 1, 1998 through February 14, 1998.
The Aggregate Basic Rent for the Lease shall be decreased by $960,471.75 or
from $1,249,740.45 to $289,268.70.
EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of
said October 3, 1996 Lease Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 1
to Lease as of the day and year last written below.
LANDLORD: TENANT:
JOHN ARRILLAGA SURVIVOR'S TRUST AIMQUEST CORPORATION
a California corporation
By /s/ John Arrillaga By /s/ John Blank
---------------------------- ----------------------------
John Arrillaga, Trustee John Blank, Vice President
Finance & Administration
Date: 1/27/98 Date: 23 January 1998
-------------------------- --------------------------
RICHARD T. PERRY SEPARATE
PROPERTY TRUST
By /s/ Richard T. Perry
---------------------------
Richard T. Perry, Trustee
Date: 1/27/98
------------------------
Initial: [ILLEGIBLE]
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[FLOOR PLAN]
<PAGE>
EXHIBIT B TO LEASE AGREEMENT DATED JANUARY 6, 1998 BY AND BETWEEN THE JOHN
ARRILLAGA SURVIVOR'S TRUST AND THE RICHARD T. PEERY SEPARATE PROPERTY TRUST, AS
LANDLORD, AND AIMQUEST CORPORATION, AS TENANT.
MILPITAS 2
Initial: [ILLEGIBLE]
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Exhibit 10.24
GRIC COMMUNICATIONS, INC. SINGAPORE TELECOMMUNICATIONS LTD.
AGREEMENT
This Agreement is entered into as of August 3, 1999 (the "EFFECTIVE
DATE") by and between GRIC COMMUNICATIONS, INC. a California corporation with
offices at 1421 McCarthy Boulevard, Milpitas, CA 95035 USA ("GRIC
COMMUNICATIONS"), and Singapore Telecommunications Ltd., a Singapore limited
company with offices at 31 Exeter Road, Comcentre, Singapore 239732
("SINGTEL"), and is as follows:
RECITALS
A. SingTel desires to build a global IP-based network for the purpose of
providing IP-based telecommunications services to SingTel business customers
called SingTel ConnectPlus IP Services (ConnectPlus Services).
B. GRIC Communications, the global leader in providing multiple IP-based
services for carriers and Internet Service Providers ("ISPs") worldwide, will
provide Convergent Services Platform Clearinghouse settlement services for
SingTel and ConnectPlus Partners (as defined below) within Territories A and B
relative to the SingTel ConnectPlus IP Services.
C. GRIC Communications will negotiate and enter into agreements with
selected GRIC Alliance members within Territory B (by amendment of certain
agreements between GRIC and such GRIC Alliance members) under which they will
become ConnectPlus B Partners and provide ConnectPlus Services (as defined
below) in their respective countries.
NOW, THEREFORE, IT IS AGREED BY THE PARTIES AS FOLLOWS:
1. DEFINITIONS
The capitalized terms set forth in this Section 1 have the meanings
ascribed to them as set forth in this Section 1. Capitalized terms used in this
Agreement that are not set forth in this Section 1 have the meanings ascribed to
them elsewhere in this Agreement.
"CONNECTPLUS CUSTOMER" means a corporation or other entity which
enters into a written agreement with SingTel or a ConnectPlus Reseller to obtain
ConnectPlus Services.
"CONNECT PLUS A PARTNER" means an entity which contracts with SingTel
to serve as a network node partner in order to enable delivery of ConnectPlus
services in a specific country and enters into an appropriate settlement
agreement with GRIC for GRIC to perform the settlement function between SingTel
and ConnectPlus A Partner in relation to the ConnectPlus services.
"CONNECTPLUS B PARTNER" means a GRIC Alliance member which contracts
with GRIC to serve as a network node partner in order to enable delivery of
ConnectPlus services in a specific country. GRIC will perform the settlement
function between SingTel and ConnectPlus B Partner in relation to the
ConnectPlus services.
"CONNECTPLUS PARTNERS" means ConnectPlus A Partners and ConnectPlus B
Partners, collectively.
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"CONNECTPLUS RESELLER" means an entity which is appointed by
SingTel to resell ConnectPlus Services in one or more designated territories
or markets.
"CONNECTPLUS SERVICES" means the IP-based telecommunications services
provided by SingTel to certain of its corporate customers through a global IP-
based network and which are known as SingTel ConnectPlus IP services.
"CONNECTPLUS SUBSCRIBER" means an authorized end user of a ConnectPlus
Customer who is permitted to utilize the ConnectPlus Services.
"CONVERGENT SERVICES PLATFORM" or "CSP" means the proprietary GRIC
Communications software platform that enables clearinghouse settlement and the
provision of other value-added services.
"CSP CLEARINGHOUSE" means the proprietary GRIC Communications server
software application that provides clearinghouse settlement services for
GRICtraveler Software-TM- usage when properly configured. Settlement means
generating the correct charging information related to the Settled Traffic (as
defined in Sections 9.2 and 9.3 below) and making this information available to
SingTel as defined hereunder. CSP Clearinghouse consists of Authentication and
Authorization (AAS) servers and Settlement (ARS) servers operated in accordance
with EXHIBIT F.
"DERIVATIVES" means specific instructions or sets of instructions in
Executable Code that are not included in the GRICtraveler-TM- Software, but
which, when used alone or with the GRICtraveler-TM- Software, constitute a
modification, enhancement, correction, update, translation, interpretation,
listing, compilation, or derivative of the GRICtraveler-TM- Software, and all
copies and portions thereof in any media.
"DESIGNATED PLATFORM" means SingTel's servers in Territory A, on which
SingTel will install GRICtraveler-TM- and which are identified on EXHIBIT D
hereto, as updated from time to time by SingTel on written notice to GRIC
Communications.
"DOCUMENTATION" means manuals, user guides, and other documentation
relative to the GRICtraveler-TM- Software, including all modifications, updates,
derivations, and changes thereto, whether in written, graphical, human readable,
or machine readable form and in any media.
"EXECUTABLE CODE," sometimes also referred to as object code, means
the machine executable form of the GRICtraveler-TM- Software or any copy thereof
in any media.
"GLOBAL REACH INTERNET CONNECTION-TM-" (or "GRIC ALLIANCE-TM-") means
a worldwide alliance of ISPs coordinated by GRIC Communications with the
objective of providing telecommunications services and other value-added
services through the Internet.
"GRIC Trademarks" means the various trademarks, service marks and
logos owned or licensable by GRIC Communications as described on EXHIBIT C-1
hereto.
"GRICTRAVELER-TM- SOFTWARE" means those modules of the software
program described on EXHIBIT A to this Agreement in Executable Code for which
SingTel has paid the license fees described in EXHIBIT B of this Agreement.
The GRICtraveler Software does not include any Derivatives unless this
Agreement otherwise provides.
"GRICTRAVELER-TM-" means the GRICtraveler-TM- Software and the
Documentation.
"INITIAL PHASE" means the period defined in EXHIBIT F hereto and
during which GRIC Communications and SingTel operate in accordance with the
procedures set forth therein.
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"INTELLECTUAL PROPERTY RIGHTS" means patent rights, copyright rights
(including, but not limited to, rights in audiovisual works and moral rights),
trade secret rights, and any other intellectual property rights recognized by
the law of each applicable jurisdiction.
"SINGTEL TRADEMARKS" means the various trademarks, service marks and
logos owned or licensable by SingTel as described on EXHIBIT C-2 hereto.
"SITES" means the locations of the central processing unit of the
Designated Platforms.
"TERRITORY A" means the countries/cities in which GRIC will perform
the settlement function for SingTel and ConnectPlus A Partners relative to
the ConnectPlus Services.
"TERRITORY B" means the countries/cities in which SingTel wishes to
offer ConnectPlus Services as notified to GRIC Communications in writing from
time to time and in which GRIC will negotiate and enter into agreements with
ConnectPlus B Partners to enable delivery of ConnectPlus Services in their
respective countries.
2. TRADEMARKS
2.1 SingTel recognizes the value of the goodwill associated with
the GRIC Trademarks, GRIC Communications' ownership of the GRIC Trademarks,
and the reservation by GRIC Communications of all rights to the GRIC
Trademarks. SingTel agrees to use the GRICtraveler-TM- mark solely to refer
to and identify GRICtraveler-TM- and GRIC Communications' technology, and
that such usage shall be in accordance with GRIC Communications' usage
guidelines as revised from time to time. [SingTel acknowledges receipt of a
copy of the GRIC Communications Trademark Guidelines in effect as of the
Effective Date.] In all written text (whether in electronic or paper form)
on this subject, ownership of the GRIC Trademarks shall be attributed to GRIC
Communications as follows: "GRICtraveler-TM-, Global Reach Internet
Connection-TM- and GRIC-TM- are trademarks of GRIC Communications, Inc."
SingTel further agrees not to make any other use of, challenge the validity
of, or file applications to register, any name or mark containing any of GRIC
Communications' trademarks, whether or not such trademarks are listed herein,
without GRIC Communications' advance written permission. SingTel agrees that
all goodwill associated with GRIC Communications' Trademarks shall insure to
the sole benefit of GRIC Communications.
2.2 GRIC Communications recognizes the value of the goodwill
associated with the SingTel Trademarks, SingTel's ownership of the SingTel
Trademarks, and the reservation by SingTel of all rights to the SingTel
Trademarks. GRIC Communications agrees to use the ConnectPlus mark solely to
refer to and identify the ConnectPlus Services. GRIC Communications further
agrees not to make any other use of, challenge the validity of or file
applications to register, any name or mark containing any of SingTel's
trademarks, whether or not such trademarks are listed herein, without SingTel's
advance written permission. GRIC Communications agrees that all goodwill
associated with SingTel's Trademark shall insure to the sole benefit of SingTel
3. INSTALLATION AND ACCEPTANCE.
Before delivery and installation, SingTel shall prepare the Site
and/or the Designated Platform for installation of the GRICtraveler-TM-
Software according to GRIC Communications' instructions. Promptly after the
Effective Date, GRIC Communications shall deliver the GRICtraveler-TM-
Software to the Designated Platform at the Site, and shall deliver to the
Site one (1) copy of the applicable Documentation. GRICtraveler-TM- is
shipped F.O.B. from GRIC Communications' office in Milpitas, California.
SingTel shall be responsible for installing the GRICtraveler-TM- Software on
the Designated Platform at the Site, but GRIC Communications will assist
SingTel in the installation process as reasonably requested by SingTel.
4. LICENSE GRANTS
4.1. SCOPE OF LICENSE. Subject to the terms and conditions of
this Agreement, and effective upon payment of the amounts specified in Section
9.1.1, GRIC Communications hereby grants to SingTel a non-
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exclusive, non-transferable, fee-bearing, perpetual license to use (without
the right to sub-license or distribute) GRICtraveler-TM- Software and any
Derivatives delivered by GRIC Communications, in Executable Code, and
Documentation for SingTel's internal use only, including use by SingTel's
majority-owned subsidiaries, solely on the Designated Platform at the Sites
solely in connection with ConnectPlus Services in Territory A and Territory B.
4.2. RIGHT TO MAKE BACK-UP COPY. SingTel may make one
archival back up copy of the GRICtraveler-TM- Software (and any Derivatives
delivered by GRIC Communications) and the Documentation per Site for use at
such Site.
4.3. LICENSE RESTRICTIONS. SingTel shall not copy or
knowingly permit any other person to copy any portion of GRICtraveler-TM-
except for the purposes authorized in this Agreement or for back-up and
archival purposes. SingTel shall not, and shall not allow others to, reverse
engineer, reverse compile, or disassemble any of the GRICtraveler-TM-
Software, any Derivative, or any portion of the foregoing. SingTel shall
notify GRIC Communications if SingTel becomes aware of any attempt to reverse
engineer, reverse compile, or disassemble the GRICtraveler-TM- Software, any
Derivative, or any portion of the foregoing.
4.4. RESERVATION. GRIC Communications reserves all rights and
licenses not expressly granted to SingTel pursuant to this Agreement.
5. DELIVERABLES
GRIC Communications shall provide SingTel with the items specified as
deliverables on EXHIBIT A.
6. SINGTEL COMMITMENTS
6.1. LICENSING OF GRICTRAVELER-TM-. In order to enable GRIC
Communications to provide settlement services using the CSP Clearinghouse,
SingTel agrees to (i) install and use the GRICtraveler-TM- Software only as
provided in this Agreement, subject to the terms and conditions hereof, and (ii)
to install and use any updates of the GRICtraveler-TM- Software provided to
SingTel promptly upon receipt thereof.
6.2. TECHNICAL SUPPORT. SingTel agrees to provide local
support and network management for the Designated Platform on which the
GRICtraveler-TM-Software runs, and to exercise commercially reasonable
efforts with respect to maintaining GRIC-related services in substantially
the same way SingTel maintains its other services, including but not limited
to, providing immediate response and action to cooperate with GRIC
Communications' Network Operation Center to remedy any failure of any server
used to provide GRIC-related services. SingTel agrees to maintain hardware
and software on a GRIC Communications-supported release. For high severity
problems, which could cause loss of data, data corruption, system failure or
a potential security breach, SingTel agrees to implement a GRIC
Communications-provided fix within 48 hours of receipt of the fix. SingTel
will also provide GRIC Communications-designated network support personnel
(the names of which shall be notified to SingTel in writing from time to
time) with authorization for remote access to an administrative account on
all Designated Platforms on which the GRICtraveler software runs in order to
perform GRICtraveler administrative functions so as to enable GRIC
Communications to perform the settlement functions contemplated herein.
6.3. INITIAL PHASE. During Initial Phase, SingTel will
perform its respective functions described in EXHIBIT F.
6.4. NON-SOLICITATION. During the term of this Agreement and
for a period of one (1) year thereafter, SingTel covenants that it will not,
directly or indirectly, enter into a settlement agreement or similar
arrangement with any ConnectPlus B Partners (excluding ConnectPlus B Partners
which are direct or indirect subsidiaries of SingTel) to perform a settlement
function similar to that performed by GRIC Communications under this
Agreement. For avoidance of doubt, this subsection shall not operate to
preclude or limit SingTel's ability to enter
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into agreements with ConnectPlus B Partners to become ConnectPlus Resellers,
provided that such agreements do not otherwise operate to undermine the
settlement role performed by GRIC Communications hereunder.
7. GRIC COMMUNICATIONS COMMITMENTS
7.1. RECONCILE TRAFFIC. As provided in this Agreement, GRIC
Communications will utilize CSP Clearinghouse to reconcile all traffic activity
logs in relation to the ConnectPlus Services, and collect and redistribute all
fees related to ConnectPlus Services traffic activity between and among SingTel
and the ConnectPlus Partners.
7.2 SIGNING NEW CONNECTPLUS PARTNERS. GRIC Communications
will be responsible for signing up ConnectPlus B Partners to provide
ConnectPlus Services and shall seek written assurances from these ConnectPlus
B Partners that these ConnectPlus B Partners have obtained the licenses,
approvals or permits required, if any, to provide the ConnectPlus services in
their respective countries.
7.3 SERVICE LEVEL AGREEMENT. GRIC Communications agrees to
cause the ConnectPlus B Partners to agree to comply with the terms of the
Service Level Agreement set forth in EXHIBIT E ("SLA"). In the event a
ConnectPlus B Partner fails to materially conform to the SLA, GRIC
Communications shall, upon SingTel's written request, cease to permit such
ConnectPlus B Partner to provide ConnectPlus Services; provided, that such
ConnectPlus B Partner shall first be afforded a reasonable opportunity to
cure any such nonconformity within 7 days from the date that SingTel gives
the written request to GRIC
7.4. INITIAL PHASE. During Initial Phase, GRIC Communications
will perform its respective functions described in EXHIBIT F.
8. MAINTENANCE AND SUPPORT
8.1. GRIC COMMUNICATIONS MAINTENANCE. During the term of this
Agreement, GRIC Communications shall provide SingTel with periodic updates of
the GRICtraveler-TM- Software that may incorporate (i) corrections of any
substantial defects, (ii) fixes of any minor bugs, and (iii) at the discretion
of GRIC Communications, whose discretion shall not be unreasonably exercised,
enhancements to the GRICtraveler-TM- Software, in each case where practicable.
8.2. GRIC COMMUNICATIONS TECHNICAL SUPPORT. During the term of
this Agreement, GRIC Communications will use reasonable efforts to promptly
correct Errors that are reported by SingTel and reproducible by GRIC
Communications. "Errors" are material failures of the GRICtraveler-TM- Software
to perform in substantial conformity with the Documentation. GRIC
Communications shall provide email, telephone and fax support between the hours
of 9:00 a.m. and 6:00 p.m., Singapore time, Monday through Friday, excluding
GRIC Communications holidays.
8.3 Training. GRIC Communications may provide training
services to SingTel's personnel at such times and at such places as GRIC
Communications and SingTel may agree. GRIC Communications shall provide the
training at GRIC Communications' standard hourly rates (plus materials costs
and all related expenses including travel costs) at the time of the agreement.
8.4 PROFESSIONAL SERVICES. In the event that SingTel
requires additional software engineering or other professional services, any
such work shall be done in accordance with the terms of a separate
professional services agreement mutually agreed upon by the parties. Such
services shall be provided at GRIC's standard hourly rates plus materials
costs and all related expenses including travel costs at the time of the
agreement.
9. FEES, BILLING AND SETTLEMENT
9.1. FEES.
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9.1.1. LICENSING FEE. In consideration of SingTel
agreeing to use GRIC Communications to settle all roaming traffic arising under
this Agreement, SingTel shall not be required to pay GRIC Communications the
normal Licensing Fee of $4,995 per Site for use of the GRICtraveler-TM- Software
as described hereunder.
9.1.2. MAINTENANCE FEES. SingTel shall not be required
pay GRIC Communications an Annual Maintenance Fee during the initial year of
this Agreement. GRIC Communications shall offer maintenance under Section 8.1
and Section 8.2 in subsequent periods based on an acceptable maintenance fee
schedule mutually agreed to by the parties taking into consideration the
prevailing market rate for such maintenance.
9.1.3. SETTLEMENT FEES. SingTel agrees to pay the
settlement fees for the settlement services rendered by GRIC Communications in
Territory A and Territory B hereunder in accordance with the terms set forth on
Exhibit B.
9.1.4. TRAINING AND PROFESSIONAL SERVICES FEES. In the
event that SingTel requests and GRIC Communications provides training or
professional services as contemplated above, SingTel agrees to pay the fees and
expenses described in Section 8.3 and 8.4, respectively. The current standard
rates for these services as of the Effective Date are set forth in EXHIBIT B.
9.2. BILLING. At the end of each billing period (calendar
month), GRIC Communications will generate for SingTel one consolidated statement
of all ConnectPlus Services traffic among ConnectPlus Subscribers, ConnectPlus
Partners and SingTel ("SETTLED TRAFFIC"). This statement will bear the date on
which it was generated (the "STATEMENT DATE"), and will detail and reconcile all
Settled Traffic, and will show an aggregate amount owed or amount due which will
be paid to or received from GRIC Communications. In addition, SingTel shall
have access to a password-protected GRIC Communications, Inc. web site which
will contain a statement detailing and reconciling all ConnectPlus Services
traffic activities among ConnectPlus Subscribers, ConnectPlus Partners and
SingTel.
9.3. SETTLEMENT. GRIC Communications will settle the Settled
Traffic as set forth in this Section 9, EXHIBIT B, and the ConnectPlus
Settlement Operational Plan to be mutually agreed on by the parties. Disputes
among ConnectPlus Partners will be resolved according to settlement and
operational procedures in the ConnectPlus Settlement Operational Plan, a copy of
which is attached hereto as EXHIBIT G.
9.3.1 PAYMENT BY SingTel. In the billing statement set
forth in Section 9.2, GRIC Communications will reconcile all Settled Traffic and
determine the aggregate "amount owed" or "amount due" for all Settled Traffic.
Any amounts owed by SingTel are due and payable upon SingTel's receipt of the
statement, but shall not be considered overdue until thirty (30) days after the
Statement Date (the "grace period"). Payments received during such grace period
will not incur a late charge. If payments are received after the grace period
GRIC Communications may assess a late charge of 1.5% per month from the
Statement Date of the amount due with a minimum charge of 1.5%. GRIC
Communications reserves the right to suspend service upon written notification
to SingTel if SingTel is over 30 days delinquent in their payment of any amount
which has not been disputed in good faith under Section 9.3.4 below and such
payment is still not made by SingTel within seven (7) days of such written
notification.
9.3.2 REDISTRIBUTION OF FUNDS BY GRIC COMMUNICATIONS.
GRIC Communications will collect all amounts received from SingTel and from the
ConnectPlus Partners for each billing statement under Section 9.2, and will
redistribute collected amounts within sixty (60) days of the Statement Date. In
the event that GRIC Communications is to pay SingTel certain amounts based upon
a certain statement under Section 9.2, GRIC Communications agrees to pay SingTel
such amount owed within such sixty (60) day period even if such amounts are owed
but unpaid to GRIC Communications. If payments are not received after the sixty
(60) day period, SingTel may assess a late charge of 1.5% per month from the
Statement Date of the amount due with a minimum charge of 1.5%.
9.3.3 SET-OFF AND OVERPAYMENT. Either party may set
off from any amounts to be paid to the other under this Agreement an amount
equal to any amount then owed by such other party and past due under
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this Agreement. Any amount mistakenly overpaid to either party will
immediately be refunded upon discovery or upon demand by the other party and
forwarded to the entity entitled thereto, and either party may set off
amounts overpaid from the next payment due to the other party under this
Agreement should the other party have failed to refund any overpaid amounts
prior to such payment.
9.3.4 FEE DISPUTES. Any disputed amounts may be questioned
within sixty (60) days of the Statement Date. After such sixty (60) day
period, the billing becomes final. SingTel must transmit any questions
regarding billing to GRIC Communications in writing with specific reference
as to why the billing "log" is considered incorrect. GRIC Communications
will exercise reasonable efforts to resolve a disputed billing within sixty
(60) days of such notification.
9.4. TAXES AND DUTIES. The paying party ("Paying Party") shall
pay the amounts due under this Agreement to the other party ("Receiving Party").
In the event any taxes or duties are payable by the Paying Party on such amount
payable hereunder, such taxes shall be borne by the Receiving Party. Further,
in the event any taxes are required to be withheld by the Paying Party on
payments to the Receiving Party required hereunder, provided that the Paying
Party promptly delivers to such Receiving Party an official receipt for any such
taxes withheld or other documents necessary to enable such other party to claim
a foreign tax credit, the Paying Party may deduct such taxes from the amount
owed to the Receiving Party and shall pay them to the appropriate tax authority.
The Paying Party will make certain that any taxes withheld are minimized to the
extent permitted by the applicable law. The parties shall be responsible for
and shall pay their own corporate and other taxes howsoever arising from their
activities in connection with this Agreement.
9.5 METHOD OF PAYMENT. Unless otherwise notified to SingTel
in writing by GRIC Communications, all payments to GRIC Communications shall
be made via wire transfer and be made payable to GRIC Communications. Payment
shall be remitted to Bank of America located at 530 Lytton Avenue, Palo Alto,
California 94301, United States of America with the following account number
references: ABA No. 121000358 and Account No. 14934-04689. All payments
shall be made in United States currency. Unless otherwise notified to GRIC
Communications in writing by SingTel, all payments to SingTel shall be made
via wire transfer and be made payable to Singapore Telecommunications Ltd.
Payment shall be remitted to the Bank of New York CHIPS UID 034675 for
account of DBS Bank, Singapore favoring Singapore Telecommunications Limited
located at 420, 5th Avenue, 27th Floor New York NY1001, United States of
America with the following account number references: ACU current account
no.: 0001-000070-01-2. All payments shall be made in United States currency.
9.6 FRAUD MINIMIZATION. GRIC Communications and SingTel shall
cooperate and confer in good faith with each other and with the ConnectPlus
Partners to work out procedures to identify and prevent fraud in the usage of
ConnectPlus Services, and to work out mutually agreed liability limitations on
fraudulently incurred charges incurred on one ConnectPlus Partner's network and
sought to be charged back to another ConnectPlus Partner through the settlement
process. Such limitations shall act to reduce a ConnectPlus Partner's liability
only if it has applied the agreed upon fraud provision measures.
10. EXPORT
GRIC Communications' obligation to deliver any portion of
GRICtraveler-TM- is subject to compliance by GRIC Communications and SingTel
with applicable laws, rules, and regulations of the United States Department
of Commerce and other applicable governmental agencies concerning the export
of goods or technology from the United States. Before SingTel uses any
portion of GRICtraveler-TM- outside the United States, SingTel shall: (a)
fully comply with all then current regulations of the United States
Department of Commerce and other applicable governmental agencies; (b) fully
comply with all then current and applicable regulations of the government of
the Territory; and (c) take reasonable precautions to protect the proprietary
rights of GRIC Communications in the Territory.
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11. DISCLAIMER
11.1. AUTHORITY; SPECIFICATIONS. GRIC Communications warrants that
(a) it has the right to enter into this Agreement and that it has the right to
grant the licences hereunder and (b) GRICtraveler shall substantially conform to
the specifications set forth in the Documentation which accompanies the software
upon delivery to SingTel. SingTel's sole remedy in the event of breach of
Section 11.1(b) is either replacement of a non-conforming item of software with
a conforming version or termination of this Agreement, at GRIC's option. Prior
to exercising its right to terminate under this Section 11.1, GRIC
Communications shall first use commercially reasonable efforts to provide
SingTel with a conforming version of the software.
11.2. NO WARRANTY. EXCEPT AS SPECIFICALLY SET FORTH IN SECTION
11.1 AND IN THIS AGREEMENT, GRIC COMMUNICATIONS MAKES NO WARRANTY, EXPRESS OR
IMPLIED, WRITTEN OR ORAL, STATUTORY, INCLUDING WITHOUT LIMITATION ANY IMPLIED
WARRANTY OF NONINFRINGEMENT, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR
PURPOSE, REGARDING GRICTRAVELER-TM- OR ITS USE ALONE OR IN COMBINATION WITH ANY
OTHER PRODUCTS. NO EMPLOYEE OR AGENT OF GRIC COMMUNICATIONS IS AUTHORIZED TO
MAKE ANY OTHER REPRESENTATION, WARRANTY, OR PROMISE WITH RESPECT TO
GRICTRAVELER-TM-.
12. TITLE AND PROPRIETARY RIGHTS
12.1. TITLE. Title to GRICtraveler-TM- and Derivatives and know-
how and all Intellectual Property Rights pertaining thereto, shall at all times
be vested in GRIC Communications or its suppliers. SingTel shall have no
ownership of GRICtraveler-TM- or any Derivatives, or any portion thereof other
than ownership of the physical media on which permitted copies of the
GRICtraveler-TM- and any Derivatives may be present.
12.2. CONFIDENTIAL INFORMATION.
12.2.1. DEFINITION. "Confidential Information" means: (i)
business or technical information concerning the products, customers, customer
data, marketing and business plans, operations, research, development or know-
how; (ii) any other information disclosed in written or other tangible form and
is marked "Confidential," "Proprietary," or in some other manner to indicate its
confidential nature; or (iii) oral information which is designated as
confidential at the time of disclosure and is later reduced to writing within 30
days; "Confidential Information" does not include information that: (i) in its
aggregate form, is in or enters the public domain through no fault of the
receiving party; (ii) is known to the receiving party, without restriction on
its use or disclosure, at the time of disclosure; (iii) is independently
developed by the receiving party without any use of the Confidential Information
of the other party, as demonstrated by documentation created concurrently with
such development.
12.2.2. RESTRICTIONS ON CONFIDENTIAL INFORMATION. Each
party will maintain the Confidential Information of the other party in strict
confidence and will exercise due care with respect to the handling and
protection of such Confidential Information, consistent with its own policies
concerning protection of its own Confidential Information of like importance.
Each party will use the Confidential Information of the other party only as
expressly permitted herein, and will disclose such Confidential Information only
to its employees and consultants as is reasonably required in connection with
the exercise of its rights and obligations under this Agreement (and only
subject to binding use and disclosure restrictions at least as protective as
those set forth herein executed in writing by such employees and consultants).
However, each party may disclose Confidential Information of the other party
pursuant to the order or requirement of a court, administrative agency, or other
governmental body, provided that the receiving party gives reasonable notice to
the other party to contest such order or requirement. Any such disclosure by
the receiving party of the Confidential Information of the disclosing party,
will, in no way, be deemed to change, affect or diminish the confidential and
proprietary status of such Confidential Information.
12.3. NOTIFICATION. Each party shall notify the other immediately
upon discovery of any unauthorized use or disclosure of the other's Confidential
Information, or any other breach of this Agreement by such party, and
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shall fully cooperate with the other party to help regain possession of
Confidential Information and prevent the further disclosure of Confidential
Information.
13. INFRINGEMENT INDEMNITY
13.1. INDEMNIFICATION. Subject to the conditions of Section 13.2,
GRIC Communications shall defend or settle any claim, proceeding, or suit
("Claim") against SingTel for infringement of any United States, Territory A or
Territory B patent, copyright, or misappropriation of a trade secret arising
from the sale or use of GRICtraveler-TM-, subject to the limitations set forth
in this Section 13. GRIC Communications shall have sole control of any action
or settlement and shall pay any final judgment entered against SingTel on such
issue in any Claim that GRIC Communications defends. GRIC Communications will
also have the right to control any litigation involving GRIC Communications'
trademarks and service marks and logotypes. GRIC Communications shall not be
liable for any cost, expense, or settlement incurred without GRIC
Communications' prior written authorization.
13.2. NOTICE AND COOPERATION. SingTel shall (a) notify GRIC
Communications promptly in writing of any Claim, (b) give GRIC Communications
all information in SingTel's actual knowledge with respect to the Claim, (c)
cooperate with GRIC Communications in all reasonable respects, and (d) at GRIC
Communications' request give GRIC Communications any additional authority GRIC
Communications needs to defend or settle such Claim.
13.3. REMEDIES. If GRIC Communications determines that there is a
material risk that GRICtraveler-TM- may incur a Claim that would give rise to a
right of indemnification under this Agreement, GRIC Communications shall at its
expense (a) use commercially reasonable efforts to procure for the SingTel the
right to use GRICtraveler-TM-; (b) if the remedy in sub-clause (a) of this
Section 13.3 is not feasible, use commercially reasonable efforts to provide a
non-infringing product that performs comparably to GRICtraveler-TM-; or (c) if
the remedy in sub-clause (b) of this Section 13.3 is not feasible, terminate the
license granted by this Agreement as to GRICtraveler-TM- and all further
obligation of SingTel to pay fees as provided under this Agreement with respect
to GRICtraveler-TM-.
13.4. EXCLUSIONS. Notwithstanding anything to the contrary in
this Agreement, GRIC Communications shall have no liability for (a) infringement
caused by use of GRICtraveler-TM- in combination with any other good, method, or
process if the infringement is caused by the combination; (b) infringement
involving any trademark, service mark, or logo type other than trademarks or
other marks that refer to GRIC Communications; or (c) infringement resulting
from modification of GRICtraveler-TM- by a person other than GRIC
Communications; (d) infringement resulting from compliance with any plans,
specifications, or designs provided by SingTel.
13.5. NO OTHER LIABILITIES OR REMEDIES. This Section 13 states
the entire liability of GRIC Communications and the exclusive remedy of SingTel
for any claim that GRICtraveler-TM- infringes any patent, trademark, copyright,
or otherwise. The total obligation of GRIC Communications pursuant to this
Section 13 shall not at any time exceed the total amounts paid to GRIC
Communications pursuant to this Agreement during the preceding 12 calendar
months.
13.6. INDEMNIFICATION BY SINGTEL. Except for the foregoing claims,
SingTel shall defend, indemnify, and hold harmless GRIC Communications against
all expenses and damages arising out of any claims against GRIC Communications
as a result of any unauthorized use by SingTel of GRICtraveler-TM-. The total
obligation of SingTel pursuant to this Section 13.6 shall not at any time exceed
the total amounts paid to SingTel pursuant to this Agreement during the
preceding 12 calendar months.
14. TERM AND TERMINATION
14.1. TERM. The initial term of this Agreement is two (2) years
from the Effective Date, and is automatically renewed on an annual basis
thereafter unless sooner terminated as provided below.
14.2. TERMINATION FOR BREACH. Either party may terminate this
Agreement if the other party breaches any material term or condition of this
Agreement and fails to cure that breach within thirty (30) days after
receiving
9
<PAGE>
written notice of the breach. Except for any failure to pay money, in the
event it takes more than thirty (30) days to cure the breach and the
breaching party has begun substantial corrective action to remedy the breach
within the initial thirty (30) day period and diligently continues to pursue
such remedy, termination shall not be effective until sixty (60) days have
expired since receipt of written notice of the breach if the breach has not
been cured within such sixty (60) day period.
14.3. EFFECT OF TERMINATION FOR BREACH. Upon termination for
breach of this Agreement, except as expressly provided herein, (a) the rights
and licenses granted to SingTel pursuant to this Agreement automatically
terminate, and (b) SingTel shall, within thirty (30) days, ship to GRIC
Communications or destroy (including purging from any system or storage media)
all items in its possession proprietary to GRIC Communications, including but
not limited to all copies of GRICtraveler-TM-, and an officer of SingTel shall
certify in writing to GRIC Communications that all copies of GRICtraveler-TM-
and other Confidential Information of GRIC Communications have been returned to
GRIC Communications or destroyed.
14.4. NON-RENEWAL. Either party may decide not to renew this
Agreement by providing written notice at least six (6) months in advance of the
renewal date described in Section 14.1 above.
14.5. NO LIABILITY UPON TERMINATION. Neither party shall be
liable to the other for any lost revenue, lost profit, or expenses incurred or
investment made in connection with the establishment, development, or
maintenance of the business of either party, or for any other damages, losses,
costs, or expenses of any kind whatsoever, other than the obligations to pay
amounts accrued under this Agreement before the date of termination.
14.6. Survival. The provisions of Sections 11, 12, 13, 14, and 15
shall survive the expiration, cancellation, or termination of this Agreement,
provided that Section 12 shall survive for three (3) years only.
15. GENERAL PROVISIONS
15.1. LIMITATION ON DAMAGES. EXCEPT AS SET FORTH IN SECTION 13,
NEITHER PARTY SHALL BE LIABLE FOR THE COSTS OF PROCURING SUBSTITUTE GOODS OR
SERVICES, OR FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL, OR PUNITIVE
DAMAGES, OR OTHERWISE, NOTWITHSTANDING ANY FAILURE OF GRICTRAVELER OR ANY GOOD
FAITH ERROR IN RENDERING CLEARING HOUSE SERVICES HEREUNDER, EVEN IF GRIC
COMMUNICATIONS IS AWARE OF THE CONSEQUENCES OF LATE DELIVERY, UNAVAILABILITY, OR
NON PERFORMANCE (PROVIDED THAT BEST EFFORTS ARE MADE TO NOTIFY SINGTEL OF SUCH
LATE DELIVERY OR UNAVAILABILITY OR NON PERFORMANCE IF AWARE OF SAME). IN NO
EVENT WILL EITHER PARTY'S MAXIMUM LIABILITY UNDER THIS AGREEMENT AT ANY TIME
EXCEED THE AMOUNTS PAID TO SUCH PARTY UNDER THIS AGREEMENT DURING THE PRECEDING
12 CALENDAR MONTHS.
15.2. 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.
15.3. SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure
to the benefit of the parties hereto and their respective successors and
assigns. Neither party shall assign any of its rights or delegate any of its
obligations under this Agreement without the prior written consent of the other,
which consent shall not be withheld unreasonably.
15.4. FORCE MAJEURE. Neither party shall be liable for any breach
of this Agreement or delay in performance, except for the failure to pay money
due, resulting from a strike, lockout, or other labor dispute, fire, earthquake,
flood, civil commotion, war, riot, act of God, casualty, accident, shortage of
transportation facilities, detention of goods by custom authorities, loss of
goods in public or private warehouse, delay in the delivery of energy, raw or
finished materials, parts, or completed merchandise by suppliers thereof, or
other cause beyond the reasonable control of or occurring without the fault of
such party ("FORCE MAJEURE"). Any deadline or time within
10
<PAGE>
which a party must perform under this Agreement shall automatically be
extended upon the occurrence of any such Force Majeure for a period equal to
the time lost because of such event, but not for more than 90 days. If such
Force Majeure continues for more than 90 days, then the party not in breach
of contract as a result of the Force Majeure, or either party if both are in
breach of contract as a result of the Force Majeure, may terminate this
Agreement upon written notice to the other.
15.5. NO THIRD-PARTY BENEFICIARIES. Nothing in this Agreement
shall (a) confer any rights or remedies on any persons other than the parties
and their respective successors and assigns, (b) relieve or discharge the
obligation of any third person to any party, or (c) give any third person any
right of subrogation or action against any party.
15.6. AMENDMENTS, WAIVERS, AND CONSENTS. This Agreement shall not
be amended except in a writing signed by the parties. No waiver or consent shall
be binding except in a writing signed by the party making the waiver or giving
the consent. 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 in writing.
15.7. OFFICIAL LANGUAGE. English is the official language of this
Agreement. The English language version of this Agreement or any document or
notice contemplated by this Agreement shall control in any conflict with any
version of such writing that is not in English.
15.8. 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 telecopier or other similar form of reproduction followed by
a mailed hard copy, but not electronic mail) and shall be deemed given when
actually received or, if earlier, five days after Dispatch by certified or
express mail, return receipt requested, postage prepaid, addressed to the
current residence or business address of the 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. 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. The parties' principal offices are presently located at the
following addresses:
GRIC: GRIC Communications, Inc.
1421 McCarthy Blvd.
Milpitas, CA 95035
U.S.A.
FAX: (408) 955-1968
Telephone: (408) 955-1920
Attn: General Counsel
SingTel: Singapore Telecommunications Ltd.
31 Exeter Road, #15-00 Comcentre
Singapore 239732
FAX: +65 97576818
Telephone: +65 838 2750
Attn: Legal Department
A party may change his or its address for purposes of this Section by giving the
other party written notice of the new address in the manner set forth above.
11
<PAGE>
15.9. DISPUTE RESOLUTION.
15.9.1. NOTICE. A party who desires money damages or
equitable relief from the other party because of a claim relating to the subject
matter of this Agreement shall give written notice to the other party of the
facts constituting the breach or default (a "DISPUTE NOTICE"). This Section 15.9
is intended to cover all aspects of the relationship between the parties with
respect to the subject matter of this Agreement, including any claims based on
tort or other theories. Any additional claims the parties have against each
other shall also be subject to this Section 15.9.
15.9.2. NEGOTIATION. For no more than thirty (30) days
following delivery of a Dispute Notice (the "NEGOTIATION PERIOD") the parties
shall negotiate to resolve the dispute in good faith.
15.9.3. GOVERNING LAW AND ARBITRATION. This Agreement
shall be governed by the laws of England without reference to its provisions on
the conflict of laws. Any disputes between the parties relating to this
Agreement or its subject matter, including disputes as to validity, performance,
breach or termination, which cannot be settled by mutual agreement between the
parties during the Negotiation Period, shall be submitted to binding arbitration
under the Rules of Conciliation and Arbitration of the International Chamber of
Commerce as in force on the date of the commencement of the arbitration and as
modified by this arbitration clause. The appointing and administering body shall
be the International Chamber of Commerce. The number of arbitrators shall be
one. The Arbitration shall take place in London, England, and the proceedings
shall be conducted in the English language.
15.9.4. ARBITRABILITY. The arbitrator shall have the
power to determine what disputes between the parties are the proper subject of
arbitration.
15.9.5. PRELIMINARY REMEDIES. Notwithstanding this
Section 15.9, a party may apply to a court of competent jurisdiction for
prejudgment remedies and emergency relief in the form of a temporary restraining
order pending final determination of a claim through arbitration in accordance
with this Section 15.9.
15.9.6. COSTS AND ATTORNEY'S FEES. If the arbitrator
determines that the actions of a party or its counsel have unreasonably or
unnecessarily delayed the resolution of the matter, the arbitrator may in its
discretion require such party to pay all or part of cost of the mediation and
arbitration proceedings payable by the other party and may require such party to
pay all or part of the attorney's fees of the other party. This provision
permits an award of attorney's fees against a party regardless of which party is
the prevailing party.
15.10. REMEDIES CUMULATIVE. All remedies, whether under this
Agreement, provided by law, or otherwise, shall be cumulative and not
alternative.
15.11. ENTIRE AGREEMENT. This Agreement and the documents and
agreements contemplated in this Agreement constitute the entire agreement
between the parties with regard to subject matter hereof. This Agreement
supersedes all previous agreements between or among the parties. 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.
15.12. 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 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.
15.13. NO PARTNERSHIP, ETC. This Agreement does not make the
parties partners or joint venturers with each other or with any other GRIC
Alliance members, nor does it create any principal and agent or trustee and
beneficiary relationship or other association between any of the parties or with
any other GRIC Alliance members. No action taken by any party pursuant to this
Agreement shall create any such relationship in the absence of express
12
<PAGE>
language in this Agreement to the contrary. The relationship of the parties
to each other and of all GRIC Alliance members to each other and with GRIC
Communications, Inc. in each case is that of independent contractors.
15.14. AUTHORITY OF EXECUTING PARTIES. The undersigned represent
that they are authorized to execute and deliver this Agreement on behalf of the
respective parties hereto. Each party has relied upon the authority of the other
in executing and delivering this Agreement.
13
<PAGE>
15.15. TITLES, CAPTIONS, AND RECITALS. 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.
15.16. EXHIBITS. All Exhibits hereto shall be deemed to be a part
of this Agreement and are fully incorporated in this Agreement by this
reference.
15.17. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. A party may deliver this Agreement by
transmitting a facsimile copy of the signed signature page to the other party or
parties. A party who transmits a facsimile copy of the party's signed signature
page shall at the same time forward a signed original hard copy of the signature
page by mail or personal delivery.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first referenced above.
GRIC COMMUNICATIONS, INC. SINGAPORE TELECOMMUNICATIONS LTD.
By:________________________________ By:____________________________________
Name: Joseph M. Zaelit Name: Victor Kwok
Title: Senior Vice President & Title: Managing Director
Chief Financial Officer Global Services Development
Date: August ___, 1999 Date: August ___, 1999
14
<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 February 10, 1999 in the
Registration Statement (Form S-1) and related Prospectus of GRIC Communications,
Inc. dated September 21, 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.
Ernst & Young, LLP
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
September 21, 1999
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<PERIOD-START> JAN-01-1998 JAN-01-1999
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8,590 8,590
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<LOSS-PROVISION> 406 218
<INTEREST-EXPENSE> 575 1,241
<INCOME-PRETAX> (17,870) (9,634)
<INCOME-TAX> 32 18
<INCOME-CONTINUING> (17,902) (9,652)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (17,902) (9,652)
<EPS-BASIC> (3.28) (1.72)
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