<PAGE>
As filed with the Securities and Exchange Commission on April 27, 1999
Registration No. 333-76463
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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RAMP NETWORKS, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
California (prior to reincorporation)
Delaware (after reincorporation) 3968 77-0366874
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
----------------
Mahesh Veerina
President and Chief Executive Officer
Ramp Networks, Inc.
3100 De La Cruz Boulevard
Santa Clara, CA 95054
(408) 988-5353
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
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COPIES TO:
<TABLE>
<S> <C>
Tae Hea Nahm
David C. Lee Neil Wolff
Mark W. Seneca Yoichiro Taku
Matthew Oshinsky Shelly Dolev
VENTURE LAW GROUP WILSON SONSINI GOODRICH & ROSATI
A Professional Corporation Professional Corporation
2800 Sand Hill Road 650 Page Mill Road
Menlo Park, CA 94025 Palo Alto, CA 94304
(650) 854-4488 (650) 493-9300
</TABLE>
----------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), 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, please 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, 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>
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<CAPTION>
Title of Each Proposed Maximum Amount of
Class of Securities Aggregate Registration
to be Registered Offering Price (1) Fee
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<S> <C> <C>
Common stock, par value $0.001............... $57,500,000 $15,985(2)
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.
(2) Previously paid.
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 this 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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 27, 1999
[LOGO OF RAMP NETWORKS APPEARS HERE]
Shares
Common Stock
Ramp Networks, Inc. is offering shares of its common stock. This is our
initial public offering. We have applied for approval for quotation on the
Nasdaq National Market under the symbol "RAMP" for the shares we are offering.
We anticipate that the initial public offering price will be between $ and
$ per share.
---------------
Investing in the common stock involves risks.
See "Risk Factors" beginning on page 6.
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<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Total Proceeds to Ramp Networks................................. $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Ramp Networks has granted the underwriters a 30-day option to purchase up to
an additional shares of our common stock to cover over-allotments.
BancBoston Robertson Stephens Inc. expects to deliver the shares of common
stock to purchasers on , 1999.
---------------
BancBoston Robertson Stephens
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
Hambrecht & Quist
The date of this prospectus is , 1999.
<PAGE>
[INSIDE FRONT COVER]
[Inside Cover Graphics: The Inside Cover features a graphic of the WebRamp
product with the following features listed clockwise around the graphic:
Shared Internet Access
LAN to WAN Internetworking
EasyRamp Graphical User Interface
Remote Access to Corporate HQ
Extranet Applications
Content Control
Firewall Security
Fax and Voice Over Internet
Telecommuter Access
E-Commerce E-Business
Transport Independent DSL, Cable, Analog, ISDN
Virtual Private Network
<PAGE>
[GRAPHIC]
[GateFold Graphics: The gateFold depicts topical views of various Local Area
Networks and how they interconnect with the public network. Each Local Area
Network will show where a Ramp Networks product is placed on the network and
to what device(s) it is connected. In addition, the capabilities of the
product will be written out in a box next to the particular Local Area
Network.]
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of 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 dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
----------------
TABLE OF CONTENTS
<TABLE>
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Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Dilution................................................................. 23
Selected Consolidated Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 34
Management............................................................... 49
Certain Transactions..................................................... 58
Principal Stockholders................................................... 60
Description of Capital Stock............................................. 62
Shares Eligible for Future Sale.......................................... 65
Underwriting............................................................. 67
Legal Matters............................................................ 69
Experts.................................................................. 69
Where You Can Find More Information...................................... 69
Index to Condolidated Financial Statements............................... F-1
</TABLE>
----------------
We own or have rights to trademarks or tradenames that we use in conjunction
with the sale of our products and services. WebRamp and the WebRamp logo are
registered trademarks owned by us. Ramp Networks and the Ramp Networks logo are
also trademarks owned by us. This prospectus also makes reference to trademarks
of other companies which are the property of their respective owners.
We were incorporated in California in February 1994 and we expect to
reincorporate in Delaware prior to completing this offering. Our principal
executive offices are located at 3100 De La Cruz Boulevard, Santa Clara,
California 95054 and our telephone number is (408) 988-5353. Our Web site
address is "www.rampnet.com." Information contained on our Web site does not
constitute part of this prospectus.
3
<PAGE>
PROSPECTUS SUMMARY
You should read this summary together with the more detailed information and
our consolidated financial statements and notes thereto appearing elsewhere in
this prospectus. Unless otherwise indicated, this prospectus assumes that the
underwriters have not exercised their option to purchase additional shares, all
shares of preferred stock have been automatically converted into shares of
common stock, and Ramp Networks has consummated its reincorporation in Delaware
and a three for five reverse split of its shares of common stock outstanding
immediately prior to this offering.
The Company
Ramp Networks is a leading provider of shared Internet access solutions for
the small office market. Our WebRamp product family allows multiple users in a
small office to share the same Internet connection simultaneously while
optimizing each user's access speed. Our WebRamp product family is a flexible
and scalable platform that provides software-based routing and bridging
functionality to deliver Internet-enabled applications and services. Our
products support existing analog phone lines, as well as integrated services
digital networks (ISDN) and emerging access technologies such as digital
subscriber lines (DSL) and cable modems. Our Connection Optimized Link
Technology (COLT) software enables multiple users to access the Internet
simultaneously through regular phone lines and analog modems at up to three
times the access speed of a single analog connection.
Participation in the emerging global Internet-based economy and realization
of the benefits and efficiencies facilitated by new Internet-enabled business
applications are becoming increasingly important for the small office market.
The small office market includes small businesses, remote and branch offices of
large corporations, and home offices. Access Media International (AMI)
estimates that in 1998 there were approximately 85 million small businesses
worldwide with fewer than 100 employees, including approximately 7.2 million
small businesses in the United States alone. In addition AMI estimates that the
number of small businesses using shared Internet access will grow from
approximately 400,000 in 1998 to approximately 1.3 million by the year 2000.
Further, we believe that emerging broadband access technologies such as DSL and
cable modems will enable a variety of new data intensive, multimedia and
graphical applications that increase the value of shared Internet access for
these small offices. To more fully participate in the evolving uses of the
Internet, the small office market requires easy-to-use, affordable and scalable
products that enable shared Internet access by multiple users and provide a
platform to deliver Internet-enabled applications and services.
Our objective is to be the leading provider of shared Internet access
solutions to the small office market. The following are key elements of our
business strategy:
. continue our small office market focus;
. support existing and emerging access technologies;
. leverage our platform to deliver new Internet applications and services;
. build our network of value added resellers;
. expand our distribution channels; and
. leverage our WebRamp brand name.
We primarily market and sell our products through North American, European
and Asian based distributors who sell our products to a network of resellers,
including value added resellers (VARs), selected retail outlets, mail order
catalogs and Internet service providers (ISPs). As of March 31, 1999, we had
relationships with over 4,500 resellers in North America alone. We also sell
our products to original equipment manufacturers (OEMs).
4
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by Ramp
Networks..................... shares
Common stock to be outstanding
after the offering........... shares (1)
Use of proceeds............... Working capital and general corporate purposes.
Proposed Nasdaq National
Market symbol................ RAMP
</TABLE>
Summary Consolidated Financial Data
(in thousands, except per share data)
The as adjusted consolidated balance sheet data summarized below reflects the
conversion of our preferred stock into 11,711,727 shares of common stock upon
the completion of this offering and the application of the net proceeds from
the sale of the shares of common stock offered hereby at an initial
public offering price of $ per share and after deducting the underwriting
discounts and commissions and our estimated offering expenses. See Note 2 to
Consolidated Financial Statements for an explanation of the determination of
the number of shares used in computing per share data.
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31
--------------------------- ----------------
1996 1997 1998 1998 1999
------- -------- -------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenue........................ $ 517 $ 5,587 $ 9,858 $2,644 $3,883
Cost of revenue................ 465 4,872 7,019 2,026 2,612
------- -------- -------- ------- -------
Gross margin................... 52 715 2,839 618 1,271
------- -------- -------- ------- -------
Operating expenses:
Research and development..... 2,556 4,196 6,556 2,172 1,258
Sales and marketing.......... 3,078 6,902 8,699 2,086 2,097
General and administrative... 1,043 1,260 1,421 327 471
Amortization of deferred
compensation................ -- -- 7 -- 376
------- -------- -------- ------- -------
Total operating expenses... 6,677 12,358 16,683 4,585 4,202
------- -------- -------- ------- -------
Loss from operations........... (6,625) (11,643) (13,844) (3,967) (2,931)
Other income (expense)......... 303 109 426 196 (58)
------- -------- -------- ------- -------
Net loss....................... $(6,322) $(11,534) $(13,418) $(3,771) $(2,989)
======= ======== ======== ======= =======
Pro forma basic net loss per
share ........................ $ (0.86) $(0.19)
Shares used in computing pro
forma basic net loss per
share......................... 15,524 15,944
======== =======
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
--------------------
Actual As Adjusted
------- -----------
(unaudited)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments......... $ 4,747 $
Working capital........................................... 3,859
Total assets.............................................. 12,091
Long-term portion of debt and capital lease obligations... 3,758
Redeemable convertible preferred stock.................... 37,627
Total stockholders' equity (deficit)...................... (35,824)
</TABLE>
- --------
(1) Based on the number of shares outstanding as of March 31, 1999. Excludes:
. 2,449,433 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $2.83 per share;
. 150,447 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $6.55 per share; and
. 84,053 shares available for future issuance under our 1995 stock option
plan and 2,244,000 shares available for future issuance under our 1999
stock incentive plan. See "Management--Stock Plans" and Note 6 to
Consolidated Financial Statements.
5
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones we face. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially and adversely
affected. In such case, the trading price of our common stock could decline,
and you may lose all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this
prospectus.
We Have a Limited Operating History and May Not be Able to Implement Our Growth
Strategy
We were incorporated in February 1994 and began shipping our products
commercially in April 1996. We have only been shipping products in volume since
the second quarter of 1997. Because of our limited operating history and the
uncertain nature of the rapidly changing markets which we serve, we believe the
prediction of future results of operations is difficult or impossible.
Furthermore, our prospects must be evaluated in light of the risks,
uncertainties, expenses and difficulties frequently encountered by companies in
the early stage of their development. Successful implementation of our growth
strategy depends upon our ability to:
. develop new products equal or superior to those of our competitors;
. develop and maintain strong relationships with key distributors, value
added resellers (VARs) and original equipment manufacturers (OEMs);
. execute our sales and marketing strategy;
. expand our domestic and international operations;
. reduce our manufacturing costs;
. increase our gross margins;
. respond to competitive pressures;
. expand our manufacturing and customer support operations; and
. continue to attract, retain and motivate qualified personnel,
particularly in the areas of sales, marketing and engineering.
We may not be successful in implementing our growth strategy.
We Have a History of Losses, We Expect Future Losses and We Cannot Assure You
That We Will Achieve or Maintain Profitability
We have incurred losses since we commenced operations in February 1994. We
incurred net losses of $6.3 million in 1996, $11.5 million in 1997, $13.4
million in 1998 and $3.0 million for the three months ended March 31, 1999. As
of March 31, 1999, we had an accumulated deficit of $36.9 million. We have not
achieved profitability and although our revenue has grown in recent quarters,
we cannot be certain that we will realize sufficient revenue to achieve
profitability. Even if we do achieve profitability, we cannot assure you that
we can sustain or increase profitability on a quarterly
6
<PAGE>
or annual basis in the future. Furthermore, we currently expect that our
operating expenditures will continue to increase significantly and we may not
generate a sufficient level of revenue to offset these expenditures or be able
to adjust spending in a timely manner to respond to any unanticipated decline
in revenue. If revenue grows slower than we anticipate, if gross margins do not
improve or if operating expenditures exceed our expectations or cannot be
adjusted accordingly, we may continue to experience significant losses on a
quarterly and annual basis.
Our Financial Results from Period to Period May Fluctuate as a Result of
Several Factors, Any of Which Could Adversely Affect Our Stock Price
We believe that period to period comparisons of our operating results are not
a good indication of our future performance. It is possible that in some future
periods our operating results may be below the expectations of public market
analysts and investors. In this event, the price of our common stock may fall.
Our revenue and operating results may vary significantly from period to period
due to a number of factors, many of which are not in our control. These factors
include:
. continued market acceptance of our products;
. fluctuations in demand for our products and services;
. variations in the timing of orders and shipments of our products;
. the timing of new product and service introductions by us or our
competitors;
. the mix of products sold and the mix of distribution channels through
which they are sold;
. our ability to obtain sufficient supplies of sole or limited sourced
components for our products;
. unfavorable changes in the prices of the components we purchase;
. our ability to achieve required cost reductions;
. our ability to attain and maintain production volumes and quality levels
for our products; and
. our ability to integrate new technologies we develop or acquire into our
products.
The amount and timing of our operating expenses generally will vary from
quarter to quarter depending on the level of actual and anticipated business
activities. Research and development expenses will vary as we develop new
products. General and administrative expense fluctuations in past periods have
been due primarily to the level of sales and marketing expenses associated with
new product introductions. In the past, we have experienced fluctuations in
operating results. We have experienced sharply increased revenue in periods
that involved new product introductions and significant sales to OEMs, with
equally sharp decreases in revenue in subsequent periods as distributors and
OEMs complete their inventory build-up process. Revenue increased from
$1.5 million in the third quarter of 1997 to $2.9 million in the fourth quarter
of 1997 and decreased to $1.9 million in the second quarter of 1998. This
fluctuation in revenue was primarily due to fluctuations in sales to Compaq,
which peaked at 45% of revenue in the fourth quarter of 1997 and declined to 2%
of revenue in the second quarter of 1998. Research and development expense was
$2.2 million in the first quarter of 1998 primarily due to $969,000 in costs
related to the acquisition of technology for sending faxes over the Internet.
Furthermore, we have a limited backlog of orders, and revenue for any future
quarter is difficult to predict. Supply, manufacturing or testing constraints
could result in delays in the delivery of our products. Any delay in the
product deployment schedule of one or more of our new products would likely
adversely affect our operating results for a particular period.
7
<PAGE>
We cannot assure you that we will be able to sustain or improve our gross
margins in the future, or that we will be able to offset future price declines
with cost reductions. As a result, we may experience substantial period to
period fluctuations in future operating results and declines in gross margins.
A variety of factors affect our gross margins, including the following:
. the type of distribution channel through which we sell our products;
. the volume of products manufactured;
. our product sales mix;
. the average selling prices of our products; and
. the effectiveness of our cost reduction efforts.
We also anticipate that orders for our products may vary significantly from
period to period. As a result, operating expenditures and inventory levels in
any given period could be disproportionately high. In some circumstances,
customers may delay purchasing our current products in favor of next-generation
products, which could affect our operating results in any given period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for detailed information on our period to period operating results.
The Timing of Our Revenue is Difficult to Predict Because of Our Indirect Sales
Channels and the Variability of Our Sales Cycles
The timing of our revenue is difficult to predict because of our reliance on
indirect sales channels and the length and variability of our sales cycle. The
length of our sales cycle may vary substantially from customer to customer
depending upon the size of the order and the distribution channel through which
our products are sold. Sales from our distributors to our VARs typically take
one month to complete. Sales to our larger end-user accounts, who buy larger
quantities of our products for distribution to their multiple offices,
typically take two to three months to complete and it typically takes nine
months or more to establish volume sales contracts with our OEMs. Furthermore,
the purchase of our products by end-users often represents a significant and
strategic decision regarding their communications infrastructures and typically
involves significant internal procedures associated with the evaluation,
testing, implementation and acceptance of new technologies. This evaluation
process frequently results in a lengthy sales process which is often subject to
significant delays as a result of our customers' budgetary constraints and
internal acceptance reviews. If orders forecasted for a specific customer in a
particular quarter do not occur in that quarter, our operating results for that
quarter could be adversely affected.
While we defer revenue on sales to certain distributors if we determine that
their inventory exceeds normal stocking levels, we are dependent on timely and
accurate inventory information from our distributors to make such
determination. If such information is not timely or accurate, we could
experience increased levels of sales returns or unforecasted fluctuations in
future revenue.
If a Distributor or OEM Cancels or Delays a Large Purchase, Our Revenue May
Decline and the Price of Our Stock May Fall
To date, a limited number of distributors and OEMs have accounted for a
significant portion of our revenue. If any of our major distributors or OEMs
stops or delays its purchase of our products, our revenue and profitability
would be adversely affected. We anticipate that sales of our products to
relatively few customers will continue to account for a significant portion of
our revenue. In 1998,
8
<PAGE>
sales to Ingram Micro accounted for 26% of our revenue and sales to Tech Data
accounted for 24% of our revenue. We cannot assure you that our current
customers will continue to place orders with us, that orders by existing
customers will continue at the levels of previous periods or that we will be
able to obtain orders from new customers.
Because our expense levels are based on our expectations as to future revenue
and to a large extent are fixed in the short term, a substantial reduction or
delay in sales of our products, unexpected returns from resellers or the loss
of any significant distributor, reseller or OEM could adversely affect our
operating results and financial condition. Although our financial performance
depends on large orders from a few key distributors, resellers and OEMs, we do
not have binding commitments from any of them. For example:
. our distributors, resellers and OEMs can stop purchasing or marketing our
products at any time;
. our reseller agreements generally are not exclusive and are for one year
terms, with no obligation of the resellers to renew their agreements with
us;
. our reseller agreements provide for discounts based on expected or actual
volumes of products purchased or resold in a given period;
. our reseller and OEM agreements generally do not require minimum
purchases; and
. our customers may, under certain circumstances, return products to us.
We Must Develop and Expand Our Indirect Distribution Channels to Increase
Revenue and Improve Our Operating Results
Our product distribution strategy focuses primarily on continuing to develop
and expand our indirect distribution channels through distributors, resellers
and OEMs, as well as expanding our field sales organization. If we fail to
develop and cultivate relationships with significant resellers, or if these
resellers are not successful in their sales efforts, our product sales may
decrease and our operating results may suffer. Many of our resellers also sell
products that compete with our products. In addition, our operating results
will likely fluctuate significantly depending on the timing and amount of
orders from our resellers. We cannot assure you that our resellers will market
our products effectively or continue to devote the resources necessary to
provide us with effective sales, marketing and technical support.
In order to support and develop leads for our indirect distribution channels,
we plan to significantly expand our field sales and support staff. We cannot
assure you that this internal expansion will be successfully completed, that
the cost of this expansion will not exceed the revenue generated or that our
expanded sales and support staff will be able to compete successfully against
the significantly more extensive and well-funded sales and marketing operations
of many of our current or potential competitors. Our inability to effectively
establish our distribution channels or manage the expansion of our sales and
support staff would adversely affect our ability to grow and increase revenue.
Average Selling Prices of Our Products May Decrease, Which May Affect Our Gross
Margins
The average selling prices for our products may be lower than expected as a
result of competitive pricing pressures, promotional programs and customers who
negotiate price reductions in exchange for longer term purchase commitments.
The pricing of products sold to our OEMs depends on the specific features and
functions of the product, the degree of integration with the OEM's
9
<PAGE>
products, purchase volumes and the level of sales and service support.
Currently, the market for ISDN-based products is more price competitive than
the market for analog products, and we expect such price competition to
increase in the future. We expect to experience pricing pressure in the future
and anticipate that the average selling prices and gross margins for our
products will decrease over product life cycles. We cannot assure you that we
will be successful in developing and introducing on a timely basis new products
with enhanced features that can be sold at higher gross margins.
We Must Achieve Product Cost Reductions
Certain of our competitors currently offer Internet access products at prices
lower than ours. Market acceptance of our products will depend in part on
reductions in the unit cost of our products. Our cost reduction efforts may not
allow us to keep pace with competitive pricing pressures or lead to improved
gross margins. Many of our competitors are larger and manufacture products in
significantly greater quantities than we intend to for the foreseeable future.
Consequently, these competitors have more leverage in obtaining favorable
pricing from suppliers and manufacturers. In order to remain competitive, we
must reduce the cost of manufacturing our products through design and
engineering changes. We may not be successful in redesigning our products. Even
if we are successful, our redesign may be delayed or may contain significant
errors and product defects. In addition, any redesign may not result in
sufficient cost reductions to allow us to significantly reduce the list price
of our products or improve our gross margins. Reductions in our manufacturing
costs will require us to use more highly integrated components in future
products and may require us to enter into high volume or long-term purchase or
manufacturing agreements. Volume purchase or manufacturing agreements may not
be available on acceptable terms. We could incur expenses without related
revenue if we enter into a high volume or long-term purchase or manufacturing
agreement and then decide that we cannot use the products or services offered
by such agreement.
Our Products Have Not Achieved Widespread Market Acceptance
Our success will depend upon the widespread commercial acceptance of shared
Internet access products by small offices. Small offices have only recently
begun to deploy shared Internet access products, and the market for these
products is not fully developed. If the single Internet access devices, such as
analog modems or ISDN, DSL and cable modems, currently utilized by many small
offices are deemed sufficient even though they do not enable shared access,
then the market acceptance of our products may be slower than expected.
Potential users of our products may have concerns regarding the security,
reliability, cost, ease of use and capability of our products. We cannot
accurately predict the future growth rate or the ultimate size of the small
office market for shared Internet access solutions.
We Depend on Contract Manufacturers for Substantially All of Our Manufacturing
Requirements and We May Be Unable to Successfully Expand Our Manufacturing
Operations as We Grow
We have developed a highly outsourced contract manufacturing capability for
the production of our products. Therefore, we rely on third party contract
manufacturers to procure components, assemble, test and package our products.
Our primary turnkey manufacturing partners are Micron Custom Manufacturing
Services, Inc., Discopy Labs Corporation and SMT Unlimited, Inc. Any
interruption in the operations of one or more of these contract manufacturers
or delays in their shipment of products would adversely affect our ability to
meet scheduled product deliveries to our customers.
10
<PAGE>
We intend to regularly introduce new products and product enhancements that
will require that we rapidly achieve volume production by coordinating our
efforts with those of our suppliers and contract manufacturers. The inability
of our contract manufacturers to provide us with adequate supplies of high
quality products or the loss of any of our contract manufacturers would cause a
delay in our ability to fulfill orders while we obtain a replacement
manufacturer. In addition, our inability to accurately forecast the actual
demand for our products could result in supply, manufacturing or testing
capacity constraints. These constraints could result in delays in the delivery
of our products or the loss of existing or potential customers.
Although we perform random spot testing on manufactured products, we rely on
our contract manufacturers for assembly and primary testing of our products.
Any product shortages or quality assurance problems could increase the costs of
manufacturing, assembling or testing our products.
We Purchase Several Key Components of Our Products from Sole or Limited Sources
and Could Lose Sales If These Sources Fail to Satisfy our Supply Requirements
We currently purchase several key components used in the manufacture of our
products from sole or limited sources and are dependent upon supply from these
sources to meet our needs. We are likely to encounter shortages and delays in
obtaining components in the future which could adversely affect our ability to
meet customer orders. Our principal sole sourced components include
microprocessors, line interface integrated circuits, modem integrated circuits,
DRAMs, transformers, selected other integrated circuits, and plastic tooled
enclosures.
We use a rolling six-month forecast based on anticipated product orders to
determine our material requirements. Lead times for materials and components we
order vary significantly, and depend on factors such as specific supplier,
contract terms and demand for a component at a given time. Our components that
have long lead times include power converters, ISDN integrated circuits, DSL
integrated circuits, flash memories, DRAMs and SRAMs. If orders do not match
forecasts, we may have excess or inadequate inventory of certain materials and
components, which could harm our business.
Although we enter, either directly or through our contract manufacturers,
into purchase orders with our suppliers for components based on our forecasts,
we do not have any guaranteed supply arrangements with these suppliers. Any
extended interruption in the supply of any of the key components currently
obtained from a sole or limited source could affect our ability to meet
scheduled product deliveries to customers. We cannot assure you that, as our
demand for these components increases, we will be able to obtain these
components in a timely manner in the future. In addition, financial or other
difficulties facing our suppliers or significant worldwide demand for the
components they provide could adversely affect the availability of these
components. If we are unable to obtain, either directly or through our contract
manufacturers, a sufficient supply of components from our current sources, we
could experience difficulties in obtaining alternative sources or in altering
product designs to use alternative components. Resulting delays or reductions
in product shipments could damage customer relationships. Further, we may also
be subject to increases in component costs.
11
<PAGE>
The Market in Which We Sell Our Products is Intensely Competitive and Our
Business Would Be Adversely Affected If We Lose Market Share or Otherwise Fail
to Successfully Compete in This Market
We compete in a new, rapidly evolving and highly competitive market. We
expect competition to persist and intensify in the future. Our current and
potential competitors offer a variety of competitive products, including shared
Internet access devices such as the products offered by 3Com, thin servers, and
high-end networking equipment such as routers and switches offered by companies
such as Ascend, Cisco, Intel and Netopia.
Many or our competitors are substantially larger than we are and have
significantly greater financial, sales and marketing, technical, manufacturing
and other resources and more established distribution channels. These
competitors may be able to respond more rapidly to new or emerging technologies
and changes in customer requirements or devote greater resources to the
development, promotion and sale of their products than we can. Furthermore,
some of our competitors may make strategic acquisitions or establish
cooperative relationships among themselves or with third parties to increase
their ability to rapidly gain market share by addressing the needs of our
prospective customers. These competitors may enter our existing or future
markets with solutions that may be less expensive, provide higher performance
or additional features or be introduced earlier than our solutions. Given the
market opportunity in the shared Internet access market, we also expect that
other companies may enter our market with better products and technologies. If
any technology that is competing with ours is more reliable, faster, less
expensive or has other advantages over our technology, then the demand for our
products and services would decrease, which would seriously harm our business.
We expect our competitors to continue to improve the performance of their
current products and introduce new products or new technologies as industry
standards and customer requirements evolve that may supplant or provide lower
cost alternatives to our products. Successful new product introductions or
enhancements by our competitors could reduce the sales or market acceptance of
our products and services, perpetuate intense price competition or make our
products obsolete. To be competitive, we must continue to invest significant
resources in research and development, sales and marketing and customer
support. We cannot be sure that we will have sufficient resources to make such
investments or that we will be able to make the technological advances
necessary to be competitive. As a result, we may not be able to compete
effectively against our competitors. Our failure to maintain and enhance our
competitive position within the market may seriously harm our business.
Increased competition is likely to result in price reductions, reduced gross
margins, longer sales cycles and loss of market share, any of which would
seriously harm our business and results of operations. We cannot be certain
that we will be able to compete successfully against current or future
competitors or that competitive pressures will not seriously harm our business.
Our Future Success Will Depend Upon Our Ability to Enhance Our Existing
Products and Develop and Introduce New Products and Features that Meet Changing
Customer Requirements and Emerging Industry Standards
The market for shared Internet access solutions is characterized by rapidly
changing technologies and short product life cycles. Our future success will
depend in large part upon our ability to:
. identify and respond to emerging technological trends in the market;
12
<PAGE>
. develop and maintain competitive products;
. enhance our products by adding innovative features that differentiate our
products from those of our competitors;
. bring products to market on a timely basis at competitive prices;
. respond effectively to new technological changes or new product
announcements by others; and
. respond to emerging broadband access technologies such as DSL and cable
modems.
We will not be competitive unless we continually introduce new products and
product enhancements that meet these emerging standards. In the future we may
not be able to effectively address the compatibility and interoperability
issues that arise as a result of technological changes and evolving industry
standards.
The technical innovations required for us to remain competitive are
inherently complex, require long development cycles and are dependent in some
cases on sole source suppliers. We will be required to continue to invest in
research and development in order to attempt to maintain and enhance our
existing technologies and products, but we may not have the funds available to
do so. Even if we have sufficient funds, these investments may not serve the
needs of customers or be compatible with changing technological requirements or
standards. Most development expenses must be incurred before the technical
feasibility or commercial viability of new or enhanced products can be
ascertained. Revenue from future products or product enhancements may not be
sufficient to recover the associated development costs.
We Have Experienced Significant Growth in our Business in Recent Periods and
Our Failure to Effectively Manage This Growth Will Adversely Affect Our
Business
We have rapidly and significantly expanded our operations in recent periods
and anticipate that further significant expansion will be required to address
potential growth in our customer base and market opportunities. This expansion
has placed, and is expected to continue to place, significant strain on our
engineering, managerial, administrative, operational, financial and marketing
resources, and increased demands on our systems and controls. To exploit the
market for our products, we must develop new and enhanced products while
managing anticipated growth in sales by implementing effective planning and
operating processes. To manage the anticipated growth of our operations, we
will need to:
. improve existing and implement new operational, financial and management
information controls, reporting systems and procedures;
. hire, train and manage additional qualified personnel;
. continue to expand and upgrade our core technologies; and
. effectively manage multiple relationships with our customers, suppliers,
distributors and other third parties.
In addition, several members of our executive management team, including
Terry Gibson, Vice President of Finance and Chief Financial Officer, and Elie
Habib, Vice President of Engineering, have recently joined us. These
individuals have not previously worked together for substantial lengths of time
and are in the process of integrating as a management team. We cannot assure
you that we will be able to effectively manage the expansion of our operations,
that our systems, procedures or controls will be adequate to support our
operations or that the executive management
13
<PAGE>
team will be able to achieve the rapid execution necessary to fully exploit the
market opportunity for our products and services. We also intend to hire a Vice
President of Manufacturing. Any failure to effectively manage our growth could
harm our business.
We Depend on Our Key Personnel Who May Not Continue to Work For Us
Our future success depends in large part upon the continued services of our
key technical, sales and senior management personnel, none of whom is bound by
an employment agreement. The loss of any of our senior management or other key
research, development, sales and marketing personnel, particularly if lost to
competitors, could harm our business. In particular, the services of Mahesh
Veerina, President and Chief Executive Officer, would be difficult to replace.
We do not maintain "key person" life insurance for any of our personnel. See
"Management" for detailed information on our key personnel.
We expect that we will need to hire additional personnel in all areas. The
competition for qualified personnel in our industry is intense, particularly in
the San Francisco Bay Area where our corporate headquarters are located and in
Hyderabad, India where we conduct a significant portion of our research and
development operations. At times, we have experienced difficulty in hiring and
retaining personnel with appropriate qualifications, particularly in technical
areas. If we do not succeed in attracting new personnel, or retaining and
motivating existing personnel, our business will be adversely affected.
If We Do Not Provide Adequate Product Support and Training to Our Resellers Our
Sales Could Be Adversely Affected
Our ability to achieve our planned sales growth, retain current and future
customers and expand our network of resellers will depend in part upon the
quality of our customer service and product support operations. We rely
primarily on our resellers to provide the product support and training required
by our customers particularly during the initial deployment and implementation
of our products. We may not have adequate personnel to provide the levels of
support and product training our resellers may require during initial product
deployment or on an ongoing basis to adequately support our customers. We also
provide direct customer service and support to the end-users of our products.
Our inability to provide sufficient support to our customers and resellers
could delay or prevent the successful deployment of our products and could
reduce our overall sales volumes. In addition, our failure to provide adequate
support could adversely impact our reputation and our relationships with
customers and resellers and could prevent us from gaining new customers or
expanding our reseller network.
If Our Products Contain Undetected Defects and Errors We Could Incur
Significant Unexpected Expenses, Experience Product Returns and Lost Sales, and
Be Subject to Product Liability Claims
Our products are complex and may contain undetected defects, errors or
failures, particularly when first introduced or as new enhancements and
versions are released. We cannot assure you that, despite our testing
procedures, defects and errors will not be found in new products or in new
versions or enhancements of existing products after commencement of commercial
shipments. Any defects or errors in our products discovered in the future could
result in adverse customer reactions, negative publicity regarding us and our
products, delays in market acceptance of our products, product returns, lost
sales and unexpected expenses.
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<PAGE>
Sales and support of our products generally involve the risk of product
liability claims. Although our customer license agreements typically contain
provisions designed to limit our exposure to these claims, it is possible that
these limitation of liability provisions may not be effective as a result of
federal, state or local laws or ordinances or unfavorable judicial decisions. A
successful product liability claim brought against us could harm our business.
Our Expansion Into International Markets May Expose Us to Additional Risks
As part of our strategy to address the global needs of our customers and
partners, we have committed significant resources to opening international
offices and expanding our international sales and support channels in advance
of revenue. We cannot assure you that our efforts to develop international
sales and support channels will be successful. Moreover, international sales
are subject to a number of risks, including changes in foreign government
regulations and communications standards, export license requirements, tariffs
and taxes, other trade barriers, difficulty in collecting accounts receivable,
difficulty in managing foreign operations, and political and economic
instability. To the extent our customers may be impacted by currency
devaluations or general economic crises, the ability of these customers to
purchase our products could be adversely affected. Payment cycles for
international customers are typically longer than those for customers in the
United States. We cannot assure you that foreign markets for our products will
not develop more slowly than currently anticipated. In addition, if the
relative value of the U.S. dollar in comparison to the currency of our foreign
customers should increase, the resulting effective price increase of our
products to these foreign customers could result in decreased sales.
We anticipate that our foreign sales will generally be invoiced in U.S.
dollars and, accordingly, we do not currently plan to engage in foreign
currency hedging transactions. However, as we expand our international
operations, we may allow payment in foreign currencies and exposure to losses
in foreign currency transactions may increase. We may choose to limit any
currency exposure through the purchase of forward foreign exchange contracts or
other hedging strategies. We cannot assure you that any currency hedging
strategy we may adopt would be successful in avoiding exchange related losses.
We Face Risks Associated With Our Research and Development Operations in India
Our wholly-owned subsidiary, Ramp Networks Private Limited, is incorporated
in India and a substantial number of our research and development personnel are
located in India. Consequently, our business may be affected by changes in
exchange rates and controls, interest rates, government of India policies,
including taxation policy, as well as political, social and economic
developments affecting India.
In the past, the government of India has adopted policies that have resulted
in the nationalization of some industries. We cannot assure you that economic
policies adopted by the government of India will not result in the
expropriation of our business activities in India or otherwise impair or
prohibit our current research and development operations in India. Furthermore,
there is increasing competition for experienced engineers in India and we
cannot assure you that we will be successful in attracting and retaining
sufficient engineering personnel to support our research and development
operations in India which we expect to expand in the future.
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<PAGE>
Our Products Must Comply With Complex Government Regulations Which May Prevent
Us From Sustaining Our Revenue or Achieving Profitability
In the United States, our products must comply with various regulations and
standards defined by the Federal Communications Commission and Underwriters
Laboratories. Internationally, products that we develop may be required to
comply with standards established by telecommunications authorities in various
countries as well as with recommendations of the International
Telecommunications Union. If we fail to obtain timely domestic or foreign
regulatory approvals or certificates, we would not be able to sell our products
where these regulations apply, which may prevent us from sustaining our revenue
or achieving profitability.
Our Success is Dependent on the Internet and the Development of the Internet
Infrastructure
The Internet has recently begun to develop and is rapidly evolving. As a
result, the commercial market for products designed to enable high-speed access
to the Internet has only recently begun to develop. Our success will depend in
large part on increased use of the Internet and other networks based on
Internet protocol by corporate telecommuters and small offices. Critical issues
concerning the commercial use of the Internet remain unresolved and are likely
to affect the development of the market for our products. These issues include
security, reliability, cost, ease of access, government regulation and quality
of service. The adoption of the Internet for commerce and communications,
particularly by enterprises that have historically relied upon alternative
means of commerce and communications, generally requires the acceptance of a
new method of conducting business and exchanging information. The recent growth
in the use of the Internet has caused frequent periods of performance
degradation that have prompted efforts to upgrade the Internet infrastructure.
Any perceived degradation in the performance of the Internet as a whole could
undermine the benefits of our products. Potentially increased performance and
other benefits provided by our products and the products of others are
ultimately limited by, and are reliant upon, the speed and reliability of the
Internet backbone itself. Consequently, the emergence and growth of the market
for our products will depend on improvements being made to the entire Internet
infrastructure to alleviate overloading and congestion.
Our Intellectual Property Rights are Difficult and Costly to Protect
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property
rights. We have filed two U.S. patent applications relating to the architecture
of our products. We cannot assure you that these applications will be approved,
that any issued patents will protect our intellectual property or that they
will not be challenged by third parties. Furthermore, there can be no assurance
that others will not independently develop similar or competing technology or
design around any patents that may be issued. We also have one pending U.S.
trademark application.
We also enter into confidentiality or license agreements with our employees,
consultants and corporate partners, and control access to and distribution of
our software, documentation and other proprietary information. In addition, we
provide our products to end-users primarily under "shrink-wrap" license
agreements included in the packaging. These agreements are not negotiated with
or signed by the licensee, and thus these agreements may not be enforceable in
some jurisdictions. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. We cannot assure you that these precautions will
prevent misappropriation or infringement of our intellectual property.
Monitoring unauthorized
16
<PAGE>
use of our products is difficult, and we cannot assure you that the steps we
have taken will prevent misappropriation of our technology, particularly in
foreign countries where the laws may not protect our proprietary rights as
fully as in the United States.
Some of our OEM agreements also provide manufacturing rights and access to
our intellectual property and source code upon the occurrence of specified
conditions of default. If we were to default on these agreements, our OEMs
could use our intellectual property and source code to develop and manufacture
competing products, which would adversely affect our performance and ability to
compete.
We May Be Subject to Intellectual Property Infringement Claims That are Costly
to Defend and Could Limit our Ability to Use Certain Technologies in the Future
Our industry is characterized by the existence of a large number of patents
and frequent claims and related litigation regarding patent and other
intellectual property rights. In particular, leading companies in the data
communications and networking markets have extensive patent portfolios with
respect to modem and networking technology. From time to time, third parties,
including these leading companies, have asserted and may assert exclusive
patent, copyright, trademark and other intellectual property rights to
technologies and related standards that are important to us. We expect that we
may increasingly be subject to infringement claims as the numbers of products
and competitors in the small office market for shared Internet access solutions
grow and the functionality of products overlaps.
In March 1999, we received a letter from a third party alleging that certain
of our products may infringe one of such party's patents pertaining to
intelligent modem bonding technology. We are reviewing this patent carefully
and the relevant aspects of our products affected by this patent. The failure
to agree or settle on reasonable terms between the parties may lead to
litigation, in which case our business or operating results may be adversely
affected. We do not know whether a license would be available on reasonable
terms, nor do we know whether we would be able to redesign our products so as
to eliminate such potential infringement.
Although we have not been a party to any litigation asserting claims that
allege infringement of intellectual property rights, we cannot assure you that
we will not be a party to litigation in the future. In addition, we cannot
assure you that third parties will not assert additional claims or initiate
litigation against us or our manufacturers, suppliers or customers alleging
infringement of their proprietary rights with respect to our existing or future
products.
We may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights to determine the scope and validity of
our proprietary rights. Any such claims, with or without merit, could be time-
consuming, result in costly litigation and diversion of technical and
management personnel, or require us to develop non-infringing technology or
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on acceptable terms, if at all.
In the event of a successful claim of infringement and our failure or inability
to develop non-infringing technology or license the proprietary rights on a
timely basis, our business would be harmed.
17
<PAGE>
We Face a Number of Unknown Risks Associated With Trying to Become Year 2000
Compliant
Some computers, software, and other equipment include computer code in which
calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. As a
result, computer systems and software used by many companies and governmental
agencies may need to be upgraded to comply with year 2000 requirements or risk
system failure or miscalculations causing disruptions of normal business
activities. These problems are widely expected to increase in frequency and
severity as the year 2000 approaches, and are commonly referred to as the "year
2000 problem." We have just begun to identify measures to address the issues
arising from the year 2000 problem and therefore the risks associated with
being year 2000 compliant are unknown. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Readiness
Disclosure."
There Has Been No Prior Market For Our Common Stock and an Active Trading
Market May Not Develop Following This Offering
Prior to this offering, there has not been a public market for our common
stock. We cannot predict the extent to which a market will develop or how
liquid that market might become. The initial public offering price for the
shares of our common stock will be determined by negotiations between us and
the representatives of the underwriters and may not be indicative of the prices
that will prevail in the market following this offering. See "Underwriting."
Our Stock Price Could be Volatile and Could Decline Following This Offering
Equity markets, particularly the market for technology companies, have
recently experienced significant price and volume fluctuations that are
unrelated to the operating performance of individual companies. These broad
market fluctuations may adversely affect the market price of our common stock.
In addition, the market price of our common stock is likely to be highly
volatile. In the past, securities class action litigation has often been
instituted against companies following periods of volatility in the market
price of their securities. Such litigation could result in substantial costs
and a diversion of management's attention and resources.
We Have Broad Discretion on How We Use the Proceeds From This Offering
Our management can spend the proceeds from this offering in ways with which
our stockholders may not agree. See "Use of Proceeds."
Insiders Will Continue to Have Substantial Control Over Ramp Networks After the
Offering That Could Delay or Prevent a Change in Our Corporate Control
Upon completion of this offering, our executive officers, and directors and
their affiliates will, in the aggregate, own approximately % of our
outstanding common stock. As a result, our officers, directors and their
affiliates will have the ability to influence the election of our Board of
Directors and the outcome of corporate actions requiring stockholder approval.
This concentration of ownership may have the effect of delaying or preventing a
change in our corporate control. See "Principal Stockholders."
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<PAGE>
Certain Provisions of Our Charter Documents May Have Anti-Takeover Effects That
Could Prevent a Change in Our Control
Certain provisions of our Amended and Restated Certificate of Incorporation
and bylaws could make it more difficult for a third party to acquire us even if
a change of control would be beneficial to our stockholders. For more
information, see "Description of Capital Stock."
Future Sales of Our Common Stock May Cause Our Stock Price to Decline
Sales of a substantial number of shares of common stock after this offering
could adversely affect the market price of our common stock and could impair
our ability to raise capital through the sale of additional equity securities.
Upon completion of this offering, we will have shares of common stock
outstanding or subject to currently exercisable options and warrants, with
shares outstanding if the underwriters' option to purchase additional shares is
exercised in full. The shares of common stock sold in this offering, which
would be shares if the underwriters' option to purchase additional shares
is exercised in full, will be freely tradable without restriction or further
registration under the Federal securities laws unless purchased by our
"affiliates" as that term is defined in Rule 144. The remaining 16,203,817
shares of common stock outstanding upon completion of this offering will be
"restricted securities" as that term is defined in Rule 144.
All of our stockholders, option holders and warrant holders are subject to
agreements that limit their ability to sell their shares of common stock. These
securityholders cannot sell or otherwise dispose of any shares of common stock
for a period of at least 180 days after the date of this prospectus without the
prior written approval of BancBoston Robertson Stephens or us in certain cases.
When these agreements expire, these shares and the shares underlying the
options will become eligible for sale, in some cases only pursuant to the
volume, manner of sale and notice requirements of Rule 144. See "Management--
Stock Plans," "Shares Eligible for Future Sale" and "Underwriting."
New Investors Will Incur Substantial and Immediate Dilution
Purchasers of the shares of common stock offered hereby will suffer an
immediate and substantial dilution of $ per share in the net tangible book
value of our common stock from the initial public offering price of $ per
share. To the extent outstanding options are exercised, there will be further
dilution. See "Dilution."
We May Need Additional Capital in the Future and May Not be Able to Obtain
Adequate Funds on Terms Acceptable to Us
We currently anticipate that the proceeds of this offering, together with our
existing cash balances and available lines of credit, will be sufficient to
meet our liquidity needs for at least the next twelve months. However, we may
need to raise additional funds if our estimates of revenue, working capital
and/or capital expenditure requirements change or prove inaccurate or in order
for us to respond to unforeseen technological or marketing hurdles or to take
advantage of unanticipated opportunities.
In addition, we expect to review potential acquisitions that would complement
our existing product offerings or enhance our technical capabilities. While we
have no current agreements or negotiations underway with respect to any
potential acquisition, any future transaction of this nature
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<PAGE>
could require potentially significant amounts of capital. Funds may not be
available at the time or times needed, or available on terms acceptable to us.
If adequate funds are not available, or are not available on acceptable terms,
we may not be able to take advantage of market opportunities, develop new
products or otherwise respond to competitive pressures. This inability could
harm our business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS
BECAUSE THEY ARE INHERENTLY UNCERTAIN
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify forward-
looking statements. This prospectus also contains forward-looking statements
attributed to third parties relating to their estimates regarding the growth of
Internet use by small businesses. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us
and described in the preceding pages and elsewhere in this prospectus.
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USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock we are
offering are estimated to be $ million, or $ million if the
underwriters' option to purchase additional shares is exercised in full,
assuming an offering price of $ per share and after deducting the
underwriting discounts and commissions and estimated offering expenses. We
currently expect to use the net proceeds primarily for working capital and
general corporate purposes, including increased sales and marketing
expenditures, increased research and development expenditures and capital
expenditures made in the ordinary course of business. In addition, we may use a
portion of the net proceeds for further development of our product lines
through acquisitions of products, technologies and businesses. However, we have
no present commitments or agreements with respect to any such acquisitions.
Pending such uses, we will invest the net proceeds in short-term, investment
grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain any future earnings to fund the development and
growth of our business and do not currently anticipate paying any cash
dividends in the foreseeable future. Future dividends, if any, will be
determined by our Board of Directors.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect the conversion of all outstanding shares
of preferred stock into 11,711,727 shares of common stock and our
reincorporation in Delaware; and
. on a pro forma as adjusted basis to reflect the sale of the common stock
in this offering at an assumed initial public offering price of $ per
share and the application of the net proceeds, after deducting estimated
underwriting discounts and commissions and our estimated offering
expenses.
The pro forma and pro forma as adjusted information set forth below is
unaudited and should be read in conjunction with our consolidated financial
statements and notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of March 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
and per share data)
<S> <C> <C> <C>
Long-term portion of debt and capital lease
obligations................................. $ 3,758 $ 3,758 $
-------- -------- ----
Redeemable convertible preferred stock, no
par value, 11,826,505 shares authorized,
11,711,727 issued and outstanding, actual;
no shares authorized, issued or outstanding,
pro forma and pro forma as adjusted......... 37,346 --
-------- -------- ----
Warrants to purchase redeemable convertible
preferred stock............................. 281 281
-------- -------- ----
Stockholders' equity (deficit):
Preferred stock, $.001 par value, no shares
authorized, issued or outstanding, actual;
5,000,000 shares authorized, no shares
issued or outstanding, pro forma and pro
forma as adjusted.........................
Common stock, $.001 par value, 24,000,000
shares authorized, 4,492,090 shares issued
and outstanding, actual; 100,000,000
shares authorized, 16,203,817 shares
issued and outstanding, pro forma; and
issued and outstanding, pro forma as
adjusted.................................. 3,199 40,545
Additional paid-in capital................... -- --
Deferred compensation........................ (2,146) (2,146)
Accumulated deficit.......................... (36,877) (36,877)
-------- -------- ----
Total stockholders' equity (deficit)....... (35,824) 1,522
-------- -------- ----
Total capitalization..................... $ 5,561 $ 5,561 $
======== ======== ====
</TABLE>
The outstanding share information in the table above is as of March 31, 1999
and excludes:
. 2,449,433 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $2.83 per share;
. 150,447 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $6.55 per share; and
. 84,053 shares available for future issuance under our 1995 stock option
plan and 2,244,000 shares available for issuance under our 1999 stock
incentive plan.
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<PAGE>
DILUTION
As of March 31, 1999, our pro forma net tangible book value was approximately
$1.5 million, or $0.09 per share of common stock. Pro forma net tangible book
value per share represents the amount of our total tangible assets less total
liabilities divided by the pro forma number of shares of common stock
outstanding. Without taking into account any other changes in net tangible book
value after March 31, 1999, other than to give effect to the receipt by us of
the net proceeds from the sale of the shares of common stock offered by us
at an assumed initial public offering price of $ per share, our pro forma
net tangible book value at March 31, 1999 would have been approximately $
million, or $ per share. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors purchasing shares of
common stock in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $
Pro forma net tangible book value per share as of March 31, 1999.... $0.09
Increase per share attributable to new investors....................
-----
Pro forma net tangible book value per share after the offering........
---
Dilution per share to new investors................................... $
===
</TABLE>
The following table summarizes on a pro forma basis, as of March 31, 1999,
the number of shares of common stock purchased from us, the total consideration
paid to us and the average price per share paid to us by existing stockholders
and by new investors purchasing shares of common stock in this offering. The
information presented is based upon an assumed initial public offering price of
$ per share, before deducting estimated underwriting discounts and
commissions and estimated offering expenses of this offering.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 16,203,817 % $37,685,000 % $2.33
New investors..............
---------- -----------
Total.................... 100.0% 100.0%
========== ===== =========== =====
</TABLE>
The information presented above with respect to existing stockholders
includes 11,711,727 shares of preferred stock which will be automatically
converted into 11,711,727 shares of common stock upon the closing of this
offering. This information is as of March 31, 1999 and excludes:
. 2,449,433 shares issuable upon exercise of options outstanding at a
weighted average exercise price of $2.83 per share;
. 150,447 shares issuable upon exercise of warrants outstanding at a
weighted average exercise issue of $6.55 per share; and
. 84,053 shares available for future issuance under our 1995 stock option
plan and 2,244,000 shares available for issuance under our 1999 stock
incentive plan.
The issuance of common stock in connection with the exercise of these options
and warrants will result in further dilution to new investors. See
"Management--Stock Plans" and Note 6 to Consolidated Financial Statements.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our financial statements and related notes, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
other financial information appearing elsewhere in this prospectus. The
consolidated statement of operations data set forth below for each of the years
ended December 31, 1996, 1997 and 1998 and the consolidated balance sheet data
at December 31, 1997 and 1998 presented below are derived from, and qualified
by reference to, our financial statements which have been audited by Arthur
Andersen LLP, independent public accountants, and together with their report
thereon, are included elsewhere in this prospectus. The consolidated statement
of operations data set forth below for the periods ended December 31, 1994 and
1995 and the consolidated balance sheet data at December 31, 1994, 1995 and
1996 presented below are derived from our audited financial statements not
included herein. The consolidated statement of operations data set forth below
for the three months ended March 31, 1998 and 1999 and the consolidated balance
sheet data at March 31, 1999 presented below, are derived from unaudited
consolidated financial statements that include in the opinion of our management
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the information set forth therein.
<TABLE>
<CAPTION>
Three Months
Ended
Years Ended December 31, March 31,
---------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- -------- -------- -------- -------- -------
Consolidated Statement of
Operations Data: (in thousands, except per share data)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 21 $ 352 $ 517 $ 5,587 $ 9,858 $ 2,644 $ 3,883
Cost of revenue......... 16 179 465 4,872 7,019 2,026 2,612
------- ------- -------- -------- -------- -------- -------
Gross margin............ 5 173 52 715 2,839 618 1,271
------- ------- -------- -------- -------- -------- -------
Operating expenses:
Research and
development.......... 221 634 2,556 4,196 6,556 2,172 1,258
Sales and marketing... 28 335 3,078 6,902 8,699 2,086 2,097
General and
administrative....... 29 117 1,043 1,260 1,421 327 471
Amortization of
deferred
compensation......... -- -- -- -- 7 -- 376
------- ------- -------- -------- -------- -------- -------
Total operating
expenses............ 278 1,086 6,677 12,358 16,683 4,585 4,202
------- ------- -------- -------- -------- -------- -------
Loss from operations.... (273) (913) (6,625) (11,643) (13,844) (3,967) (2,931)
Other income (expense).. (4) (26) 303 109 426 196 (58)
------- ------- -------- -------- -------- -------- -------
Net loss................ $ (277) $ (939) $ (6,322) $(11,534) $(13,418) $ (3,771) $(2,989)
======= ======= ======== ======== ======== ======== =======
Basic net loss per
share.................. $ -- $ (1.29) $ (2.50) $ (3.92) $ (3.50) $ (1.05) $ (0.71)
======= ======= ======== ======== ======== ======== =======
Shares used in computing
basic net loss per
share.................. -- 726 2,528 2,945 3,839 3,584 4,232
======= ======= ======== ======== ======== ======== =======
Pro forma basic net loss
per share.............. $ (0.86) $ (0.19)
======== =======
Shares used in computing
pro forma basic net
loss per share......... 15,524 15,944
======== =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------- March 31,
1994 1995 1996 1997 1998 1999
----- ------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data: (in thousands)
(unaudited)
Cash, cash equivalents
and short-term
investments............ $ 32 $ 900 $ 4,799 $ 15,112 $ 3,764 $ 4,747
Working capital......... (94) 696 4,147 16,028 3,092 3,859
Total assets............ 89 1,211 6,093 18,854 8,878 12,091
Long-term portion of
debt and capital lease
obligations............ 13 42 77 240 586 3,758
Redeemable convertible
preferred stock and
related warrants....... -- 1,949 11,949 36,644 37,346 37,627
Total stockholders'
equity (deficit)....... (277) (1,077) (7,338) (20,219) (33,364) (35,824)
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and the related notes included elsewhere in this
prospectus.
Overview
Ramp Networks is a leading provider of easy-to-use, reliable and affordable
shared Internet access solutions for the small office market, which includes
small businesses, remote and branch offices of large corporations, and home
offices. Our WebRamp product family allows multiple users in a small office to
share the same Internet connection simultaneously while optimizing each user's
access speed. Our WebRamp product family is a flexible and scalable platform
that provides software-based routing and bridging functionality to deliver
Internet-enabled applications and services. Our products support existing
analog phone lines, as well as ISDN and emerging access technologies such as
DSL and cable modems. Our COLT software enables multiple users to access the
Internet simultaneously through regular phone lines and analog modems at up to
three times the access speed of a single analog connection.
We were incorporated in February 1994 and expect to reincorporate in Delaware
prior to the completion of this offering. Our wholly-owned subsidiary, Ramp
Networks Private Limited, is incorporated in India and performs research and
development for us. From our inception in February 1994 through early 1995, we
were focused on developing products for the asynchronous transfer mode market.
We subsequently licensed this technology to a related party and focused on the
small office market for shared Internet access solutions. From early 1995
through May 1996, our operating activities were related primarily to
developing, prototyping and testing our first WebRamp product, staffing our
administrative, sales and marketing and operations organizations, and
establishing relationships with resellers, ISPs and mail order catalogs for the
distribution of our products. In June 1996, we commenced shipments of our first
ISDN-based WebRamp product. Since February 1997, we have introduced new
products on a regular basis.
Our revenue is derived primarily from the sale of our WebRamp family of
products. We market and sell our products in a two-tier distribution system
primarily to distributors, such as Ingram Micro and Tech Data, who then resell
our products to VARs, selected retail outlets, mail order catalogs and ISPs.
These resellers then sell our products to end-users. In 1998, sales to Ingram
Micro accounted for 26% of our revenue and sales to Tech Data accounted for 24%
of our revenue. The level of sales to any customer may vary from quarter to
quarter. However, we expect that sales to Ingram Micro and Tech Data will
continue to represent a significant portion of our revenue. We also sell our
products to OEMs, and have recently begun to sell our products directly through
our Web site. Our OEMs include Asante, IBM and Compaq, and we have recently
entered into OEM agreements with Diamond Multimedia and Nortel-Netgear.
Revenue is recognized upon transfer of title and risks of ownership, which
generally occurs upon product shipment. Certain agreements with distributors
and retailers provide for rights of return, co-op advertising, price protection
and stock rotation rights. We provide an allowance for returns and price
adjustments and provide a warranty reserve at the point of revenue recognition.
Reserves are adjusted periodically based upon historical experience and
anticipated future returns, price adjustments and warranty costs.
25
<PAGE>
We expect to experience price pressure due to the impact of competition. In
addition, OEM unit pricing is generally lower than distribution pricing.
Pricing in the OEM market depends on the specific features and functional
content of the products sold, the degree of integration with the OEM's
products, purchase volumes and the level of sales and service support.
Our cost of revenue has declined as a percentage of revenue since we first
began shipping products. The initial higher cost of revenue included higher
component and manufacturing costs associated with lower initial production
volumes, as well as overhead costs which were applied to a lower number of
units produced. As volumes have increased, our cost of revenue has declined as
a percentage of revenue as a result of lower costs in components,
manufacturing and overhead. Our gross margins are affected by fluctuations in
manufacturing volumes and component costs, the mix of products sold and the
mix of distribution channels through which our products are sold. Unless we
manage each of these factors effectively, our gross margins will decrease.
Historically, our gross margins have improved year over year, but we cannot
assure you that we will maintain or increase our gross margins.
Research and development expenses consist primarily of salaries and related
personnel expenses, fees paid to consultants and outside service providers,
and prototyping expenses related to the design, development and testing of our
products. Sales and marketing expenses consist primarily of salaries,
commissions and related expenses for personnel engaged in marketing, sales and
support functions, as well as costs associated with promotional and other
sales activities. General and administrative expenses consist primarily of
salaries and related expenses for executive, finance and human resources
personnel, professional fees, and other corporate expenses. We expect expenses
relating to research and development, sales and marketing, general and
administrative and operations to increase in absolute dollars. However, the
percentage of revenue that each of these categories represents will vary
depending on the rate of our revenue growth and investments that may be
required to support the development of new products and our penetration of new
markets.
In connection with the grant of certain stock options to employees during
1998 and the first quarter of 1999, we recorded deferred compensation of
$111,000 and $2.4 million, respectively. Deferred compensation is presented as
a reduction of stockholders' equity and amortized ratably over the vesting
period of the applicable options. We will expense the balance ratably over the
remainder of the vesting period of the options. During 1998 and the first
quarter of 1999, we recognized $7,000 and $376,000, respectively, of the
deferred compensation amount as compensation expense. During 1998 and the
first quarter of 1999, we also had a non-cash compensation expense of $162,000
and $108,000, respectively, related to stock options granted to consultants.
See Note 6 to Consolidated Financial Statements.
Since our inception we have incurred significant losses and, as of March 31,
1999, we had an accumulated deficit of $36.9 million. These losses have
resulted primarily from our activities to develop our products, establish
brand recognition and to develop our distribution channels.
As of December 31, 1998, we had operating loss carry-forwards of $29.2
million for federal purposes and $11.3 million for state purposes. The federal
and state net operating loss carry-forwards expire on various dates through
2018. We have provided a full valuation allowance against our deferred tax
assets, consisting primarily of net operating loss carry-forwards, because of
the uncertainty regarding their realization. Further, these net operating loss
carry-forwards could be subject to limitations due to changes in our ownership
resulting from equity financings.
26
<PAGE>
Results of Operations
The following table sets forth certain financial data for the periods
indicated as a percentage of revenue.
<TABLE>
<CAPTION>
Three Months
Ended
Years Ended December 31, March 31,
------------------------------ ---------------
1996 1997 1998 1998 1999
--------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
Revenue...................... 100.0 % 100.0 % 100.0 % 100.0% 100.0%
Cost of revenue.............. 90.0 87.2 71.2 76.6 67.3
--------- ------- -------- ------- ------
Gross margin................. 10.0 12.8 28.8 23.4 32.7
--------- ------- -------- ------- ------
Operating expenses:
Research and development... 494.4 75.1 66.5 82.1 32.4
Sales and marketing........ 595.6 123.5 88.2 78.9 54.0
General and
administrative............ 201.7 22.6 14.4 12.4 12.1
Amortization of deferred
compensation.............. -- -- -- -- 9.7
--------- ------- -------- ------- ------
Total operating
expenses................ 1,291.7 221.2 169.1 173.4 108.2
--------- ------- -------- ------- ------
Loss from operations......... (1,281.7) (208.4) (140.3) (150.0) (75.5)
Other income (expense)....... 58.6 2.0 4.3 7.4 (1.5)
--------- ------- -------- ------- ------
Net loss..................... (1,223.1)% (206.4)% (136.0)% (142.6)% (77.0)%
========= ======= ======== ======= ======
</TABLE>
Three Months Ended March 31, 1999 and 1998
Revenue. Revenue in the three months ended March 31, 1999 was $3.9 million,
an increase of 47% over $2.6 million in the three months ended March 31, 1998.
This increase was due to increased sales of our WebRamp family of products,
particularly the WebRamp 300, 310 and 310i and increased sales in Europe,
partially offset by a decrease in OEM sales. In the three months ended March
31, 1999, sales in North America, excluding sales to OEMs that comprised 23% of
revenue, were 56% of revenue, sales in Asia were 9% of revenue and sales in
Europe were 12% of revenue. In the three months ended March 31, 1998, sales in
North America, excluding sales to OEMs that comprised 31% of revenue, were 54%
of revenue, sales in Asia were 12% of revenue and sales in Europe were 3% of
revenue.
Gross margin. Gross margin was $1.3 million in the three months ended March
31, 1999, representing 33% of revenue. Gross margin was $618,000 in the three
months ended March 31, 1998, representing 23% of revenue. The increase in gross
margin percentage resulted from reduced per unit component costs due to higher
purchasing volumes and lower manufacturing cost per unit associated with higher
production volumes.
Research and development expenses. Research and development expenses were
$1.3 million in the three months ended March 31, 1999, a decrease from $2.2
million in the three months ended March 31, 1998. The decrease is primarily due
to $969,000 of charges recorded in the three months ended March 31, 1998
related to the acquisition of certain technology for sending faxes over the
Internet which had not yet achieved technological feasability. Excluding this
charge, research and development expenses were slightly lower in the three
months ended March 31, 1999 due to the completion of certain key research
projects in 1998.
Sales and marketing expenses. Sales and marketing expenses were $2.1 million
in both the three months ended March 31, 1999 and 1998. In both periods,
spending was focused on developing the sales organization, building the
distribution channel and on developing the WebRamp brand.
General and administrative expenses. General and administrative expenses were
$471,000 in the three months ended March 31, 1999 and $327,000 in the three
months ended March 31, 1998. This increase in general and administrative
expenses was due to the hiring of additional personnel.
27
<PAGE>
Amortization of deferred compensation. Amortization of deferred compensation
was $376,000 in the three months ended March 31, 1999. This amortization is due
to deferred compensation of approximately $2.5 million, related to stock
options granted in the year ended December 31, 1998 and the three months ended
March 31, 1999, which we are amortizing over the vesting periods of the
applicable options. There was no amortization of deferred compensation in the
three months ended March 31, 1998.
Years Ended December 31, 1998, 1997 and 1996
Revenue. Revenue in 1998 was $9.9 million, an increase of 76% over $5.6
million in 1997. This increase was attributable to new product introductions
such as the WebRamp M3t, M3i, M3i+ and the WebRamp 300 family of products, our
European product launch, and increased sales in the North American channel due
to our recruitment of resellers and our promotional programs to establish brand
recognition. These factors were partially offset by a decrease in OEM sales to
Compaq as compared to 1997. In 1998, sales in North America, excluding sales to
OEMs that comprised 14% of revenue, were 65% of revenue, sales in Asia were 11%
of revenue and sales in Europe were 10% of revenue. Revenue in 1997 was $5.6
million, as compared to $517,000 in 1996. Revenue increased to $5.6 million in
1997 as a result of a full year of shipping products in 1997 versus two
quarters of shipping products in 1996, as well as higher sales in North
America, including growth in our OEM business with Compaq and sales in Asia. In
1997, sales in North America, excluding sales to OEMs that comprised 39% of
revenue, were 42% of revenue and sales in Asia were 19% of revenue. There were
no sales in Europe in 1997 as that channel had not yet been established.
Gross margin. Gross margin was $2.8 million in 1998, representing 29% of
revenue. In 1998, cost of revenue as a percentage of revenue was reduced as a
result of price negotiations with our vendors. In 1997, gross margin was
$715,000 or 13% of revenue, an increase from a gross margin of $52,000 in 1996,
or 10% of revenue. In 1996 and 1997, cost of revenue included higher component
and manufacturing costs associated with lower initial production volumes, as
well as manufacturing start-up and overhead costs which were applied to a
relatively low number of units produced.
Research and development expenses. Research and development expenses were
$6.6 million in 1998, an increase from $4.2 million in 1997 and $2.6 million in
1996. These increases were primarily due to increases in personnel in the U.S.
and India as well as project related expenses. In addition, in the first
quarter of 1998, we acquired technology for sending faxes over the Internet.
Related expenses of $969,000 were charged to research and development because
the technology acquired and related products were in the early stages of
development and had not yet achieved technological feasability.
Sales and marketing expenses. Sales and marketing expenses were $8.7 million
in 1998, an increase from $6.9 million in 1997 and $3.1 million in 1996. These
increases were primarily due to the hiring of additional sales and marketing
personnel, as well as increases in advertising and promotional activities.
General and administrative expenses. General and administrative expenses were
$1.4 million in 1998, an increase from $1.3 million in 1997 and $1.0 million in
1996. These increases were primarily due to increases in the number of
administrative personnel, professional services fees and facility expenses to
support the growth of our operations.
Amortization of deferred compensation. During 1998, we recorded total
deferred compensation of $111,000 in connection with stock options grants. We
are amortizing this amount over the vesting periods of the applicable options,
resulting in amortization expense of $7,000 in 1998.
28
<PAGE>
Quarterly Results of Operations
The following tables set forth certain unaudited statements of operations
data for each of the nine quarters ended March 31, 1999, as well as such data
expressed as a percentage of our revenue for the quarters presented. This
unaudited quarterly information has been prepared on the same basis as our
audited financial statements and, in the opinion of our management, reflects
all normal recurring adjustments that we consider necessary for a fair
presentation of the information for the periods presented. Operating results
for any quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
--------- -------- --------- -------- --------- -------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 225 $ 1,005 $ 1,503 $ 2,854 $ 2,644 $ 1,860 $ 2,380 $ 2,974 $ 3,883
Cost of revenue......... 239 971 1,449 2,213 2,026 1,339 1,649 2,005 2,612
-------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin............ (14) 34 54 641 618 521 731 969 1,271
-------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development.......... 976 964 1,090 1,166 2,172 1,538 1,302 1,544 1,258
Sales and marketing... 1,543 1,951 1,697 1,711 2,086 2,110 2,287 2,216 2,097
General and
administrative....... 294 321 245 400 327 364 326 404 471
Amortization of
deferred
compensation......... -- -- -- -- -- -- -- 7 376
-------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 2,813 3,236 3,032 3,277 4,585 4,012 3,915 4,171 4,202
-------- ------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (2,827) (3,202) (2,978) (2,636) (3,967) (3,491) (3,184) (3,202) (2,931)
Other income (expense).. (3) 53 (97) 156 196 176 119 (65) (58)
-------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss................ $(2,830) $(3,149) $(3,075) $(2,480) $(3,771) $(3,315) $(3,065) $(3,267) $(2,989)
======== ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
As a Percentage of Revenue
--------------------------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
--------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue......... 106.2 96.6 96.4 77.5 76.6 72.0 69.3 67.4 67.3
-------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin............ (6.2) 3.4 3.6 22.5 23.4 28.0 30.7 32.6 32.7
-------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development.......... 433.8 95.9 72.5 40.9 82.1 82.7 54.7 51.9 32.4
Sales and marketing... 685.8 194.1 112.9 60.0 78.9 113.4 96.1 74.5 54.0
General and
administrative....... 130.6 31.9 16.3 14.0 12.4 19.6 13.7 13.8 12.1
Amortization of
deferred
compensation......... -- -- -- -- -- -- -- -- 9.7
-------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 1,250.2 321.9 201.7 114.9 173.4 215.7 164.5 140.2 108.2
-------- ------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (1,256.4) (318.5) (198.1) (92.4) (150.0) (187.7) (133.8) (107.6) (75.5)
Other income (expense).. (1.3) 5.3 (6.5) 5.5 7.4 9.5 5.0 (2.3) (1.5)
-------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss................ (1,257.7)% (313.2)% (204.6)% (86.9)% (142.6)% (178.2)% (128.8)% (109.9)% (77.0)%
======== ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
29
<PAGE>
Our quarterly revenue increased throughout 1997, reaching $2.9 million in the
fourth quarter. The increase in revenue during this period primarily resulted
from the introduction of the WebRamp M3 analog router, the introduction of an
ISDN product designed for Compaq, and growth in the North American channel.
Sales to Compaq peaked at 45% of revenue in the three months ended December 31,
1997 and declined to 2% of revenue in the three months ended June 30, 1998. The
decrease in sales to Compaq resulted in two consecutive quarters of revenue
declines. Revenue decreased from $2.9 million in the three months ended
December 31, 1997 to $2.6 million in the three months ended March 31, 1998 and
to $1.9 million in the three months ended June 30, 1998. Continued growth in
sales of WebRamp products in non-OEM channels was not sufficient to offset the
decline in sales to Compaq. Revenue grew each quarter since the three months
ended June 30, 1998 as we continued to build our distribution channels and VAR
network, and expanded our geographic presence.
Gross margin has generally increased each quarter since the three months
ended March 31, 1997. Gross margin increased from (6)% in the three months
ended March 31, 1997 to 33% in the three months ended March 31, 1999. These
increases have been due to reduced production costs on a per unit basis as
manufacturing volumes increased, a reduction in materials costs due to
negotiation of component prices, improved absorption of manufacturing
infrastructure and the introduction of new products with increased
functionality, higher average selling prices and higher gross margins.
Operating expenses increased from $2.8 million in the three months ending
March 31, 1997 to $3.3 million in the three months ended December 31, 1997.
Increases over this period were primarily related to product promotions and the
development of new products. Sales and marketing expense fluctuations have been
due primarily to the level of expenses associated with new product
introductions. From the three months ended December 31, 1997 to the three
months ended March 31, 1998, quarterly operating expenses increased from $3.3
million to $4.6 million. This increase was due to an increase in sales
personnel, as well as $969,000 in costs related to the acquisition of
technology for sending faxes over the Internet that is currently being
incorporated into our products. Excluding the impact of this charge, operating
expenses increased from $3.6 million in the three months ended March 31, 1998
to $4.2 million in the three months ended March 31, 1999, primarily due to
increased personnel and amortization of deferred compensation.
Liquidity and Capital Resources
Our principal sources of liquidity as of March 31, 1999 consisted of $4.7
million in cash and cash equivalents, a $2.0 million fixed asset lease line, a
working capital credit facility with a borrowing limit of up to the lower of
$5.0 million or 100% of eligible accounts receivable and 50% of inventory, and
a $3.0 million bridge loan facility. As of March 31, 1999, we had utilized
$359,000 under the fixed asset lease line. Borrowings under the fixed asset
lease line bear interest at 7%, are payable ratably over a 36 month term, are
subject to a 15% termination payment and are secured by the fixed assets that
are leased under the line. As of March 31, 1999, we had borrowed $1.0 million
under the working capital credit facility. Borrowings under this facility bear
interest at 8.4%, are payable ratably over a 36 month term, are subject to a
termination payment of 12.5% and are secured by our receivables and inventory.
Also as of March 31, 1999, we had borrowed $3.0 million under our bridge loan
facility. Borrowings under this facility bear interest at 14.6% and are payable
ratably over a 36 month term. Certain of these debt agreements contain
provisions that limit the payment of cash dividends.
Since inception, we have financed our operations primarily through the sale
of redeemable convertible preferred stock, for aggregate proceeds of
approximately $35.9 million, capital equipment lease lines and working capital
lines of credit.
30
<PAGE>
Cash utilized by operating activities was $3.2 million in the three months
ended March 31, 1999, $10.8 million in 1998, $12.8 million in 1997 and
$5.7 million in 1996. The cash utilized in each of these years was due to net
losses, as well as working capital required to fund our growth in operations,
including accounts receivable and inventory. Cash used in investing activities
primarily consisted of capital expenditures of $84,000 in the three months
ended March 31, 1999, $1.1 million in 1998, $428,000 in 1997 and $355,000 in
1996 for computer equipment and furniture.
We believe the net proceeds of this offering, together with our existing cash
balances and available lines of credit, will be sufficient to meet our cash
requirements at least through the next twelve months. However, we may be
required, or could elect, to seek additional funding prior to that time. Our
future capital requirements will depend on many factors, including the rate of
revenue growth, the timing and extent of spending to support product
development efforts and expansion of sales and marketing, the timing of
introductions of new products and enhancements to existing products, and market
acceptance of our products. We cannot assure you that additional equity or debt
financing, if required, will be available on acceptable terms or at all.
Year 2000 Readiness Disclosure
Many computers, software, and other equipment include computer code in which
calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. These
problems are widely expected to increase in frequency and severity as the year
2000 approaches, and are commonly referred to as the "year 2000 problem."
Assessment. The year 2000 problem affects the computers, software and other
equipment that we use, operate or maintain for our operations. Accordingly, we
have organized a program team responsible for monitoring the assessment and
remediation status of our year 2000 projects and reporting such status to our
board of directors. This project team is currently assessing the potential
effect and costs of remediating the year 2000 problem for our internal systems.
To date, we have not obtained verification or validation from any independent
third parties of our processes to assess and correct any of our year 2000
problems or the costs associated with these activities.
Internal infrastructure. We believe that we have identified approximately 120
personal computers and servers, 10 software applications, and our enterprise
resource planning system and related equipment used in connection with our
internal operations that will need to be evaluated to determine if they must be
modified, upgraded or replaced to minimize the possibility of a material
disruption to our business. Upon completion of such evaluation, which we expect
to occur by June 30, 1999, we expect to commence the process of modifying,
upgrading, and replacing major systems that have been assessed as adversely
affected, and expect to complete this process before the occurrence of any
material disruption of our business.
Systems other than information technology systems. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, telephone switches, security systems, and other common devices,
of which there are approximately 10, may be affected by the year 2000 problem.
We are currently assessing the potential effect and costs of remediating the
year 2000 problem on our office equipment and our facilities in Santa Clara,
California and Hyderabad, India.
Products. We have tested and intend to continue to test all of our products
for year 2000 problems. To date, we have been able to correct any problems with
our products relating to the year 2000 problem prior to releasing them to our
customers. We currently do not expect any significant
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year 2000 problems to arise with our products. However, we have represented to
our resellers and OEMs that our products are year 2000 compliant, and if that
turns out to be untrue, these parties may make claims against us which may
result in litigation or contract terminations.
We estimate the total cost to us of completing any required modifications,
upgrades or replacements of our internal systems will not exceed $100,000,
almost all of which we believe will be incurred during calendar 1999. Based on
the activities described above, we do not believe that the year 2000 problem
will have a material adverse effect on our business or operating results. In
addition, we have not deferred any material information technology projects as
a result of our year 2000 problem activities.
Suppliers. We are checking the Web sites of third-party suppliers of
components used in the manufacture of our products to determine if these
suppliers are certifying that the components they provide us are year 2000
compliant. To date, we believe all critical components that we obtain from
third party suppliers are year 2000 compliant. We expect that we will be able
to resolve any significant year 2000 problems with third-party suppliers of
components; however, we cannot assure you that these suppliers will resolve any
or all year 2000 problems before the occurrence of a material disruption to the
operation of our business. Any failure of these third parties to timely resolve
year 2000 problems with their systems could harm our business.
Most likely consequences of year 2000 problems. We expect to identify and
resolve all year 2000 problems that could adversely affect our business
operations. However, we believe that it is not possible to determine with
complete certainty that all year 2000 problems affecting us have been
identified or corrected. The number of devices that could be affected and the
interactions among these devices are simply too numerous. In addition, no one
can accurately predict how many year 2000 problem-related failures will occur
or the severity, duration or financial consequences of these perhaps inevitable
failures. As a result, we believe that the following consequences are possible:
. a significant number of operational inconveniences and inefficiencies for
us, our contract manufacturers and our customers that will divert
management's time and attention and financial and human resources from
ordinary business activities;
. business disputes and claims for pricing adjustments or penalties due to
year 2000 problems by our customers, resellers and OEMs; and
. a number of serious business disputes alleging that we failed to comply
with the terms of contracts or industry standards of performance, some of
which could result in litigation or contract termination.
Contingency plans. We are currently developing contingency plans to be
implemented if our efforts to identify and correct year 2000 problems affecting
our internal systems are not effective. We expect to complete our contingency
plans by the end of September 1999. Depending on the systems affected, these
plans could include:
. accelerated replacement of affected equipment or software;
. short to medium-term use of backup equipment and software;
. increased work hours for our personnel; and
. use of contract personnel to correct on an accelerated schedule any year
2000 problems that arise or to provide manual workarounds for information
systems.
Our implementation of any of these contingency plans could adversely affect
our business.
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Disclaimer. The discussion of our efforts and expectations relating to year
2000 compliance are forward-looking statements. Our ability to achieve year
2000 compliance and the level of incremental costs associated therewith, could
be adversely affected by, among other things, availability and cost of
programming and testing resources, third party suppliers' ability to modify
proprietary software, and unanticipated problems identified in the ongoing
compliance review.
Recently Issued Accounting Standards
In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions." SOP 98-9
amends SOP 97-2, "Software Revenue Recognition," and SOP 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2, 'Software Revenue Recognition," by
extending the deferral of the application of certain provisions of SOP 97-2
amended by SOP 98-4 through fiscal years beginning on or before March 15, 1999.
All other provisions of SOP 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. We do not anticipate that these
statements will have a material adverse impact on our consolidated financial
statements.
Qualitative and Quantitative Disclosure about Market Risk
Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our investments are in
short-term instruments. Due to the nature of our short-term investments, we
have concluded that there is no material interest rate risk exposure.
Therefore, no quantitative tabular disclosures are required.
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BUSINESS
Overview
Ramp Networks is a leading provider of easy-to-use, reliable and affordable
shared Internet access solutions for the small office market, which includes
small businesses, remote and branch offices of large corporations, and home
offices. Our WebRamp product family allows multiple users in a small office to
share the same Internet connection simultaneously while optimizing each user's
access speed. Our WebRamp product family is a flexible and scalable platform
that provides software-based routing and bridging functionality to deliver
Internet-enabled applications and services. Our products support existing
analog phone lines, as well as ISDN and emerging access technologies such as
DSL and cable modems. Our COLT software enables multiple users to access the
Internet simultaneously through regular phone lines and analog modems at up to
three times the access speed of a single analog connection. We primarily market
and sell our products through North American, European and Asian based
distributors who sell our products to a network of resellers, including value
added resellers, selected retail outlets, mail order catalogs and ISPs. As of
March 31, 1999, we had relationships with over 4,500 resellers in North America
alone.
Industry Background
Importance of Internet Access to Small Offices
The Internet has experienced rapid growth in recent years as evidenced by the
volume of Internet traffic and the numbers of Internet users, Web sites and
Internet-based applications. This rapid growth is expected to continue as
businesses increasingly use the Internet to access and share information and to
interact with a large number of geographically dispersed consumers and business
partners. Furthermore, an Internet-based economy is emerging as businesses
continue to use the Internet to sell products and services, implement
electronic commerce initiatives and utilize new generations of Internet-enabled
business applications.
Participation in this emerging Internet-based economy and realization of the
benefits and efficiencies facilitated by new Internet-enabled business
applications are becoming increasingly important for the small office market.
The small office market includes small businesses, remote and branch offices of
large corporations, and home offices. The Internet allows small businesses to
communicate more effectively with their suppliers and customers and to access
and share critical business information both internally and with their business
partners. Remote and branch offices of larger corporations that are linked to
each other and to their main offices via the Internet are also realizing
improved communications and more efficient business interactions. The Internet
also presents an opportunity for many small businesses to sell their products
and deliver their services directly to customers without using traditional
wholesale and retail channels. In addition, Internet-enabled business
applications allow small offices to perform a variety of business functions
online, such as purchasing, inventory management, marketing, recruiting and
customer service. Overall, the Internet and the business applications enabled
by the Internet present tremendous opportunities for small offices to improve
business communications, collaborate with partners and suppliers, perform
important business processes online and realize cost and operational
efficiencies that will position them to compete more effectively with larger
organizations that have greater resources and market presence.
Internet Access Technologies Facilitate New Applications
Analog dial-up modems currently represent the most widely utilized method of
accessing the Internet. While many markets worldwide will continue to depend on
analog Internet access
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technologies, new high-speed and high-bandwidth Internet access technologies
such as DSL and cable modems have emerged in recent years. According to
TeleChoice, DSL connections, which utilize the same copper wire infrastructure
that provides telephone service to most residential and business locations, are
projected to grow from approximately 250,000 in 1999 to more than 2.3 million
in 2002. Likewise, cable modem service providers and equipment manufacturers
have experienced significant growth in the number of subscribers and
deployments over the past several years.
Because these emerging access technologies offer greater bandwidth and
provide much higher access speeds, they enable a variety of new data intensive,
multimedia and graphical applications, as well as new integrated voice and
high-speed data connectivity services. As DSL and cable modem access
technologies become more affordable and widely available, they will present
increasingly attractive alternatives for satisfying the Internet access
requirements of small offices. In addition, small offices will experience an
even greater need to access the Internet via these emerging technologies as new
generations of business applications emerge that larger competitors can already
access through relatively expensive dedicated high-speed leased lines.
Furthermore, the higher cost of DSL and cable modem access technologies
relative to analog technologies will increase the need of small offices for
shared Internet access solutions that enable total implementation costs to be
allocated across a greater number of users.
Today's Small Office Internet Access Environment
Access Media International estimates that in 1998 there were approximately 85
million small businesses worldwide with fewer than 100 employees that could
afford and benefit from information technology solutions, including
approximately 7.2 million small businesses in the United States alone.
International Data Corporation estimates that the percentage of the number of
small businesses with access to the Internet increased from approximately 26%
in 1997 to approximately 50% in 1998 and is projected to increase to
approximately 65% by 2001. Despite the large size of the small office market
and increasing demand for viable Internet access solutions, most networking and
personal computing vendors have tailored their product offerings and Internet
access solutions for either the large corporate market or the consumer market.
As a result, there are limited shared Internet access solutions designed to
accommodate the specific needs of the small office market. Small office
Internet access requirements include the following:
. Shared Access. Many small offices have addressed the Internet access
problem by installing a single dedicated computer that is connected to
the Internet via a modem, an analog phone line and a single Internet
service account shared by all users in the office. This approach is
inefficient in that it requires users to wait in line until the Internet
terminal becomes available. In addition, productivity is often reduced
since many users fail to utilize the Internet because it is not
conveniently accessible from their individual workplaces. As an
alternative, some small offices have added additional modems, analog
phone lines and Internet service accounts for each employee requiring
Internet access. However, maintaining separate Internet connections for
each user is costly and difficult to manage. Moreover, neither of these
solutions enable shared Internet access among multiple users, which is
critical to achieving cost efficiencies and benefiting from the
information sharing, communications and operational advantages offered by
the Internet and Internet-enabled business applications.
. Ease of Installation and Use. Most small offices lack in-house
information technology personnel as well as sufficient resources to hire
outside system integration consultants to implement and maintain complex
Internet access solutions. Therefore, small offices require Internet
access solutions that are easy to install, use, maintain and upgrade.
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. Affordability. Small offices are often subject to tight budgetary
constraints. Therefore, the server-based and router-based local area
networking solutions that have been widely adopted by larger
organizations to accommodate shared access often are prohibitively
expensive for small offices.
. Scalability and Compatibility. Small offices need Internet access
solutions that accommodate their current requirements and can be scaled
to accommodate additional users as their businesses grow. In addition,
small offices seek solutions that meet these needs without having to
replace existing systems, invest significant capital in upgrades or
employ in-house information technology personnel. Further, most small
offices have already made significant investments in computer hardware,
modems and software, and in many cases utilize widely available analog
access technologies. As a result, small offices require Internet access
solutions that are compatible with existing hardware and software and
flexible enough to support analog access technologies, as well as ISDN
and emerging high-speed access technologies such as DSL and cable modems.
. Platform for New Applications and Services. Small offices also seek
Internet access solutions that serve as a platform for the deployment of
new applications and services enabled by the Internet and the emergence
of high-speed access technologies.
The Small Office Market Opportunity for Shared Internet Access Solutions
AMI projects that the number of small businesses in the United States using
shared Internet access will grow from 400,000 in 1998 to 1.3 million by the
year 2000, representing a three year annual compound growth rate of 80%.
However, affordable shared Internet access products currently offered by
networking equipment and software vendors typically lack the flexibility and
features required by most small offices. As a result, a significant portion of
the small office market has been unable to realize by the business benefits of
the Internet and fully participate in the emerging Internet-based economy. As
the Internet grows, electronic commerce initiatives are adopted and new
applications facilitated by emerging high-speed access technologies are
introduced, the inability of small offices to effectively access the Internet
will become an increasingly significant competitive disadvantage. To more fully
participate in the evolving uses of the Internet, the small office market
requires easy-to-use, affordable and scalable products that enable shared
Internet access by multiple users and support a full range of existing and
emerging Internet-enabled applications and services.
The WebRamp Solution
Our WebRamp solution is a software-based, multi-user platform that provides
an easy-to-use, reliable and affordable shared Internet access solution for the
small office market. Our solution allows multiple users in a small office to
share the same Internet connection simultaneously while optimizing each user's
access speed. Further, our solution is designed to overcome the limitations of
existing Internet access solutions by offering a flexible and scalable platform
for software-based routing and bridging functionality to deliver Internet-
enabled applications and services. The WebRamp product family supports existing
analog phone lines, as well as ISDN and emerging high-speed access technologies
such as DSL and cable modems. In addition, our COLT software extends the
benefits of analog technology by enabling multiple users to access the Internet
simultaneously through regular phone lines and analog modems at up to three
times the access speed of a single analog connection. The WebRamp product
family offers small offices the following key benefits:
Efficient Shared Internet Access. The WebRamp product family enables the
entire office to share information, use e-mail and access the Internet
independent of the access technology utilized.
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Multiple users in an office can share a single Internet connection and ISP
account. In addition, users are able to connect simultaneously to a remote
office LAN and the Internet.
Ease of Installation and Use. The WebRamp product family delivers a plug-and-
play shared Internet access solution. To facilitate easy installation, the
WebRamp package contains a QuickStart poster with step-by-step installation
instructions and easy-to-follow diagrams and illustrations for a variety of
network environments. Using our EasyStart software, users can determine whether
their Windows computers are appropriately configured to connect to the WebRamp
product. Our Express Internet software provides a single screen configuration
to connect the entire office to the Internet. Our WebRamp products work within
most existing environments and operating systems, such as Windows, Macintosh or
UNIX, and are compatible with most network architectures and all major Internet
access technologies.
High-Speed Access. The WebRamp product family supports all major Internet
access technologies used by small offices, including analog, ISDN, DSL and
cable modems. Our routing software allows multiple users to connect
simultaneously to the Internet and allocates bandwidth among active users to
optimize each user's access speed. In addition, our COLT software aggregates
the bandwidth of multiple analog or ISDN lines to create access speeds that are
up to three times the access speed of a single analog or ISDN connection.
Low Cost of Ownership. The WebRamp product family is designed to minimize
installation, maintenance and Internet access expenditures by enabling users in
small offices to share a single Internet connection and ISP account. In
addition, the ease of installation and use of the WebRamp product family
enables small offices to avoid hiring in-house information technology personnel
that would be otherwise required to implement and maintain an effective
Internet access solution.
Scalability and Compatibility. The WebRamp product family is designed to
accommodate additional users easily and to be compatible with most widely-used
computers, software, modems and terminal adapters. This broad compatibility
enables most small offices to leverage prior technology investments by
utilizing WebRamp products with hardware and software that has already been
installed.
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Platform for New Applications and Services. We have designed the WebRamp
product family to facilitate effective delivery of value-added Internet-enabled
applications and services such as fax and voice over Internet, virtual private
networking, remote dial-in and advanced security features. Our WebRamp
architecture allows software-based applications to be easily downloaded and
implemented and also provides us a platform to deliver new Internet-enabled
applications and services to our customers.
[Graphic: The inserted artwork depicts a before/after scenario. In the form of
four squares within one large square, the two boxes on the left side depict
topologies of 2 networks without Ramp Networking products. The box on the upper
left is titled "Internet PC" and is described as "Sharing one Internet
connection for the entire office." The box on the lower right is titled "Modem
Mangled" and is described as "Adding modems, phone lines and ISP accounts for
each user." The two boxes to the right of those boxes depict the same network
with the Ramp Network with the Ramp Network product incorporated into the
network.]
Strategy
Our objective is to be the leading provider of shared Internet access
solutions to the small office market. The following are key elements of our
business strategy:
Continue Our Small Office Market Focus. Our fundamental strategy is to
provide affordable and flexible shared Internet access solutions that enable
the small office to participate in the emerging Internet-based economy and
benefit from existing and emerging technologies and Internet-enabled business
applications and services. We believe that in order to remain competitive,
small offices will experience an increasing need to access the Internet. We
also believe that the Internet access solutions currently offered by most
personal computing and networking vendors continue to be relatively expensive,
technically complex and generally unable to satisfy the unique requirements of
the small office market. Therefore, we believe the opportunity in the small
office market is significant and we intend to continue to focus our product
development efforts, distribution strategies and support services to satisfy
the specific requirements of the small office market.
Support Existing and Emerging Access Technologies. Our products are designed
to support all major Internet access technologies used by small offices,
including analog, ISDN, DSL and cable modems. We believe our strategy of
developing products that are access technology independent will
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enable our installed and future customer base to benefit from the deployment of
emerging broadband technologies. Further, we believe emerging broadband
technologies will increase the demand in small offices for shared Internet
access solutions. Therefore, we intend to support the commercialization of new
broadband technologies in the design of our product offerings and by pursuing
partnering relationships with broadband technology providers while continuing
to penetrate the existing market for our analog-based products.
Leverage Our Platform to Deliver New Internet Applications and Services. Our
products are based on a common technology platform designed to enable the
delivery of new Internet-enabled applications and services to the small office
market. As emerging broadband access technologies such as DSL and cable modems
become more affordable and readily available, the small office market will be
able to utilize new data intensive, multimedia and graphical applications
supported by these access technologies. Therefore, we intend to continue to
develop the architecture of our WebRamp products to serve as a platform to
deliver new Internet-enabled applications and services to the small office
market. We are also further enhancing the ease-of-use of our products through
emerging technologies such as Java/Jini, and we are adding new features to our
products using encryption and virtual private networking technologies. In
addition, we are developing new Internet applications and services that address
the trend toward voice and data integration.
Build Our Network of Value Added Resellers. We have invested significant
resources to develop a network of over 4,500 value added resellers in North
America. We believe the size of our distribution channel and the nature of our
distribution relationships differentiates us from other companies addressing
the needs of the small office market. We believe our relationships with value
added resellers enable us to reach the small office market effectively with our
product solutions and to launch new products quickly. In addition, we believe
that the distribution channels we have developed will make it attractive for
third parties, such as emerging service providers, to enter into co-marketing
or other partnership arrangements with us in order to utilize our distribution
network. We intend to further expand and develop our relationships with value
added resellers through increased technical training and support and through
marketing programs and materials.
Expand Our Distribution Channels. We believe developing and maintaining
strong distribution channels is a key element in our current and continued
success in reaching the broad small office market. We currently sell our
products through our OEM relationships with industry leaders such as Compaq and
IBM, and have recently entered into an OEM agreement with Nortel-Netgear. We
intend to leverage the brand recognition and established worldwide channels of
these and other OEMs to reach the multi-PC home market and to further penetrate
the small office market. We also intend to expand our international
distribution channels, focusing on markets with high analog penetration and
Internet access growth. We believe that our broad range of analog products will
be particularly attractive in emerging international markets that do not have
digital access infrastructures and will continue to depend on analog access
technologies. We currently market our products through distribution partners in
Australia, France, India, Ireland, Italy, Korea, Malaysia, People's Republic of
China (including Hong Kong), Singapore, Spain, Taiwan, and the United Kingdom.
We intend to expand our geographical reach with local resellers in these
regions and to expand distribution into new regions such as South America.
Leverage Our WebRamp Brand Name. We believe that we have established a
leading brand name in the small office market. Our brand name is identified
with easy-to-use, affordable, scalable, reliable and innovative shared Internet
access solutions. We believe that strong brand recognition contributes to our
resellers' initial WebRamp sales efforts as well as follow-on sales of software
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options and additional products and services to our installed customer base. We
have taken advantage of our established brand by co-marketing with industry
leaders such as Compaq and IBM. We intend to continue to build and market our
WebRamp brand through on-going public relations, advertising and co-marketing
activities.
Products
The WebRamp product line provides shared Internet access solutions for the
small office market. Individual WebRamp products have been designed to satisfy
the particular requirements of our customers in each of the segments within the
small office market. The models within the WebRamp family of products vary with
respect to the number of built-in ports, compatibility with different access
technologies and the types of software-based functions that are included. All
of our WebRamp products enable multiple users to access the Internet
simultaneously over a single Internet connection and all of our analog products
support our COLT technology, which is designed to optimize access speeds. In
addition, our WebRamp products have built-in security control to protect the
user's network from intrusion. Each of our products is designed for ease of
use, reliability, affordability and scalability and can be easily configured
using our Easy Street suite of software and graphical user interface.
Our current WebRamp product line is our second generation of products. Our
original product line was introduced in 1996 and our current product line,
which incorporates enhancements to existing products, was introduced in 1998.
The following table identifies the various models offered in our current
WebRamp product line and summarizes the functions included in each model:
<TABLE>
<CAPTION>
WebRamp Model 200i 300e 310e 310i 300Fx 410i 500i* 700s
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Built-in 4-port hub X X X X X X X X
- ----------------------------------------------------------------------------------------
1 2 2 1 1
Internal Modems 56 Kbps 56 Kbps 56 Kbps ISDN SDSL
- ----------------------------------------------------------------------------------------
External Analog or ISDN Modem Ports 1 3 3 1 1 1
- ----------------------------------------------------------------------------------------
External Cable or DSL 2 1
- ----------------------------------------------------------------------------------------
Connect to Internet X X X X X X X X
- ----------------------------------------------------------------------------------------
Internet Faxing X
- ----------------------------------------------------------------------------------------
Connect to Remote LAN X X X X X X
- ----------------------------------------------------------------------------------------
VPN + X X X X
- ----------------------------------------------------------------------------------------
Remote Dial-In + X X
- ----------------------------------------------------------------------------------------
Access Controls X + X X X X
- ----------------------------------------------------------------------------------------
Firewall X
- ----------------------------------------------------------------------------------------
</TABLE>
- --------
+ The feature is available through an optional software upgrade.
* Scheduled to ship during the second quarter of 1999.
WebRamp 200i. The WebRamp 200i is designed for basic Internet access for the
small office or home environment and includes one internal 56 Kbps modem and a
serial port to accommodate the addition of one external ISDN or analog modem.
The WebRamp 200i uses our COLT technology to aggregate the bandwidth of two
modems.
WebRamp 300e. The WebRamp 300e is designed for cost-sensitive users that
currently have basic Internet access needs but anticipate the need for expanded
functionality in the future. The WebRamp 300e has three external modem ports
that allow users to utilize our COLT technology to
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leverage their prior investments in modems of all types and speeds. The WebRamp
300e can be upgraded as the customer's needs evolve to allow telecommuters to
dial into the customer's LAN from remote locations and to support a virtual
private network that provides users secure access from remote locations. The
WebRamp 300e can also be upgraded to enable customers to control and specify
the types of Internet access that will be made available to each of their
users.
WebRamp 310e. The WebRamp 310e is designed for users who want to leverage
their prior modem investments using our COLT technology but also have an
immediate need for more advanced communications features. The WebRamp 310e is
pre-configured to include support for telecommuters, remote LAN communications,
virtual private networking and access controls.
WebRamp 310i. The WebRamp 310i is designed for users who need an all-in-one
solution with advanced Internet access features and the flexibility to add more
bandwidth. The WebRamp 310i includes two internal 56 Kbps modems, supports one
external ISDN or analog modem and includes all of the features of the WebRamp
310e.
WebRamp 300Fx. The WebRamp 300Fx is designed to enable users with frequent
faxing requirements to use the Internet as a cost effective alternative to
faxing over the public telephone network. The WebRamp 300Fx provides the base
level of WebRamp functionality and is designed to connect to a regular fax
machine to send fax documents over the Internet. The WebRamp 300Fx includes two
internal 56 Kbps modems and supports one external modem.
WebRamp 410i. The WebRamp 410i is designed for users who require all of the
functionality provided by the WebRamp 310i but who also have access to ISDN
services and want to use their ISDN bandwidth for phone or fax purposes. The
WebRamp 410i includes an integrated ISDN terminal adapter and two analog ports
for phone or fax in addition to virtual private networking and access controls.
WebRamp 500i. In April 1999, we announced the introduction of the WebRamp
500i. The WebRamp 500i is designed for small to medium-sized businesses who
want to utilize the "always on" connectivity provided by DSL. The WebRamp 500i
offers symmetric bandwidth at selectable speeds ranging from 128 Kbps to 1.5
Mbps over ordinary twisted pair copper wiring, offering users a choice of
bandwidth and budget options. Copper Mountain, a leading DSL equipment
provider, has certified that the WebRamp 500i is compatible with its family of
DSL concentrators and its CopperView network management software suite.
WebRamp 700s. The WebRamp 700s is an Internet security device that works with
cable or DSL modems, other WebRamp products and other routers to provide a
security firewall between the user's local area network and the Internet. The
WebRamp 700s also includes content control features to restrict access to
certain Web sites, filter Web content, monitor user access and protect the
user's network from unauthorized access. In addition, the WebRamp 700s provides
an optional VPN IPSec upgrade for secure communication. The WebRamp 700s is
available with 5, 25 and 100 user licenses.
Sales, Marketing and Customer Support
Sales
We primarily market and sell our products through a two-tier distribution
structure which employs several national distributors who sell our products to
a network of resellers, including VARs, selected retail outlets, mail order
catalogs and ISPs, who then sell our products to end-users.
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Our distributors provide inventory warehouse and credit services to our
resellers. Although we do not certify our resellers, we provide them with a
broad range of support services such as technical training and access to
marketing materials and require them to purchase an initial WebRamp unit for
resale. Our reseller network is comprised of over 4,500 VARs that are diverse
in size and expertise. Some of our VARs are sole-proprietor PC and application-
oriented resellers that serve local small businesses, and others are large,
multi-site networking resellers that manage nationwide office roll-outs for
large corporations. We also sell our products to OEMs, have recently begun to
sell our products directly through our Web site and co-market our products with
industry leaders.
The following are representative lists of our OEMs, distributors, resellers
and marketing partners.
<TABLE>
<CAPTION>
OEMs Distributors Resellers Marketing Partners
- ----------- ------------------- ---------------------- ---------------------------------
<S> <C> <C> <C>
Asante Ingram Micro Ameritech Apple Computer
Compaq J-Tek Corp AT&T Worldnet Canada Copper Mountain
Diamond
Multimedia Logitek Beijing SanJia Network IBM
IBM Merisel Cable & Wireless HP Computer Products Organization
Nortel-
Netgear Synergy Ideal Technology Lexis-Nexis
Tech Data INS
Town Sky Technology Solunet
Telecom Eireann
</TABLE>
Our sales and marketing programs focus on markets with high PC penetration
and rapid Internet growth. Our key markets include North America, Asia Pacific
and Western Europe. As of March 31, 1999, we employed 36 people in sales and
marketing.
North and South America. In North America we market and sell our products
through our two-tier distribution structure and have developed relationships
with several national distributors, including Ingram Micro and Tech Data. In
1998, our sales to Ingram Micro accounted for 26% of revenue and our sales to
Tech Data accounted for 24% of revenue.
We have divided our North America sales effort into four sales territories:
East, Central, West and Canada. We use an internal telesales group to introduce
our products to targeted resellers and end-user customers. For certain major
accounts and branch office customers, we also use regionally based field sales
representatives. We address sales opportunities in South America through our
national distribution partners.
Asia Pacific. We have developed key distribution partnerships in Australia,
Japan and the People's Republic of China and implemented direct marketing
programs to generate demand for our products in each of these countries. We
also sell our products through additional distribution partnerships in other
countries in the Asia Pacific region where we do not currently engage in direct
marketing programs. These countries include India, Korea, Malaysia, Singapore
and Taiwan.
Western Europe. We have recently begun to market our products in Western
Europe. To date, we have focused our sales efforts on the United Kingdom and
Ireland. In addition, we have also begun to sell our products in other Western
Europe regions, including Benelux, France, Italy, the Nordic Region and Spain.
OEM Sales. We are expanding our market presence and brand recognition by
selling our products and technologies through our OEM partnerships with
industry leaders such as Asante, Compaq and IBM, and have recently entered into
OEM agreements with Diamond Multimedia and Nortel-Netgear.
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Marketing
We believe that establishing and maintaining the WebRamp brand with both our
resellers and end-users in the small office market is critical to our sales and
marketing efforts. We market our products with the brand attributes of ease-of-
use, affordability, scalability, reliability and innovation. We believe we have
developed a leading brand name for shared Internet access solutions among the
resellers who service the small office market. We employ a variety of marketing
programs including on-going public relations, advertising, direct mail,
seminars, interactive marketing, trade show participation and co-marketing with
industry partners with complementary channels and customers. We have also taken
advantage of our established brand by co-marketing with industry leaders such
as Apple Computer, Copper Mountain, HP Computer Products Organization, IBM and
Lexis-Nexis. In addition, we support our resellers through our comprehensive
Ramp eXpert program which offers sales tools, leads, technical and sales
support, marketing materials and marketing development funds to our resellers
to enable them to better serve the small office market.
Customer Support
As of March 31, 1999, we had a team of 10 customer service engineers to
support our resellers and customers. Our internal support systems are highly
automated using automatic call distribution and database tracking technologies
and our customer service engineers respond to customer inquiries by telephone,
e-mail or fax. Our support services include free installation support and a
range of premium, fee-based support services, including annual service
contracts and extended warranty coverage.
Customers
WebRamp users range from global companies with many small or remote offices
to single location small businesses with several users. The following case
studies illustrate how certain of our customers have used our products.
National Nonprofit Organization. Easter Seals is a nationwide nonprofit
organization with over 13,000 employees and volunteers in small regional
offices that need Internet access to expand their research, outreach and fund-
raising efforts and to facilitate inter-office information sharing. Before
utilizing WebRamp, many Easter Seals offices relied on a single direct connect
modem line for Internet access, which proved inefficient and costly. A
significant number of other offices did not access the Internet at all and
relied on telephone, fax and mail for communications. Because of Easter Seals'
limited financial resources, cost was an important consideration in choosing an
Internet access solution. Further, its numerous small regional offices lacked
in-house information technology personnel, and thus required a solution that
could be easily implemented and managed. Using the WebRamp's VPN capabilities,
Easter Seals has created a secured site for affiliates to share information on
public policy, medical rehabilitation issues and confidential client
information. The broad range of WebRamp solutions is also important to Easter
Seals since affiliates range from large rehabilitation centers to small two to
three person volunteer offices.
Large U.S. Heating and Air Conditioning Company. This global manufacturer has
more than 150 locations worldwide and has installed approximately 40 WebRamp
310e and 310i units domestically with plans to install more in its Asian and
European offices. This manufacturer uses the WebRamp product family because it
offers a range of products, using either internal or external analog or ISDN
modems, suited to the access preferences of its individual offices, and can be
quickly and easily installed by non-technical branch office personnel with
minimal telephone support. The
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<PAGE>
WebRamp is used to connect its offices to the corporate intranet for project
collaboration among employees and branch offices as well as the dissemination
of corporate marketing materials and sales and service information. WebRamp is
also used to provide connectivity between offices for order status, improving
the company's customer responsiveness. While this company's main manufacturing
facilities are connected via a Frame Relay wide area network, Frame Relay was
too expensive to install in its smaller branch offices. WebRamp was the ideal
solution, providing an easy-to-use, low-cost option for Intranet access, e-mail
and other Internet applications.
U.S. Insurance Company. A major insurance carrier uses the WebRamp solution
to enable its independent insurance agents in local remote offices to access
its corporate intranet. The company is using the WebRamp's VPN capability to
provide secure access to the policy information, price quotes, payment data and
approval procedures that independent agents use on a daily basis. The WebRamp
allows Internet access and secure intranet access from a single phone call. The
centralized information technology help desk at the company's headquarters has
the capability to dial in the WebRamp to remotely manage software training and
technical support issues. In addition to extranet access, the independent
agents and their staffs are able to use the WebRamp for Web-browsing, e-mail,
e-commerce and other typical small office applications. More than 500 WebRamp
products have been installed by this customer.
Small Law Firm. Orr Law firm is a small firm that depends on the Internet for
legal research, client communication and marketing purposes. Ed Orr and his
associate attorney and staff paralegal use the Internet extensively to access
dozens of legal sites daily, monitor court decisions as they are posted, access
government databases for legislative and statutory research and communicate
with clients via e-mail. Mr. Orr is also developing his own Web page to provide
information on his firm and its services. Prior to adopting the WebRamp
solution, Orr Law utilized a direct Internet connection that did not allow
simultaneous multi-user access. Installing additional phone lines or utilizing
alternative Internet access methodologies such as ISDN or dedicated lines was
prohibitively expensive. Orr Law now utilizes a WebRamp shared Internet access
solution that delivers Internet access to the entire office over a single
modem, ISP account and phone line.
Testing and Research Organization. Beverage Testing Institute is a testing
and research organization that publishes its results in several food and
beverage magazines and Internet sites including www.tastings.com. The Internet
provides Beverage Testing Institute with a fast and cost-effective means of
communicating its data to potential consumers, retailers and restaurateurs, as
well as the opportunity to generate potential advertising revenue. The
Institute's employees also use the Internet for e-mail, file transfer and
faxing. The Institute's prior solution was comprised of 14 Macintosh systems
and one PC, each connected to the Internet by a 28 Kbps modem. This solution,
however, proved cumbersome and slow, and required numerous telephone lines. The
Institute chose WebRamp due to its scalability, its ability to enable
simultaneous Internet access, its ability to support additional ISDN or analog
modems, and its remote Internet and LAN access capabilities. The Institute also
plans to implement the WebRamp's remote access capabilities so that its tasters
and field representatives will be able to access the LAN remotely. The
Institute reports that once its ISDN line was installed, the WebRamp
installation was accomplished in a few hours and employees were successfully
using the Internet the same day.
Research and Development
Our research and development efforts are focused on addressing the needs of
small offices through new products and product enhancements. Our primary
research and development objective is
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to enable small businesses to effectively participate in the Internet economy
by designing easy-to-use products that provide access innovations and features
normally available only to large enterprises. We are also focused on developing
new add-on software components to our platform architecture that expand the
basic capabilities of the WebRamp to enable the delivery of Internet-based
applications and services. Specifically, we invest in extensive software
development activities to bring innovations and enterprise class features to
the small office. Such innovations include our COLT software, LAN to LAN
internetworking, remote access, virtual private networking, firewall, security,
directory services, and fax over Internet.
Our current development activities include the following areas:
. hardware cost reduction;
. product line extensions through adding new functionality and interfaces;
. adding new high speed broadband interfaces such as SDSL, ADSL and cable;
and
. designing and developing new protocol software to deliver emerging
Internet-enabled applications and services to our customers.
We are a member of industry standards forums, such as the Internet
Engineering Task Force and the ADSL Forum, and we design our products around
current industry standards and intend to continue to support emerging standards
that are consistent with our product strategy.
As of March 31, 1999, we had engineering staff of 37 located in two sites.
Our main development activities are based in our headquarters in Santa Clara,
California, with a staff of 21 responsible for hardware design and development,
key architecture and software development, documentation and quality assurance.
We also have a software development facility in Hyderabad, India, with
approximately 16 software engineers responsible for software research and
development as well as quality assurance. We believe that our engineering staff
is one of our key assets. Through our India facility, we are able to access a
large pool of qualified engineering personnel with significantly less turnover
and at a lower cost as compared to the Silicon Valley.
Manufacturing
We have developed a fully outsourced manufacturing capability for the
production of our products. This approach enables us to reduce fixed costs and
to provide flexibility in meeting market demand. Our primary turnkey
manufacturing partners are Micron Custom Manufacturing Services, Inc. (MCMS),
Discopy Labs Corporation and SMT Unlimited, Inc. (SMTU). MCMS is a ISO-9002
certified, BABT compliant and Bell-core qualified manufacturer specializing in
telecommunications hardware and systems. MCMS is our primary contract
manufacturer and provides us with full turnkey manufacturing, which includes
procurement of materials, printed circuit board assembly, final enclosure
assembly, manufacturing and systems testing. Our relationship with MCMS allows
us to be flexible, highly responsive to upside demand and limits inventory
obsolescence. The assembled products are completed and packaged in Fremont,
California at Discopy Labs Corporation, an ISO-9001 qualified manufacturer.
Finally, we build early prototypes and product limited quantities of products
production in Fremont, California, at SMTU, an ISO-9001, BABT compliant
supplier.
Competition
The market in which we operate is new, rapidly evolving and highly
competitive. We compete on the basis of certain factors, including product
features, time-to-market, ease of use, product
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performance, product quality, user scalability, customer support and price. We
believe that our competitive strengths include our focus on the needs of the
small business customer, the value added reseller channel we have established,
our workforce of highly experienced hardware and software engineers, including
our engineers in India, our well established brand, and the proprietary
features of our products. However, our market is still evolving and we cannot
assure you that we will be able to compete successfully against current and
future competitors, and the failure to do so could harm our business.
Our current and potential competitors offer a variety of competitive
products, including shared Internet access devices such as the products offered
by 3Com, thin servers, and networking equipment such as routers and switches
offered by companies such as Ascend, Cisco, Intel and Netopia.
Many or our competitors are substantially larger than we are and have
significantly greater financial, sales and marketing, technical, manufacturing
and other resources and more established distribution channels. These
competitors may be able to respond more rapidly to new or emerging technologies
and changes in customer requirements or devote greater resources to the
development, promotion and sale of their products than we can. Furthermore,
some of our competitors may make strategic acquisitions or establish
cooperative relationships among themselves or with third parties to increase
their ability to rapidly gain market share by addressing the needs of our
prospective customers. These competitors may enter our existing or future
markets with solutions that may be less expensive, provide higher performance
or additional features or be introduced earlier than our solutions. Given the
market opportunity in the shared Internet access market, we also expect that
other companies may enter our market with better products and technologies. If
any technology that is competing with ours is more reliable, faster, less
expensive or has other advantages over our technology, then the demand for our
products and services would decrease, which would seriously harm our business.
We expect our competitors to continue to improve the performance of their
current products and introduce new products or new technologies as industry
standards and customer requirements evolve that may supplant or provide lower
cost alternatives to our products. Successful new product introductions or
enhancements by our competitors could reduce the sales or market acceptance of
our products and services, perpetuate intense price competition or make our
products obsolete. To be competitive, we must continue to invest significant
resources in research and development, sales and marketing, and customer
support. We cannot be sure that we will have sufficient resources to make such
investments or that we will be able to make the technological advances
necessary to be competitive. As a result, we may not be able to compete
effectively against our competitors. Our failure to maintain and enhance our
competitive position within the market may seriously harm our business.
Increased competition is likely to result in price reductions, reduced gross
margins, longer sales cycles and loss of market share, any of which would
seriously harm our business. We cannot be certain that we will be able to
compete successfully against current or future competitors or that competitive
pressures will not seriously harm our business.
Intellectual Property
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property
rights. We have filed two U.S. patent applications
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relating to the architecture of our products. We cannot assure you that these
applications will be approved, that any issued patents will protect our
intellectual property or that they will not be challenged by third parties.
Furthermore, there can be no assurance that others will not independently
develop similar or competing technology or design around any patents that may
be issued to us. We also have one pending U.S. trademark application.
We also enter into confidentiality or license agreements with our employees,
consultants and corporate partners, and control access to and distribution of
our software, documentation and other proprietary information. In addition, we
provide our products to end-users primarily under "shrink-wrap" license
agreements included in the packaging. These agreements are not negotiated with
or signed by the licensee, and thus these agreements may not be enforceable in
some jurisdictions. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. We cannot assure you that these precautions will
prevent misappropriation or infringement of our intellectual property.
Monitoring unauthorized use of our products is difficult, and we cannot assure
you that the steps we have taken will prevent misappropriation of our
technology, particularly in foreign countries where the laws may not protect
our proprietary rights as fully as in the United States.
Some of our OEM agreements also provide manufacturing rights and access to
our intellectual property and source code upon the occurrence of specified
conditions of default. If we were to default on these agreements, our OEMs
could use our intellectual property and source code to develop and manufacture
competing products, which would adversely affect our performance and ability to
compete.
Our industry is characterized by the existence of a large number of patents
and frequent claims and related litigation regarding patent and other
intellectual property rights. In particular, leading companies in the data
communications and networking markets have extensive patent portfolios with
respect to modem and networking technology. From time to time, third parties,
including these leading companies, have asserted and may assert exclusive
patent, copyright, trademark and other intellectual property rights to
technologies and related standards that are important to us. We expect that we
may increasingly be subject to infringement claims as the numbers of products
and competitors in the small office market for shared Internet access solutions
grow and the functionality of products overlaps.
In March 1999, we received a letter from a third party alleging that certain
of our products may infringe one of such party's patents pertaining to
intelligent modem bonding technology. We are reviewing this patent carefully
and the relevant aspects of our products affected by this patent. The failure
to agree or settle on reasonable terms between the parties may lead to
litigation, in which case our business or operating results may be adversely
affected. We do not know whether a license would be available on reasonable
terms, nor do we know whether we would be able to redesign our products so as
to eliminate such potential infringement.
Although we have not been a party to any litigation asserting claims that
allege infringement of intellectual property rights, we cannot assure you that
we will not be a party to litigation in the future. In addition, we cannot
assure you that third parties will not assert additional claims or initiate
litigation against us or our manufacturers, suppliers or customers alleging
infringement of their proprietary rights with respect to our existing or future
products.
We may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights to determine the scope and validity of
our proprietary rights. Any such claims, with
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or without merit, could be time-consuming, result in costly litigation and
diversion of technical and management personnel, or require us to develop non-
infringing technology or enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. In the event of a successful claim of infringement
and our failure or inability to develop non-infringing technology or license
the proprietary rights on a timely basis, our business, operating results and
financial condition could be materially adversely affected.
Employees
As of March 31, 1999, we employed 103 persons, including 6 in operations, 9
in marketing, 35 sales and customer support, 37 in engineering, research and
development and 16 in finance and administration. We also employ a number of
contract employees, especially for software engineering and systems
verification. None of our employees is represented by a labor union and we have
experienced no work stoppages to date. We believe our employee relations are
good.
Facilities
Our principal administrative and engineering facilities are located in one
leased building which totals approximately 42,500 square feet in Santa Clara,
California. The current lease for the Santa Clara space expires in August 2000,
with an option to renew for up to an additional five years. Our software
development site in Hyderabad, India totals approximately 13,200 square feet.
We believe that our facilities will be adequate to meet our requirements for at
least the next twelve months and that suitable additional or substitute space
will be available as needed.
Legal Proceedings
We are not aware of any pending legal proceedings against us that,
individually or in the aggregate, would have a material adverse effect on our
business, operating results or financial condition. We may in the future be
party to litigation arising in the course of our business, including claims
that we allegedly infringe third-party patents, trademarks and other
intellectual property rights. Such claims, even if not meritorious, could
result in the expenditure of significant financial and managerial resources.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages as of March 31, 1999 are
as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Mahesh Veerina................ 37 President, Chief Executive Officer, and Director
Terry Gibson.................. 45 Vice President of Finance, Chief Financial Officer and Secretary
Patricia R. Burke............. 45 Vice President of Marketing
Elie Habib.................... 39 Vice President of Engineering
Timothy J. McElwee............ 32 Vice President of Worldwide Sales
Anthony Sun(2)................ 46 Chairman of the Board of Directors
Philip T. Gianos(1)(2)........ 49 Director
L. William Krause(1).......... 56 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Mahesh Veerina has served as our President, Chief Executive Officer and
director since October 1993. Prior to founding the company, Mr. Veerina managed
the development of high performance ATM multi-protocol routers at SynOptics
Communications, Inc., a manufacturer of networking routers and switches (now
Bay Networks, Inc.). Prior to SynOptics, Mr. Veerina led software protocols
development projects at Amdahl Corporation, a provider of computer systems,
storage subsystems and related hardware services. Mr. Veerina holds a B.S. in
Physics from Nagarjuna University, a M.S. in Physics and Electronics from
Andhra University, and an M.S. in Electrical Engineering and Computer Science
from Purdue University.
Terry Gibson has served as our Vice President of Finance, Chief Financial
Officer and Secretary since March 1999. From May 1996 to March 1999, he served
as Vice President of Finance and Chief Financial Officer at GaSonics
International Corporation, a semiconductor equipment manufacturer. From
February 1991 to May 1996, Mr. Gibson was Vice President and Corporate
Controller at Lam Research, a manufacturer of semiconductor processing
equipment. Mr. Gibson previously held positions with National Semiconductor
Corporation, a designer and manufacturer of integrated circuits and Deloitte,
Haskins and Sells, an accounting firm. He holds a B.S. in Science and Commerce
from Santa Clara University.
Patricia Burke has served as our Vice President of Marketing since October
1996. From May 1993 to October 1996, Ms. Burke was Vice President of Marketing
at Madge Networks NV, a manufacturer of network switching systems. From 1991 to
1993, Ms. Burke was Vice President of Marketing at Symantec Corporation, a
software developer. From 1983 to 1991, Ms. Burke was Partner-In-Charge of the
Networking Industry Practice group at Regis McKenna, Inc., a marketing
consulting company. Prior to Regis McKenna, Ms. Burke was the Director of
Public Relations with the Texas Rangers Baseball Club, a professional baseball
team. Ms. Burke holds a B.A. in English and German from the University of Texas
at Austin.
Elie Habib has served as our Vice President of Engineering since March 1999.
From January 1996 to January 1999, Mr. Habib was the Vice President of
Engineering for the products business group of Bay Networks, Inc. From April
1989 to December 1995, Mr. Habib was Senior Engineering Manager at Sun
Microsystems, Inc., a manufacturer of computer desktop and servers equipment.
Prior to his position with Sun, Mr. Habib was a Software Engineer with Amdahl
Corporation. Mr. Habib holds a B.S. in Computer
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Science and Mathematics from Universite de Rouen in Rouen, France, a M.S. in
Computer Science from Universite Paul Sabatier in Toulouse, France, and an M.S.
in Computer Science from Case Western Reserve University.
Timothy McElwee has served as our Vice President of Worldwide Sales since
October 1997. From August 1996 to October 1997, Mr. McElwee was Director of
Worldwide Networking Product Sales at Adaptec, Inc., a supplier of bandwidth
management solutions. From August 1994 to August 1996, he served as Vice
President of Sales at Cogent Data Technologies, Inc., a manufacturer of high-
end Ethernet adapters. From January 1994 to August 1994, Mr. McElwee was Vice
President of Sales and Marketing at EFA Corporation, a manufacturer of computer
components. Prior to EFA, Mr. McElwee held sales positions at Ansel
Communications, Inc., a manufacturer of networking Ethernet adapters, hubs and
switches, and Softworks Development Corporation, a regional distribution
company and systems assembler. Mr. McElwee attended the University of Wisconsin
in Milwaukee.
Anthony Sun has served as our Chairman of the Board of Directors since
September 1995. Mr. Sun has been a General Partner of Venrock Associates, a
venture capital firm, since 1979. Prior to joining Venrock, Mr. Sun held a
number of positions with Hewlett-Packard Company, TRW Inc. and Caere
Corporation. Mr. Sun also serves on the boards of Cognex Corporation, Komag,
Inc., Phoenix Technologies Ltd., 3Dfx Interactive, Inc., and Worldtalk
Communications Corp. Mr. Sun holds an S.B. in Electrical Engineering, an S.M.
in Electrical Engineering, and an Engineer's degree from the Massachusetts
Institute of Technology, as well as an M.B.A. from the Harvard University
Graduate School of Business.
Philip Gianos has served as a director of Ramp Networks since March 1996. Mr.
Gianos has been a General Partner at InterWest Partners, a venture capital
firm, since 1982. Prior to joining InterWest, Mr. Gianos was with IBM
Corporation for eight years, managing both chip design and systems integration
for several IBM office automation products. Mr. Gianos serves as a director of
Xilinx, Inc. and as a director of the Western Association of Venture
Capitalists. Mr. Gianos holds a B.S and an M.S. in Electrical Engineering from
Stanford University and an M.B.A. from Harvard University Graduate School of
Business.
L. William Krause has served as a director of Ramp Networks, Inc. since March
1999. Since November 1998, Mr. Krause has been President of LWK Ventures, a
private investment company. From October 1991 to November 1998, Mr. Krause
served as President, Chief Executive Officer and as a director of Storm
Technology, Inc. a provider of computer peripherals and software for digital
imaging. Prior to that, Mr. Krause spent ten years at 3Com Corporation, a
manufacturer of networking systems, where he served as President and Chief
Executive Officer until he retired in September 1990. Mr. Krause continued as
Chairman of the Board for 3Com Corporation until 1993. Previously, Mr. Krause
served in various marketing and general management positions at Hewlett-Packard
Company. Mr. Krause currently serves as a director of Aureal Semiconductor,
Inc., Infoseek Corporation, and Sybase, Inc. Mr. Krause holds a B.S.E.E. from
The Citadel.
There are no family relationships among any of our directors or executive
officers. Storm Technology, Inc. filed for Chapter 7 bankruptcy protection in
November 1998 when Mr. Krause was Storm Technology's President and Chief
Executive Officer.
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Board Composition
We currently have authorized four directors. In accordance with the terms of
our Certificate of Incorporation, effective upon the closing of this offering,
the terms of office of the directors will be divided into two classes: Class I,
whose term will expire at the annual meeting of stockholders to be held in 2000
or special meeting held in lieu thereof, and Class II, whose term will expire
at the annual meeting of stockholders to be held in 2001 or special meeting
held in lieu thereof. The Class I directors are William Krause and Philip
Gianos and the Class II directors are Anthony Sun and Mahesh Veerina. At each
annual meeting of stockholders after the initial classification or special
meeting in lieu thereof, the successors to directors whose terms will then
expire will be elected to serve from the time of election and qualification
until the second annual meeting following election or special meeting held in
lieu thereof. In addition, our Certificate of Incorporation provides that the
authorized number of directors may be changed only by resolution of the Board
of Directors. Any additional directorships resulting from an increase in the
number of directors will be distributed among the two classes so that, as
nearly as possible, each class will consist of one-half of the directors. This
classification of the Board of Directors may have the effect of delaying or
preventing changes in control or management of the company, although directors
of the company may be removed for cause by the affirmative vote of the holders
of a majority of the common stock.
Board Compensation
We do not currently compensate our directors, but they are reimbursed for
out-of-pocket expenses incurred in connection with attendance at meetings of
the Board of Directors or its committees. Our directors are generally eligible
to participate in our 1995 Stock Option Plan and our 1999 Stock Incentive Plan
and, to the extent that a director is an employee of the company, to
participate in our 1999 Employee Stock Purchase Plan. See "--Stock Plans."
Board Committees
The Compensation Committee currently consists of Anthony Sun and Philip
Gianos. The Compensation Committee:
. reviews and approves the compensation and benefits for our executive
officers and grants stock options under our stock option plans; and
. makes recommendations to the Board of Directors regarding such matters.
The Audit Committee consists of William Krause and Philip Gianos. The Audit
Committee:
. makes recommendations to the Board of Directors regarding the selection
of independent auditors;
. reviews the results and scope of the audit and other services provided by
our independent auditors; and
. reviews and evaluates our audit and control functions.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee of Ramp Networks' Board of
Directors are currently Anthony Sun and Philip Gianos. Neither of them has at
any time been an officer or employee of the company.
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Executive Compensation
The following table sets forth all compensation awarded to, earned by, or
paid to our Chief Executive Officer and our only other executive officers whose
total cash compensation exceeded $100,000 during the year ended December 31,
1998 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------- ------------
Securities
Underlying All Other
Name and Principal Position Salary Bonus Options (#) Compensation
- --------------------------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Mahesh Veerina.................. $ 140,000 $ 30,000 -- --
President and Chief Executive
Officer
Patricia R. Burke............... 149,500 25,000 12,000 --
Vice President of Marketing
Timothy J. McElwee.............. 150,000 56,000 -- --
Vice President of Worldwide
Sales
</TABLE>
The following table shows certain information regarding stock options granted
to the Named Executive Officers during the year ended December 31, 1998. No
stock appreciation rights were granted to the Named Executive Officers during
the year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed Annual
Rates Of Stock
Price
Number of Appreciation
Shares Percentage of For Option
Underlying Total Options Exercise Term(3)
Options Granted to Price per Expiration ---------------
Name Granted (1) Employees (2) Share Date 5% 10%
---- ----------- ------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Mahesh Veerina.......... -- -- -- -- -- --
Patricia R. Burke....... 12,000 1.6% $1.67 7/14/08 $12,603 $31,939
Timothy J. McElwee...... -- -- -- -- -- --
</TABLE>
- --------
(1) These stock options, which were granted under the 1995 Stock Option Plan,
become exercisable at a rate of 1/4 of the total number of shares of common
stock subject to the option on the first anniversary of the date of grant,
and 1/48 of the total number of shares monthly thereafter, as long as the
optionee remains an employee with, consultant to, or director of the
company.
(2) Based on an aggregate of 774,134 options to purchase common stock of the
company granted by the company under the 1995 Stock Option Plan in fiscal
year 1998.
(3) Potential realizable values are net of exercise price, but before taxes
associated with exercise. The 5% and 10% assumed annual rates of compounded
stock price appreciation are mandated by the Securities and Exchange
Commission. There is no assurance provided to any executive officer or any
other holder of our securities that the actual stock price appreciation
over the 10-year option term will be at the assumed 5% and 10% levels or at
any other defined level. Unless the market price of the common stock
appreciates over the option term, no value will be realized from the option
grants made to the executive officers.
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Option Exercises and Holdings
The following table sets forth the number of shares of common stock acquired
upon the exercise of stock options by the Named Executive Officers during our
last fiscal year, and the number and value of securities underlying unexercised
options held by the Named Executive Officers as of December 31, 1998:
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Number of Underlying Unexercised In-the-Money Options
Shares Options at December 31, 1998 At December 31, 1998 (1)
Acquired Value -------------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mahesh Veerina........ -- -- 36,249 108,750 -- --
Patricia R. Burke....... -- -- 98,750 125,050 $121,875 $103,125
Timothy J. McElwee...... -- -- 43,750 226,250 $ 36,750 $ 89,250
</TABLE>
- --------
(1) Based on the fair market value as of December 31, 1998 ($1.67 per share),
as determined by the Board of Directors, minus the exercise price,
multiplied by the number of shares underlying the option.
Stock Plans
1999 Stock Incentive Plan. Our 1999 Stock Incentive Plan was adopted by the
Board of Directors in March 1999 and we will be submitting it for approval by
our stockholders prior to the closing of this offering. A total of 2,400,000
shares of common stock have been reserved for issuance under the 1999 Stock
Incentive Plan as of the date of this offering. On the first day of each of our
fiscal years in 2000, 2001, 2002, 2003 and 2004 the number of shares reserved
for issuance under the 1999 Stock Incentive Plan will be increased by the
lesser of (1) 600,000 shares, (2) 3% of our outstanding common stock on the
last day of the immediately preceding fiscal year, or (3) a lesser number of
shares as the Board of Directors determines. As of March 31, 1999, options to
purchase 156,000 shares of common stock were outstanding.
The 1999 Stock Incentive Plan provides for the granting of incentive stock
options to employees, including officers and directors, within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, and for the
granting of nonstatutory stock options and stock purchase rights to employees
and consultants, including non-employee directors. If an employee would have
the rights in any calendar year to exercise for the first time incentive stock
options for shares having an aggregate fair market value, under all of our
plans and determined for each share as of the date the option to purchase
shares was granted, in excess of $100,000, any such excess options shall be
treated as nonstatutory stock options.
The 1999 Stock Incentive Plan may be administered by the Board of Directors
or a committee of the Board, each known as the "administrator." The Board of
Directors currently administers the 1999 Stock Incentive Plan. The
administrator determines the terms of options and stock purchase rights granted
under the 1999 Stock Incentive Plan, including the number of shares subject to
an option or stock purchase right, the exercise price or purchase price, and
the term and exercisability of options or conditions for stock purchased
pursuant to stock purchase rights. The administrator may grant an individual
employee options or stock purchase rights under the 1999 Stock Incentive Plan
during any one fiscal year with respect to a maximum of 1,300,000 shares. The
exercise price of all
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incentive stock options granted under the 1999 Stock Incentive Plan must be at
least equal to the fair market value of our common stock on the date of grant.
The administrator has the authority to grant nonstatutory stock options and
stock purchase rights at prices below fair market value, although the exercise
price of such awards granted to our Chief Executive Officer and our four other
most highly compensated officers will generally equal at least 100% of the fair
market value of the common stock on the date of grant. In addition, for any
grants made prior to the date of this offering, the exercise price must be at
least 85% of the fair market value of the common stock on the date of grant and
grants to employees who are not officers must vest at least 20% per year.
Payment of the exercise price of options and the purchase price of stock
purchase rights may be made in cash or other consideration as determined by the
administrator. Generally, options granted under the 1999 Stock Incentive Plan
have a term of ten years and are nontransferable, although the administrator
may grant nonstatutory stock options with limited transferability rights in
certain circumstances.
In the event we are acquired by another company, or in the event of a sale of
all or substantially all of our assets, we expect that awards outstanding under
the 1999 Stock Incentive Plan will be assumed or equivalent awards substituted
by our acquirer or the purchaser of such assets. If an acquirer or purchaser
does not agree to assume or substitute awards, then restrictions on restricted
stock shall lapse and the administrator may provide notice that options will
terminate on a specified date if not exercised or terminate each option in
exchange for a payment equal to the excess of the fair market value of vested
option shares over the exercise price of the shares.
The Board of Directors may amend, modify or terminate the 1999 Stock
Incentive Plan at any time as long as such amendment, modification or
termination does not impair vesting rights of plan participants and provided
that stockholder approval shall be required for an amendment to the extent
required by applicable law, regulations or rules. Unless terminated earlier by
the Board of Directors, the 1999 Stock Incentive Plan will terminate in April
2009.
1995 Stock Option Plan. Our 1995 Stock Option Plan was originally adopted by
the Board of Directors and approved by our shareholders in September 1995. A
total of 3,218,286 shares of common stock have been reserved for issuance under
the 1995 Stock Option Plan. The 1995 Stock Option Plan provides for the
granting of incentive stock options (within the meaning of Section 422 of the
Internal Revenue Code) to employees, and nonstatutory stock options to
employees and consultants. As of March 31, 1999, options to purchase 2,293,433
shares of common stock were outstanding at a weighted average exercise price of
$2.83, 840,794 shares had been issued upon exercise of options, and 84,053
shares of common stock remained available for future grants under the 1995
Stock Option Plan. Options granted under the 1995 Stock Option Plan will remain
outstanding in accordance with their terms, but the Board of Directors has
determined that no further options will be granted under the 1995 Stock Option
Plan. Unless terminated earlier by the Board, the 1995 Stock Option Plan will
terminate in September 2005.
The 1995 Stock Option Plan may be administered by the Board of Directors or a
committee of the Board, each known as the "administrator" with the authority to
grant options and to determine the terms of such grants. Stock options granted
under the 1995 Stock Option Plan may not have a term of more than ten years and
generally remain exercisable for a period of three months following termination
of the optionee's relationship with the Company. Longer periods apply in the
event such termination occurs as a result of death or disability. The exercise
price of all incentive stock options must be at least equal to the fair market
value of the common stock at the time of grant, and the exercise price of
nonstatutory stock options must be at least 85% of the fair market value of the
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common stock at the time of grant, however, the exercise price of stock options
granted to employees owning stock that represents more than 10% of the total
combined voting power of all classes of outstanding capital stock of the
Company must in all cases be at least 110% of the fair market value of common
stock at the time of grant. In addition, grants to employees who are not
officers must vest at least 20% per year. In the event of a proposed sale of
all or substantially all of the assets of the company or the merger or
consolidation of the company with or into another corporation, each option may
be assumed or an equivalent option substituted by the successor corporation.
However, if the successor corporation does not agree to such assumption or
substitution of an option, the option will terminate. The administrator has the
authority to amend the 1995 Stock Option Plan provided that no action that
impairs the rights of any holder of an outstanding option may be taken without
the holder's consent and provided that stockholder approval for any amendments
to the 1995 Stock Option Plan shall be obtained to the extent required by
applicable law.
1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan was
adopted by the Board of Directors in April 1999 and is expected to be approved
by the stockholders prior to the closing of this offering. A total of 600,000
shares of common stock have been reserved for issuance under the Purchase Plan,
none of which have been issued as of the date of this offering. The number of
shares reserved for issuance under the Purchase Plan will be subject to an
annual increase on the first day of each of our fiscal years beginning in 2000,
2001, 2002, 2003 and 2004 equal to the lesser of (1) 186,000 shares, (2) 1% of
our outstanding common stock on the last day of the immediately preceding
fiscal year, or (3) a lesser number of shares as the Board of Directors
determines. The Purchase Plan becomes effective upon the date of this
prospectus. Unless terminated earlier by the Board of Directors, the Purchase
Plan shall terminate in April 2019.
The Purchase Plan, which is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, will be implemented by a series of overlapping
offering periods of 24 months' duration, with new offering periods (other than
the first offering period) commencing on May 1 and November 1 of each year.
Each offering period will consist of four consecutive purchase periods of six
months' duration, at the end of each such six month period (a "purchase date")
an automatic purchase will be made for participants. The initial offering
period is expected to commence on the date of this offering and end on April
30, 2001; the initial purchase period is expected to commence on the date of
this offering and end on October 31, 1999. The Purchase Plan will be
administered by the Board of Directors or by a committee appointed by the
Board. Employees (including officers and employee directors) of the company, or
of any majority-owned subsidiary designated by the Board, are eligible to
participate in the Purchase Plan if they are employed by the company or any
such subsidiary for at least 20 hours per week and more than five months per
year. The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions of up to 15% of an employee's compensation, at a
price equal to the lower of 85% of the fair market value of our common stock at
the beginning of each offering period or at the end of each purchase period.
The Board of Directors shall have the discretion to increase, prior to the
beginning of an offering period, the percentage of participants' compensation
that may be withheld through the Purchase Plan, up to a maximum of 20% of
compensation. Employees may end their participation in the Purchase Plan at any
time during an offering period, and participation automatically ends on
termination of employment. The Board may also implement provisions of the
Purchase Plan that permit stock purchases through cash or stock contributions.
No employee shall be permitted to purchase shares under the Purchase Plan if
immediately after the purchase such employee would own stock and/or hold
outstanding options to purchase stock
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<PAGE>
equaling 5% or more of the total voting power or value of all classes of stock
of the company or its subsidiaries, or if such purchase would permit an
employee to purchase stock, under all of the company's, and our subsidiaries',
employee stock purchase plans, to accrue at a rate that exceeds $25,000 of fair
market value of such stock for each calendar year in which the option is
outstanding at any time. In addition, no employee may purchase more than 1,000
shares of common stock under the Purchase Plan in any one purchase period. If
the fair market value of the common stock on a purchase date is less than the
fair market value at the beginning of the offering period, each participant in
the Purchase Plan shall automatically be withdrawn from the offering period as
of the end of the purchase date and re-enrolled in the new 24 month offering
period beginning on the first business day following the purchase date.
In the event we are acquired by another company or in the event of a sale of
all or substantially all of our assets, we expect that each right to purchase
stock under the Purchase Plan will be assumed or an equivalent right
substituted by the successor corporation unless the Board of Directors shortens
any ongoing offering period so that employees' rights to purchase stock under
the Purchase Plan are exercised prior to the transaction. The Board of
Directors has the power to amend or terminate the Purchase Plan and to change
or terminate offering periods as long as such action does not adversely affect
any outstanding rights to purchase stock thereunder, provided however, that the
Board may amend or terminate the Purchase Plan or an offering period even if it
would adversely affect outstanding options in order to avoid our incurring
adverse accounting charges.
Limitation of Liability and Indemnification Matters
Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that a director
of a corporation will not be personally liable for monetary damages for breach
of such individual's fiduciary duties as a director except for liability (i)
for any breach of such director's duty of loyalty to the company or to its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which a director derives an improper personal benefit.
Our Bylaws provide that we indemnify our directors and executive officers and
may indemnify our officers, employees and other agents to the full extent
permitted by law. We believe that indemnification under our Bylaws covers at
least negligence on the part of an indemnified party. Our Bylaws also permit us
to advance expenses incurred by an indemnified party in connection with the
defense of any action or proceeding arising out of his or her status or service
as a director, officer, employee or other agent of the company upon an
undertaking by him or her to repay such advances if it is ultimately determined
that he or she is not entitled to indemnification.
We have entered into separate indemnification agreements with each of our
directors and officers. These agreements require us to, among other things,
indemnify such director or officer against expenses, including attorney's fees,
judgments, fines and settlements paid by such individual in connection with any
action, suit or proceeding arising out of such individual's status or service
as a director or officer of the company, other than liabilities arising from
willful misconduct or conduct that is knowingly fraudulent or deliberately
dishonest, and to advance expenses incurred by such individual in connection
with any proceeding against such individual with respect to which such
individual may be entitled to indemnification by us. We believe that our
Certificate of Incorporation
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<PAGE>
and Bylaw provisions and indemnification agreements are necessary to attract
and retain qualified persons as directors and executive officers. We also
maintain directors' and officers' liability insurance.
At present we are not aware of any pending litigation or proceeding involving
any director, officer, employee or agent of the company where indemnification
will be required or permitted. Furthermore, we are not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, executive officers or persons controlling the
company, we have been informed 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.
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<PAGE>
CERTAIN TRANSACTIONS
Certain stock option grants to our directors and executive officers are
described in this prospectus under the caption "Management--Executive
Compensation."
Private Placement Transactions
Since our inception, we have issued, in private placement transactions,
shares of preferred stock, warrants for the purchase of shares of preferred
stock, and notes convertible into shares of preferred stock as follows:
. an aggregate of 4,797,773 shares of Series A Preferred Stock at $0.61 per
share in September and December 1995 and February 1996 to 10 investors;
. an aggregate of 2,614,999 shares of Series B Preferred Stock at $3.44 per
share in March 1996 to 16 investors;
. an aggregate of 1,773,645 shares of Series C Preferred Stock at $4.93 per
share in March and April 1997 to 11 investors;
. an aggregate of 2,418,890 shares of Series D Preferred Stock at $6.59 per
share in October, November and December 1997 to 13 investors;
. an aggregate of 193,420 shares of Series D Preferred Stock with an
aggregate value of approximately $1,274,637 in connection with the
acquisition of Prodigies, a sole proprietorship, in March 1999, of which
87,000 shares of Series D Preferred Stock are held in escrow; and
The following table summarizes the shares of preferred stock purchased by
Named Executive Officers, directors and 5% stockholders of Ramp Networks, and
persons and entities associated with them, in private placement transactions:
<TABLE>
<CAPTION>
Series A Series B Series C Series D
Preferred Preferred Preferred Preferred
Investor Stock Stock Stock Stock
- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Venrock Associates(1).................. 3,242,396 435,836 235,730 73,521
2494 Sand Hill Road
Menlo Park, CA 94025
Draper International................... 650,712 116,222 49,003 15,283
50 Fremont Street
San Francisco, CA 94105
InterWest Partners(2).................. -- 1,016,948 64,977 103,490
3000 Sand Hill Road, Building 3
Menlo Park, CA 94025
Vertex Management...................... -- 871,668 55,695 17,370
3 Lagoon Drive, Suite 220
Redwood City, CA 94065
London Pacific Life & Annuity Company.. -- -- -- 1,517,020
3109 Poplarwood Court
Raleigh, NC 27604
</TABLE>
- --------
(1) Anthony Sun, one of our directors, is a general partner of Venrock
Associates. See the Principal Stockholders table for more information.
(2) Philip Gianos, one of our directors, is a general partner of InterWest
Partners. See the Principal Stockholders table for more information.
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<PAGE>
Indemnification Agreements
We have entered into indemnification agreements with certain of our officers
and directors containing provisions which may require us to, among other
things, indemnify our officers and directors against certain liabilities that
may arise by reason of their status or service as officers or directors (other
than liabilities arising from willful misconduct of a culpable nature) and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified. For a description of limitations of
liability and certain indemnification arrangements with respect to our
directors and officers, see "Management--Limitation of Liability and
Indemnification Matters."
Registration Rights Agreements
Certain holders of common stock and preferred stock have certain registration
rights with respect to their shares of common stock (including common stock
issuable upon conversion of their preferred stock). See "Description of Capital
Stock--Registration Rights of Certain Holders."
Other Transactions
In 1996, we sold our ATM adapter card technology, related development tools
and work stations to a company, which was owned by our primary shareholders,
for $83,000.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to beneficial
ownership of our common stock as of March 31, 1999, and as adjusted to reflect
the sale of common stock offered hereby, as to (i) each person (or group of
affiliated persons) known by us to own beneficially more than 5% of our
outstanding common stock, (ii) each of our directors, (iii) each of the Named
Executive Officers, and (iv) all directors and executive officers of the
company as a group.
<TABLE>
<CAPTION>
Percent Beneficially
Owned(2)
--------------------
Number of Before After
Shares(2) Offering Offering(3)
--------- -------- -----------
<S> <C> <C> <C>
Anthony Sun(4)(5).............................. 4,035,483 24.9%
2494 Sand Hill Road
Menlo Park, CA 94025
Mahesh Veerina(1)(5)........................... 1,273,491 7.9
Philip T. Gianos(5)(6)......................... 1,233,415 7.6
3000 Sand Hill Road, Building 3
Menlo Park, CA 94025
L. William Krause(5)........................... 49,999 *
25855 Westwind Way
Los Altos Hills, CA 94022
Timothy J. McElwee(1)(5)....................... 49,999 *
Patricia R. Burke(1)(5)........................ 106,749 *
Venrock Associates(7).......................... 3,987,483 24.6
2494 Sand Hill Road
Menlo Park, CA 94025
London Pacific Life & Annuity Company.......... 1,517,020 9.4
3109 Poplarwood Court
Raleigh, NC 27604
InterWest Partners(8).......................... 1,185,415 7.3
3000 Sand Hill Road, Building 3
Menlo Park, CA 94025
Ravindrath N. Bathina.......................... 1,016,736 6.3
1325 Sycamore Hills Parkway
Fort Wayne, IN 46804
Vertex Management(9)........................... 944,733 5.8
3 Lagoon Drive, Suite 220
Redwood City, CA 94065
Draper International(10)....................... 831,220 5.1
50 Fremont Street
San Francisco, CA 94105
All directors and officers as a group (8 6,749,136 41.7
persons)(4)(6)................................
</TABLE>
- --------
* Less than 1%.
(1) Except as otherwise noted, the address of each person listed in the table
is c/o Ramp Networks, Inc., 3100 De La Cruz Boulevard, Santa Clara, CA
95054, and the persons named in the table have sole voting and investment
power with respect to all shares of common stock shown as beneficially
owned by them, subject to community property laws where applicable.
(2) Applicable percentage of beneficial ownership is based on 16,203,817
shares of common stock outstanding as of March 31, 1999, together with
applicable options exercisable within 60 days of March 31, 1999 and
warrants for such stockholder. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. The
number of shares beneficially
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owned by a person includes shares of common stock subject to options held by
that person that are currently exercisable or exercisable within 60 days of
March 31, 1999. Shares issuable pursuant to such options are deemed
outstanding for computing the percentage ownership of the person holding
such options but are not deemed outstanding for the purposes of computing
the percentage ownership of each other person.
(3) Assumes underwriters do not exercise their over-allotment option.
(4) Mr. Sun is a general partner of Venrock Associates, L.P. which holds
2,632,351 shares, and Venrock Associates II, L.P. which holds 1,355,132
shares. Mr. Sun disclaims beneficial ownership of the shares held by these
entities except to the extent of his pecuniary interest therein. See Note
7.
(5) Includes the following shares issuable upon the exercise of outstanding
options exercisable within 60 days of March 31, 1999; Mr. Veerina, 42,291;
Ms. Burke, 106,749; Mr. McElwee, 49,999; Mr. Sun, 48,000; Mr. Gianos,
48,000; and Mr. Krause, 49,999.
(6) Mr. Gianos is a general partner of InterWest Management Partners V, L.P.,
which is the general partner of InterWest Partners V, L.P. which holds
1,178,007 shares. Mr. Gianos disclaims beneficial ownership in the shares
held by this entity, except to the extent of his pecuniary interest
therein. Shares attributable to Mr. Gianos do not include any shares owned
by InterWest Investors V, L.P., which holds 7,408 shares. See Note 8.
(7) Includes 2,632,351 shares held by Venrock Associates, L.P. and 1,355,132
shares held by Venrock Associates II, L.P.
(8) Includes 1,178,007 shares owned by InterWest Partners V, L.P. and 7,408
shares held by InterWest Investors V, L.P.
(9) Includes 759,262 shares owned by Vertex Investment (II) Ltd. and 185,471
shares held by HWH Investment Pte., Ltd.
(10) Includes 650,712 shares owned by Draper International Holdings, L.P. and
180,508 shares held by Draper International India, L.P.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Following the closing of the sale of the shares offered hereby, our
authorized capital stock will consist of 100,000,000 shares of common stock,
$0.001 par value, and 5,000,000 shares of undesignated preferred stock, $0.001
par value.
Common Stock
As of March 31, 1999, there were 16,203,817 shares of common stock
outstanding that were held of record by approximately 95 stockholders after
giving effect to the conversion of our preferred stock into common stock at a
one-to-one ratio, and assuming no exercise or conversion of outstanding
convertible securities after March 31, 1999. There will be shares of common
stock outstanding (assuming no exercise of the underwriters' over-allotment
option and no exercise or conversion of outstanding convertible securities
after March 31, 1999) after giving effect to the sale of the shares of common
stock offered hereby.
The holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." In the event of a liquidation, dissolution or winding up
of the company, the holders of common stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to prior rights of
preferred stock, if any, then outstanding. The common stock has no preemptive
or conversion rights or other subscription rights. There are no redemption or
sinking fund provisions available to the common stock. All outstanding shares
of common stock are fully paid and non-assessable.
Preferred Stock
Effective upon the closing of this offering, we will be authorized to issue
5,000,000 shares of undesignated preferred stock. The Board of Directors will
have the authority to issue the undesignated preferred stock in one or more
series and to determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed upon any
wholly unissued series of undesignated preferred stock and to fix the number of
shares constituting any series and the designation of such series, without any
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of the
company without further action by the stockholders and may adversely affect the
voting and other rights of the holders of common stock. At present, we have no
plans to issue any shares of preferred stock.
Registration Rights of Certain Holders
The holders of 14,866,529 shares of common stock, and the holders of 150,447
shares issuable upon exercise of warrants (together, the "Registrable
Securities"), or their transferees are entitled to certain rights with respect
to the registration of such shares under the Securities Act. These rights are
provided under the terms of an agreement among Ramp Networks and the holders of
Registrable Securities dated October 30, 1997. Subject to certain limitations
in this agreement, the holders of forty percent of the Registrable Securities
may require, on two occasions at any time after six months from the effective
date of this offering, that we use our best efforts to register the Registrable
Securities for public resale, provided that the proposed aggregate offering
price is at least $7,500,000.
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<PAGE>
If we register any of our common stock either for our own account or for the
account of other security holders, the holders of Registrable Securities are
entitled to include their shares of common stock in the registration. A
holder's right to include shares in an underwritten registration is subject to
the ability of the underwriters to limit the number of shares included in that
offering.
Additionally, in the event that we have failed to qualify for use of Form S-3
or similar short-form registration within twelve months after the effective
date of this offering, then we shall be obligated to effect one additional
registration at the demand of the holders of Registrable Securities, subject to
the limitations noted above.
All fees, costs and expenses of such registrations must be borne by Ramp
Networks and all selling expenses (including underwriting discounts and selling
commissions) relating to Registrable Securities must be borne by the holders of
the securities being registered.
Anti-Takeover Provisions of Delaware Law
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless (with certain exceptions) the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale or other transaction
resulting in a financial benefit to the stockholder, and an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's outstanding
voting stock. This provision may have the effect of delaying, deferring or
preventing a change in control of Ramp Networks without further action by the
stockholders. In addition, upon completion of this offering, certain provisions
of our charter documents, including a provision eliminating the ability of
stockholders to take actions by written consent, may have the effect of
delaying or preventing changes in control or management of Ramp Networks, which
could have an adverse effect on the market price of our common stock. Our
Option Plans and Purchase Plan generally provide for assumption of such plans
or substitution of an equivalent option of a successor corporation or,
alternatively, at the discretion of the Board of Directors, exercise of some or
all of the options stock, including non-vested shares, or acceleration of
vesting of shares issued pursuant to stock grants, upon a change of control or
similar event. The Board of Directors has authority to issue up to 5,000,000
shares of preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of these shares without any further vote
or action by the stockholders. The rights of the holders of the common stock
will be subject to, and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of our
outstanding voting stock, thereby delaying, deferring or preventing a change in
control of Ramp Networks. Furthermore, such preferred stock may have other
rights, including economic rights senior to the common stock, and, as a result,
the issuance of such preferred stock could have a material adverse effect on
the market value of the common stock. We have no present plan to issue shares
of preferred stock.
Warrants
As of March 31, 1999, warrants were outstanding to purchase an aggregate of
150,447 shares of common stock at a weighted average exercise price of $6.55
per share. Warrants to purchase
63
<PAGE>
15,498 shares at $4.52 per share will expire three years from the effective
date of this offering. Warrants to purchase 12,136 shares at $6.59 per share
will expire five years from the effective date of this offering. Warrants to
purchase 28,000 shares at $6.59 per share will expire six years from the
effective date of this offering. Warrants to purchase 94,813 shares at $6.59
per share will expire five years from the effective date of this offering.
Transfer Agent and Registrar
We are in the process of selecting a transfer agent and registrar for our
common stock.
Listing
We have applied to list our common stock on the Nasdaq National Market of the
Nasdaq Stock Market, Inc. under the trading symbol "RAMP."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock.
We cannot provide any assurances that a significant public market for our
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock in the public market, or the possibility of
such sales occurring, could adversely affect prevailing market prices for the
common stock or our future ability to raise capital through an offering of
equity securities.
After this offering, we will have outstanding shares of common stock. Of
these shares, the shares to be sold in this offering ( shares if the
underwriters' over-allotment option is exercised in full) will be freely
tradable in the public market without restriction under the Securities Act,
unless such shares are held by "Affiliates" of the company, as that term is
defined in Rule 144 under the Securities Act.
The remaining 16,203,817 shares outstanding upon completion of this offering
will be "restricted securities" as that term is defined under Rule 144 (the
"Restricted Shares"). We issued and sold the Restricted Shares in private
transactions in reliance on exemptions from registration under the Securities
Act. Restricted Shares may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rule 144
or Rule 701 under the Securities Act, as summarized below.
Pursuant to certain "lock-up" agreements, all the executive officers,
directors and certain stockholders of the company, who collectively hold an
aggregate of 16,203,817 Restricted Shares, have agreed not to offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of any such
shares for a period of 180 days from the date of this prospectus. At the
request of the underwriters, we have agreed to attempt to secure an agreement
from each stockholder to not offer, sell or otherwise dispose of common stock
for a period of 180 days from the date of this prospectus.
Assuming that this offering is effective on June 14, 1999, on the date of the
expiration of the lock-up agreements, 16,203,817 Restricted Shares that will
not then be subject to any repurchase option will be eligible for immediate
sale. Following the completion of this offering, warrants to purchase 150,447
shares will be outstanding, which, if exercised pursuant to net-exercise
provisions, would be immediately saleable without restriction upon the
expiration of the 180 day lock-up period. If such warrants were to be otherwise
exercised, they would be saleable upon the expiration of various one-year
holding periods, subject to certain volume, manner of sale, and other
limitations under Rule 144. In general, under Rule 144 as in effect at the
closing of this offering, beginning 90 days after the date of this prospectus,
a person (or persons whose shares of the company are aggregated) who has
beneficially owned Restricted Shares for at least one year (including the
holding period of any prior owner who is not an Affiliate of the company) would
be entitled to sell, within any three-month period, a number of shares that
does not exceed the greater of (1) 1% of the then-outstanding shares of common
stock or (2) the average weekly trading volume of the common stock during the
four calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner of sale and
notice requirements and to the availability of current public information about
the company. Under Rule 144(k), a person who is not deemed to have been an
Affiliate of the company at any time during the three months preceding a sale
and who has beneficially owned the shares proposed to be sold for at least two
years (including the holding period of any prior owner who is not an Affiliate
of the company) is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
65
<PAGE>
Of the 2,449,433 options to purchase shares of common stock outstanding as
of March 31, 1999, on the date 180 days following the assumed effective date
of this offering, options to purchase 986,415 shares of common stock will be
fully exercisable and saleable pursuant to Rule 701 or registration on Form S-
8.
We intend to file, no later than the effective date of this offering, a
Registration Statement on Form S-8 to register approximately 3,449,433 shares
of common stock reserved for issuance under the 1995 Stock Option Plan, the
1999 Stock Incentive Plan and the Purchase Plan. The Registration Statement
will become effective automatically upon filing. Shares issued under the
foregoing plans, after the filing of a Registration Statement on Form S-8, may
be sold in the open market, subject, in the case of certain holders, to the
Rule 144 limitations applicable to Affiliates, the above-referenced lock-up
agreements and vesting restrictions imposed by us.
In addition, following this offering, the holders of 14,866,529 shares of
outstanding common stock and the holders of 150,447 shares issuable upon
exercise of warrants, or their transferees, will, under certain circumstances,
have rights to require us to register their shares for future sale. See
"Description of Capital Stock--Registration Rights."
66
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated and Hambrecht & Quist LLC (the "Representatives"), have
severally agreed with us, subject to the terms and conditions set forth in the
underwriting agreement, to purchase from us the number of shares of common
stock set forth opposite their names below. The underwriters are committed to
purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc...............................
Dain Rauscher Wessels...........................................
Hambrecht & Quist LLC...........................................
----
Total.........................................................
====
</TABLE>
We have been advised by the Representatives that the underwriters propose to
offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus and to certain dealers at
such price less a concession of not in excess of $ per share, of which $
may be reallowed to other dealers. After the initial public offering, the
public offering price, concession and reallowance to dealers may be reduced by
the Representatives. No such reduction shall change the amount of proceeds to
be received by us as set forth on the cover page of this prospectus. The common
stock is offered by the underwriters as stated herein, subject to receipt and
acceptance by them and subject to their right to reject any order in whole or
in part.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Over-allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price per share
as we will receive for the shares that the underwriters have agreed to
purchase. To the extent that the underwriters exercise this option, each of the
underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of common stock
to be purchased by it shown in the above table represents as a percentage of
the shares offered hereby. If purchased, such additional shares will be sold
by the underwriters on the same terms as those on which the shares are being
sold. We will be obligated, pursuant to the option, to sell shares to the
extent the option is exercised. The underwriters may exercise such option only
to cover over-allotments made in connection with the sale of the shares of
common stock offered hereby. If such option is exercised in full, the total
public offering price, underwriting discounts and commissions and proceeds to
us will be $ , $ and $ , respectively.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-up Agreements. Each of our executive officers, directors, and most of
our shareholders of record, optionholders, and warrantholders has agreed with
the Representatives, for a period of 180 days after the date of this
prospectus, subject to certain exceptions, not to offer to sell, contract
67
<PAGE>
to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any shares of common stock, any options or warrants to purchase any
shares of common stock, or any securities convertible into or exchangeable for
shares of common stock owned as of the date of this prospectus or, with certain
exceptions, thereafter acquired directly by such holders or with respect to
which they have or hereafter acquire the power of disposition, without the
prior written consent of BancBoston Robertson Stephens. However, BancBoston
Robertson Stephens may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to the lock-up agreements.
There are no agreements between the Representatives and any of our shareholders
providing consent by the Representatives to the sale of shares prior to the
expiration of the period of 180 days after this prospectus.
Future Sales. In addition, we have agreed that during the period of 180 days
after this prospectus, we will not, subject to certain exceptions, without the
prior written consent of BancBoston Robertson Stephens:
. Consent to the disposition of any shares held by shareholders prior to
the expiration of the period of 180 days after this prospectus; or
. Issue, sell, contract to sell or otherwise dispose of, any shares of
common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable
for shares of common stock, other than (1) the sale of shares in this
offering, (2) the issuance of common stock upon the exercise or
conversion of outstanding options, warrants or convertible securities,
(3) our issuance of stock options under existing stock option plans and
(4) our issuance of common stock under the Employee Stock Purchase Plan.
See "Shares Eligible for Future Sale."
Listing. We have filed an application to have the common stock approved for
quotation on the Nasdaq National Market under the symbol "RAMP."
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price
for the common stock offered hereby will be determined through negotiations
between us and the Representatives. Among the factors to be considered in such
negotiations are prevailing market conditions, certain of our financial
information, market valuations of other companies that we and the
Representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Stabilization. The Representatives have advised us that, pursuant to
Regulation M under the Securities Act, certain persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf of
the underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for or the purchase
of the common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the Representatives to reclaim the selling
concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
underwriter or syndicate member is purchased by the Representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such underwriter or syndicate member. The Representatives have advised us that
such transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
68
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for Ramp
Networks by Venture Law Group, A Professional Corporation, Menlo Park,
California. Tae Hea Nahm, a director of Venture Law Group, is an Assistant
Secretary of Ramp Networks. VLG Investments 1995 and VLG Investments 1996,
entities affiliated with Venture Law Group, hold, respectively, 16,268 and
3,632 shares of our common stock. Mr. Nahm holds an aggregate of 4,792 shares
of our common stock and has a pecuniary interest in the shares owned by VLG
Investments 1995 and VLG Investments 1996. Certain legal matters in connection
with this offering will be passed upon for the underwriters by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The financial statements and schedule included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement (which term shall include any amendments thereto) on Form S-1 under
the Securities Act with respect to the common stock offered hereby. This
prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in exhibits to the Registration Statement as
permitted by the rules and regulations of the Commission. For further
information with respect to Ramp Networks and the common stock offered hereby,
reference is made to the Registration Statement, including the exhibits
thereto, and the financial statements and notes filed as a part of the
Registration Statement. Statements made in this prospectus concerning the
contents of any document referred to herein are not necessarily complete. With
respect to each such document filed with the Commission as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved. The Registration Statement, including
exhibits thereto and the financial statements and notes filed as a part of the
Registration Statement, as well as such reports and other information filed
with the Commission, may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at Seven
World Trade Center, 13th Floor, New York, NY 10048, and the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
all or any part thereof may be obtained from the Commission upon payment of
certain fees prescribed by the Commission. Such reports and other information
may also be inspected without charge at a Web site maintained by the
Commission. The address of this Web site is http://www.sec.gov.
69
<PAGE>
RAMP NETWORKS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations and Comprehensive Income (Loss)..... F-4
Consolidated Statements of Redeemable Convertible Preferred Stock and
Shareholders' Equity (Deficit)........................................... F-5
Consolidated Statement of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
After the reverse stock split discussed in Note 9 to Ramp Networks, Inc.'s
consolidated financial statements, we expect to be in a position to render the
following audit report:
ARTHUR ANDERSEN LLP
San Jose, California April 9, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Ramp Networks, Inc.:
We have audited the accompanying consolidated balance sheets of Ramp
Networks, Inc. (a California corporation) and subsidiary as of December 31,
1998 and 1997, and the related consolidated statements of operations and
comprehensive income (loss), redeemable convertible preferred stock and
shareholders' 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Ramp Networks, Inc. and
subsidiary as of December 31, 1998 and 1997 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles.
San Jose, California
April 9, 1999
(except with respect to the matters
discussed in Note 9, as to which the
date is , 1999)
F-2
<PAGE>
RAMP NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Shareholders'
December 31, Equity at
------------------ March March 31,
1997 1998 31, 1999 1999 (Note 5)
-------- -------- -------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........ $ 15,112 $ 3,764 $4,747
Accounts receivable, net of
allowance of $107, $123 and
$131, respectively.............. 2,113 767 1,575
Inventory........................ 816 2,151 3,200
Prepaid expenses and other
current assets.................. 176 720 867
-------- -------- --------
Total current assets............ 18,217 7,402 10,389
Property and equipment, net........ 637 1,299 1,259
Other assets....................... -- 177 443
-------- -------- --------
Total assets.................... $ 18,854 $ 8,878 $12,091
======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Current portion of capital lease
obligation...................... $ 68 $ 50 $ 111
Current portion of long-term
debt............................ 77 262 1,208
Accounts payable................. 1,340 2,307 3,028
Accrued liabilities.............. 704 1,691 2,183
-------- -------- --------
Total current liabilities....... 2,189 4,310 6,530
Capital lease obligations, less
current portion................... 21 40 252
Long-term debt, less current
portion........................... 219 546 3,506
-------- -------- --------
Total liabilities............... 2,429 4,896 10,288
-------- -------- --------
Commitments and Contingencies (note
4)
Redeemable convertible preferred
stock, no par value, aggregate
liquidation preference and
redemption value of $37,346:
Authorized--11,827 shares at
March 31, 1999 and pro forma
Issued and outstanding (Series A,
B, C, and D)--11,606 shares at
December 31, 1997; 11,712 shares
at December 31, 1998 and March
31, 1999; no shares issued and
outstanding pro forma........... 36,644 37,346 37,346
-------- -------- --------
Warrants to purchase redeemable
convertible preferred stock..... -- -- 281
-------- -------- --------
Shareholders' Equity (deficit):
Common stock--no par value:
Authorized--24,000 shares at
March 31, 1999 and pro forma
Issued and outstanding--4,135
shares at December 31, 1997,
4,388 shares at December 31,
1998, 4,492 shares at March 31,
1999; and 16,204 shares pro
forma .......................... 251 628 3,199 $ 40,545
Deferred stock compensation...... -- (104) (2,146) (2,146)
Accumulated deficit.............. (20,470) (33,888) (36,877) (36,877)
-------- -------- -------- --------
Total shareholders' equity
(deficit)...................... (20,219) (33,364) (35,824) $ 1,522
-------- -------- -------- ========
Total liabilities and
shareholders' equity
(deficit)...................... $ 18,854 $ 8,878 $ 12,091
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
RAMP NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31,
--------------------------- ----------------
1996 1997 1998 1998 1999
------- -------- -------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue...................... $ 517 $ 5,587 $ 9,858 $ 2,644 $ 3,883
Cost of revenue.............. 465 4,872 7,019 2,026 2,612
------- -------- -------- ------- -------
Gross margin................. 52 715 2,839 618 1,271
------- -------- -------- ------- -------
Operating expenses:
Research and development... 2,556 4,196 6,556 2,172 1,258
Sales and marketing........ 3,078 6,902 8,699 2,086 2,097
General and
administrative............ 1,043 1,260 1,421 327 471
Amortization of deferred
compensation.............. -- -- 7 -- 376
------- -------- -------- ------- -------
Total operating
expenses................ 6,677 12,358 16,683 4,585 4,202
------- -------- -------- ------- -------
Loss from operations......... (6,625) (11,643) (13,844) (3,967) (2,931)
Other income (expense)....... 303 109 426 196 (58)
------- -------- -------- ------- -------
Net loss and comprehensive
loss........................ $(6,322) $(11,534) $(13,418) $(3,771) $(2,989)
======= ======== ======== ======= =======
Basic net loss per share..... $ (2.50) $ (3.92) $ (3.50) $ (1.05) $ (0.71)
======= ======== ======== ======= =======
Shares used in computing ba-
sic net loss per share...... 2,528 2,945 3,839 3,584 4,232
======= ======== ======== ======= =======
Pro forma basic net loss per
share (unaudited)........... $ (0.86) $ (0.19)
======== =======
Shares used in computing pro
forma basic net loss per
share (unaudited)........... 15,524 15,944
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
RAMP NETWORKS, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Redeemable Convertible
Preferred Stock Common Stock
----------------------- ------------- Deferred Stock Accumulated
Shares Value Warrants Shares Value Compensation Deficit
------ ------- -------- ------ ------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995........... 3,171 $ 1,949 $ -- 3,651 $ 138 $ -- $ (1,215)
Exercise of stock options.............. -- -- -- 9 1 -- --
Issuance of Series A stock............. 1,627 1,000 -- -- -- -- --
Issuance of Series B stock............. 2,615 9,000 -- -- -- -- --
Gain on sale of technology to a related
party................................. -- -- -- -- 60 -- --
Net loss............................... -- -- -- -- -- -- (6,322)
------ ------- ---- ----- ------ -------- --------
BALANCE AT DECEMBER 31, 1996........... 7,413 11,949 -- 3,660 199 -- (7,537)
Exercise of stock options.............. -- -- -- 475 52 -- --
Issuance of Series C stock............. 1,774 8,750 -- -- -- -- --
Issuance costs of Series C stock....... -- -- -- -- -- -- (23)
Issuance of Series D stock............. 2,419 15,945 -- -- -- -- --
Issuance costs of Series D stock....... -- -- -- -- -- -- (1,376)
Net loss............................... -- -- -- -- -- -- (11,534)
------ ------- ---- ----- ------ -------- --------
BALANCE AT DECEMBER 31, 1997........... 11,606 36,644 -- 4,135 251 -- (20,470)
Issuance of Series D stock related to
acquisition of technology............. 106 702 -- -- -- -- --
Exercise of stock options.............. -- -- -- 253 104 -- --
Deferred stock compensation related to
stock options......................... -- -- -- -- 111 (111) --
Amortization of deferred stock
compensation.......................... -- -- -- -- -- 7 --
Stock compensation..................... -- -- -- 162 -- --
Net loss............................... -- -- -- -- -- -- (13,418)
------ ------- ---- ----- ------ -------- --------
BALANCE AT DECEMBER 31, 1998........... 11,712 37,346 -- 4,388 628 (104) (33,888)
Exercise of stock options (unaudited).. -- -- -- 104 45 -- --
Deferred stock compensation related to
stock options (unaudited)............. -- -- -- -- 2,418 (2,418) --
Issuance of warrants related to leases
and note payable (unaudited).......... -- -- 281 -- -- -- --
Amortization of deferred stock
compensation (unaudited).............. -- -- -- -- -- 376 --
Stock compensation (unaudited)......... -- -- -- -- 108 -- --
Net loss (unaudited)................... -- -- -- -- -- -- (2,989)
------ ------- ---- ----- ------ -------- --------
BALANCE AT MARCH 31, 1999 (unaudited).. 11,712 $37,346 $281 4,492 $3,199 $(2,146) $(36,877)
- --------------------------------------------------
====== ======= ==== ===== ====== ======== ========
<CAPTION>
Total
Shareholders'
Equity (Deficit)
----------------
<S> <C>
BALANCE AT DECEMBER 31, 1995........... $ (1,077)
Exercise of stock options.............. 1
Issuance of Series A stock............. --
Issuance of Series B stock............. --
Gain on sale of technology to a related
party................................. 60
Net loss............................... (6,322)
----------------
BALANCE AT DECEMBER 31, 1996........... (7,338)
Exercise of stock options.............. 52
Issuance of Series C stock............. --
Issuance costs of Series C stock....... (23)
Issuance of Series D stock............. --
Issuance costs of Series D stock....... (1,376)
Net loss............................... (11,534)
----------------
BALANCE AT DECEMBER 31, 1997........... (20,219)
Issuance of Series D stock related to
acquisition of technology............. --
Exercise of stock options.............. 104
Deferred stock compensation related to
stock options......................... --
Amortization of deferred stock
compensation.......................... 7
Stock compensation..................... 162
Net loss............................... (13,418)
----------------
BALANCE AT DECEMBER 31, 1998........... (33,364)
Exercise of stock options (unaudited).. 45
Deferred stock compensation related to
stock options (unaudited)............. --
Issuance of warrants related to leases
and note payable (unaudited).......... --
Amortization of deferred stock
compensation (unaudited).............. 376
Stock compensation (unaudited)......... 108
Net loss (unaudited)................... (2,989)
----------------
BALANCE AT MARCH 31, 1999 (unaudited).. $(35,824)
- --------------------------------------------------
================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
RAMP NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31,
--------------------------- ----------------
1996 1997 1998 1998 1999
------- -------- -------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss............................................. $(6,322) $(11,534) $(13,418) $(3,771) $(2,989)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation....................................... 204 349 502 95 141
Loss (gain) on disposal of fixed assets............ -- -- 39 -- (19)
Noncash compensation expense....................... -- -- 169 -- 484
Noncash technology acquisition..................... -- -- 702 702 --
Changes in operating assets and liabilities:
Accounts receivable.............................. (165) (1,928) 1,346 (770) (808)
Inventory........................................ (470) (326) (1,335) (513) (1,049)
Prepaid expenses and other assets................ (25) (97) (721) (198) (130)
Accounts payable................................. 415 695 967 252 721
Accrued liabilities.............................. 662 42 987 1,833 492
------- -------- -------- ------- -------
Net cash used in operating activities.......... (5,701) (12,799) (10,762) (2,370) (3,157)
------- -------- -------- ------- -------
Investing activities:
Purchase of property and equipment................... (355) (428) (1,130) (152) (128)
Proceeds from sale of assets......................... 83 -- -- -- 44
------- -------- -------- ------- -------
Net cash used in investing activities.......... (272) (428) (1,130) (152) (84)
------- -------- -------- ------- -------
Financing activities:
Borrowings under bank lines of credit................ -- 650 -- -- --
Repayment of bank line of credit..................... -- (650) -- -- --
Principal payments on capital lease obligations...... (109) (103) (73) (23) (30)
Borrowings under debt agreements..................... -- 324 676 -- 4,303
Repayments of debt................................... -- (29) (163) (24) (94)
Repayment of notes payable to related parties........ (20) -- -- -- --
Net proceeds from issuance of common stock........... 1 52 104 5 45
Proceeds from issuance of redeemable convertible
preferred stock..................................... 10,000 23,296 -- -- --
------- -------- -------- ------- -------
Net cash provided by financing activities...... 9,872 23,540 544 (42) 4,224
------- -------- -------- ------- -------
Net increase (decrease) in cash and cash equivalents... 3,899 10,313 (11,348) (2,564) 983
Cash and cash equivalents, beginning of period......... 900 4,799 15,112 15,112 3,764
------- -------- -------- ------- -------
Cash and cash equivalents, end of period............... $ 4,799 $ 15,112 $ 3,764 $12,548 $ 4,747
======= ======== ======== ======= =======
Supplemental disclosure of cash flow information:
Interest paid........................................ $ -- $ 51 $ 60 $ 15 $ 78
======= ======== ======== ======= =======
Noncash activities
Equipment capital lease.............................. $ 198 $ 15 $ 74 $ -- $ --
======= ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
RAMP NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999 and 1998 is unaudited)
1. ORGANIZATION AND OPERATIONS OF RAMP NETWORKS:
Ramp Networks, Inc. (the "Company" or "Ramp"), formerly Trancell Systems,
Inc., a California corporation, was incorporated on February 17, 1994. Ramp
develops, designs, manufactures and markets multi-user Internet access device
designed for small business and home use. The Company sells its products
through distributors and to original equipment manufacturers located in the
United States and abroad.
The Company has incurred net operating losses each year since its inception
and, as of March, 31 1999, had an accumulated deficit of $36.9 million. The
Company is subject to various risks associated with companies in a comparable
stage of development, including having a limited operating history; competition
from substitute products and larger competitors; dependence on indirect
distribution channels; dependence on a small number of contract manufacturers
for substantially all manufacturing; dependence on key individuals; and the
ability to obtain adequate financing to support its growth.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Unaudited Interim Consolidated Financial Data
The unaudited interim consolidated financial statements for the three months
ended March 31, 1999 and 1998 have been prepared on the same basis as the
audited financial statements and, in the opinion of management, reflect all
normal recurring adjustments necessary to present fairly the financial
information set forth therein, in accordance with generally accepted accounting
principles.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiary located in India. All significant intercompany accounts and
transactions are eliminated in consolidation. The functional currency of the
Company's subsidiary is the U.S. dollar.
Use of Estimates in Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Statement of Cash Flows
For purposes of the consolidated statements of cash flows, cash and cash
equivalents consist of cash in the bank and investments in U.S. Treasury Bills
with original maturities of less than three months.
F-7
<PAGE>
RAMP NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Concentrations of Credit Risk
The Company provides credit to its customers in the normal course of
business, performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses which, to date, have not been material.
As of March 31, 1999, the Company's four largest customers accounted for
approximately 60% of the Company's accounts receivable.
Substantially all of the Company's cash and cash equivalents are held by two
financial institutions in money market funds and on-demand deposit accounts.
Supplier Risk
The Company currently buys selected long-lead internal components for its
products from one supplier. Although there are a limited number of suppliers
that sell these components, management believes that the other suppliers could
provide similar components on comparable terms. A change in suppliers, however,
could cause assembly delays and a possible loss of sales, which could adversely
impact operating results.
Inventories
Inventory includes the costs of materials, labor, and manufacturing overhead
and is stated at the lower of cost (first-in, first-out method) or market.
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1997 1998 1999
------------- ---------
<S> <C> <C> <C>
Raw materials........................................ $ 166 $ 221 $ 1,616
Work-in-process...................................... 37 37 37
Finished goods....................................... 613 1,893 1,547
----- ------- -------
$ 816 $ 2,151 $ 3,200
===== ======= =======
</TABLE>
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization for
all property and equipment is computed using the straight-line method over the
estimated useful lives of the assets, generally one to three years. Leasehold
improvements and other leased assets are amortized over the shorter of their
useful lives or the term of the lease. Property and equipment consist of the
following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------- March 31,
1997 1998 1999
------ ------- ---------
<S> <C> <C> <C>
Equipment............... $ 258 $ 361 $ 374
Computers and purchased
software............... 841 1,522 1,575
Leasehold improvements.. -- 110 110
Furniture and fixtures.. 140 393 430
------ ------- ------
1,239 2,386 2,489
Less: Accumulated depre-
ciation and amortiza-
tion................... (602) (1,087) (1,230)
------ ------- ------
$ 637 $ 1,299 $1,259
====== ======= ======
</TABLE>
F-8
<PAGE>
RAMP NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Included in property and equipment are assets acquired under capital leases
with original costs of approximately $330,000, $408,000 and $750,000 as of
December 31, 1997 and 1998 and March 31, 1999, respectively. Accumulated
amortization on the leased assets is approximately $246,000, $321,000 and
$383,000 as of December 31, 1997 and 1998 and March 31, 1999, respectively.
Also included in property and equipment are assets pledged as collateral for
loans used to purchase fixed assets, with original costs of approximately
$457,000, $994,000 and $994,000 as of December 31, 1997 and 1998 and March 31,
1999, respectively. Accumulated depreciation on these assets is approximately
$121,000, $391,000 and $476,000 as of December 31, 1997 and 1998 and March 31,
1999, respectively.
Software Development Costs
In accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed," the Company capitalizes eligible computer software development costs
upon the establishment of technological feasibility, which it has defined as
completion of designing, coding, and testing activities. For each of the three
years ended December 31, 1998 and the three month period ended March 31, 1999,
the amount of costs eligible for capitalization, after consideration of factors
such as realizable value, were not material, and, accordingly, all software
development costs have been charged to research and development expense in the
accompanying statements of operations.
In February 1998, the Company acquired certain software technology relating
to faxing over the Internet. Pursuant to this agreement, the Company paid a
total of $969,000, consisting of $267,000 in cash and legal fees and 106,420
shares of Series D Redeemable Convertible Preferred Stock valued at $6.59 per
share, or approximately $702,000. The acquired software had not achieved
technological feasibility as of the acquisition date and had no alternative
future use, accordingly, the value of the acquired technology was recorded as
research and development expense in the accompanying statement of operations
and comprehensive income (loss).
The agreement also provided for additional consideration to be paid for
contract development work associated with ongoing development of the
technology. The consideration consisted of 87,000 shares of preferred stock
which was to be issued upon the achievement of specified development
milestones. The value of this additional consideration has been expensed
ratably over the period during which the related services were being performed.
As of March 31, 1999, the Company accrued approximately $686,000 related to
this additional consideration. As of March 31, 1999, all milestones were met,
and the Company will issue 87,000 shares of preferred stock in settlement of
this accrued liability.
F-9
<PAGE>
RAMP NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1997 1998 1999
------------- ---------
<S> <C> <C> <C>
Accrued warranty................................... $ 133 $ 50 $ 50
Accrued compensation............................... 489 680 838
Accrued liability related to purchased technology
(see above)....................................... -- 502 686
Other.............................................. 82 459 609
----- ------- ------
$ 704 $ 1,691 $2,183
===== ======= ======
</TABLE>
Stock-Based Compensation
The Financial Accounting Standards Board issued SFAS No. 123, "Accounting for
Stock-Based Compensation," in October 1995. This accounting standard permits
the use of either a fair value based method or the method defined in Accounting
Principles Board Opinion 25, "Accounting for Stock Issued to Employees" ("APB
25") to account for stock-based compensation arrangements. Companies that elect
to employ the method proscribed by APB 25 are required to disclose the pro
forma net income (loss) that would have resulted from the use of the fair value
based method. The Company has elected to continue to determine the value of
stock-based compensation arrangements under the provisions of APB 25, and
accordingly, it has included in Note 6 the pro forma disclosures required under
SFAS No. 123.
Revenue Recognition
The Company's revenue consists principally of amounts earned from the sale of
manufactured products. Revenue is recognized upon transfer of title and risks
of ownership, which generally occurs upon product shipment. Certain agreements
with distributors and retailers provide for rights of return, co-op
advertising, price protection, and stock rotation rights. The Company provides
an allowance for returns and price adjustments and provides a warranty reserve
at the point of revenue recognition. Reserves are adjusted periodically based
upon historical experience and anticipated future returns, price adjustments,
and warranty costs.
The percentage of sales to significant customers is as follows:
<TABLE>
<CAPTION>
Three
Months
Ended
Years Ended December 31, March 31,
------------------------------ ----------
1996 1997 1998 1998 1999
-------- -------- -------- ---- ----
<S> <C> <C> <C> <C> <C>
Customer A........................ --% 37% 12% 37% 11%
Customer B........................ 33% 12% 24% 19% 16%
Customer C........................ --% 12% 26% 20% 26%
</TABLE>
Comprehensive Income (Loss)
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which the Company adopted beginning on
January 1, 1998. SFAS No. 130
F-10
<PAGE>
RAMP NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The objective
of SFAS No. 130 is to report a measure of all changes in equity of an
enterprise that result from transactions and other economic events of the
period other than transactions with shareholders ("comprehensive income").
Comprehensive income is the total of net income and all other non-owner changes
in equity. For each of the three years ended December 31, 1998 and the three
months ended March 31, 1999, the Company's comprehensive loss was equal to net
loss.
Computation of Basic Net Loss Per Share and Pro Forma Basic Net Loss Per Share
Basic net loss per common share and diluted net loss per common share are
presented in conformity with SFAS No. 128, "Earnings Per Share," for all
periods presented. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 98, common stock and convertible preferred stock issued
or granted for nominal consideration prior to the anticipated effective date of
the initial public offering must be included in the calculation of basic and
diluted net loss per common share as if such stock had been outstanding for all
periods presented. To date, the Company has not had any issuances or grants for
nominal consideration.
In accordance with SFAS No. 128, basic net loss per common share has been
computed using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. Basic pro
forma net loss per common share, as presented in the statements of operations,
has been computed as described above and also gives effect to the conversion of
the convertible preferred stock (using the if-converted method) from the
original date of issuance.
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31,
--------------------------- ----------------
1996 1997 1998 1998 1999
------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net loss: $(6,322) $(11,534) $(13,418) $(3,771) $(2,989)
Basic and diluted:
Weighted average shares of common stock
outstanding........................................ 3,660 3,719 4,256 4,137 4,437
Less: Weighted average shares subject to repurchase.. (1,132) (774) (417) (553) (205)
------- -------- -------- ------- -------
Weighted average shares used in computing basic and
diluted net loss per common share................... 2,528 2,945 3,839 3,584 4,232
======= ======== ======== ======= =======
Basic and diluted net loss per common share......... $ (2.50) $ (3.92) $ (3.50) $ (1.05) $ (0.71)
======= ======== ======== ======= =======
Net loss............................................ $(13,418) $(2,989)
======== =======
Shares used above................................... 3,839 4,232
Pro forma adjustment to reflect weighted effect of
assumed conversion of convertible preferred
stock (unaudited).................................. 11,685 11,712
-------- -------
Shares used in computing pro forma basic and
diluted net loss per common share (unaudited)...... 15,524 15,944
======== =======
Pro forma basic and diluted net loss per common
share (unaudited).................................. $ (0.86) $ (0.19)
======== =======
</TABLE>
The Company has excluded all convertible preferred stock, warrants for
convertible preferred stock, outstanding stock options and shares subject to
repurchase from the calculation of diluted net loss per common share because
all such securities are antidilutive for all periods presented. The total
number of shares excluded from the calculations of diluted net loss per common
share were
F-11
<PAGE>
RAMP NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
approximately 10,106,000, 13,970,000, 13,718,000 and 14,480,000 for the years
ended December 31, 1996, 1997, and 1998 and the three months ended March 31,
1999, respectively. See Notes 5 and 6 for further information on these
securities.
Segment Reporting
During 1998, the Company adopted SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 requires a new basis of
determining reportable business segments, i.e., the management approach. This
approach requires that business segment information used by management to
assess performance and manage company resources be the source for information
disclosure. On this basis, the Company is organized and operates as one
business segment, the design, development, manufacture, and marketing of multi-
user routers designed for small business and home use.
International revenue by country were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months
Ended
Years Ended December 31, March31,
------------------------ -------------
1996 1997 1998 1998 1999
--------------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
United States......................... $ 395 $ 4,525 $ 7,788 $2,245 $3,053
China (Hong Kong)..................... -- 558 429 220 120
United Kingdom........................ -- -- 833 59 352
Other................................. 122 504 808 120 358
------ -------- -------- ------ ------
$ 517 $ 5,587 $ 9,858 $2,644 $3,883
====== ======== ======== ====== ======
</TABLE>
The Company's long-term assets are located in the United States with the
exception of approximately $200,000 as of March 31, 1999 which are located in
India.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which requires
companies to record derivative financial instruments on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedging accounting. The
key criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value or cash flows.
SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999. This Statement will not have a material impact on the
financial condition or results of the operations of the Company.
In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions," ("SOP 98-
9"). SOP 98-9 amends SOP 97-2 and SOP 98-4 by extending the deferral of the
application of certain provisions of SOP 97-2 amended by SOP 98-4 through
fiscal years beginning on or before March 15,1999. All other provisions of SOP
98-9 are effective for transactions entered into in fiscal years beginning
after March 15, 1999. The Company does not anticipate that these statements
will have a material adverse impact on its statement of operations.
F-12
<PAGE>
RAMP NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
3. DEBT:
As of December 31, 1998, the Company had borrowed $1,000,000 under an
equipment loan agreement. The equipment loan agreement provides for borrowings
of up to $1,000,000. Borrowings are secured by the related capital equipment,
bear interest at 7.5% with a balloon payment equal to 8.0% of the original
principal due at the end of the term and are payable through July 2002. As of
December 31, 1998, principal payments of approximately $262,000, $286,000,
$232,000 and $28,000, respectively, are due in fiscal years ending December 31,
1999, 2000, 2001 and 2002. See Note 9 for financing subsequent to December 31,
1998.
4. COMMITMENTS AND CONTINGENCIES:
The Company leases its facilities under an operating lease agreement that
expires October 2004. Rent expense under all operating leases for the years
ended December 31, 1996, 1997 and 1998 was $160,207, $207,744 and $322,240,
respectively.
The Company also leases computers, office equipment, and furniture under
long-term lease agreements that are classified as capital leases. The leases
expire through July 2001 and require a final buyout payment at the end of the
lease term.
Future minimum lease payments at December 31, 1998 were as follows (in
thousands):
<TABLE>
<CAPTION>
Operating Capital
Years Ended December 31, Leases Leases
------------------------ --------- -------
<S> <C> <C>
1999....................................................... $1,238 $ 59
2000....................................................... 1,238 26
2001....................................................... 1,238 20
2002....................................................... 1,238 --
2003 and thereafter........................................ 2,271 --
------ ----
Total minimum lease payments............................... $7,223 $105
======
Less: imputed interest (10%--19%).......................... (15)
----
Present value of payments under capital leases............. 90
Less: current portion...................................... (50)
----
Long-term capital lease obligations........................ $ 40
====
</TABLE>
The Company is subject to various claims which arise in the normal course of
business. In the opinion of management, the ultimate disposition of these
claims will not have a material adverse effect on the financial position of the
Company.
5. PREFERRED STOCK:
Redeemable Convertible Preferred Stock
In 1995 and 1996, the Company issued 3,171,000 and 1,626,773 shares,
respectively, of its Series A Redeemable Convertible Preferred Stock (Series
A). In 1996, the Company issued 2,614,999
F-13
<PAGE>
RAMP NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
shares of its Series B Redeemable Convertible Preferred Stock (Series B). In
1997, the Company issued 1,773,645 shares of its Series C Redeemable
Convertible Preferred Stock (Series C). In 1997 and 1998, the Company issued
2,418,890 shares and 106,420 shares, respectively, of its Series D Redeemable
Convertible Preferred Stock (Series D). Series A, Series B, Series C and Series
D were issued at prices of $0.6147, $3.442, $4.93 and $6.59187 per share,
respectively (the "Original Issue Price"). The rights with respect to Series A,
Series B, Series C, and Series D are as follows:
Dividends
Holders of Series A, Series B, Series C, and Series D are entitled to receive
noncumulative dividends when and as declared by the Board of Directors at a
rate of $0.0462, $0.2582, $0.37 and $0.493 per share, respectively, per annum.
To date, no dividends have been declared.
Liquidation
In the event of any liquidation, dissolution, or winding up of the Company,
including a merger or sale of all or substantially all of the assets, the
holders of Series A, Series B, Series C, and Series D are entitled to a
distribution equal to the Original Issue Price, plus any declared but unpaid
dividends, prior to and in preference to any distribution to the holders of
common stock. The remaining assets, if any, shall be distributed ratably among
the holders of the common stock pro rata based on the number of shares held.
Conversion
The Series A, B, C, and D may be converted by the holder into common stock at
any time at an initial conversion rate of one to one. The conversion rate is
subject to adjustment for certain events, including stock splits, stock
dividends and subsequent issuances of stock.
Conversion occurs automatically upon the closing of an underwritten public
offering with a minimum price per share of $8.33 and aggregate proceeds to the
Company of at least $10.0 million. Automatic conversion will also occur by
series when a majority of each series of preferred shareholders give their
written consent.
Voting
Each share of Series A, Series B, Series C, and Series D has voting rights
equal to an equivalent number of shares of common stock into which it is
convertible.
Redemption
At the written request of the holders of the majority of voting power of the
then outstanding preferred stock any time after April 30, 2002, the Company
shall, to the extent funds are legally available, redeem the preferred stock in
increments over a three-year period. In such event, the Company shall pay the
Original Issue Price for each series, plus any declared but unpaid dividends
adjusted for certain events, including stock splits, stock dividends, and
subsequent issuances of stock. On or prior to each redemption payment date, the
Company is required to deposit the redemption amount with a bank or trust
corporation in the form of an irrevocable trust fund.
F-14
<PAGE>
RAMP NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Warrants
As of December 31, 1998, the Company issued warrants to purchase an aggregate
of 15,498 and 12,136 shares of Series C and Series D, respectively, at exercise
prices of $4.52 and $6.59, respectively. These warrants were issued in
connection with equipment lease agreements and debt agreements. The warrants
are excisable immediately and expire on the earlier of 10 years from the date
of issuance or 3 years from the effective date of the closing of an initial
public offering. The fair value of the warrants on the date of grant were
estimated using the Black-Scholes model and the value was determined to be
immaterial. See Note 9 for warrants issued subsequent to December 31, 1998.
Pro Forma Shareholders' Deficit (Unaudited)
In March 1999, the Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission to register shares of its
common stock in connection with a proposed initial public offering ("IPO"). If
the IPO is consummated under the terms presently anticipated, all of the
currently outstanding preferred stock will be converted into 11,711,727 shares
of common stock upon the closing of the IPO. The effect of the conversion has
been reflected as unaudited pro forma shareholders' equity in the accompanying
balance sheet as of March 31, 1999.
6. COMMON STOCK:
At March 31, 1999, the Company had reserved the following shares of
authorized but unissued shares of common stock for future issuance (in
thousands):
<TABLE>
<S> <C>
Conversion of outstanding Series A.................................... 4,798
Conversion of outstanding Series B.................................... 2,615
Conversion of outstanding Series C.................................... 1,774
Conversion of outstanding Series D.................................... 2,525
Conversion of warrants outstanding.................................... 150
Stock option plans.................................................... 4,777
------
16,639
======
</TABLE>
Deferred Compensation
In connection with the grant of certain stock options to employees during the
year ended December 31, 1998 and the three months ended March 31, 1999, the
Company recorded deferred compensation of approximately $2.5 million
representing the difference between the deemed value of the common stock for
accounting purposes and the option exercise price of such options at the date
of grant. Such amount is presented as a reduction of shareholders' equity and
amortized ratably over the vesting period of the applicable options.
Approximately $7,000 and $376,000 was expensed during the year ended December
31, 1998 and the three months ended March 31, 1999, respectively, and the
balance will be expensed ratably over the period the options vest. Compensation
expense is decreased in the period of forfeiture for any accrued but unvested
compensation arising from the early termination of an option holder's services.
No compensation expense related to any other periods presented has been
recorded.
F-15
<PAGE>
RAMP NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock Options
The Company grants stock options under two stock option plans (the "Plans").
Under the terms of the Plans, incentive stock options may be granted to
employees and nonstatutory stock options may be granted to employees and
consultants at the discretion of the Board of Directors. Options granted under
the Plans are exercisable at such times and under such conditions as determined
by the Board of Directors, but the term of the option and the right of exercise
may not exceed ten years from the date of grant. Generally, the options vest
25% on the first anniversary of the date of grant and monthly thereafter for 36
months.
The exercise price of an option is determined by the Board of Directors based
on the fair market value of the Company's stock at the date the option is
granted. For incentive stock options, the exercise price must not be less than
100% of the fair market value per share as determined by the Board of Directors
on the date of grant. For nonstatutory stock options, the exercise price per
share must not be less than 85% of the fair market value per share as
determined by the Board of Directors on the date of grant.
At March 31, 1999, an aggregate of 2,328,053 shares were available for future
option grants under the plans.
The Company accounts for the Plans under APB 25 whereby the difference
between the exercise price and the fair value at the date of grant is
recognized as compensation expense. Had compensation expense for the stock
option plans been determined consistent with SFAS No. 123, net losses would
have increased to the following pro forma amounts (in thousands, except per
share data):
<TABLE>
<CAPTION>
Three
Months
Ended
March
Years Ended December 31, 31,
--------------------------- -------
1996 1997 1998 1999
------- -------- -------- -------
<S> <C> <C> <C> <C>
Net loss as reported.................. $(6,322) $(11,534) $(13,418) $(2,989)
Net loss pro forma.................... $(6,336) $(11,567) $(13,531) $(3,199)
Net loss per share as reported........ $ (2.50) $ (3.92) $ (3.50) $ (0.71)
Net loss per share pro forma.......... $ (2.51) $ (3.93) $ (3.53) $ (0.76)
</TABLE>
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1999, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1996 1997 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Risk-free interest rate.............. 7% 7% 5.5% 5.5%
Expected life of the option.......... 4.3 years 4.3 years 4.3 years 4.3 years
Dividend yield....................... 0% 0% 0% 0%
Volatility........................... 0% 0% 77% 77%
</TABLE>
F-16
<PAGE>
RAMP NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes stock option plan activity under the Plans:
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended Year Ended Year Ended
1999 December 31, 1998 December 31, 1997 December 31, 1996
------------------- ------------------- ------------------- -------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Exercise Exercise Exercise
Shares Price Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 1,767,715 $1.22 1,769,511 $0.67 1,740,330 $0.23 590,240 $0.08
Granted................ 934,998 $5.47 774,134 $1.67 862,959 $1.23 1,223,890 $0.30
Exercised.............. (104,404) $0.45 (252,742) $0.42 (474,905) $0.10 (8,750) $0.08
Canceled............... (148,876) $1.68 (523,188) $0.62 (358,873) $0.10 (65,050) $0.15
--------- --------- --------- ---------
Outstanding at end of
year................... 2,449,433 $2.83 1,767,715 $1.22 1,769,511 $0.67 1,740,330 $0.23
========= ========= ========= =========
Exercisable at end of
period................. 668,138 $2.41 464,398 $0.83 299,100 $0.43 203,788 $0.10
========= ========= ========= =========
Weighted fair value per
share.................. $ 5.77 $ 1.03 $ 0.22 $ 0.10
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- ------------------------
Weighted Weighted Weighted
March 31, 1999 Average Average Average
Range of Remaining Exercise Exercise
Exercise Prices Number Years Price Number Price
- --------------- --------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$0.08--0.42 410,870 7.68 $0.33 256,180 $ 0.30
$0.83--1.67 1,106,558 8.96 $1.53 250,438 $ 1.48
$2.50 377,100 9.80 $2.50 9,396 $2.50
$7.50 554,905 9.97 $7.50 152,124 $7.50
--------- ----------
$0.08--$7.50 2,449,433 9.10 $2.83 668,138 $ 2.41
========= ==========
</TABLE>
Restricted Stock Purchase Agreements
The Company has sold an aggregate of 3,651,299 shares of common stock to
certain employees in connection with their employment arrangements. All of
these shares were sold at the fair market value as of the date of purchase as
determined by the Board of Directors. These shares are subject to stock
repurchase agreements whereby the Company has the right to repurchase unvested
shares at the original price paid for the shares upon termination of employment
engagements. The repurchase right generally lapses ratably over 48 months from
the purchase date; however, 2,221,640 shares vested immediately on the date of
sale. As of March 31, 1999, no shares of common stock have been repurchased
under the stock repurchase agreements and 169,006 shares, at a weighted average
price of $0.04, were subject to repurchase.
F-17
<PAGE>
RAMP NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. INCOME TAXES:
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). A valuation allowance has been recorded for the total deferred tax
assets as a result of uncertainties regarding realization of the assets based
upon the limited operating history of the Company, the lack of profitability to
date and the uncertainty of future profitability. The components of net
deferred tax assets are as follows, (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
------- --------
<S> <C> <C>
Net operating loss carryforwards.......................... $ 6,654 $ 10,878
Reserves and accruals..................................... 498 1,017
Capitalized research and development...................... -- 508
Research and development credits.......................... 113 690
------- --------
Total deferred tax assets................................. 7,265 13,093
Valuation allowance....................................... (7,265) (13,093)
------- --------
Net deferred tax assets................................... $ -- $ --
======= ========
</TABLE>
As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $29 million and state net operating loss
carryforwards of approximately $11 million. The federal net operating loss and
other tax credit carryforwards expire on various dates beginning on 2010
through 2018. The state net operating loss carryforwards will expire beginning
in 2003.
Under current tax law, net operating loss and credit carryforwards available
to offset future income in any given year may be limited upon the occurrence of
certain events, including significant changes in ownership interests.
8. RELATED PARTY TRANSACTIONS:
In 1996, the Company sold its ATM adapter card technology, related
development tools and work stations to a company, which was owned by the
primary shareholders of the Company, for $83,000, resulting in a net gain of
$60,495. Due to the related party nature of this transaction, the gain was
recorded as a contribution to capital in the accompanying statement of
shareholders' equity.
9. SUBSEQUENT EVENTS:
Reverse Stock Split
In April 1999, the Company's Board of Directors approved a three for five
reverse stock split of the Company's outstanding shares which will become
effective immediately prior to the Company's initial public offering. All share
and per share information included in these consolidated financial statements
have been retroactively adjusted to reflect this reverse stock split.
F-18
<PAGE>
RAMP NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reincorporation, Amendment to the Articles of Incorporation
In April 1999, the Company's Board of Directors authorized the
reincorporation of the Company in the State of Delaware. This reincorporation
is to be effective prior to the Company's initial public offering. Upon
reincorporation, the Company will be authorized to issue 100,000,000 shares of
common stock, $.001 par value and 5,000,000 shares of undesignated preferred
stock, $.001 par value.
1999 Employee Stock Purchase Plan
In April 1999, the Board of Directors approved the adoption of the Company's
1999 Employee Stock Purchase Plan (the "Purchase Plan"). A total of 600,000
shares of common stock have been reserved for issuance under the Purchase Plan.
The Purchase Plan permits eligible employees to purchase shares of common stock
through payroll deductions at 85% of the fair market value of the common stock,
as defined in the Purchase Plan.
Subsequent Financing
Subsequent to December 31, 1998, the Company secured a working capital credit
facility with a lender of up to the lower of $5.0 million or 100% of eligible
accounts receivable and 50% of inventory. These borrowings which bear interest
at 8.4%, are payable ratably over a 36 month term, are subject to a termination
payment of 12.5% and are secured by receivables and inventory. As of March 31,
1999, the Company had borrowed $1.0 million under this facility. In connection
with this facility, the Company issued warrants to the lender for Series D
preferred stock at an aggregate purchase price of $625,000. The share price and
number of shares will be determined based on the average of the Series D
preferred stock price and the Company's initial public offering price. The
warrants are exercisable immediately and expire in 2005. The fair value of the
warrants on the date of grant were estimated using the Black-Scholes model and
the value was determined to be $165,000. This amount will be recognized as
additional interest expense over the term of this arrangement with the lender.
In addition, in March 1999, the Company obtained a $3.0 million unsecured
bridge loan facility with the same lender and borrowed $3.0 million under the
facility. Borrowings under this facility bears interest at 14.6% and are
payable ratably over a 36 month term. In connection with this facility, the
Company issued warrants to the lender for 27,999 shares of Series D preferred
stock at an exercise price of $7.50 per share. The warrants are exercisable
immediately and expire in 2004. The fair value of the warrants on the date of
grant were estimated using the Black-Scholes model and the value was determined
to be $116,000. This amount will be recognized as additional interest expense
over the term of this arrangement with the lender.
F-19
<PAGE>
[LOGO OF RAMP NETWORKS APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of our common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee and the Nasdaq Stock Market
listing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
SEC registration fee.............................................. $ 15,985
NASD filing fee................................................... 6,250
Nasdaq Stock Market listing fee................................... 1,000
Printing and engraving expenses................................... 160,000
Legal fees and expenses........................................... 300,000
Accounting fees and expenses...................................... 200,000
Blue Sky qualification fees and expenses.......................... 5,000
Transfer Agent and Registrar fees................................. 5,000
Miscellaneous fees and expenses................................... 81,765
--------
Total........................................................... $775,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act. Article XIV of Ramp Networks'
Amended and Restated Certificate of Incorporation (Exhibit 3.4) provides for
indemnification of its directors and officers to the maximum extent permitted
by the Delaware General Corporation Law and Section 6.1 of Article VI of Ramp
Networks' Bylaws (Exhibit 3.3) provides for indemnification of its directors,
officers, employees and other agents to the maximum extent permitted by the
Delaware General Corporation Law. In addition, Ramp Networks has entered into
Indemnification Agreements (Exhibit 10.1) with its directors and officers
containing provisions which are in some respects broader than the specific
indemnification provisions contained in the Delaware General Corporation Law.
The indemnification agreements may require us, among other things, to indemnify
our directors against certain liabilities that may arise by reason of their
status or service as directors (other than liabilities arising from willful
misconduct of culpable nature), to advance their expenses incurred as a result
of any proceeding against them as to which they could be indemnified, and to
obtain directors' insurance if available on reasonable terms. Reference is also
made to Section of the Underwriting Agreement contained in Exhibit 1.1,
indemnifying our officers and directors against certain liabilities.
Item 15. Recent Sales of Unregistered Securities
(a) Since January 1, 1995 through March 31, 1999, Ramp Networks has issued
and sold (without payment of any selling commission to any person) the
following unregistered securities:
. an aggregate of 3,651,296 shares of common stock at $0.07 per share in
August 1995 to 10 investors, including our founders;
II-1
<PAGE>
. an aggregate of 4,797,773 shares of Series A Preferred Stock at $0.61 per
share in September and December 1995 and February 1996 to 10 investors;
. an aggregate of 2,614,999 shares of Series B Preferred Stock at $3.45 per
share in March 1996 to 16 investors;
. an aggregate of 1,773,645 shares of Series C Preferred Stock at $4.93 per
share in March and April 1997 to 11 investors;
. an aggregate of 2,418,890 shares of Series D Preferred Stock at $6.59 per
share in October, November and December 1997 to 13 investors;
. an aggregate of 193,420 shares of Series D Preferred Stock with an
aggregate value of approximately $1,274,637 in connection with the
acquisition of Prodigies, a sole proprietorship, in March 1998, of which
87,000 shares of Series D Preferred Stock are held in escrow; and
. an aggregate of 3,451,219 options to purchase shares of common stock at
an average exercise price of $0.96 per share to our employees and
consultants.
. warrants to purchase 150,447 shares of Preferred Stock to two equipment
lessors.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
The issuances described in Items 15(a) were deemed to be exempt from
registration under the Securities Act in reliance upon Section 4(2) thereof as
transactions by an issuer not involving any public offering and in the case of
issuances to our founders, executions, employees and consultants are also
exempt from registration pursuant to Rule 701 promulgated under the Securities
Act. The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
where affixed to the securities issued in such transactions. All recipients had
adequate access, through their relationships with us, to information about us.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1+ Form of Underwriting Agreement.
3.1+ Amended and Restated Articles of Incorporation of Ramp Networks, a
California Corporation.
3.2+ Certificate of Amendment of Articles of Incorporation of Ramp Networks,
a California Corporation.
3.3+ Form of Certificate of Incorporation of Ramp Networks, to be filed for
the Company's reincorporation into Delaware.
3.4+ Form of Amended and Restated Certificate of Incorporation of Ramp
Networks, to be filed and effective prior to the completion of this
offering.
3.5+ Bylaws of Ramp Networks, formerly Trancell Systems, Inc..
3.6+ Form of Amended and Restated Bylaws of Ramp Networks, to be adopted and
effective prior to the completion of this offering.
4.1* Form of Ramp Networks' common stock certificate.
4.2+ Fourth Amended and Restated Rights Agreement dated October 30, 1997.
5.1* Opinion of Venture Law Group, a Professional Corporation.
10.1+ Form of Indemnification Agreement.
10.2+ 1995 Stock Option Plan, as amended, and form of stock option agreement.
10.3 1999 Stock Option Plan, and form of stock option agreement and
restricted stock purchase agreement.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.4 1999 Employee Stock Purchase Plan and form of subscription agreement.
10.5+ Lease of Office Space between Oxford Park Associates and Ramp
Networks, dated March 3, 1998.
10.6+ Sublease and Consent to Sublease Agreement Second Floor Office Space
3100 De La Cruz Boulevard Santa Clara, CA 95054 between Analog
Microelectronics, Inc. and Ramp Networks, dated February 22, 1999.
10.7+ Sublease and Consent to Sublease Agreement First Floor 3100 De La
Cruz Boulevard Santa Clara, CA 95054 between XaQti Corporation and
Ramp Networks, dated August 4, 1998.
10.8+** OEM Purchase Agreement between Sonic Systems, Inc. and Ramp Networks,
dated January 5, 1999.
10.9+** Distribution Agreement between Tech Data Corporation and Trancell
Systems dated December 16, 1996.
10.10+** Distribution Agreement between Ingram Micro Inc. and Ramp Networks,
dated May 15, 1997.
10.11+** License Agreement between Compaq Computer Corporation and Ramp
Networks, dated March 24, 1997.
10.12+** Goods Agreement Statement of Work between IBM Corporation and Ramp
Networks, dated January 5, 1999.
10.13+ Master Lease Agreement between Comdisco and Ramp Networks, dated
December 2, 1998.
10.14+ Loan and Security Agreement between Venture Lending & Leasing II,
Inc. and Ramp Networks, dated January 4, 1999.
11.1 Statement Regarding Computation of Per Share Earnings (contained in
Note 2 to Consolidated Financial Statements).
23.1 Consent of Independent Public Accountants.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1+ Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
+Previously filed.
*To be filed by amendment.
**Confidential Treatment Requested
(b) Financial Statement Schedules
<TABLE>
<S> <C>
Schedule II -- Valuation and Qualifying Accounts........................ S-2
</TABLE>
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the consolidated
financial statements or notes thereto.
Item 17. Undertakings
Ramp Networks hereby undertakes to provide to the underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have 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 us of expenses incurred or paid by a
director, officer or controlling person of Ramp Networks 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, we will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the
II-3
<PAGE>
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.
Ramp Networks 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 the 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 a 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 this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Amendment No. 1 to Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Clara, State of California, on April 27, 1999.
Ramp Networks, Inc.
/s/ Mahesh Veerina
By: _________________________________
Mahesh Veerina,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Mahesh Veerina President, Chief Executive April 27, 1999
______________________________________ Officer and Director
(Mahesh Veerina) (Principal Executive
Officer)
/s/ Terry Gibson Vice President of Finance, April 27, 1999
______________________________________ Chief Financial Officer
(Terry Gibson) and Secretary (Principal
Financial and Accounting
Officer)
/s/ Anthony Sun* Director April 27, 1999
______________________________________
(Anthony Sun)
/s/ Philip T. Gianos* Director April 27, 1999
____________________________________
(Philip T. Gianos)
/s/ L. William Krause* Director April 27, 1999
______________________________________
(L. William Krause)
</TABLE>
/s/ Mahesh Veerina
*By: _____________________
Mahesh Veerina
as attorney-in-fact
II-5
<PAGE>
After the the reverse stock split discussed in Note 9 to Ramp Networks, Inc.'s
consolidated financial statements, we expect to be in a position to render the
following audit report:
ARTHUR ANDERSEN LLP
San Jose, California
April 9, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Shareholders
of Ramp Networks, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Ramp Networks, Inc. included in this
Registration Statement and have issued our report thereon dated April 9, 1999.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule is the
responsibility of the Company's management and is presented for the purpose of
complying with the Securities and Exchange Commissions's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our option, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
San Jose, California
April 9, 1999
S-1
<PAGE>
RAMP NETWORKS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- ---------- ---------- ---------- ----------
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Allowance for doubtful accounts.... $ -- $ 31,956 $ -- $ 31,956
Year Ended December 31, 1997:
Allowance for doubtful accounts.... $ 31,956 $132,191 $(57,089) $107,058
Year Ended December 31, 1998:
Allowance for doubtful accounts.... $107,058 $ 39,016 $(22,849) $123,225
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1+ Form of Underwriting Agreement.
3.1+ Amended and Restated Articles of Incorporation of Ramp Networks, a
California Corporation.
3.2+ Certificate of Amendment of Articles of Incorporation of Ramp
Networks, a California Corporation.
3.3+ Form of Certificate of Incorporation of Ramp Networks, to be filed
for the Company's reincorporation into Delaware.
3.4+ Form of Amended and Restated Certificate of Incorporation of Ramp
Networks, to be filed and effective prior to the completion of this
offering.
3.5+ Bylaws of Ramp Networks, formerly Trancell Systems, Inc..
3.6+ Form of Amended and Restated Bylaws of Ramp Networks, to be adopted
and effective prior to the completion of this offering.
4.1* Form of Ramp Networks' common stock certificate.
4.2+ Fourth Amended and Restated Rights Agreement dated October 30, 1997.
5.1* Opinion of Venture Law Group, a Professional Corporation.
10.1+ Form of Indemnification Agreement.
10.2+ 1995 Stock Option Plan, as amended, and form of stock option
agreement.
10.3 1999 Stock Option Plan, and form of stock option agreement and
restricted stock purchase agreement.
10.4 1999 Employee Stock Purchase Plan and form of subscription agreement.
10.5+ Lease of Office Space between Oxford Park Associates and Ramp
Networks, dated March 3, 1998.
10.6+ Sublease and Consent to Sublease Agreement Second Floor Office Space
3100 De La Cruz Boulevard Santa Clara, CA 95054 between Analog
Microelectronics, Inc. and Ramp Networks, dated February 22, 1999.
10.7+ Sublease and Consent to Sublease Agreement First Floor 3100 De La
Cruz Boulevard Santa Clara, CA 95054 between XaQti Corporation and
Ramp Networks, dated August 4, 1998.
10.8+** OEM Purchase Agreement between Sonic Systems, Inc. and Ramp Networks,
dated January 5, 1999.
10.9+** Distribution Agreement between Tech Data Corporation and Trancell
Systems dated December 16, 1996.
10.10+** Distribution Agreement between Ingram Micro Inc. and Ramp Networks,
dated May 15, 1997.
10.11+** License Agreement between Compaq Computer Corporation and Ramp
Networks, dated March 24, 1997.
10.12+** Goods Agreement Statement of Work between IBM Corporation and Ramp
Networks, dated January 5, 1999.
10.13+ Master Lease Agreement between Comdisco and Ramp Networks, dated
December 2, 1998.
10.14+ Loan and Security Agreement between Venture Lending & Leasing II,
Inc. and Ramp Networks, dated January 4, 1999.
11.1 Statement Regarding Computation of Per Share Earnings (contained in
Note 2 to Consolidated Financial Statements).
23.1 Consent of Independent Public Accountants.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1+ Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
+Previously filed.
*To be filed by amendment.
**Confidential Treatment Requested
<PAGE>
EXHIBIT 10.3
RAMP NETWORKS, INC.
1999 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this 1999 Stock Incentive
--------------------
Plan are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be incentive stock
options (as defined under Section 422 of the Code) or nonstatutory stock
options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as amended,
and the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall
-----------
apply:
(a) "Administrator" means the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Affiliate" means an entity other than a Subsidiary (as
---------
defined below) in which the Company owns a significant interest, directly or
indirectly, as determined in the discretion of the Committee, or which, together
with the Company, is under common control of a third person or entity.
(c) "Applicable Laws" means the legal requirements relating to
---------------
the administration of stock option and restricted stock purchase plans under
applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any Stock Exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options or Stock
Purchase Rights are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time; provided, however, that to the
extent permitted under such laws, rules, regulations and requirements, the
rights of any participant under the Plan shall be determined in accordance with
the law of the State of California, without giving effect to principles of
conflict of law.
(d) "Board" means the Board of Directors of the Company.
-----
(e) "Change of Control" means a sale of all or substantially all
-----------------
of the Company's assets, or any merger or consolidation of the Company with or
into another corporation other than a merger or consolidation in which the
holders of more than 50% of the shares of capital stock of the Company
outstanding immediately prior to such transaction continue to hold (either by
the voting securities remaining outstanding or by their being converted into
voting securities of the surviving entity) more than 50% of the total voting
power represented by the voting securities of the Company, or such surviving
entity, outstanding immediately after such transaction.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
----
<PAGE>
(g) "Committee" means one or more committees or subcommittees of
---------
the Board appointed by the Board to administer the Plan in accordance with
Section 4 below.
(h) "Common Stock" means the Common Stock of the Company.
------------
(i) "Company" means Ramp Networks, Inc., a California
-------
corporation.
(j) "Consultant" means any person, including an advisor, who
----------
renders services to the Company or any Parent, Subsidiary or Affiliate and is
compensated for such services, and any Director of the Company whether
compensated for such services or not.
(k) "Continuous Service" means the absence of any interruption or
------------------
termination of service as an Employee or Consultant to the Company or a Parent,
Subsidiary or Affiliate. Continuous Service shall not be considered interrupted
in the case of (i) sick leave; (ii) military leave; (iii) any other leave of
absence approved by the Administrator, provided that such leave is for a period
of not more than 90 days, unless reemployment upon the expiration of such leave
is guaranteed by contract or statute, or unless provided otherwise pursuant to
Company policy adopted from time to time; or (iv) transfers between locations of
the Company or between the Company, its Parent(s), Subsidiaries, Affiliates or
their respective successors. Unless otherwise determined by the Administrator
or the Company, a change in status from an Employee to a Consultant or from a
Consultant to an Employee will not constitute a termination of Continuous
Service Status.
(l) "Corporate Transaction" means a sale of all or substantially
---------------------
all of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(m) "Director" means a member of the Board.
--------
(n) "Employee" means any person (including, if appropriate, any
--------
Named Executive, Officer or Director) employed by the Company or any Parent,
Subsidiary or Affiliate of the Company. The payment by the Company of a
director's fee to a Director shall not be sufficient to constitute "employment"
of such Director by the Company.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(p) "Fair Market Value" means, as of any date, the value of
-----------------
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
------
price for such stock (or the closing bid, if no sales were reported) as quoted
on such system or exchange on the date of determination (or if no trading or
bids occurred on the date of determination, on the last trading day prior to the
date of determination), as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
-2-
<PAGE>
(ii) If the Common Stock is quoted on the Nasdaq System (but
not on the National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
for the date of determination (or if no bids occurred on the date of
determination, on the last trading day prior to the date of determination); or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(q) "Incentive Stock Option" means an Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable Option Agreement.
(r) "Listed Security" means any security of the Company that is
---------------
listed or approved for listing on a national securities exchange or designated
or approved for designation as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc.
(s) "Named Executive" means any individual who, on the last day
---------------
of the Company's fiscal year, is the chief executive officer of the Company (or
is acting in such capacity) or among the four most highly compensated officers
of the Company (other than the chief executive officer). Such officer status
shall be determined pursuant to the executive compensation disclosure rules
under the Exchange Act.
(t) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable Option
Agreement.
(u) "Officer" means a person who is an officer of the Company
-------
within the meaning of Section 16(a) of the Exchange Act and the rules and
regulations promulgated thereunder.
(v) "Option" means a stock option granted pursuant to the Plan.
------
(w) "Option Agreement" means a written document, the form(s) of
----------------
which shall be approved from time to time by the Administrator, reflecting the
terms of an Option granted under the Plan and includes any documents attached to
or incorporated into such Option Agreement, including, but not limited to, a
notice of stock option grant and a form of exercise notice.
(x) "Option Exchange Program" means a program approved by the
-----------------------
Administrator whereby outstanding Options are exchanged for Options with a lower
exercise price.
(y) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(z) "Optionee" means an Employee or Consultant who receives an
--------
Option.
-3-
<PAGE>
(aa) "Parent" means a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(bb) "Participant" means any holder of one or more Options or
-----------
Stock Purchase Rights, or the Shares issuable or issued upon exercise of such
awards, under the Plan.
(cc) "Plan" means this 1999 Stock Incentive Plan.
----
(dd) "Reporting Person" means an Officer, Director or greater
----------------
than 10% shareholder of the Company within the meaning of Rule 16a-2 of the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 of the
Exchange Act.
(ee) "Restricted Stock" means shares of Common Stock acquired
----------------
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(ff) "Restricted Stock Purchase Agreement" means a written
-----------------------------------
document, the form(s) of which shall be approved from time to time by the
Administrator, reflecting the terms of a Stock Purchase Right granted under the
Plan and includes any documents attached to such agreement.
(gg) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
----------
Act, as amended from time to time, or any successor provision.
(hh) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 15 of the Plan.
(ii) "Stock Exchange" means any stock exchange or consolidated
--------------
stock price reporting system on which prices for the Common Stock are quoted at
any given time.
(jj) "Stock Purchase Right" means the right to purchase Common
--------------------
Stock pursuant to Section 11 below.
(kk) "Subsidiary" means a "subsidiary corporation," whether now
----------
or hereafter existing, as defined in Section 424(f) of the Code.
(ll) "Ten Percent Holder" means a person who owns stock
------------------
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary.
3. Stock Subject to the Plan. Subject to the provisions of Section
-------------------------
15 of the Plan, the maximum aggregate number of shares that may be sold under
the Plan is 4,000,000 Shares of Common Stock, plus an annual increase on the
first day of each of the Company's fiscal years beginning in 2000, 2001, 2002,
2003 and 2004 equal to the lesser of (i) 1,000,000 Shares, (ii) three percent
(3.0%) of the Shares outstanding on the last day of the immediately
preceding fiscal year, or (iii) such lesser number of Shares as is determined by
the Board. The Shares may be authorized, but unissued, or reacquired Common
Stock.
-4-
<PAGE>
If an Option expires or becomes unexercisable for any reason without
having been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares that were subject thereto shall, unless the Plan
has been terminated, become available for future grant under the Plan. In
addition, any Shares of Common Stock that are retained by the Company upon
exercise of an Option or Stock Purchase Right in order to satisfy the exercise
or purchase price for such Option or Stock Purchase Right or any withholding
taxes due with respect to such exercise or purchase shall be treated as not
issued and shall continue to be available under the Plan. Notwithstanding any
other provision of the Plan, Shares issued under the Plan and later repurchased
by the Company pursuant to any repurchase right that the Company may have shall
not be available for future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) General. The Plan shall be administered by the Board or a
-------
Committee, or a combination thereof, as determined by the Board. The Plan may
be administered by different administrative bodies with respect to different
classes of Participants and, if permitted by the Applicable Laws, the Board may
authorize one or more officers (who may (but need not) be Officers) to grant
Options or Stock Purchase Rights to Employees and Consultants.
(b) Administration with respect to Reporting Persons. With
------------------------------------------------
respect to Options granted to Reporting Persons and Named Executives, the Plan
may (but need not) be administered so as to permit grants of Options to
Reporting Persons to qualify for the exemption set forth in Rule 16b-3 and to
qualify grants of Options to Named Executives as performance-based compensation
under Section 162(m) of the Code, and otherwise so as to satisfy the Applicable
Laws.
(c) Committee Composition. If a Committee has been appointed
---------------------
pursuant to this Section 4, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time the
Board may increase the size of any Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies (however caused) and remove all members of
a Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws and, in the case of a Committee administering
the Plan pursuant to Section 4(b) above, to the extent permitted or required by
Rule 16b-3 and Section 162(m) of the Code.
(d) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2(p) of the Plan;
(ii) to select the Employees and Consultants to whom Options
and Stock Purchase Rights or any combination thereof may from time to time be
granted;
-5-
<PAGE>
(iii) to determine whether and to what extent Options and
Stock Purchase Rights or any combination thereof are granted;
(iv) to determine the number of Shares of Common Stock to be
covered by each such award granted;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder, which terms and
conditions include but are not limited to the exercise or purchase price, the
time or times when Options or Stock Purchase Rights may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option,
Optioned Stock, Stock Purchase Right or Restricted Stock, based in each case on
such factors as the Administrator, in its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 10(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was granted
and to make any other amendments or adjustments to any Option that the
Administrator determines, in its discretion and under the authority granted to
it under the Plan, to be necessary or advisable, provided however that no
amendment or adjustment to an Option that would materially and adversely affect
the rights of any Optionee shall be made without the prior written consent of
the Optionee;
(ix) to determine the terms and restrictions applicable to
Stock Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights;
(x) to initiate an Option Exchange Program;
(xi) to construe and interpret the terms of the Plan and
awards granted under the Plan; and
(xii) in order to fulfill the purposes of the Plan and
without amending the Plan, to modify grants of Options or Stock Purchase Rights
to Participants who are foreign nationals or employed outside of the United
States in order to recognize differences in local law, tax policies or customs.
(e) Effect of Administrator's Decision. All decisions,
----------------------------------
determinations and interpretations of the Administrator shall be final and
binding on all Participants.
5. Eligibility.
-----------
(a) Recipients of Grants. Nonstatutory Stock Options and Stock
--------------------
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted
-6-
<PAGE>
only to Employees, provided however that Employees of Affiliates shall not be
eligible to receive Incentive Stock Options. An Employee or Consultant who has
been granted an Option or Stock Purchase Right may, if he or she is otherwise
eligible, be granted additional Options or Stock Purchase Rights.
(b) Type of Option. Each Option shall be designated in the Option
--------------
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Shares with respect to which Options are exercisable for
the first time by an Optionee during any calendar year (under all plans of the
Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall
be treated as Nonstatutory Stock Options. For purposes of this Section 5(b),
Incentive Stock Options shall be taken into account in the order in which they
were granted, and the Fair Market Value of the Shares shall be determined as of
the date of grant of such Option. In the event any Option designated as an
Incentive Stock Option fails to meet the requirements set forth in this Plan for
an Incentive Stock Option or as required to qualify as an incentive stock option
within the meaning of Code Section 422, such Option shall not be void but
instead shall be deemed a Nonstatutory Stock Option.
(c) No Employment Rights. The Plan shall not confer upon any
--------------------
Participant any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption
------------
by the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 16 of the Plan.
7. Term of Option. The term of each Option shall be the term stated
--------------
in the Option Agreement; provided however that the term shall be no more than
ten (10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement and provided further that, in the case of an
Incentive Stock Option granted to a person who at the time of such grant is a
Ten Percent Holder, the term of such Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
8. Limitation on Grants to Employees. Subject to adjustment as
---------------------------------
provided in Section 13 below, the maximum number of Shares which may be subject
to Options and Stock Purchase Rights granted to any one Employee under this Plan
for any fiscal year of the Company shall be 3,333,333.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per Share exercise price for the Shares
--------------
to be issued pursuant to exercise of an Option shall be such price as is
determined by the Administrator and set forth in the Option Agreement, but shall
be subject to the following:
(i) In the case of an Incentive Stock Option
-7-
<PAGE>
(A) granted to an Employee who at the time of grant is
a Ten Percent Holder, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant; and
(B) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant
of such Option, is a Named Executive of the Company, the per share Exercise
Price shall be no less than 100% of the Fair Market Value on the date of grant
if such Option is intended to qualify as performance-based compensation under
Section 162(m) of the Code; and
(B) granted prior to the date on which the Common Stock
becomes a Listed Security to a person who is at the time of grant is a Ten
Percent Holder, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant if required by the Applicable
Laws and, if not so required, shall be such price as is determined by the
Administrator; and
(C) granted prior to the date on which the Common Stock
becomes a Listed Security to any person other than a Ten Percent Holder, the per
Share exercise price shall be no less than 85% of the Fair Market Value per
Share on the date of grant if required by Applicable Law and, if not so
required, shall be such price as is determined by the Administrator.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price other than as required above pursuant to a
Corporate Transaction.
(b) Permissible Consideration. The consideration to be paid for
-------------------------
the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Administrator (and, in the case of an
Incentive Stock Option, shall be determined at the time of grant) and may
consist entirely of (1) cash; (2) check; (3) delivery of Optionee's promissory
note with such recourse, interest, security and redemption provisions as the
Administrator determines to be appropriate (subject to provisions of Applicable
Law); (4) cancellation of indebtedness; (5) surrender of other Shares that (x)
in the case of Shares acquired upon exercise of an Option either have been owned
by the Optionee for more than six months on the date of surrender (or such other
period as may be required to avoid a charge to the Company's earnings) or were
not acquired, directly or indirectly, from the Company, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which the Option is exercised; (6) authorization by the
Optionee for the Company to retain from the total number of Shares as to which
the Option is exercised that number of Shares having a Fair Market Value on the
date of exercise equal to the exercise price for the total number of Shares as
to which the Option is exercised; (7) delivery of a properly executed exercise
notice together with such other documentation as the Administrator and the
broker, if applicable, shall require to effect exercise of the Option and prompt
delivery to the Company of
-8-
<PAGE>
the sale or loan proceeds required to pay the exercise price and any applicable
withholding taxes; (8) any combination of the foregoing methods of payment; or
(9) such other consideration and method of payment for the issuance of Shares to
the extent permitted under the Applicable Laws. In making its determination as
to the type of consideration to accept, the Administrator shall consider whether
acceptance of such consideration may be reasonably expected to benefit the
Company, and the Administrator may refuse to accept a particular form of
consideration at the time of any Option exercise if, in its sole discretion,
acceptance of such form of consideration is not in the best interests of the
Company at such time.
10. Exercise of Option.
------------------
(a) Vesting. Any Option granted hereunder shall be exercisable at
-------
such times and under such conditions as determined by the Administrator,
consistent with the terms of the Plan, and reflected in the Option Agreement,
including vesting requirements and/or performance criteria with respect to the
Company and/or the Optionee; provided however that, if required by the
Applicable Laws, any Option granted prior to the date upon which the Common
Stock becomes a Listed Security shall become exercisable at a rate of at least
20% per year over five years from the date the Option is granted. In the event
that any of the Shares issued upon exercise of an Option (which exercise occurs
prior to the date upon which the Common Stock becomes a Listed Security) should
be subject to a right of repurchase in the Company's favor, such repurchase
right shall, if required by the Applicable Laws, lapse at the rate of at least
20% per year over five years from the date the Option is granted.
Notwithstanding the above, in the case of an Option granted to an officer
(including but not limited to Officers), Director or Consultant, the Option may
become exercisable, or a repurchase right, if any, in favor of the Company shall
lapse, at any time or during any period established by the Administrator. The
Administrator shall have the discretion to determine whether and to what extent
the vesting of Options shall be tolled during any unpaid leave of absence;
provided however that in the absence of such determination, vesting of Options
shall be tolled during any such leave.
(b) Procedure for Exercise. An Option may not be exercised for a
----------------------
fraction of a Share. An Option shall be deemed exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 9(b) of the Plan.
Exercise of an Option in any manner shall result in a decrease in the number of
Shares that thereafter may be available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(c) Rights as a Shareholder. Until the issuance (as evidenced by
-----------------------
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. The Company shall issue (or cause to be issued) such stock certificate
promptly upon exercise of the Option. No adjustment will be made for a
-9-
<PAGE>
dividend or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 15 of the Plan.
(d) Termination of Continuous Service. In the event of
---------------------------------
termination of an Optionee's Continuous Service, such Optionee's right to
exercise the Option shall cease and the Option shall forthwith become void and
cease to have effect, except as set forth specifically in the Option Agreement.
If an Option Agreement provides that an Incentive Stock Option may be exercised
more than three (3) months after the termination of the Optionee's Continuous
Service, to the extent that such Optionee fails to exercise such Option within
three (3) months of the date of such termination, such Option thereafter shall
be treated as a Nonstatutory Stock Option.
Notwithstanding the foregoing, if required by the Applicable
Laws, any Option granted prior to the date upon which the Common Stock becomes a
Listed Security shall be exercisable by the Optionee for a period of time
following the termination of the Optionee's Continuous Service as follows:
(i) In the event of termination of Continuous Service for
reasons other than the Optionee's disability or death, the Option shall be
exercisable by the Optionee following such termination for a period of not less
than thirty (30) days, as is determined by the Administrator (with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option), after the date of such termination of Continuous Service
(but in no event later than the date of expiration of the term of such Option as
set forth in the Option Agreement), to the extent that the Optionee was entitled
to exercise it at the date of such termination. To the extent that the Optionee
was not entitled to exercise the Option at the date of such termination, or if
the Optionee does not exercise the Option to the extent so entitled within the
time specified above, the Option shall terminate and the Optioned Stock
underlying the unexercised portion of the Option shall revert to the Plan.
(ii) In the event of termination of Continuous Service as a
result of Optionee's disability, such Optionee may, but only within six (6)
months (or such longer period of time as is determined by the Administrator,
with such determination in the case of an Incentive Stock Option made at the
time of grant of the Option) from the date of such termination (but in no event
later than the date of expiration of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent he or she was entitled to
exercise it at the date of such termination. To the extent that the Optionee was
not entitled to exercise the Option at the date of termination, or if the
Optionee does not exercise the Option to the extent so entitled within the time
specified herein, the Option shall terminate and the Optioned Stock underlying
the unexercised portion of the Option shall revert to the Plan.
(iii) In the event of the death of an Optionee prior to
termination of his or her Continuous Service, the Option may be exercised at any
time within six (6) months (or such longer period of time as is determined by
the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) following the date of
death (but in no event later than the expiration date of the term of such Option
as set forth in the Option Agreement) by such Optionee's estate or by a person
who acquired the right to
-10-
<PAGE>
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the date of death or, if earlier, the date
of termination of the Optionee's Continuous Service. To the extent that the
Optionee was not entitled to exercise the Option at the date of death or
termination, as the case may be, or if the Optionee does not exercise such
Option to the extent so entitled within the time specified above, the Option
shall terminate and the Optioned Stock underlying the unexercised portion of the
Option shall revert to the Plan.
(e) Extension of Exercise Period. The Administrator shall have
----------------------------
full power and authority to extend the period of time for which an Option is to
remain exercisable following termination of an Optionee's Continuous Service
from the periods set forth in Sections 10(d)(i), (ii), or (iii) above or in the
Option Agreement to such greater time as the Board shall deem appropriate,
provided that in no event shall such Option be exercisable later than the date
of expiration of the term of such Option as set forth in the Option Agreement.
(f) Buy-Out Provisions. The Administrator may at any time offer
------------------
to buy out for a payment in cash or Shares an Option previously granted under
the Plan based on such terms and conditions as the Administrator shall establish
and communicate to the Optionee at the time such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued
------------------
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase, the consideration to be paid, and the time within which such person
must accept such offer, which shall in no event exceed 30 days from the date
upon which the Administrator made the determination to grant the Stock Purchase
Right. In the case of a Stock Purchase Right granted prior to the date on which
the Common Stock becomes a Listed Security and if required by the Applicable
Laws at such time, the purchase price of Shares subject to such Stock Purchase
Rights shall not be less than 85% of the Fair Market Value of the Shares as of
the date of the offer, or, in the case of a Ten Percent Holder, the price shall
not be less than 100% of the Fair Market Value of the Shares as of the date of
the offer. If the Applicable Laws do not impose the requirements set forth in
the preceding sentence and with respect to any Stock Purchase Rights granted
after the date on which the Common Stock becomes a Listed Security, the purchase
price of Shares subject to Stock Purchase Rights shall be as determined by the
Administrator. The offer to purchase Shares subject to Stock Purchase Rights
shall be accepted by execution of a Restricted Stock Purchase Agreement in the
form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
-----------------
otherwise, the Restricted Stock Purchase Agreement shall grant the Company an
irrevocable, exclusive option (the "Repurchase Option") exercisable upon the
-----------------
termination of the purchaser's Continuous Service. The purchase price for Shares
repurchased pursuant to the Restricted Stock Purchase Agreement shall be the
original purchase price paid by the purchaser and may be paid by cash,
-11-
<PAGE>
check or cancellation of any indebtedness of the purchaser to the Company, at
the Company's option. The Repurchase Option shall lapse at such rate as the
Administrator may determine; provided however that with respect to a Stock
Purchase Right granted prior to the date on which the Common Stock becomes a
Listed Security to a purchaser who is not an officer (including an Officer),
Director or Consultant of the Company or of any Parent or Subsidiary of the
Company, if required by the Applicable Laws, such Repurchase Option shall lapse
with respect to at least 20% of the Shares subject to the Stock Purchase Right
per year over five years from the date of grant of the Stock Purchase Right.
(c) Other Provisions. The Restricted Stock Purchase Agreement
----------------
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 15
of the Plan.
12. Taxes.
-----
(a) As a condition of the exercise of an Option or Stock Purchase
Right granted under the Plan, the Participant (or in the case of the
Participant's death, the person exercising the Option or Stock Purchase Right)
shall make such arrangements as the Administrator may require for the
satisfaction of any applicable federal, state, local or foreign withholding tax
obligations that may arise in connection with the exercise of Option or Stock
Purchase Right and the issuance of Shares. The Company shall not be required to
issue any Shares under the Plan until such obligations are satisfied.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option or Stock Purchase Right.
(c) This Section 12(c) shall apply only after the date, if any,
upon which the Common Stock becomes a Listed Security. In the case of
Participant other than an Employee (or in the case of an Employee where the next
payroll payment is not sufficient to satisfy such tax obligations, with respect
to any remaining tax obligations), in the absence of any other arrangement and
to the extent permitted under the Applicable Laws, the Participant shall be
deemed to have elected to have the Company withhold from the Shares to be issued
upon exercise of the Option or Stock Purchase Right that number of Shares having
a Fair Market Value determined as of the applicable Tax Date (as defined below)
equal to the amount required to be withheld. For purposes of this Section 12,
the Fair Market Value of the Shares to be
-12-
<PAGE>
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined under the Applicable Laws (the "Tax Date").
--------
(d) At the discretion of the Administrator, a Participant may
satisfy his or her tax withholding obligations arising in connection with an
Option or a Stock Purchase Right by one or some combination of the following
methods: (i) cash payment; (ii) payroll deduction out of the Optionee's current
compensation; or (iii) if permitted by the Administrator, in its discretion, a
Participant may satisfy his or her tax withholding obligations upon exercise of
an Option or Stock Purchase Right by surrendering to the Company Shares that (A)
in the case of Shares previously acquired from the Company, have been owned by
the Participant for more than six (6) months on the date of surrender, and (B)
have a Fair Market Value determined as of the applicable Tax Date equal to the
amount required to be withheld.
(e) Any election or deemed election by a Participant to have
Shares withheld to satisfy tax withholding obligations under Section 12(c) or
(d) above shall be irrevocable as to the particular Shares as to which the
election is made and shall be subject to the consent or disapproval of the
Administrator. Any election by a Participant under Section 12(d) above must be
made on or prior to the applicable Tax Date.
(f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Participant shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
13. Non-Transferability of Options and Stock Purchase Rights.
--------------------------------------------------------
Options and Stock Purchase Rights may not be transferred or disposed of in any
manner other than by will or by the laws of descent or distribution or pursuant
to a domestic relations order (as defined by the Code or the rules thereunder);
provided that, after the date, if any, upon which the Common Stock becomes a
Listed Security, the Administrator may in its discretion grant transferable
Nonstatutory Stock Options pursuant to Option Agreements specifying (i) the
manner in which such Nonstatutory Stock Options are transferable and (ii) that
any such transfer shall be subject to the Applicable Laws. The designation of a
beneficiary by an Optionee will not constitute a transfer. An Option or Stock
Purchase Right may be exercised, during the lifetime of the holder of Option or
Stock Purchase Right, only by such holder or a transferee permitted by this
Section 13.
14. Time of Granting Options and Stock Purchase Rights. The date of
--------------------------------------------------
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such later date as is determined by the Administrator;
provided however that in the case of an Incentive Stock Option, the grant date
shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be
-13-
<PAGE>
given to each Employee or Consultant to whom an Option or Stock Purchase Right
is so granted within a reasonable time after the date of such grant.
15. Adjustments Upon Changes in Capitalization, Corporate
-----------------------------------------------------
Transactions and Certain Other Transactions.
- -------------------------------------------
(a) Changes in Capitalization. Subject to any required action by
-------------------------
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, the number of Shares set forth
in Sections 3 and 8 above, and the number of shares of Common Stock that have
been authorized for issuance under the Plan but as to which no Options or Stock
Purchase Rights have yet been granted or that have been returned to the Plan
upon cancellation or expiration of an Option or Stock Purchase Right, as well as
the price per Share of Common Stock covered by each such outstanding Option or
Stock Purchase Right, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination, recapitalization or
reclassification of the Common Stock (including any change in the number of
Shares of Common Stock effected in connection with a change of domicile of the
Company), or any other increase or decrease in the number of issued Shares of
Common Stock effected without receipt of consideration by the Company; provided
however that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares of Common Stock subject to an Option or Stock Purchase Right.
(b) Certain Distributions. In the event of any distribution to
---------------------
the Company's shareholders of securities of any other entity or other assets
(other than dividends payable in cash or stock of the Company) without receipt
of consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
(c) Dissolution or Liquidation. In the event of the dissolution
--------------------------
or liquidation of the Company that is not a Corporate Transaction, each
outstanding Option or Stock Purchase Right shall terminate immediately upon the
consummation of such dissolution or liquidation, unless otherwise provided by
the Administrator.
(d) Corporate Transactions; Change of Control. In the event of a
-----------------------------------------
Corporate Transaction, including a Change of Control, the Administrator shall,
as to outstanding Options, either (i) provide that such Options shall be assumed
by the by the successor corporation or a Parent or Subsidiary of such successor
corporation (such entity, the "Successor Corporation") or that the Successor
---------------------
Corporation shall substitute with respect to such Options equivalent options;
(ii) provide upon notice to Optionees that all Options, to the extent then
exercisable or to be exercisable as a result of the Change of Control, must be
exercised on or
-14-
<PAGE>
before a specified date (which date shall be at least five (5) days from the
date of the notice), after which the Options shall terminate; or (iii) terminate
each Option in its entirety in exchange for a payment of cash, securities and/or
other property equal to the excess of the Fair Market Value of the Shares with
respect to which the Option is vested and exercisable immediately prior to the
consummation of the transaction over the aggregate exercise price thereof. In
the event of a Change of Control, all conditions and restrictions with respect
to Restricted Shares shall lapse, except to the extent such conditions and
restrictions are assigned to the successor corporation (or its Parent) in
connection with the Change of Control.
For purposes of this Section 15(d), an Option or a Stock Purchase
Right shall be considered assumed, without limitation, if, at the time of
issuance of the stock or other consideration upon a Corporate Transaction or a
Change of Control, as the case may be, each holder of an Option or Stock
Purchase Right would be entitled to receive upon exercise of the Option or Stock
Purchase Right the same number and kind of shares of stock or the same amount of
property, cash or securities as such holder would have been entitled to receive
upon the occurrence of the transaction if the holder had been, immediately prior
to such transaction, the holder of the number of Shares of Common Stock covered
by the Option or the Stock Purchase Right at such time (after giving effect to
any adjustments in the number of Shares covered by the Option or Stock Purchase
Right as provided for in this Section 15); provided however that if the
consideration received in the transaction is not solely common stock of the
Successor Corporation, the Administrator may, with the consent of the Successor
Corporation, provide for the consideration to be received upon exercise of the
Option or Stock Purchase Right to be solely common stock of the Successor
Corporation equal to the Fair Market Value of the per Share consideration
received by holders of Common Stock in the transaction.
16. Amendment and Termination of the Plan. The Board may at any time
-------------------------------------
amend, alter, suspend, discontinue or terminate the Plan, but no amendment,
alteration, suspension, discontinuance or termination (other than an adjustment
made pursuant to Section 15 above) shall be made that would materially and
adversely affect the rights of any Optionee or holder of Stock Purchase Rights
under any outstanding grant, without his or her consent. Such consent shall be
evidenced in writing signed by such Optionee or holder and the Company. In
addition, to the extent necessary and desirable to comply with the Applicable
Laws, the Company shall obtain shareholder approval of any Plan amendment in
such a manner and to such as degree as required.
17. Conditions Upon Issuance of Shares. Notwithstanding any other
----------------------------------
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the Applicable Laws, with such compliance determined
by the Company in consultation with its legal counsel.
As a condition to the exercise of an Option or Stock Purchase
Right, the Company may require the person exercising such Option or Stock
Purchase Right to represent and warrant at the time of any such exercise that
the Shares are being purchased only for investment and
-15-
<PAGE>
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by
Applicable Laws.
18. Reservation of Shares. The Company, during the term of this
---------------------
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
19. Agreements. Options and Stock Purchase Rights shall be evidenced
----------
by Option Agreements and Restricted Stock Purchase Agreements, respectively, in
such form(s) as the Administrator shall from time to time approve.
20. Shareholder Approval. If required by the Applicable Laws,
--------------------
continuance of the Plan shall be subject to approval by the shareholders of the
Company within twelve (12) months before or after the date the Plan is adopted.
Such shareholder approval shall be obtained in the manner and to the degree
required under the Applicable Laws.
21. Information and Documents to Optionees and Purchasers. Prior to
-----------------------------------------------------
the date upon which the Common Stock becomes a Listed Security and if required
by the Applicable Laws, the Company shall provide financial statements at least
annually to each Optionee and to each individual who acquired Shares pursuant to
the Plan, during the period such Optionee or purchaser has one or more Options
or Stock Purchase Rights outstanding, and in the case of an individual who
acquired Shares pursuant to the Plan, during the period such individual owns
such Shares. The Company shall not be required to provide such information if
the issuance of Options or Stock Purchase Rights under the Plan is limited to
key employees whose duties in connection with the Company assure their access to
equivalent information.
-16-
<PAGE>
RAMP NETWORKS, INC
1999 STOCK INCENTIVE PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
Optionee
OptioneeAddress1
OptioneeAddress2
You have been granted an option to purchase Common Stock of Ramp Networks,
Inc. (the "Company") as follows:
-------
Board Approval Date: BoardApprovDate
Date of Grant (Later of Board
Approval Date or Commence-
ment of Employment/Consulting): GrantDate
Exercise Price per Share: $ExercisePrice
Total Number of Shares Granted: NoofShares
Total Exercise Price: $TotalExercisePrice
Type of Option: NoSharesISO Incentive Stock Option
-----------
NoSharesNSO Nonstatutory Stock Option
-----------
Term/Expiration Date: Term/ExpirDate
Vesting Commencement Date: VestingCommenceDate
Vesting Schedule: This Option may be exercised, in whole
or in part, in accordance with the
following schedule: Vesting [Must be
at least 20% per year for Options
granted prior to the date the Common
Stock becomes a Listed Security (as
defined in the Plan).]
<PAGE>
Termination Period: Option may be exercised for 30 days
after termination of employment or
consulting relationship except as set
out in Section 5 of the Stock Option
Agreement (but in no event later than
the Expiration Date).
Transferability: [Not Transferable.] [Transferable as
follows: ]
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the 1999 Stock incentive plan and the Stock Option
Agreement, both of which are attached and made a part of this document.
Optionee: Ramp Networks, Inc.
______________________________ ______________________________
Signature By:
______________________________ ______________________________
Print Name Print Name and Title
Address (if different from above): Address:
______________________________ 3100 De La Cruz Blvd.
Santa Clara, CA 95054
______________________________
-2-
<PAGE>
RAMP NETWORKS, INC.
1999 Stock incentive plan
STOCK OPTION AGREEMENT
----------------------
1. Grant of Option. Ramp Networks, Inc., a California corporation (the
---------------
"Company"), hereby grants to Optionee ("Optionee"), an option (the "Option") to
------- -------- ------
purchase a total number of shares of Common Stock (the "Shares") set forth in
------
the Notice of Stock Option Grant, at the exercise price per share set forth in
the Notice of Stock Option Grant (the "Exercise Price") subject to the terms,
--------------
definitions and provisions of the Ramp Networks, Inc. Stock incentive plan (the
"Plan") adopted by the Company, which is incorporated herein by reference.
----
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option Agreement. In the event of a conflict
between the terms and conditions of the Plan and the terms and conditions of
this Option Agreement, the terms and conditions of the Plan shall prevail.
To the extent designated an Incentive Stock Option in the Notice of
Stock Option Grant, this Option is intended to qualify as an Incentive Stock
Option as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and, to the extent not so designated, this Option is
intended to be a Nonstatutory Stock Option. Notwithstanding the foregoing, if
designated as an Incentive Stock Option, in the event that the Shares subject to
this Option (and all other Incentive Stock Options granted to Optionee by the
Company or any Parent or Subsidiary) that first become exercisable in any
calendar year have an aggregate fair market value (determined for each Share as
of the date of grant of the option covering such Share) in excess of $100,000,
the Shares in excess of $100,000 shall be treated as subject to a Nonstatutory
Stock Option, in accordance with Section 5(b) of the Plan.
2. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its Term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Stock Option Grant
and the applicable provisions of the Plan and this Stock Option Agreement. In
the event of Optionee's death, disability or the termination of Optionee's
Continuous Service, the exercisability of the Option is governed by the
applicable provisions of the Plan and this Stock Option Agreement. This Option
may not be exercised for a fraction of a Share.
(b) Method of Exercise.
------------------
(i) This Option shall be exercisable in whole or in part as to Shares
which have vested under the Vesting Schedule indicated on the Notice of Stock
Option Grant by execution and delivery to the Company a written notice of
exercise in the form attached as Exhibit A (the "Exercise Notice"), [for Grant
--------- ---------------
subject to early exercise: or in whole or in part at any time after the Date of
Grant as to Shares which have not vested under the Vesting Schedule indicated on
the Notice of Stock Option Grant (except that in the case
<PAGE>
of an Incentive Stock Option such exercise shall be limited to the number of
Shares which, when added to all other Shares first exercisable within the same
calendar year, do not exceed an aggregate fair market value of $100,000,
determined for each Share as of the date of grant of the option covering such
Share), by delivery of an early exercise notice and restricted stock purchase
agreement in the form attached as Exhibit A-1 (the "Early Exercise Notice and
----------- -------------------------
Restricted Stock Purchase Agreement"), in either case] which shall state the
- -----------------------------------
election to exercise the Option, the number of Shares in respect of which the
Option is being exercised (the "Exercised Shares"), and such other
representations and agreements as toholder's investment intent with respect to
such Shares of Common Stock as may be required by the Company pursuant to the
provisions of the Plan. Such written notice of exercise shall be signed by
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company. The written notice of exercise shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares. This Option shall be
deemed to be exercised upon receipt by the Company of such fully executed
written notice of exercise, accompanied by such aggregate Exercise Price.
(ii) As a condition to the exercise of this Option, Optionee agrees
to make adequate provision for federal, state or other tax withholding
obligations, if any, which arise upon the exercise of the Option or disposition
of Shares, whether by withholding, direct payment to the Company, or otherwise,
in accordance with Section 9 of this Agreement and Section 12 of the Plan.
(iii) No Shares will be issued pursuant to the exercise of an
Option unless such issuance and such exercise shall comply with all relevant
provisions of applicable law and the requirements of any stock exchange upon
which the Shares may then be listed. Assuming such compliance, for income tax
purposes the Shares shall be considered transferred to Optionee on the date on
which the Option is exercised with respect to such Shares.
3. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of Optionee:
(a) cash;
(b) check;
(c) surrender of other Shares of Common Stock of the Company that (i)
in the case of Shares acquired upon exercise of an Option, have either been
owned by Optionee for more than six (6) months on the date of surrender (or such
other period as may be required to avoid a charge to the Company's earnings) or
were not acquired, directly or indirectly, from the Company, and (ii) have a
fair market value on the date of surrender equal to the Exercise Price of the
Shares as to which the Option is being exercised; or
(d) if there is a public market for the Shares and they are
registered under the Securities Act of 1933, as amended, delivery of a properly
executed exercise notice
-2-
<PAGE>
together with irrevocable instructions to a broker to deliver promptly to the
Company the amount of sale or loan proceeds required to pay the exercise price.
4. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
5. Termination of Continuous Service. In the event of termination of
---------------------------------
Optionee's Continuous Service, Optionee may, to the extent otherwise so entitled
at the date of such termination (the "Termination Date"), exercise this Option
----------------
during the Termination Period set forth in the Notice of Stock Option Grant. To
the extent that Optionee was not entitled to exercise this Option at such
Termination Date, or if Optionee does not exercise this Option within the
Termination Period, the Option shall terminate.
[The following provisions of this Section 5 shall be included for any
Option granted prior to the date the Common Stock becomes a Listed Security (as
defined in the Plan), and may be included at the discretion of the Administrator
for any Option granted after the date the Common Stock becomes a Listed Security
(with such revisions as to time periods as determined by the Administrator in
its discretion):
(a) Total and Permanent Disability of Optionee. Notwithstanding the
------------------------------------------
foregoing provisions of this Section 5, in the event of termination of
Optionee's Continuous Service as a result of Optionee's total and permanent
disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only
within twelve (12) months from the Termination Date (but in no event later than
the Expiration Date set forth in the Notice of Stock Option Grant), exercise
this Option to the extent Optionee was entitled to exercise it as of such
Termination Date. To the extent that Optionee was not entitled to exercise the
Option as of the Termination Date, or if Optionee does not exercise such Option
(to the extent so entitled) within the time specified in this Section 5(a), the
Option shall terminate.
(b) Other Disability of Optionee. Notwithstanding the foregoing
----------------------------
provisions of this Section 5, in the event of termination of Optionee's
Continuous Service as a result of disability not constituting a total and
permanent disability (as set forth in Section 22(e)(3) of the Code), Optionee
may, but only within six (6) months from the Termination Date (but in no event
later than the Expiration Date set forth in the Notice of Stock Option Grant),
exercise the Option to the extent Optionee was entitled to exercise it as of
such Termination Date; provided, however, that if this is an Incentive Stock
Option and Optionee fails to exercise this Incentive Stock Option within three
(3) months from the Termination Date, this Option will cease to qualify as an
Incentive Stock Option (as defined in Section 422 of the Code) and Optionee will
be treated for federal income tax purposes as having received ordinary income at
the time of such exercise in an amount generally measured by
-3-
<PAGE>
the difference between the Exercise Price for the Shares and the fair market
value of the Shares on the date of exercise. To the extent that Optionee was not
entitled to exercise the Option at the Termination Date, or if Optionee does not
exercise such Option to the extent so entitled within the time specified in this
Section 5(b), the Option shall terminate.
(c) Death of Optionee. Notwithstanding the foregoing provisions of
-----------------
this Section 5, in the event of the death of Optionee (i) during the Term of
this Option and while an Employee or Consultant of the Company and having been
in Continuous Service since the date of grant of the Option, or (ii) within
thirty (30) days after Optionee's Termination Date, the Option may be exercised
at any time within six (6) months following the date of death (but in no event
later than the Expiration Date set forth in the Notice of Stock Option Grant),
by Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the Termination Date.
6. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution or
pursuant to a domestic relations order (as defined by the Code or rules
thereunder), except as set forth in the Notice of Stock Option Grant and subject
to Applicable Laws. This Option may be exercised during the lifetime of
Optionee only by him or her or by a transferee permitted by this Section 6. The
terms of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
7. Term of Option. This Option may be exercised only within the Term set
--------------
forth in the Notice of Stock Option Grant, subject to the limitations set forth
in Section 7 of the Plan.
8. Tax Consequences. Optionee acknowledges that he or she has read the
----------------
brief summary set forth below of certain of the federal tax consequences of
exercise of this Option and disposition of the Shares under the laws in effect
as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of Incentive Stock Option. If this Option qualifies as
----------------------------------
an Incentive Stock Option, there will be no regular federal income tax liability
upon the exercise of the Option, although the excess, if any, of the fair market
value of the Shares on the date of exercise over the Exercise Price will be
treated as an item of alternative minimum taxable income for federal tax
purposes and may subject Optionee to the alternative minimum tax in the year of
exercise.
(b) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, Optionee may incur regular federal income
tax liability upon the exercise of the Option. Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the fair market
-4-
<PAGE>
value of the Shares on the date of exercise over the Exercise Price. If Optionee
is an employee, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
(c) Disposition of Shares. In the case of a Nonstatutory Stock
---------------------
Option, if Shares are held for more than 12 months, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. In the case of an Incentive Stock Option, if Shares
transferred pursuant to the Option are held for more than one year after
exercise and more than two years after the Date of Grant, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If Shares purchased under an Incentive Stock Option are
disposed of within either of such two holding periods, then any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the difference between the Exercise Price and the
lesser of (i) the fair market value of the Shares on the date of exercise, or
(ii) the sales proceeds of the Shares.
(d) Notice of Disqualifying Disposition of Incentive Stock Option
-------------------------------------------------------------
Shares. If the Option granted to Optionee herein is an Incentive Stock Option,
- ------
and if Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to the Incentive Stock Option on or before the later of (i) the date
two years after the Date of Grant, or (ii) the date one year after the date of
exercise, Optionee shall notify the Company in writing within thirty (30) days
after the date of any such disposition. Optionee acknowledges and agrees that
he or she may be subject to income tax withholding by the Company on the
compensation income recognized by Optionee from the early disposition by payment
in cash or out of the current earnings paid to Optionee.
9. Withholding Tax Obligations. Optionee acknowledges and agrees that
---------------------------
the delivery of any Shares under the Plan is conditioned on satisfaction by the
Optionee of applicable federal, state, local or foreign withholding tax
obligations that may arise in connection with the exercise of an Option. Such
withholding obligations shall be satisfied in accordance with the provisions of
Section 12 of the Plan.
10. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Optionee hereby agrees not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Shares (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested by
the Company or such managing underwriters and to execute an agreement reflecting
the foregoing as may be requested by the underwriters at the time of the public
offering.
[Signature Page Follows]
-5-
<PAGE>
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
document.
RAMP NETWORKS, INC.
By: _______________________________
___________________________________
(Print name and title)
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK INCENTIVE PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated: ________________________ ______________________________
Optionee
-6-
<PAGE>
EXHIBIT A
---------
RAMP NETWORKS, INC.
1999 Stock incentive plan
NOTICE OF EXERCISE
------------------
To: RAMP NETWORKS, INC.
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
--------------------------------------------
This is official notice that the undersigned ("Optionee") intends to
--------
exercise Optionee's option to purchase __________ shares of RAMP NETWORKS, INC.
Common Stock, under and pursuant to the Ramp Networks, Inc. 1999 Stock incentive
plan and the Stock Option Agreement dated _______________, as follows:
Date of Grant (or Grant Number): ____________________________________
Type of Option (ISO or NSO): ____________________________________
Date of Purchase: ____________________________________
Number of Shares: ____________________________________
Purchase Price: ____________________________________
Method of Payment of ____________________________________
Purchase Price: ____________________________________
Social Security No.: ____________________________________
The shares should be issued as follows:
Name: ______________________________
Address: ______________________________
______________________________
______________________________
Signed: ______________________________
Date: ______________________________
<PAGE>
EXHIBIT A-1
-----------
RAMP NETWORKS, INC.
1999 Stock incentive plan
EARLY EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
-------------------------------------------------------------
This Agreement ("Agreement") is made as of ______________, by and between
---------
Ramp Networks, Inc., a California corporation (the "Company"), and ____________
-------
("Purchaser"). To the extent any capitalized terms used in this Agreement are
---------
not defined, they shall have the meaning ascribed to them in the 1999 Stock
incentive plan.
1. Exercise of Option. Subject to the terms and conditions hereof,
------------------
Purchaser hereby elects to exercise his or her option to purchase ______________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
------
the Company's 1999 Stock incentive plan (the "Plan") and the Stock Option
----
Agreement dated ______________ (the "Option Agreement"). Of these Shares,
----------------
Purchaser has elected to purchase _____________ Shares which have not yet vested
under the such Vesting Schedule (the "Unvested Shares"). The purchase price for
---------------
the Shares shall be _______ per Share for a total purchase price of
$_______________. The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Time and Place of Exercise. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company in accordance
with the provisions of Sections 9 and 10 of the Plan. Upon delivery to the
Company of this fully executed Early Exercise Notice and Restricted Stock
Purchase Agreement, together with payment of the purchase price therefor by
Purchaser by (a) cash, (b) check made payable to the Company, (c) delivery of
Shares of the Common Stock of the Company in accordance with Section 3 of the
Option Agreement, or (d) a combination of the foregoing, the Option shall be
deemed to be exercised as to the number of Shares set forth above in this Early
Exercise Notice. As soon as practicable thereafter, the Company will deliver to
Purchaser a certificate representing the Shares purchased by Purchaser (which
shall be issued in Purchaser's name).
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below). After any Shares have
been released from such Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.
<PAGE>
4. Repurchase Option.
-----------------
(a) In the event of the voluntary or involuntary termination of
Purchaser's Continuous Service for any reason (including death or disability),
with or without cause, the Company shall upon the date of such termination (the
"Termination Date") have an irrevocable, exclusive option (the "Repurchase
---------------- ----------
Option") for a period of 60 days from such date to repurchase all or any portion
- ------
of the Unvested Shares held by Purchaser as of the Termination Date which have
not yet been released from the Company's Repurchase Option at the original
purchase price per Share specified in Section 1 (adjusted for any stock splits,
stock dividends and the like).
(b) The Repurchase Option shall be exercised by the Company by written
notice to Purchaser or Purchaser's executor and, at the Company's option, (A) by
delivery to Purchaser or Purchaser's executor with such notice of a check in the
amount of the purchase price for the Shares being purchased, or (B) in the event
Purchaser is indebted to the Company, by cancellation by the Company of an
amount of such indebtedness equal to the purchase price for the Shares being
repurchased, or (C) by a combination of (A) and (B) so that the combined payment
and cancellation of indebtedness equals such purchase price. Upon delivery of
such notice and payment of the purchase price in any of the ways described
above, the Company shall become the legal and beneficial owner of the Shares
being repurchased and all rights and interest therein or related thereto, and
the Company shall have the right to transfer to its own name the number of
Shares being repurchased by the Company, without further action by Purchaser.
(c) One hundred percent (100%) of the Unvested Shares shall initially
be subject to the Repurchase Option. The Unvested Shares shall be released from
the Repurchase Option in accordance with the Vesting Schedule and as set forth
in the Notice of Stock Option Grant.
(d) The right of the Company to purchase any part of the Shares may be
assigned in whole or in part to any shareholder or shareholders of the Company
or other persons or organizations; provided, however, that an assignee, other
than a corporation that is the Parent or a 100% owned Subsidiary of the Company,
must pay the Company, upon assignment of such right, cash equal to the
difference between the original purchase price and Fair Market Value, if the
original purchase price is less than the Fair Market Value of the Shares subject
to the assignment.
(e) All transferees of Shares or any interest therein will receive and
hold such Shares or interest subject to the provisions of this Agreement,
including, insofar as applicable, the Repurchase Option. Any sale or transfer
of the Shares shall be void unless the provisions of this Agreement are
satisfied.
5. Escrow of Unvested Shares. For purposes of facilitating the
-------------------------
enforcement of the provisions of Section 4 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Attachment A executed
------------
by Purchaser and by Purchaser's spouse (if required for transfer), in blank, to
the Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and
-2-
<PAGE>
Assignment Separate from Certificate in escrow and to take all such actions and
to effectuate all such transfers and/or releases as are in accordance with the
terms of this Agreement. Purchaser hereby acknowledges that the Secretary of the
Company, or the Secretary's designee, is so appointed as the escrow holder with
the foregoing authorities as a material inducement to make this Agreement and
that said appointment is coupled with an interest and is accordingly
irrevocable. Purchaser agrees that said escrow holder shall not be liable to any
party hereof (or to any other party). The escrow holder may rely upon any
letter, notice or other document executed by any signature purported to be
genuine and may resign at any time. Purchaser agrees that if the Secretary of
the Company, or the Secretary's designee, resigns as escrow holder for any or no
reason, the Board of Directors of the Company shall have the power to appoint a
successor to serve as escrow holder pursuant to the terms of this Agreement.
6. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
[Include following legend if Shares are purchased prior to date Common
Stock is a Listed Security (as defined in the Plan):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO
SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, 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 shall 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 shall have been so transferred.
-3-
<PAGE>
(d) Removal of Legend. When all of the following events have
-----------------
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 6(a): (i) the expiration or termination of the
market standoff provisions of Section 5 (and of any agreement entered pursuant
to Section 5); and (ii) the expiration or exercise in full of the Repurchase
Option. After such time, and upon Purchaser's request, a new certificate or
certificates representing the Shares not repurchased shall be issued without the
legend referred to in Section 6(a), and delivered to Purchaser.
7. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a Parent or Subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
8. Section 83(b) Election. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
----
income for a Nonstatutory Stock Option the difference between the amount paid
for the Shares and the fair market value of the Shares as of the date any
restrictions on the Shares lapse. In this context, "restriction" means the
-----------
right of the Company to buy back the Shares pursuant to the Repurchase Option
set forth in Section 3(a) of this Agreement. Purchaser understands that
Purchaser may elect to be taxed at the time the Shares are purchased, rather
than when and as the Repurchase Option expires, by filing an election under
Section 83(b) of the Code (an "83(b) Election") with the Internal Revenue
--------------
Service within 30 days from the date of purchase. Even if the fair market value
of the Shares at the time of the execution of this Agreement equals the amount
paid for the Shares, the election must be made to avoid income treatment under
Section 83(a) in the future. Purchaser understands that failure to file such an
election in a timely manner may result in adverse tax consequences for
Purchaser. Purchaser further understands that an additional copy of such
election form should be filed with his or her federal income tax return for the
calendar year in which the date of this Agreement falls. Purchaser acknowledges
that the foregoing is only a summary of the effect of United States federal
income taxation with respect to purchase of the Shares hereunder, and does not
purport to be complete. Purchaser further acknowledges that the Company has
directed Purchaser to seek independent advice regarding the applicable
provisions of the Code, the income tax laws of any municipality, state or
foreign country in which Purchaser may reside, and the tax consequences of
Purchaser's death.
Purchaser agrees that he or she will execute and deliver to the Company
with this executed Agreement a copy of the Acknowledgment and Statement of
Decision Regarding Section 83(b) Election (the "Acknowledgment") attached hereto
--------------
as Attachment B. Purchaser further agrees that he or she will execute and
------------
submit with the Acknowledgment a copy of the 83(b) Election attached hereto as
Attachment C (for income tax purposes in connection with the early exercise of a
- ------------
Nonstatutory Stock Option) if Purchaser has indicated in the Acknowledgment his
or her decision to make such an election.
-4-
<PAGE>
9. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
-5-
<PAGE>
[Include the following Section 9(h) if Shares are purchased prior to
the date the Common Stock becomes a Listed Security (as defined in the Plan):
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
-6-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
RAMP NETWORKS, INC.
By: ________________________________
Name:_______________________________
(print)
Title:______________________________
Address:
PURCHASER:
[NAME OF OPTIONEE]
____________________________________
(Signature)
____________________________________
(Print Name)
Social Security Number: ____________
Address:
____________________________________
____________________________________
I, ______________________, spouse of [______________OPTIONEE], have read and
hereby approve the foregoing Agreement. In consideration of the Company's
granting my spouse the right to purchase the Shares as set forth in the
Agreement, I hereby agree to be bound irrevocably by the Agreement and further
agree that any community property or similar interest that I may have in the
Shares shall hereby be similarly bound by the Agreement. I hereby appoint my
spouse as my attorney-in-fact with respect to any amendment or exercise of any
rights under the Agreement.
_____________________________
Spouse of [__________OPTIONEE]
-7-
<PAGE>
ATTACHMENT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Early Exercise Notice
and Restricted Stock Purchase Agreement between the undersigned ("Purchaser")
--------
and Ramp Networks, Inc. (the "Company") dated _______________ (the "Agreement"),
------- ---------
Purchaser hereby sells, assigns and transfers unto the Company
_______________________________ (________) shares of the Common Stock of the
Company, standing in Purchaser's name on the books of the Company and
represented by Certificate No. ____, and hereby irrevocably appoints
_____________________________ to transfer said stock on the books of the Company
with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE
USED AS AUTHORIZED BY THE AGREEMENT AND THE ATTACHMENTS THERETO.
Dated: ________________
Signature:
_____________________________________________
[Name of Purchaser]
_____________________________________________
Spouse of [Name of Purchaser] (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
Repurchase Option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
ATTACHMENT B
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(b) ELECTION
--------------------------------
The undersigned (which term includes the undersigned's spouse), a purchaser
of ___________ shares of Common Stock of Ramp Networks, Inc., a California
corporation (the "Company"), by exercise of an option (the "Option") granted
------- ------
pursuant to the Company's 1999 Stock incentive plan (the "Plan"), hereby states
----
as follows:
1. The undersigned acknowledges receipt of a copy of the Plan relating to
the offering of such shares. The undersigned has carefully reviewed the Plan
and the option agreement pursuant to which the Option was granted.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the undersigned's own tax
advisor, _____________________________________, whose business address is
______________________________, regarding the federal, state and local tax
consequences of purchasing shares under the Plan, and particularly
regarding the advisability of making elections pursuant to Section 83(b) of
the Internal Revenue Code of 1986, as amended (the "Code") and pursuant to
----
the corresponding provisions, if any, of applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code, and is
submitting to the Company, together with the undersigned's executed Early
Exercise Notice and Restricted Stock Purchase Agreement, an executed form
entitled "Election Under Section 83(b) of the Internal Revenue Code of
1986;"
(b) ____ to make an election pursuant to Section 83(b) of the Code, and is
submitting to the Company, together with the undersigned's executed Early
Exercise Notice and Restricted Stock Purchase Agreement, an executed form
entitled "Election Under Section 83(b) of the Internal Revenue Code of 1986
for purposes of income tax; or
(c) ____ not to make an election pursuant to Section 83(b) of the Code.
<PAGE>
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares under the Plan
or of the making or failure to make an election pursuant to Section 83(b) of the
Code or the corresponding provisions, if any, of applicable state law.
Date:__________________________ ____________________________
[Name of Purchaser]
Date:__________________________ ____________________________
Spouse of [Name of Purchaser]
-2-
<PAGE>
ATTACHMENT C
------------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year
of the undersigned are as follows:
NAME OF TAXPAYER: [Name of Purchaser_________________-]
NAME OF SPOUSE: ________________
ADDRESS: ___________________________________
___________________________________
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: __________
2. The property with respect to which the election is made is described as
follows:
______________ shares of the Common Stock $.001 par value, of Ramp
Networks, Inc., a California corporation (the "Company").
-------
3. The date on which the property was transferred is: _______________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's service as an employee or consultant of the Company.
5. The fair market value per share at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms will
never lapse, of such property is: $____________
6. The amount (if any) paid per share for such property: $____________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
<PAGE>
Dated: ____________ _____________________________
[Name of Purchaser]
Dated: ____________ _____________________________
Spouse of [Name of Purchaser]
-2-
<PAGE>
RAMP NETWORKS, INC
RESTRICTED STOCK PURCHASE AGREEMENT
-----------------------------------
1999 STOCK INCENTIVE PLAN
-------------------------
This Restricted Stock Purchase Agreement (the " Agreement ") is made as of
---------
__________________, 19__, by and between Ramp Networks, Inc., a Delaware
corporation (the "Company"), and __________________ ("Purchaser") pursuant
------- ---------
to the Company" "s 1999 Stock Incentive Plan.
1. Sale of Stock. Subject to the terms and conditions of this Agreement,
-------------
on the Purchase Date (as defined below) the Company will issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company, _______________
shares of the Company's Common Stock (the "Shares") at a purchase price of
------
$_____ per Share for a total purchase price of $_________________. The term
"Shares" refers to the purchased Shares and all securities received in
replacement of or in connection with the Shares pursuant to stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser" "s ownership of the Shares.
2. Purchase. The purchase and sale of the Shares under this Agreement
--------
shall occur at the principal office of the Company, in accordance with Section
11 of the Plan, simultaneously with the execution of this Agreement by the
parties or on such other date as the Company and Purchaser shall agree (the
"Purchase Date"). On the Purchase Date, the Company will deliver to Purchaser a
- --------------
certificate representing the Shares to be purchased by Purchaser (which shall be
issued in Purchaser" "s name) against payment of the purchase price therefor by
Purchaser by check made payable to the Company.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company" "s Repurchase Option (as defined below). After any Shares have
been released from the Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.
(a) Repurchase Option.
-----------------
(i) In the event of the voluntary or involuntary termination of
Purchaser" "s Continuous Service for any reason (including death or disability),
with or without cause, the Company shall upon the date of such termination (the
"Termination Date") have an irrevocable, exclusive option (the "Repurchase
---------------- ----------
Option") for a period of 60 days from such date to repurchase all or any portion
- ------
of the Shares held by Purchaser as of the Termination Date which have not yet
been released from the Company" "s Repurchase Option at the original purchase
price per Share specified in Section 1 (adjusted for any stock splits, stock
dividends and the like).
<PAGE>
(ii) The Repurchase Option shall be exercised by the Company by
written notice to Purchaser or Purchaser" "s executor and, at the Company" "s
option, (A) by delivery to Purchaser or Purchaser" "s executor with such notice
of a check in the amount of the purchase price for the Shares being purchased,
or (B) in the event Purchaser is indebted to the Company, by cancellation by the
Company of an amount of such indebtedness equal to the purchase price for the
Shares being repurchased, or (C) by a combination of (A) and (B) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
(iii) _______ percent (___%) of the Shares shall initially be
subject to the Repurchase Option. The Shares shall be released from the
Repurchase Option in accordance with the following Vesting Schedule: [Example:
(provided in each case that Purchaser's Continuous Service has not been
terminated prior to the date of any such release): __ of the total number of
Shares shall be released from the Repurchase Option on the __-month anniversary
of the Vesting Commencement Date (as set forth on the signature page of this
Agreement), and an additional __ of the total number of Shares shall be released
from the Repurchase Option each month thereafter on the Monthly Vesting Date (as
set forth on the signature page of this Agreement), until all Shares are
released from the Repurchase Option.] Fractional shares shall be rounded to the
nearest whole share.
(b) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement, including insofar as applicable the Company's
Repurchase Option. Any sale or transfer of the Shares shall be void unless the
provisions of this Agreement are satisfied.
(c) Termination of Rights. Upon the expiration or exercise of the
---------------------
Repurchase Option, a new certificate or certificates representing the Shares not
repurchased shall be issued, on request, without the legend referred to in
Section 5(a) below and delivered to Purchaser.
4. Escrow of Unvested Shares. For purposes of facilitating the
-------------------------
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Exhibit A executed by
---------
Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the
Secretary of the Company, or the Secretary" "s designee, to hold such
certificate(s) and Assignment Separate from Certificate in escrow and to take
all such actions and to effectuate all such transfers and/or releases as are in
accordance with the terms of this Agreement. Purchaser hereby acknowledges that
the Secretary of the Company, or the Secretary" "s designee, is so appointed as
the escrow holder with the foregoing authorities as a material inducement to
make this Agreement and that said appointment is coupled with an interest and is
accordingly
-2-
<PAGE>
irrevocable. Purchaser agrees that said escrow holder shall not be liable to any
party hereof (or to any other party). The escrow holder may rely upon any
letter, notice or other document executed by any signature purported to be
genuine and may resign at any time. Purchaser agrees that if the Secretary of
the Company, or the Secretary" "s designee, resigns as escrow holder for any or
no reason, the Board of Directors of the Company shall have the power to appoint
a successor to serve as escrow holder pursuant to the terms of this Agreement.
5. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legend (as well as any legends required by applicable
state and federal corporate and securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, 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 shall 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 shall have been so transferred.
6. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
7. Section 83(b) Election. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the Code), taxes as ordinary
----
income the difference between the amount paid for the Shares and the fair market
value of the Shares as of the date any restrictions on the Shares lapse. In
this context, restriction means the right of the Company to buy back the
-----------
Shares pursuant to the Repurchase Option set forth in Section 3(a) of this
Agreement. Purchaser understands that Purchaser may elect to be taxed at the
time the Shares are purchased, rather than when and as the Repurchase Option
expires, by filing an election under Section 83(b) (an "83(b) Election") of the
--------------
Code with the Internal Revenue Service within 30 days from the date of purchase.
-------
Even if the fair market value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income under Section 83(a) in the future. Purchaser understands that
failure to file such an election in a timely manner may result in adverse tax
consequences for Purchaser. Purchaser
-3-
<PAGE>
further understands that an additional copy of such election form should be
filed with his or her federal income tax return for the calendar year in which
the date of this Agreement falls. Purchaser acknowledges that the foregoing is
only a summary of the effect of United States federal income taxation with
respect to purchase of the Shares hereunder, and does not purport to be
complete. Purchaser further acknowledges that the Company has directed Purchaser
to seek independent advice regarding the applicable provisions of the Code, the
income tax laws of any municipality, state or foreign country in which Purchaser
may reside, the tax consequences of Purchaser" "s death and the decision as to
whether or not to file an 83(b) Election in connection with the acquisition of
the Shares.
Purchaser agrees that he will execute and deliver to the Company with this
executed Agreement a copy of the Acknowledgment and Statement of Decision
Regarding Section 83(b) Election (the "Acknowledgment"), attached hereto as
--------------
Exhibit B. Purchaser further agrees that Purchaser will execute and submit with
- ---------
the Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit C,
---------
if Purchaser has indicated in the Acknowledgment his or her decision to make
such an election.
8. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of this
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of this Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid,
-4-
<PAGE>
and addressed to the party to be notified at such party's address or fax
number as set forth below or as subsequently modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
[Signature Page Follows]
-5-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
RAMP NETWORKS, INC.
By: __________________________________
Title:________________________________
Address:______________________________
______________________________________
______________________________________
PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY. PURCHASER FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON PURCHASER ANY RIGHT WITH
RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE
COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH PURCHASER" "S RIGHT OR THE
COMPANY" "S RIGHT TO TERMINATE PURCHASER" "S EMPLOYMENT OR CONSULTING
RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
PURCHASER:
[PURCHASER NAME]
______________________________________
(Signature)
Address:
______________________________________
______________________________________
Vesting Commencement
Date: ____________________
I, ________________________________, spouse of [Purchaser], have read and hereby
approve the foregoing Agreement. In consideration of the Company's granting
my spouse the right to purchase the Shares as set forth in the Agreement, I
hereby agree to be irrevocably bound by the Agreement and further agree that any
community property or similar interest that I may have in the Shares shall be
similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-
fact with respect to any amendment or exercise of any rights under the
Agreement.
_______________________________
Spouse of [Purchaser]
-6-
<PAGE>
EXHIBIT C
---------
EXHIBIT A
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Common Stock Purchase
Agreement between the undersigned ("Purchaser") and Ramp Networks, Inc. (the
---------
"Company") dated _______________ (the "Agreement"), Purchaser hereby sells,
-------- ---------
assigns and transfers unto the Company _________________________________
(________) shares of the Common Stock of the Company standing in Purchaser's
name on the Company's books and represented by Certificate No. _____, and does
hereby irrevocably constitute and appoint ______________________ to transfer
said stock on the books of the Company with full power of substitution in the
premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND
THE EXHIBITS THERETO.
Dated: ______________________
Signature:
____________________________________
[Purchaser]
____________________________________
Spouse of [Purchaser] (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
RECEIPT
-------
Ramp Networks, Inc. hereby acknowledges receipt of a check in the amount of
$__________ given by [Purchaser] as consideration for Certificate No.
___________ for ____________ shares of Common Stock of Ramp Networks, Inc.
Dated: ________________
Ramp Networks, Inc.
By: ___________________________
Title:_________________________
<PAGE>
RECEIPT AND CONSENT
-------------------
The undersigned hereby acknowledges receipt of a photocopy of Certificate
No. ______ for _____________ shares of Common Stock of Ramp Networks, Inc. (the
"Company").
-------
The undersigned further acknowledges that the Secretary of the Company, or
his or her designee, is acting as escrow holder pursuant to the Restricted Stock
Purchase Agreement Purchaser has previously entered into with the Company. As
escrow holder, the Secretary of the Company, or his or her designee, holds the
original of the aforementioned certificate issued in the undersigned's name.
Dated: _________________________
_________________________
[Purchaser]
<PAGE>
EXHIBIT B
---------
ACKNOWLEDGMENT AND STATEMENT OF DECISION
-----------------------------------------
REGARDING SECTION 83(b) ELECTION
--------------------------------
The undersigned has entered a stock purchase agreement with Ramp Networks,
Inc., a Delaware corporation (the "Company"), pursuant to which the undersigned
-------
is purchasing ______________ shares of Common Stock of the Company (the
"Shares"). In connection with the purchase of the Shares, the undersigned
------
hereby represents as follows:
1. The undersigned has carefully reviewed the stock purchase agreement
pursuant to which the undersigned is purchasing the Shares.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the undersigned's
own tax advisor, __________________________, whose business address is
_____________________________, regarding the federal, state and local
tax consequences of purchasing the Shares, and particularly regarding
the advisability of making elections pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended (the "Code") and pursuant to
----
the corresponding provisions, if any, of applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code, and is
submitting to the Company, together with the undersigned's executed
Common Stock Purchase Agreement, an executed form entitled "Election
Under Section 83(b) of the Internal Revenue Code of 1986"; or
(b) ____ not to make an election pursuant to Section 83(b) of the Code.
<PAGE>
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned" "s purchase of the Shares or of the
making or failure to make an election pursuant to Section 83(b) of the Code or
the corresponding provisions, if any, of applicable state law.
Date: ____________________ ______________________
[Purchaser]
Date:____________________ ______________________
Spouse of [Purchaser]
<PAGE>
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer" "s gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: [Purchaser]
NAME OF SPOUSE:
ADDRESS: ____________________
____________________
IDENTIFICATION NO. OF TAXPAYER:
IDENTIFICATION NO. OF SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows:
______________ shares of the Common Stock $_______ par value, of Ramp
Networks, Inc., a Delaware corporation (the "Company").
3. The date on which the property was transferred is: __________________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $_____________.
6. The amount (if any) paid for such property: $______________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of
the above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ______________________ __________________________________
Taxpayer
Dated: ______________________ __________________________________
Spouse of Taxpayer
<PAGE>
EXHIBIT 10.4
RAMP NETWORKS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the Ramp Networks, Inc. 1999
Employee Stock Purchase Plan.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Common Stock of the Company.
------------
(d) "Company" means Ramp Networks, Inc., a Delaware corporation.
-------
(e) "Compensation" means all regular straight time gross earnings and
------------
commissions, and shall not include payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Continuous Status as an Employee" means the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of (i) sick leave;
(ii) military leave; (iii) any other leave of absence approved by the Company,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute or unless provided otherwise pursuant to Company policy adopted from
time to time.
(g) "Contributions" means all amounts credited to the account of a
-------------
participant pursuant to the Plan.
(h) "Corporate Transaction" means a sale of all or substantially all
---------------------
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(i) "Designated Subsidiary" means any Subsidiary which has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan; provided, however, that the Board shall only have the
discretion to designate a Subsidiary if the issuance of options to such
Subsidiary's Employees pursuant to the Plan would not cause the Company to incur
adverse accounting charges.
<PAGE>
(j) "Employee" means any person, including an Officer, who is
--------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or a Designated Subsidiary.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined by the Board in its discretion based on the closing sales price
of the Common Stock for such date (or, in the event that the Common Stock is not
traded on such date, on the immediately preceding Trading Day), as reported by
the National Association of Securities Dealers Automated Quotation (Nasdaq)
National Market or, if such price is not reported, the mean of the bid and asked
prices per share of the Common Stock as reported by Nasdaq or, in the event the
Common Stock is listed on a stock exchange, the Fair Market Value per share
shall be the closing sales price on such exchange on such date (or, in the event
that the Common Stock is not traded on such date, on the immediately preceding
Trading Day), as reported in The Wall Street Journal. For purposes of the
Offering Date of the first Offering Period under the Plan, the Fair Market Value
of a share of the Common Stock of the Company shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission pursuant
to Rule 424 under the Securities Act of 1933, as amended, for the initial public
offering of the Company's Common Stock (the "Registration Statement").
(m) "Offering Date" means the first Trading Day of each Offering
-------------
Period of the Plan.
(n) "Offering Period" means a period of approximately twenty-four (24)
---------------
months and not exceeding twenty-seven (27) months, except for the first Offering
Period as set forth in Section 4(a). The duration and timing of the Offering
Periods may be changed pursuant to Section 4 of the Plan.
(o) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "Plan" means this Ramp Networks, Inc. 1999 Employee Stock Purchase
----
Plan.
(q) "Purchase Date" means the last Trading Day of each Purchase
-------------
Period.
(r) "Purchase Period" means a period of approximately six (6) months
---------------
within an Offering Period, except for the first Purchase Period as set forth in
Section 4(b). The duration and timing of the Purchase Periods may be changed
pursuant to Section 4 of the Plan.
(s) "Purchase Price" means with respect to a Purchase Period an amount
--------------
equal to 85% of the Fair Market Value (as defined in Section 2(l) above) of a
Share of Common Stock on the Offering Date or on the Purchase Date, whichever is
lower; provided, however, that in the
-2-
<PAGE>
event (i) there is any increase in the number of Shares available for issuance
under the Plan (including without limitation an automatic increase pursuant to
Section 14(a) below or as a result of a shareholder-approved amendment to the
Plan), and (ii) all or a portion of such additional Shares are to be issued with
respect to one or more Offering Periods that are underway at the time of such
increase ("Additional Shares"), and (iii) the Fair Market Value of a Share of
-----------------
Common Stock on the date of such increase is higher than the Fair Market Value
on the Offering Date for any such Offering Period, then in such instance the
Purchase Price with respect to such Additional Shares shall be 85% of the Fair
Market Value of a Share of Common Stock on the date of such increase or the Fair
Market Value of a Share of Common Stock on the Purchase Date, whichever is
lower.
(t) "Share" means a share of Common Stock, as adjusted in accordance
-----
with Section 20 of the Plan.
(u) "Subsidiary" means a corporation, domestic or foreign, of which
----------
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
(v) "Trading Day" means a day on which national stock exchanges and
-----------
the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code; provided, however, that eligible
Employees may not participate in more than one Offering Period at a time.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of any Subsidiary, or
(ii) to the extent such option would permit his or her rights to purchase stock
under all employee stock purchase plans (described in Section 423 of the Code)
of the Company and its Subsidiaries to accrue at a rate which exceeds twenty-
five thousand dollars ($25,000) of Fair Market Value (as defined in Section 2(l)
above) of such stock (determined at the time such option is granted) for each
calendar year in which such option is outstanding at any time.
4. Offering Periods and Purchase Periods.
-------------------------------------
(a) Offering Periods. The Plan shall be implemented by a series of
----------------
Offering Periods generally of twenty-four (24) months duration and not
exceeding twenty-seven (27) months duration, with new Offering Periods
commencing on or about May 1 and November 1 of
-3-
<PAGE>
each year, or at such other time or times as may be determined by the Board of
Directors. Offering Periods shall commence on a continuing and overlapping basis
until terminated in accordance with Section 21 hereof. Notwithstanding the
foregoing, the first Offering Period under the Plan shall commence on the
beginning of the effective date of the Registration Statement on Form S-1 for
the initial public offering of the Company's Common (the "IPO Date") and
--- ----
continue until the last Trading Day on or before April 30, 2001. The Board of
Directors of the Company shall have the power to change the duration and/or the
frequency of Offering Periods with respect to future offerings without
shareholder approval if such change is announced at least five (5) days prior to
the scheduled beginning of the first Offering Period to be affected.
(b) Purchase Periods. Each Offering Period shall generally consist of
----------------
four (4) Purchase Periods of approximately six (6) months duration, the first
commencing on the Offering Date and ending on the October 31 or April 30 next
following, and each other Purchase Period in such Offering Period commencing on
the day after the last day of the preceding Purchase Period and ending on the
October 31 or April 30 next following; provided, however, that the first
Purchase Period shall commence on the IPO Date and shall end on October 31,
1999. The Board of Directors of the Company shall have the power to change the
duration and/or frequency of Purchase Periods with respect to future purchases
without shareholder approval if such change is announced at least five (5) days
prior to the otherwise scheduled beginning of the first Purchase Period to be
affected.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given Offering Period.
(b) The subscription agreement shall set forth the Employee's
participation election, either in the form of a designation of the percentage of
the Employee's Compensation the Employee elects to have deducted from his or her
pay on each pay day during the Offering Period and credited to his or her
account under the Plan to be used to purchase shares on the Purchase Date for
each of the relevant Purchase Periods, which percentage shall be not less than
one percent (1%) and not more than fifteen percent (15%), or such greater
percentage as the Board may establish from time to time before an Offering Date
(which percentage shall not exceed twenty percent (20%) in any event), or, if
permitted by the Board, in the form of a designation of the number of whole
shares the Employee elects to purchase at the end of each Purchase Period with
respect to the Offering Period, up to such maximum number of shares as the Board
may establish from time to time before an Offering Date.
(c) A participant's subscription shall be effective for each
successive Offering Period in which he or she is eligible to participate, unless
the participant withdraws in accordance with Section 11(a).
-4-
<PAGE>
(d) In addition to the limits on an Employee's participation in the
Plan set forth herein, the Board may establish limits on the number of shares an
Employee may elect to purchase with respect to any Offering Period if such limit
is announced at least fifteen (15) days prior to the scheduled beginning of the
first Offering Period to be affected.
6. Grant of Option. On the Offering Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Purchase Date a number of Shares of the Company's
Common Stock determined by dividing such Employee's Contributions accumulated
prior to such Purchase Date and retained in the participant's account as of the
Purchase Date by the applicable Purchase Price, provided, however, that the
maximum number of Shares an Employee may purchase during each Purchase Period
shall be 1,000 Shares (subject to adjustment pursuant to Section 20 below), and
provided further that such purchase shall be subject to the limitations set
forth in Sections 3(b) and 9(b).
7. Method of Payment of Contributions.
----------------------------------
(a) Payroll Deductions.
------------------
(i) If an Employee's participation election is in the form of an
election to contribute a percentage of his or her Compensation through payroll
deductions, or if an Employee otherwise elects to make contributions to the Plan
through payroll deductions of a specified percentage of his or her Compensation
as permitted by the Board with respect to an Employee's participation election
in the form of an election to purchase a designated number of shares at the end
of each Purchase Period, such payroll deductions shall commence on the first
payroll following the Offering Date and shall end on the last payroll paid in
the Offering Period to which such subscription agreement and payroll deduction
authorization is applicable, unless sooner terminated by the participant as
provided in Section 11. All payroll deductions made by a participant shall be
credited to his or her account under the Plan.
(ii) A participant may discontinue his or her participation in the
Plan as provided in Section 11, or to the extent permitted by the Board in its
discretion, may increase or decrease the rate of his or her payroll deductions
during the Offering Period by completing and filing with the Company a new
subscription agreement authorizing a change in payroll deduction rate. The
change in rate shall be effective as of the beginning of the next calendar month
commencing ten (10) or more business days after the date the new subscription is
filed.
(iii) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) herein, a
participant's payroll deductions may be decreased by the Company to zero percent
(0%) at any time during a Purchase Period. Payroll deductions shall re-commence
at the rate provided in such participant's subscription agreement at the
beginning of the first Purchase Period which is scheduled to end in the
following calendar year, unless terminated by the participant as provided in
Section 11.
(b) Cash or Stock Contributions. To the extent permitted by the
---------------------------
Board, a participant may make contributions to the Plan for purchase of shares
in cash or by tendering Company stock or by election to receive shares
representing the difference between the Purchase
-5-
<PAGE>
Price and the Fair Market Value of the shares, less applicable withholding. Any
such cash or stock contribution, or any election to receive net shares, must be
received by the Company in accordance with procedures and at such times as
established by the Board, and a participant's failure to make such contributions
or such an election within the time required, to the extent the aggregate
Purchase Price of the number of shares the participant has an option to purchase
on the Purchase Date exceeds payroll deduction contributions made by the
participant as of the Purchase Date, shall be deemed a withdrawal from the
Offering Period with respect to shares subject to the option not purchased on
the applicable Purchase Date and with respect to all other Purchase Periods in
such Offering Period.
8. Withholding Tax Obligations. At the time the option is exercised, in
---------------------------
whole or in part, or at the time some or all of the Company's Common Stock
issued under the Plan is disposed of, the participant must make adequate
provision for payment to the Company of the Company's federal, state or other
tax withholding obligations, if any, which arise upon the exercise of the option
or the disposition of the Common Stock. At any time, the Company may, but shall
not be obligated to, withhold from the participant's compensation the amount
necessary for the Company to meet applicable withholding obligations, including
any withholding required to make available to the Company any tax deductions or
benefits attributable to the sale or early disposition of Common Stock by the
participant.
9. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 11, his or her option for the purchase of Shares will be exercised
automatically on each Purchase Date of an Offering Period, and the maximum
number of full Shares subject to the option will be purchased at the applicable
Purchase Price with the accumulated Contributions in his or her account. The
Shares purchased upon exercise of an option hereunder shall be deemed to be
transferred to the participant on the Purchase Date. During his or her
lifetime, a participant's option to purchase Shares hereunder is exercisable
only by him or her.
(b) If the Board determines that, on a given Purchase Date, the number
of Shares with respect to which options are to be exercised may exceed (i) the
number of Shares of Common Stock that were available for sale under the Plan on
the Offering Date of the applicable Offering Period (after deduction of all
Shares for which options have been exercised or are then outstanding), or (ii)
the number of shares available for sale under the Plan on such Purchase Date
(after deduction of all Shares for which options have been exercised or are then
outstanding), the Board may, in its sole discretion, provide that the Shares of
Common Stock available for purchase on such Offering Date or Purchase Date, as
applicable, shall be allocated pro rata, in as uniform a manner as shall be
practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Purchase Date and (x) continue all Offering Periods then in effect or (y)
pursuant to Section 21 below, terminate any or all Offering Periods then in
effect. The Board may direct that the Shares available on the Offering Date of
any applicable Offering Period pursuant to the preceding sentence be allocated
pro rata, notwithstanding any authorization of additional Shares for issuance
under the Plan by the Company's shareholders subsequent to such Offering Date.
-6-
<PAGE>
(c) Any cash remaining to the credit of a participant's account under
the Plan after a purchase by him or her of Shares at the termination of each
Purchase Period which is insufficient to purchase a full Share shall be carried
over to the next Purchase Period if the Employee continues to participate in the
Plan, or if the Employee does not continue to participate, shall be returned to
the participant. Any other amounts left over in a participant's account after a
Purchase Date shall be returned to the participant.
10. Rights as Shareholder; Delivery of Certificate.
----------------------------------------------
(a) The participant shall have no interest or voting right in Shares
covered by his or her option until such option has been exercised.
(b) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
(c) As promptly as practicable after each Purchase Date of each
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the Shares purchased upon exercise of
his or her option.
11. Voluntary Withdrawal.
--------------------
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current Offering Period will be automatically terminated, and no
further Contributions for the purchase of Shares will be made during and with
respect to such Offering Period.
(b) A participant's voluntary withdrawal from the Plan with respect to
an Offering Period will not have any effect upon his or her eligibility to
participate in a succeeding Offering Period or in any similar plan which may
hereafter be adopted by the Company.
12. Automatic Withdrawal.
--------------------
(a) Reduction of Hours. In the event an Employee fails to remain in
-------------------
Continuous Status as an Employee of the Company for at least twenty (20) hours
per week during the Offering Period in which the employee is a participant, he
or she will be deemed to have elected to withdraw from the Plan and the
Contributions credited to his or her account will be returned to him or her and
his or her option terminated.
(b) Termination of Employment. Upon termination of the participant's
-------------------------
Continuous Status as an Employee prior to the Purchase Date of an Offering
Period (other than on account of death), he or she will be automatically
withdrawn from the Plan effective as of the date of such termination of his or
her Continuous Status as an Employee, the Contributions
-7-
<PAGE>
credited to his or her account will be returned to him or her, and his or her
option will be automatically terminated.
(c) Death of Participant. Upon the death of a participant prior to
--------------------
the Purchase Date of an Offering Period, he or she will be automatically
withdrawn from the Plan, the Contributions credited to his or her account will
be returned to the person or persons entitled thereto under Section 16, and his
or her option will be automatically terminated.
(d) Reduction in Fair Market Value. To the extent permitted by any
------------------------------
applicable laws, regulations or stock exchange rules, if the Fair Market Value
of the Shares on a Purchase Date of an Offering Period (other than the final
Purchase Date of such Offering Period) is less than the Fair Market Value of the
Shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close of
such Purchase Date and after the acquisition of Shares for such Purchase Period,
and (ii) be enrolled in the first Offering Period commencing subsequent to such
Purchase Date. All payroll deductions accumulated in a participant's account as
of such withdrawal date shall be returned to the participant.
13. Interest. No interest shall accrue on the Contributions of a
--------
participant in the Plan.
14. Stock. The maximum number of Shares which shall be made available for
-----
sale under the Plan shall be 600,000 Shares, plus an annual increase on the
first day of each of the Company's fiscal years beginning in 2000, 2001, 2002,
2003 and 2004, equal to the lesser of (A) 186,000 Shares, (B) 1% of the Shares
outstanding on the last day of the immediately preceding fiscal year, or (C)
such lesser number of Shares as is determined by the Board, subject to
adjustment upon changes in capitalization of the Company as provided in Section
20.
15. Administration. The Board, or a committee named by the Board, shall
--------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan. Every finding, decision and determination made by the Board or its
committee shall, to the full extent permitted by law, be final and binding upon
all parties.
16. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any Shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him or her of such Shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Purchase Date of an Offering Period.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective. Such
designation of beneficiary may be changed by the
-8-
<PAGE>
participant (with the consent of his or her spouse, if any) at any time by
written notice effective upon receipt by the Company of such notice.
(b) In the absence of a beneficiary validly designated in accordance
with Section 16(a) who is living at the time of such participant's death, upon
the death of the participant the Company shall deliver such Shares and/or cash
to the executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such Shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
17. Transferability. Neither Contributions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way by the participant (other than by will, the laws of
descent and distribution, or as provided in Section 16). Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 11.
18. Use of Funds. All Contributions received or held by the Company under
------------
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
19. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of Contributions,
the per Share Purchase Price, the number of Shares purchased and the remaining
cash balance, if any.
20. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the shareholders of
----------
the Company, the number of Shares covered by each option under the Plan which
has not yet been exercised and the number of Shares which have been authorized
for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the maximum number of shares of
--------
Common Stock which may be purchased by a participant in a Purchase Period, the
number of shares of Common Stock set forth in Section 14 above, and the price
per Share of Common Stock covered by each option under the Plan which has not
yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common Stock
(including any such change in the number of shares of Common Stock effected in
connection with a change in domicile of the Company), or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company, which such increase or decrease occurs after the effective date of
this Plan; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as
-9-
<PAGE>
expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of Shares subject to an option.
(b) Corporate Transactions. In the event of a dissolution or
----------------------
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate immediately prior to the consummation of such action,
unless otherwise provided by the Board. In the event of a Corporate
Transaction, each option outstanding under the Plan shall be assumed or an
equivalent option shall be substituted by the successor corporation or a parent
or subsidiary of such successor corporation, unless the Board determines, in the
exercise of its sole discretion and in lieu of such assumption or substitution,
to shorten any Purchase Period and Offering Period then in progress by setting a
new Purchase Date (the "New Purchase Date"), as of which date any Purchase
-----------------
Period and Offering Period then in progress will terminate. If the Board
shortens the Purchase Period and Offering Period then in progress in lieu of
assumption or substitution in the event of a Corporate Transaction, the Board
will notify each participant in writing, at least ten (10) days prior to the New
Purchase Date, that the Purchase Date for his or her option has been changed to
the New Purchase Date and that his or her option will be exercised automatically
on the New Purchase Date, unless prior to such date he or she has withdrawn from
the Offering Period as provided in Section 11. For purposes of this Section
20(b), an option granted under the Plan shall be deemed to be assumed, without
limitation, if, at the time of issuance of the stock or other consideration upon
a Corporate Transaction, each holder of an option under the Plan would be
entitled to receive upon exercise of the option the same number and kind of
shares of stock or the same amount of property, cash or securities as such
holder would have been entitled to receive upon the occurrence of the Corporate
Transaction if the holder had been, immediately prior to the Corporate
Transaction , the holder of the number of Shares of Common Stock covered by the
option at such time (after giving effect to any adjustments in the number of
Shares covered by the option as provided in Section 20(a)); provided however
that if the consideration received in the transaction is not solely common stock
of the successor corporation or its parent (as defined in Section 424(e) of the
Code), the Board may, with the consent of the successor corporation, provide for
the consideration to be received upon exercise of the option to be solely common
stock of the successor corporation or its parent equal in Fair Market Value to
the per Share consideration received by holders of Common Stock in the Corporate
Transaction.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per Share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of Shares of its outstanding Common Stock, and
in the event of the Company's being consolidated with or merged into any other
corporation.
21. Amendment and Termination.
-------------------------
(a) The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 20, no such amendment or termination of
the Plan may
-10-
<PAGE>
affect options previously granted, provided that the Plan or an Offering Period
may be terminated by the Board on a Purchase Date or by the Board's setting a
new Purchase Date with respect to an Offering Period and Purchase Period then in
progress if the Board determines that termination of the Plan and/or the
Offering Period is in the best interests of the Company and the shareholders or
if continuation of the Plan and/or the Offering Period would cause the Company
to incur adverse accounting charges as a result of a change after the effective
date of the Plan in the generally accepted accounting rules applicable to the
Plan. Except as provided in Section 20 and this Section 21, no amendment to the
Plan shall make any change in any option previously granted which adversely
affects the rights of any participant. In addition, to the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law or regulation) or Rule 16b-3 under the Exchange Act, the
Company shall obtain shareholder approval in such a manner and to such a degree
as so required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
from a participant's Compensation during an Offering Period, establish the
exchange ratio applicable to amounts withheld in a currency other than U.S.
dollars, permit payroll withholding in excess of the amount designated by a
participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant's
Compensation, establish such other limitations or procedures as the Board (or
its committee) determines in its sole discretion advisable which are consistent
with the Plan.
22. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
23. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
-11-
<PAGE>
24. Term of Plan; Effective Date. The Plan shall become effective upon
----------------------------
the IPO Date. It shall continue in effect for a term of twenty (20) years
unless sooner terminated under Section 21.
25. Additional Restrictions of Rule 16b-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
-12-
<PAGE>
RAMP NETWORKS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
----------------------
New Election
------
Change of Election
------
1. I, ________________________, hereby elect to participate in the Ramp
Networks, Inc. 1999 Employee Stock Purchase Plan (the "Plan") commencing with
----
the Offering Period ______________, ____ to _______________, ____, and subscribe
to purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 15% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on each
Purchase Date of an Offering Period unless I otherwise withdraw from the
Offering Period prior to a Purchase Date by giving written notice to the Company
for such purpose.
4. I understand that I may decrease the rate of my Contributions on one
occasion only during any Offering Period, and that I may increase the rate of my
Contributions on one occasion only during any Offering Period, by completing and
filing a new Subscription Agreement with such decrease or increase, as the case
may be, taking effect as of the beginning of the calendar month following the
date of filing of the new Subscription Agreement, if filed at least ten (10)
business days prior to the beginning of such month. I also understand that I
may change the rate of deductions for future Offering Periods by filing a new
Subscription Agreement, and any such change will be effective as of the
beginning of the next Offering Period in which I am eligible to participate
commencing after the new Subscription Agreement is filed.
5. I understand that I may discontinue my participation in an Offering
Period at any time prior to a Purchase Date as provided in Section 11 of the
Plan, and that if I do so I will not be permitted to renew participation in such
Offering Period.
<PAGE>
I understand that unless I discontinue my participation in an Offering
Period as provided in Section 11 of the Plan or change the rate of deductions by
filing a new Subscription Agreement, my election made under this Subscription
Agreement will continue to be effective for each successive Offering Period
commencing after the termination of an Offering Period in which I have
participated.
6. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "Ramp Networks, Inc. 1999 Employee Stock
Purchase Plan." I understand that my participation in the Plan is in all
respects subject to the terms of the Plan.
7. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
---------------------------------------
---------------------------------------
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) ----------------------------------------
(First) (Middle) (Last)
- --------------------------- ----------------------------------------
(Relationship) (Address)
----------------------------------------
Summary of Tax Treatment on Sale of Shares
------------------------------------------
The following information regarding the federal tax treatment on sale of
------------------------------------------------------------------------
shares acquired under the Plan is only a summary and is subject to change, and
- ------------------------------------------------------------------------------
is not intended to represent or provide tax advice to the participant, his or
- -----------------------------------------------------------------------------
her spouse or beneficiaries. You should consult a tax advisor concerning the
- -----------------------------------------------------------------------------
tax implications of the purchase and sale of stock under the Plan.
- -----------------------------------------------------------------
If any shares received pursuant to the Plan are sold or otherwise disposed
of within two (2) years after the first day of the Offering Period during which
I purchased such shares or within one (1) year after the Purchase Date, the
excess of the fair market value of the shares on the Purchase Date over the
price paid for the shares on such Purchase Date will be treated for federal
income tax purposes as ordinary compensation income at the time of such
disposition, regardless of the amount received on sale or other disposition of
the shares, even if such amount is less than their fair market value at the
Purchase Date. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.
-2-
<PAGE>
If any shares received pursuant to the Plan are sold or otherwise disposed
of at any time after expiration of the 2-year and 1-year holding periods, the
lesser of 15% of the fair market value of the shares on the Offering Date or the
excess of the fair market value of the shares at the time of such sale or
disposition over the price paid for the shares on the Purchase Date will be
treated for federal income tax purposes as ordinary compensation income. The
remainder of the gain or loss, if any, recognized on such disposition will be
treated as capital gain or loss.
9. I hereby agree to notify the Company in writing within 30 days after
the date of any disposition of shares within two (2) years after the first day
of the Offering Period during which I purchased such shares or within one (1)
year after the Purchase Date, and I will make adequate provision for federal,
state or other tax withholding obligations, if any, which arise upon the
disposition of the Common Stock. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
10. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
SIGNATURE:
------------------------------
SOCIAL SECURITY #:
----------------------
DATE:
-----------------------------------
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
- -----------------------------------------
(Signature)
- -----------------------------------------
(Print name)
-3-
<PAGE>
RAMP NETWORKS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
--------------------
I, __________________________, hereby elect to withdraw my participation in
the Ramp Networks, Inc. 1999 Employee Stock Purchase Plan (the "Plan") for the
----
Offering Period _________. This withdrawal covers all Contributions credited to
my account and is effective on the date designated below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
I further understand and agree that I will be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement prior to the commencement of such Offering Period in accordance with
procedures established by the Company.
Dated:
---------------------- --------------------------------------
Signature of Employee
--------------------------------------
Social Security Number
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN
San Jose, California
April 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> MAR-31-1998 MAR-31-1999
<CASH> 12,548 4,747
<SECURITIES> 0 0
<RECEIVABLES> 3,032 1,706
<ALLOWANCES> (149) (131)
<INVENTORY> 1,329 3,200
<CURRENT-ASSETS> 17,134 10,389
<PP&E> 1,391 2,489
<DEPRECIATION> (698) (1,230)
<TOTAL-ASSETS> 17,827 12,091
<CURRENT-LIABILITIES> 4,090 6,530
<BONDS> 0 0
35,946 37,627
0 0
<COMMON> 255 3,199
<OTHER-SE> (24,067) (39,023)
<TOTAL-LIABILITY-AND-EQUITY> 17,827 12,091
<SALES> 2,644 3,883
<TOTAL-REVENUES> 2,644 3,883
<CGS> 2,026 2,612
<TOTAL-COSTS> 2,026 2,612
<OTHER-EXPENSES> 4,585 4,202
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 15 78
<INCOME-PRETAX> (3,771) (2,989)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,771) (2,989)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,771) (2,989)
<EPS-PRIMARY> (1.05) (0.71)
<EPS-DILUTED> (1.05) (0.71)
</TABLE>
