<PAGE>
As filed with the Securities and Exchange Commission on May 25, 1999
Registration No. 333-76463
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
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)
----------------
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. [_]
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 MAY 25, 1999
[LOGO OF RAMP NETWORKS(TM) APPEARS HERE]
4,000,000 Shares
Common Stock
Ramp Networks is offering 3,853,000 shares of its common stock and the
selling stockholders identified in this prospectus are selling an additional
147,000 shares. This is Ramp Networks' initial public offering and no public
market currently exists for its shares. We anticipate that the initial public
offering price will be between $10.00 and $12.00 per share. We have applied for
approval for quotation of our common stock on the Nasdaq National Market under
the symbol "RAMP."
---------------
Investing in the common stock involves risks.
See "Risk Factors" beginning on page 6.
---------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to Ramp Networks....................................... $ $
Proceeds to selling stockholders................................ $ $
</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 600,000 shares of its 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>
<CAPTION>
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 and Selling 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...................................... 70
Index to Consolidated 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 will reincorporate in
Delaware prior to the effectiveness of the registration statement of which this
prospectus is a part. 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 and emerging access technologies such as digital subscriber
line and cable modems. Our Connection Optimized Link Technology 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 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, Access Media International 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 digital
subscriber line 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, selected retail outlets, mail order catalogs
and Internet service providers. 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.
4
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by Ramp
Networks..................... 3,853,000 shares
Common stock offered by the
selling stockholders......... 147,000 shares
Common stock to be outstanding
after the offering........... 20,056,817 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 3,853,000 shares of common stock offered by Ramp Networks at an
assumed initial public offering price of $11.00 per share 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 and diluted net
loss per share ............... $ (0.86) $(0.19)
Shares used in computing pro
forma 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 $43,388
Working capital........................................... 3,859 42,500
Total assets.............................................. 12,091 50,732
Long-term portion of debt and capital lease obligations... 3,758 3,758
Redeemable convertible preferred stock.................... 37,346 --
Total stockholders' equity (deficit)...................... (35,824) 40,444
</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 Consequently Our Future Prospects are
Difficult to Evaluate
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. We may not be successful in addressing
these risks and our business strategy may not be successful. These risks
include 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 and original equipment manufacturers;
. 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 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 or annual basis in the
future. Furthermore, we currently expect to use the net proceeds of this
offering to increase our sales and marketing expenditures, research and
development expenditures
6
<PAGE>
and capital expenditures. 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.
We Expect to Continue to Experience Negative Cash Flow From Operations and May
Be Unable to Meet Our Future Capital Requirements Through the Issuance of
Additional Securities
Since inception, we have experienced negative cash flow from operations and
we expect to continue to experience negative cash flow from operations for the
foreseeable future. Therefore, we have relied primarily on issuances of equity
securities to fund our operations to date. Although we currently anticipate
that the net proceeds of this offering, together with our existing cash
balances and available lines, will be sufficient to meet our anticipated needs
for working capital and capital expenditures through at least the next 12
months, we may need to raise additional funds prior to the expiration of such
period. In particular, 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 unforseen 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
acquisitions, any future transaction of this nature could require potentially
significant amounts of capital. We cannot be certain that additional financing,
through the issuance of equity securities or otherwise, will be available to us
on favorable terms when required, or at all. Furthermore, if we raise
additional funds through the issuance of equity, equity-related or debt
securities, such securities may have rights, preferences or privileges senior
to those of the rights of our common stock and our stockholders may experience
additional dilution. 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 which could adversely affect our ability to achieve and sustain
positive cash flow and profitability in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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;
7
<PAGE>
. 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.
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.
We May Experience Significant Variability in Our Quarterly Revenue Due to Our
Reliance on 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
8
<PAGE>
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, 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.
If We Fail To Develop and Expand Our Indirect Distribution Channels, Our
Business Could Suffer
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
9
<PAGE>
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 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.
If We Are Unable to Lower the Cost of Our Products, Purchasers May Buy From Our
Competitors and Our Financial Results Would Suffer
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.
10
<PAGE>
Our Market Is In An Early Stage of Development and Our Products May Not Achieve
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.
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
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<PAGE>
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.
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 of 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
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<PAGE>
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.
If We Fail to Enhance Our Existing Products or Develop and Introduce New
Products and Features in a Timely Manner to Meet Changing Customer Requirements
and Emerging Industry Standards, Our Ability to Grow Our Business Will Suffer
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;
. 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,
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<PAGE>
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 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
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<PAGE>
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.
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.
If We Are Not Successful in Expanding Our Business in International Markets,
Our Growth Will Suffer
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.
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<PAGE>
If Political, Social or Economic Developments in India Adversely Affect Our
Research and Development Operations in India, Our Ability to Introduce New and
Enhanced Products Would Be Harmed and Our Sales May Suffer
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.
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.
If Internet Usage Declines or the Internet Infrastructure Is Not Adequately
Maintained and Expanded, Demand for Our Products May Decline
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.
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If We Are Unable to Adequately Protect Our Intellectual Property Rights Other
Companies May Use our Intellectual Property to Develop Competitive Products
that May Reduce Demand for Our Products
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 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 NovaWeb Technologies, Inc. alleging
that certain of our products may infringe one of NovaWeb's patents pertaining
to intelligent modem bonding technology. On May 21, 1999, NovaWeb filed a
complaint in the United States District Court Northern District of California
against us alleging infringement of this patent. Although we intend to contest
this action vigorously, litigation is subject to inherent uncertainties and,
therefore, we cannot assure you that we will prevail in this action or that an
adverse judgment will not adversely affect our financial condition. In
addition, we cannot assure you that third parties will not assert additional
17
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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.
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.
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We Will Have Broad Discretion To Use the Proceeds From This Offering In Ways
With Which You May Not Agree
Of the estimated net proceeds from this offering of approximately $38.6
million, a substantial portion will be used for general corporate purposes and
has not yet been designated for a particular purpose. Our management can
therefore 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 32.8% 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 and Selling Stockholders."
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 20,056,817 shares of common
stock outstanding assuming no exercise of outstanding convertible securities
after March 31, 1999, with 20,656,817 shares outstanding if the underwriters'
option to purchase additional shares is exercised in full. The 4,000,000 shares
of common stock sold in this offering, which would be 4,600,000 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 16,056,817 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."
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Because the Initial Public Offering Price Will Be Substantially Higher Than the
Book Value Per Share of Our Outstanding Common Stock, New Investors Will Incur
Immediate and Substantial Dilution in the Amount of $8.98 Per Share
The initial public offering price will be substantially higher than the book
value per share of our common stock outstanding immediately after this offering
based on the total value of our assets less our total liabilities. Therefore,
if you purchase common stock in this offering, you will experience immediate
and substantial dilution of approximately $8.98 per share in the price you pay
for the common stock as compared to its book value. Furthermore, investors
purchasing common stock in this offering will own only 19.2% of our shares
outstanding even though they will have contributed 52.9% of the total
consideration received by us in connection with our sales of common stock. To
the extent outstanding options to purchase common stock are exercised, there
will be further dilution. See "Dilution" for more detailed information
concerning dilution, including the factors used in computing this dilution
amount.
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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.
USE OF PROCEEDS
Our net proceeds from the sale of the 3,853,000 shares of common stock we are
offering are estimated to be $38.6 million, or $44.8 million if the
underwriters' option to purchase additional shares is exercised in full,
assuming an offering price of $11.00 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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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 $11.00
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 $ 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 -- --
-------- -------- --------
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
20,056,817 issued and outstanding, pro
forma as adjusted......................... 3,199 16 20
Additional paid-in capital................... -- 40,810 79,447
Deferred compensation........................ (2,146) (2,146) (2,146)
Accumulated deficit.......................... (36,877) (36,877) (36,877)
-------- -------- --------
Total stockholders' equity (deficit)....... (35,824) 1,803 40,444
-------- -------- --------
Total capitalization..................... $ 5,561 $ 5,561 $ 44,202
======== ======== ========
</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.
22
<PAGE>
DILUTION
As of March 31, 1999, our pro forma net tangible book value was approximately
$1.8 million, or $0.11 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 3,853,000 shares of common stock offered
by us at an assumed initial public offering price of $11.00 per share, our pro
forma net tangible book value at March 31, 1999 would have been approximately
$40.4 million, or $2.02 per share. This represents an immediate increase in net
tangible book value of $1.91 per share to existing stockholders and an
immediate dilution of $8.98 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................... $11.00
Pro forma net tangible book value per share as of March 31,
1999........................................................... $0.11
Increase per share attributable to new investors................ 1.91
-----
Pro forma net tangible book value per share after the offering.... 2.02
------
Dilution per share to new investors............................... $8.98
======
</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
$11.00 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 80.8% $37,685,000 47.1% $2.33
New investors.............. 3,853,000 19.2 42,383,000 52.9 11.00
---------- ----- ----------- -----
Total.................... 20,056,817 100.0% 80,068,000 100.0%
========== ===== =========== =====
</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 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.
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 and diluted net
loss per share......... $ -- $ (1.29) $ (2.50) $ (3.92) $ (3.50) $ (1.05) $ (0.71)
======= ======= ======== ======== ======== ======== =======
Shares used in computing
basic and diluted net
loss per share......... -- 726 2,528 2,945 3,839 3,584 4,232
======= ======= ======== ======== ======== ======== =======
Pro forma basic and
diluted net loss per
share.................. $ (0.86) $ (0.19)
======== =======
Shares used in computing
pro forma basic and
diluted 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 Connection Optimized Link Technology 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.
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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 Connection Optimized Link Technology 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.
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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 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.
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. 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.
. 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
Access Media International estimates 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 Connection
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Optimized Link Technology 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. 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 Connection Optimized Link
Technology 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 Connection Optimized Link 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 Connection Optimized Link 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 Connection Optimized
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Link Technology to 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 Connection Optimized Link 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 Networks, 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 Copper Mountain Networks
Compaq J-Tek Corp AT&T Worldnet Canada IBM
Diamond
Multimedia Logitek Beijing SanJia Network HP Computer Products Organization
IBM Merisel Cable & Wireless Lexis-Nexis
Nortel-
Netgear Synergy Ideal Technology
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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<PAGE>
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 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
44
<PAGE>
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 Connection Optimized Link
Technology, 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., Discopy
Labs Corporation and SMT Unlimited, Inc. Micron is a ISO-9002 certified, BABT
compliant and Bell-core qualified manufacturer specializing in
telecommunications hardware and systems. Micron 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 Micron
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 Unlimited, 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
45
<PAGE>
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
46
<PAGE>
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 NovaWeb Technologies, Inc. alleging
that certain of our products may infringe one of NovaWeb's patents pertaining
to intelligent modem bonding technology. On May 21, 1999, NovaWeb filed a
complaint in the United States District Court Northern District of California
against us alleging infringement of such patent. Although NovaWeb has failed to
identify which of the claims in its patent are allegedly infringed in its
complaint against us, we believe that a number of the claims in NovaWeb's
patent are invalid based upon the advice of our patent counsel. Accordingly, we
intend to contest this action vigorously and do not believe that resolution of
this action will have a material adverse effect on our business. However,
litigation is subject to inherent uncertainties and, therefore, we cannot
assure you that we will prevail in this action or that an adverse judgment will
not adversely affect our financial condition. 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.
47
<PAGE>
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, 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
From time to we have been, and expect to continue to be, subject to legal
proceedings and claims in the ordinary course of our business, including claims
that we allegedly infringe third-party patents, trademarks and other
intellectual property rights. These claims, even if not meritorious, could
result in the expenditure of significant financial and managerial resources.
In March 1999, we received a letter from NovaWeb Technologies, Inc. alleging
that certain of our products may infringe one of NovaWeb's patents pertaining
to intelligent modem bonding technology. On May 21, 1999, NovaWeb filed a
complaint in the United States District Court Northern District of California
against us alleging infringement of such patent. Although NovaWeb has failed to
identify which of the claims in its patent are allegedly infringed in its
complaint against us, we believe that a number of the claims in NovaWeb's
patent are invalid based upon the advice of our patent counsel. Accordingly, we
intend to contest this action vigorously and do not believe that resolution of
this action will have a material adverse effect on our business. However,
litigation is subject to inherent uncertainties and, therefore, we cannot
assure you that we will prevail in this action or that an adverse judgment will
not adversely affect our financial condition.
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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, an 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.
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<PAGE>
Mr. Habib holds a B.S. in Computer Science and Mathematics from Universite de
Rouen in Rouen, France, an 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 J. 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 T. 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 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. in Electrical Engineering
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.
52
<PAGE>
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
53
<PAGE>
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 of directors, 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 of directors, 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 Ramp Networks. 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 common stock at the time of grant, however, the
exercise price of stock options granted
54
<PAGE>
to employees owning stock that represents more than 10% of the total combined
voting power of all classes of our outstanding capital stock 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 1999 employee
stock purchase plan, none of which have been issued as of the date of this
offering. The number of shares reserved for issuance under the 1999 employee
stock 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 1999 employee stock purchase
plan becomes effective upon the date of this prospectus. Unless terminated
earlier by the board of directors, the 1999 employee stock purchase plan shall
terminate in April 2019.
The 1999 employee stock 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 1999
employee stock 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 1999 employee stock
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 1999 employee
stock 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 1999 employee stock purchase plan, up to a
maximum of 20% of compensation. Employees may end their participation in the
1999 employee stock 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 1999 employee stock purchase plan that permit
stock purchases through cash or stock contributions.
No employee shall be permitted to purchase shares under the 1999 employee
stock purchase plan if immediately after the purchase such employee would own
stock and/or hold outstanding
55
<PAGE>
options to purchase stock 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 1999 employee stock 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 1999 employee stock 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 1999 employee stock purchase plan are exercised prior
to the transaction. The board of directors has the power to amend or terminate
the 1999 employee stock 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 of directors may
amend or terminate the 1999 employee stock 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
56
<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.
57
<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 and Selling Stockholders table for more
information.
(2) Philip Gianos, one of our directors, is a general partner of InterWest
Partners. See the Principal and Selling Stockholders table for more
information.
58
<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.
59
<PAGE>
PRINCIPAL AND SELLING 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, (iv) all directors and executive officers of the company as
a group and (v) all other Selling Stockholders.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Before Owned After
Offering(2) Number Offering(2)(4)
-------------------- Of Shares --------------------
Number Percent(3) Being Offered Number Percent(3)
--------- ---------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Anthony Sun(5)(6)....... 4,035,483 24.8% -- 4,035,483 20.1%
2494 Sand Hill Road
Menlo Park, CA 94025
Mahesh Veerina(1)(6).... 1,273,491 7.8 48,000 1,225,491 6.1
Philip T. Gianos(6)(7).. 1,226,007 7.5 -- 1,226,007 6.1
3000 Sand Hill Road,
Building 3
Menlo Park, CA 94025
L. William Krause(6).... 49,999 * -- 49,999 *
Timothy J.
McElwee(1)(6).......... 49,999 * -- 49,999 *
Patricia R.
Burke(1)(6)............ 106,749 * -- 106,749 *
Venrock Associates(8)... 3,987,483 24.6 -- 3,987,483 19.9
2494 Sand Hill Road
Menlo Park, CA 94025
London Pacific Life &
Annuity Company........ 1,517,020 9.4 -- 1,517,020 7.6
3109 Poplarwood Court
Raleigh, NC 27604
InterWest Partners(9)... 1,185,415 7.3 -- 1,185,415 5.9
3000 Sand Hill Road,
Building 3
Menlo Park, CA 94025
Ravindrath N. Bathina... 1,016,736 6.3 30,000 986,736 4.9
1325 Sycamore Hills
Parkway
Fort Wayne, IN 46804
Vertex Management(10)... 944,733 5.8 -- 944,733 4.7
3 Lagoon Drive, Suite
220
Redwood City, CA 94065
Draper
International(11)...... 831,220 5.1 -- 831,220 4.1
50 Fremont Street
San Francisco, CA 94105
Raghu Bathina(1)........ 615,598 3.8 30,000 585,598 2.9
Sridhar N. Bathina(1)... 612,000 3.8 30,000 582,000 2.9
Rao Cherukuri(1)........ 360,599 2.2 3,000 357,599 1.8
Kothandapani
Ranganath(1)........... 336,000 2.1 6,000 330,000 1.7
All directors and
officers as a group
(8 persons)(5)(7)...... 6,741,728 40.7% 48,000 6,693,728 32.8%
</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) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The number of shares beneficially
owned by a person includes shares of common stock subject to options held
by that person that are currently exercisable
60
<PAGE>
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) Percentage of shares beneficially owned is based on 16,203,817 shares of
common stock outstanding as of March 31, 1999 and 20,056,817 shares of
common stock to be outstanding upon the consummation of this offering.
(4) Assumes underwriters do not exercise their over-allotment option.
(5) 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.
(6) 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.
(7) 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.
(8) Includes 2,632,351 shares held by Venrock Associates, L.P. and 1,355,132
shares held by Venrock Associates II, L.P.
(9) Includes 1,178,007 shares owned by InterWest Partners V, L.P. and 7,408
shares held by InterWest Investors V, L.P.
(10) Includes 759,262 shares owned by Vertex Investment (II) Ltd. and 185,471
shares held by HWH Investment Pte., Ltd.
(11) Includes 650,712 shares owned by Draper International Holdings, L.P. and
180,508 shares held by Draper International India, L.P.
61
<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 20,056,817 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.
62
<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 27,999 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
The transfer agent and registrar for our common stock is Boston EquiServe LP,
and its telephone number is (781) 575-2000.
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."
64
<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 20,056,817 shares of common
stock. Of these shares, the shares to be sold in this offering (20,656,817
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 16,056,817 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 16,056,817 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, 16,056,817 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 1999 employee stock 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 14,719,259 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, have severally agreed with us
and the selling stockholders, subject to the terms and conditions set forth in
the underwriting agreement, to purchase from us and the selling stockholders
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......................................................... 4,000,000
=========
</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 600,000 additional shares of common stock at the same price per
share as we will receive for the 4,000,000 shares that the underwriters have
agreed to purchase from us and the selling stockholders. 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 4,000,000 shares offered
hereby. If purchased, such additional shares will be sold by the underwriters
on the same terms as those on which the 4,000,000 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 and proceeds to us will be $ and $ , respectively.
The following table summarizes the compensation to be paid to the
underwriters by us and the selling stockholders:
<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over- Over-
Share Allotment Allotment
----- --------- ---------
<S> <C> <C> <C>
Underwriting Discounts and Commissions payable by
us................................................. $ $ $
Underwriting Discounts and Commissions payable by
the selling stockholders........................... $ $ $
</TABLE>
67
<PAGE>
We estimate that expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will
be approximately $775,000.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters, us and the selling stockholders 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, stockholders
of record, optionholders and warrantholders has agreed with us or the
representatives, for a period of 180 days after the date of this prospectus,
subject to certain exceptions, not to offer to sell, contract 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 stockholders
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 stockholders 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
68
<PAGE>
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.
Directed Share Program. At our request, the underwriters have reserved up to
five percent of common stock offered by us and the selling stockholders for
sale, at the initial public offering price, to our directors, officers,
employees, business associates and related persons. The number of shares of
common stock available for sale to the general public will be reduced to the
extent such individuals purchase such reserved shares. Any reserved shares
which are not so purchased will be offered by the underwriters to the general
public on the same basis as the other shares offered hereby.
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.
The statements in this prospectus relating to NovaWeb under the captions
"Risk Factors--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," "Business--Intellectual Property" and "Business--
Legal Proceedings" have been reviewed and approved by Townsend and Townsend and
Crew LLP, special intellectual property counsel for Ramp Networks, as experts
in such matters, and are included herein in reliance upon such review and
approval.
69
<PAGE>
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.
70
<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 Statements 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 $ 40,826
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) $ 1,803
-------- -------- -------- ========
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 and diluted net loss
per share................... $ (2.50) $ (3.92) $ (3.50) $ (1.05) $ (0.71)
======= ======== ======== ======= =======
Shares used in computing ba-
sic and diluted net loss per
share....................... 2,528 2,945 3,839 3,584 4,232
======= ======== ======== ======= =======
Pro forma basic and diluted
net loss per share
(unaudited)................. $ (0.86) $ (0.19)
======== =======
Shares used in computing pro
forma basic and diluted 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 Total
----------------------- ------------- Deferred Stock Accumulated Shareholders'
Shares Value Warrants Shares Value Compensation Deficit Equity (Deficit)
------ ------- -------- ------ ------ -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995........... 3,171 $ 1,949 $ -- 3,651 $ 138 $ -- $ (1,215) $ (1,077)
Exercise of stock options.............. -- -- -- 9 1 -- -- 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 -- -- 60
Net loss............................... -- -- -- -- -- -- (6,322) (6,322)
------ ------- ---- ----- ------ -------- -------- -------
BALANCE AT DECEMBER 31, 1996........... 7,413 11,949 -- 3,660 199 -- (7,537) (7,338)
Exercise of stock options.............. -- -- -- 475 52 -- -- 52
Issuance of Series C stock............. 1,774 8,750 -- -- -- -- -- --
Issuance costs of Series C stock....... -- -- -- -- -- -- (23) (23)
Issuance of Series D stock............. 2,419 15,945 -- -- -- -- -- --
Issuance costs of Series D stock....... -- -- -- -- -- -- (1,376) (1,376)
Net loss............................... -- -- -- -- -- -- (11,534) (11,534)
------ ------- ---- ----- ------ -------- -------- -------
BALANCE AT DECEMBER 31, 1997........... 11,606 36,644 -- 4,135 251 -- (20,470) (20,219)
Issuance of Series D stock related to
acquisition of technology............. 106 702 -- -- -- -- -- --
Exercise of stock options.............. -- -- -- 253 104 -- -- 104
Deferred stock compensation related to
stock options......................... -- -- -- -- 111 (111) -- --
Amortization of deferred stock
compensation.......................... -- -- -- -- -- 7 -- 7
Stock compensation..................... -- -- -- 162 -- -- 162
Net loss............................... -- -- -- -- -- -- (13,418) (13,418)
------ ------- ---- ----- ------ -------- -------- --------
BALANCE AT DECEMBER 31, 1998........... 11,712 37,346 -- 4,388 628 (104) (33,888) (33,364)
Exercise of stock options (unaudited).. -- -- -- 104 45 -- -- 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 -- 376
Stock compensation (unaudited)......... -- -- -- -- 108 -- -- 108
Net loss (unaudited)................... -- -- -- -- -- -- (2,989) (2,989)
------ ------- ---- ----- ------ -------- -------- --------
BALANCE AT MARCH 31, 1999
(unaudited).......................... 11,712 $37,346 $281 4,492 $3,199 $(2,146) $(36,877) $(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 (used in) 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. ("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. Ramp sells its products through distributors and to
original equipment manufacturers located in the United States and abroad.
Ramp has incurred net operating losses each year since its inception and, as
of March, 31 1999, had an accumulated deficit of $36.9 million. Ramp 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 Ramp and its
subsidiary located in India. All significant intercompany accounts and
transactions are eliminated in consolidation. The functional currency of Ramp'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
Ramp 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, Ramp's four largest customers accounted for approximately 60% of
Ramp's accounts receivable.
Substantially all of Ramp's cash and cash equivalents are held by two
financial institutions in money market funds and on-demand deposit accounts.
Supplier Risk
Ramp 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 depreciation
and amortization............................... (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," Ramp 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, Ramp acquired certain software technology relating to
faxing over the Internet. Pursuant to this agreement, Ramp 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, Ramp accrued approximately $686,000 related to this
additional consideration. As of March 31, 1999, all milestones were met, and
Ramp 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. Ramp 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
Ramp'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. Ramp has reviewed the
requirements of SFAS No. 48 "Revenue Recognition When Right of Return Exists"
and has concluded that they have sufficient history and experience to quantify
reserves required for these provisions. Accordingly, Ramp 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 Ramp 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, Ramp'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, Ramp 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>
Ramp 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
approximately
F-11
<PAGE>
RAMP NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, Ramp 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, Ramp 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 was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months
Ended
Years Ended December 31, March 31,
------------------------ -------------
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>
Ramp'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 Ramp.
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. Ramp 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, Ramp 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:
Ramp 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.
Ramp 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>
Ramp 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
Ramp.
5. PREFERRED STOCK:
Redeemable Convertible Preferred Stock
In 1995 and 1996, Ramp issued 3,171,000 and 1,626,773 shares, respectively,
of its Series A Redeemable Convertible Preferred Stock (Series A). In 1996,
Ramp issued 2,614,999 shares of its
F-13
<PAGE>
RAMP NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 Ramp,
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 Ramp
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, Ramp shall, to
the extent funds are legally available, redeem the preferred stock in
increments over a three-year period. In such event, Ramp 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, Ramp 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, Ramp 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, Ramp 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, Ramp
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
Ramp 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 Ramp'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.
Ramp 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
Ramp 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 Ramp 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:
Ramp 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 Ramp, 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, Ramp 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.
The provision for income taxes differs from the expected tax benefit amount
computed by applying the statutory federal income tax rate of 34% to income
before income taxes as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate.. (34.0)% (34.0)% (34.0)%
State taxes, net of
federal benefit........ (5.8) (5.8) (5.8)
Change in valuation
allowance.............. 39.8 39.8 39.8
----- ----- -----
0 % 0 % 0 %
===== ===== =====
</TABLE>
8. RELATED PARTY TRANSACTIONS:
In 1996, Ramp sold its ATM adapter card technology, related development tools
and work stations to a company, which was owned by the primary shareholders of
Ramp, 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.
F-18
<PAGE>
RAMP NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. SUBSEQUENT EVENTS:
Reverse Stock Split
In April 1999, Ramp's board of directors approved a three for five reverse
stock split of Ramp's outstanding shares which will become effective
immediately prior to Ramp'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.
Reincorporation, Amendment to the Articles of Incorporation
In April 1999, Ramp's board of directors authorized the reincorporation of
Ramp in the State of Delaware which will be consummated prior to the
effectiveness of this Registration Statement and the completion of Ramp's
initial public offering. Upon reincorporation, Ramp 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 Ramp'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, Ramp 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, Ramp had borrowed $1.0 million under this facility. In connection with
this facility, Ramp issued warrants to the lender to purchase shares of Series
D preferred stock at an aggregate exercise price of $625,000. The warrant
exercise price per share will be determined based on an average of the Series D
preferred stock price and Ramp's initial public offering price. The number of
shares of Series D that may be acquired under the warrants is equal to the
aggregate exercise price, $625,000, divided by the exercise price per share.
The warrants are exercisable immediately and expire in 2005. The fair value of
the warrants on the date of grant was determined to be $165,000 and was
estimated using the Black-Scholes model with the following assumptions: risk-
free interest rates of 4.7%; expected dividend yields of 0%; expected life of
1.5 years; and expected volatility of 77%. This amount will be recognized as
additional interest expense over the term of this arrangement with the lender.
In addition, in March 1999, Ramp 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, Ramp
issued warrants to the lender for 27,999 shares of Series D preferred stock at
an exercise price
F-19
<PAGE>
RAMP NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 was determined to be
$116,000 and was estimated using the Black-Scholes model with the following
assumptions: risk-free interest rates of 5.4%; expected dividend yields of 0%;
expected life of 1.5 years; and expected volatility of 77%. This amount will be
recognized as additional interest expense over the term of this arrangement
with the lender.
F-20
<PAGE>
[LOGO OF RAMP NETWORKS(TM) 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 our 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 our directors,
officers, employees and other agents to the maximum extent permitted by the
Delaware General Corporation Law. In addition, we have entered into
indemnification agreements (Exhibit 10.1) with our 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 7 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).
23.3 Consent of Townsend and Townsend and Crew LLP.
24.1+ Power of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- --------
+Previously filed.
**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. 2 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 May 25, 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. 2 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 May 25, 1999
______________________________________ Officer and Director
(Mahesh Veerina) (Principal Executive
Officer)
/s/ Terry Gibson Vice President of Finance, May 25, 1999
______________________________________ Chief Financial Officer
(Terry Gibson) and Secretary (Principal
Financial and Accounting
Officer)
/s/ Anthony Sun* Director May 25, 1999
______________________________________
(Anthony Sun)
/s/ Philip T. Gianos* Director May 25, 1999
____________________________________
(Philip T. Gianos)
/s/ L. William Krause* Director May 25, 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).
23.3 Consent of Townsend and Townsend and Crew LLP.
24.1+ Power of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- --------
+Previously filed.
**Confidential Treatment Requested
<PAGE>
Exhibit 1.1
Ramp Networks, Inc.
Underwriting Agreement
April __, 1999
BancBoston Robertson Stephens Inc.
Dain Rauscher Wessels,
a division of Dain Rauscher Incorporated
Hambrecht & Quist LLC
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
Introductory. Ramp Networks, Inc., a Delaware corporation (the "Company),
proposes to issue and sell to the several underwriters named in Schedule A (the
----------
"Underwriters") an aggregate of 3,853,000 shares of its Common Stock, par value
$.001 per share (the "Common Shares") and the stockholders of the Company named
in Schedule B (collectively, the "Selling Stockholders") severally propose to
----------
sell to the Underwriters an aggregate of 147,000 Common Shares. The 3,853,000
Common Shares to be sold by the Company and the 147,000 shares of Common Shares
to be sold by the Selling Stockholders are collectively called the "Firm
Shares". In addition, the Company has granted to the Underwriters an option to
purchase up to an additional 600,000. Common Shares (the "Option Shares") as
provided in Section 2. The Firm Shares and, if and to the extent such option is
exercised, the Option Shares are collectively called the "Shares". BancBoston
Robertson Stephens Inc., Hambrecht & Quist LLC and Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated have agreed to act as representatives of
the several Underwriters (in such capacity, the "Representatives") in connection
with the offering and sale of the Shares.
The Company has prepared and filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-1 (File No. 333-[___]),
which contains a form of prospectus to be used in connection with the public
offering and sale of the Shares. Such registration statement, as amended,
including the financial statements, exhibits and schedules thereto, in the form
in which it was
<PAGE>
declared effective by the Commission under the Securities Act of 1933 and the
rules and regulations promulgated thereunder (collectively, the "Securities
Act"), including any information deemed to be a part thereof at the time of
effectiveness pursuant to Rule 430A or Rule 434 under the Securities Act, is
called the "Registration Statement". Any registration statement filed by the
Company pursuant to Rule 462(b) under the Securities Act is called the "Rule
462(b) Registration Statement", and from and after the date and time of filing
of the Rule 462(b) Registration Statement the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. Such prospectus, in the
form first used by the Underwriters to confirm sales of the Shares, is called
the "Prospectus"; provided, however, if the Company has, with the consent of
BancBoston Robertson Stephens Inc., elected to rely upon Rule 434 under the
Securities Act, the term "Prospectus" shall mean the Company's prospectus
subject to completion (each, a "preliminary prospectus") dated [___] such
preliminary prospectus is called the "Rule 434 preliminary prospectus"),
together with the applicable term sheet (the "Term Sheet") prepared and filed by
the Company with the Commission under Rules 434 and 424(b) under the Securities
Act and all references in this Agreement to the date of the Prospectus shall
mean the date of the Term Sheet. All references in this Agreement to (i) the
Registration Statement, the Rule 462(b) Registration Statement, a preliminary
prospectus, the Prospectus or the Term Sheet, or any amendments or supplements
to any of the foregoing, shall include any copy thereof filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with the Underwriters as follows:
Section 1. Representations and Warranties of the Company and the Selling
Stockholders.
Representations and Warranties of the Company. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the
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offer and sale of the Shares. Each of the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendment thereto, at the
time it became effective and at all subsequent times, complied and will comply
in all material respects with the Securities Act and did not and will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading. The Prospectus, as amended or supplemented, as of its date and at
all subsequent times, did not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The representations and warranties set forth in the two
immediately preceding sentences do not apply to statements in or omissions from
the Registration Statement, any Rule 462(b) Registration Statement, or any post-
effective amendment thereto, or the Prospectus, or any amendments or supplements
thereto, made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by the Representatives
expressly for use therein. There are no contracts or other documents required to
be described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives three complete conformed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(e) Authorization of the Shares To Be Sold by the Company. The Shares
to be purchased by the Underwriters from the Company have been duly authorized
for issuance and sale pursuant to this Agreement and, when issued and delivered
by the Company pursuant to this Agreement, will be validly issued, fully paid
and nonassessable.
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<PAGE>
(f) Authorization of the Shares To Be Sold by the Selling Stockholders.
The Common Shares to be purchased by the Underwriters from the Selling
Stockholders, when issued, were validly issued, fully paid and nonassessable.
(g) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, other than the selling stockholders
with respect to the Shares included in the Registration statements except for
such rights as have been duly waived.
(h) No Material Adverse Change. Subsequent to the respective dates as
of which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change or effect, where the
context so requires, is called a "Material Adverse Change" or a "Material
Adverse Effect"); (ii) the Company and its subsidiaries, considered as one
entity, have not incurred any material liability or obligation, indirect, direct
or contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or distribution of any kind declared, paid or
made by the Company or, except for dividends paid to the Company or other
subsidiaries, any of its subsidiaries on any class of capital stock or
repurchase or redemption by the Company or any of its subsidiaries of any class
of capital stock.
(i) Independent Accountants. Arthur Andersen LLP, who have expressed
their opinion with respect to the financial statements (which term as used in
this Agreement includes the related notes thereto) and supporting schedules
filed with the Commission as a part of the Registration Statement and included
in the Prospectus, are independent public or certified public accountants as
required by the Securities Act.
(j) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the consolidated financial position of the
Company and its subsidiaries as of and at the dates indicated and the results of
their operations and cash flows for the periods specified. The supporting
schedules included in the Registration Statement present fairly the information
required to be stated therein. Such financial statements and supporting
schedules have been prepared in conformity with generally accepted accounting
principles as applied in the United States applied on a consistent basis
throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules
are required to be included in the Registration Statement. The financial data
set forth in the Prospectus under the captions "Prospectus Summary--Summary
Selected Financial Data", "Selected Financial Data" and "Capitalization" fairly
present the information set forth therein on a
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<PAGE>
basis consistent with that of the audited financial statements contained in the
Registration Statement.
(k) Company's Accounting System. The Company and each of its
subsidiaries maintain a system of accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles as applied in the United States and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(l) Subsidiaries of the Company. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
the subsidiaries listed in Exhibit 21 to the Registration Statement.
(m) Incorporation and Good Standing of the Company and its Subsidiaries.
Each of the Company and its subsidiaries has been duly organized and is validly
existing as a corporation or limited liability company, as the case may be, in
good standing under the laws of the jurisdiction in which it is organized with
full corporate power and authority to own its properties and conduct its
business as described in the prospectus, and is duly qualified to do business as
a foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification.
(n) Capitalization of the Subsidiaries. All the outstanding shares of
capital stock of each subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise set forth
in the Prospectus, all outstanding shares of capital stock of the subsidiaries
are owned by the Company either directly or through wholly owned subsidiaries
free and clear of any security interests, claims, liens or encumbrances.
(o) No Prohibition on Subsidiaries from Paying Dividends or Making Other
Distributions. No subsidiary of the Company is currently prohibited, directly
or indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the Company
any loans or advances to such subsidiary from the Company or from transferring
any of such subsidiary's property or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated by the
Prospectus.
(p) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in the
Prospectus). The Common Shares (including the
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<PAGE>
Shares) conform in all material respects to the description thereof contained in
the Prospectus. All of the issued and outstanding Common Shares have been duly
authorized and validly issued, are fully paid and nonassessable and have been
issued in compliance with federal and state securities laws. None of the
outstanding Common Shares were issued in violation of any preemptive rights,
rights of first refusal or other similar rights to subscribe for or purchase
securities of the Company. There are no authorized or outstanding options,
warrants, preemptive rights, rights of first refusal or other rights to
purchase, or equity or debt securities convertible into or exchangeable or
exercisable for, any capital stock of the Company or any of its subsidiaries
other than those accurately described in the Prospectus. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(q) Stock Exchange Listing. The Shares have been approved for listing
on the Nasdaq National Market, subject only to official notice of issuance.
(r) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters in the manner contemplated here and in the Prospectus, (ii) by
the National Association of Securities Dealers, LLC and (iii) by the federal and
provincial laws of Canada.
(s) Non-Contravention of Existing Instruments Agreements. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, (i) the charter or by-laws of the Company or any of
its subsidiaries, (ii) the terms of any indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company or any of its
subsidiaries is a party or bound or to which its or their property is subject or
(iii) any statute, law, rule, regulation, judgment, order or decree applicable
to the Company or any of its subsidiaries of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its subsidiaries or any of its or their
properties.
(t) No Defaults or Violations. Neither the Company nor any subsidiary
is in violation or default of (i) any provision of its charter or by-laws, (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its property is subject
or (iii) any statute, law, rule, regulation,
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<PAGE>
judgment, order or decree of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over the
Company or such subsidiary or any of its properties, as applicable, except any
such violation or default which would not, singly or in the aggregate, result in
a Material Adverse Change except as otherwise disclosed in the Prospectus.
(u) No Actions, Suits or Proceedings. Except as otherwise disclosed in
the Prospectus, no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any of its subsidiaries or its or their property is pending or, to the best
knowledge of the Company, threatened that (i) could reasonably be expected to
have a Material Adverse Effect on the performance of this Agreement or the
consummation of any of the transactions contemplated hereby or (ii) could
reasonably be expected to result in a Material Adverse Effect.
(v) All Necessary Permits, Etc. The Company and each subsidiary possess
such valid and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies necessary to
conduct their respective businesses, and neither the Company nor any subsidiary
has received any notice of proceedings relating to the revocation or
modification of, or non-compliance with, any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.
(w) Title to Properties. The Company and each of its subsidiaries has
good and marketable title to all the properties and assets reflected as owned in
the financial statements referred to in Section 1(A)(i) above (or elsewhere in
the Prospectus), in each case free and clear of any security interests,
mortgages, liens, encumbrances, equities, claims and other defects, except such
as do not materially and adversely affect the value of such property and do not
materially interfere with the use made or proposed to be made of such property
by the Company or such subsidiary. The real property, improvements, equipment
and personal property held under lease by the Company or any subsidiary are held
under valid and enforceable leases, with such exceptions as are not material and
do not materially interfere with the use made or proposed to be made of such
real property, improvements, equipment or personal property by the Company or
such subsidiary.
(x) Tax Law Compliance. The Company and its subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns and have
paid all taxes required to be paid by any of them and, if due and payable, any
related or similar assessment, fine or penalty levied against any of them except
as may be being contested in good faith and by appropriate proceedings. The
Company has made adequate charges, accruals and reserves in the applicable
financial statements referred to in Section 1(A)(i) above in respect of all
federal, state and foreign income and franchise taxes for all periods as to
which the tax liability of the Company or any of its subsidiaries has not been
finally determined. The Company is not aware of any tax deficiency that has
been or might be
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<PAGE>
asserted or threatened against the Company that could result in a Material
Adverse Change.
(y) Intellectual Property Rights. Each of the Company and its
subsidiaries owns or possesses adequate rights to use all patents, patent rights
or licenses, inventions, collaborative research agreements, trade secrets, know-
how, trademarks, service marks, trade names and copyrights which are necessary
to conduct its businesses as described in the Registration Statement and
Prospectus; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not result in a
Material Adverse Change that is not otherwise disclosed in the Prospectus; the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights; and the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, might have a Material Adverse Change. There is no
claim being made against the Company regarding patents, patent rights or
licenses, inventions, collaborative research, trade secrets, know-how,
trademarks, service marks, trade names or copyrights. The Company and its
subsidiaries do not in the conduct of their business as now or proposed to be
conducted as described in the Prospectus infringe or conflict with any right or
patent of any third party, or any discovery, invention, product or process which
is the subject of a patent application filed by any third party, known to the
Company or any of its subsidiaries, which such infringement or conflict is
reasonably likely to result in a Material Adverse Change.
(z) Year 2000 Preparedness. There are no issues related to the
Company's, or any of its subsidiaries', preparedness for the Year 2000 that (i)
are of a character required to be described or referred to in the Registration
Statement or Prospectus by the Securities Act which have not been accurately
described in the Registration Statement or Prospectus or (ii) might reasonably
be expected to result in any Material Adverse Change or that might materially
affect their properties, assets or rights. All internal computer systems and
each Constituent Component (as defined below) of those systems and all computer-
related products and each Constituent Component (as defined below) of those
products of the Company and each of its subsidiaries fully comply with Year 2000
Qualification Requirements. "Year 2000 Qualifications Requirements" means that
the internal computer systems and each Constituent Component (as defined below)
of those systems and all computer-related products and each Constituent
Component (as defined below) of those products of the Company and each of its
Subsidiaries (i) have been reviewed to confirm that they store, process
(including sorting and performing mathematical operations, calculations and
computations), input and output data containing date and information correctly
regardless of whether the date contains dates and times before, on or after
January 1, 2000, (ii) have been designated to ensure date and time entry
recognition and calculations, and date data interface values that reflect the
century, (iii)
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<PAGE>
accurately manage and manipulate data involving dates and times, including
single century formulas and multi-century formulas, and will not cause an
abnormal ending scenario within the application or generate incorrect values or
invalid results involving such dates, (iv) accurately process any date rollover,
and (v) accept and respond to two-digit year date input in a manner that
resolves any ambiguities as to the century. "Constituent Component" means all
software (including operating systems, programs, packages and utilities),
firmware, hardware, networking components, and peripherals provided as part of
the configuration. The Company has inquired of material vendors as to their
preparedness for the Year 2000 and has disclosed in the Registration Statement
or Prospectus any issues that might reasonably be expected to result in any
Material Adverse Change.
(aa) No Transfer Taxes or Other Fees. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the shares.
(bb) Company Not an "Investment Company". The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after receipt
of payment for the Shares will not be, an "investment company" or an entity
"controlled" by an "investment company" within the meaning of the Investment
Company Act and will conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(cc) Insurance. Each of the Company and its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their businesses including, but not limited
to, policies covering real and personal property owned or leased by the Company
and its subsidiaries against theft, damage, destruction, acts of vandalism and
earthquakes, general liability and Directors and Officers liability. The
Company has no reason to believe that it or any subsidiary will not be able (i)
to renew its existing insurance coverage as and when such policies expire or
(ii) to obtain comparable coverage from similar institutions as may be necessary
or appropriate to conduct its business as now conducted and at a cost that would
not result in a Material Adverse Change. Neither of the Company nor any
subsidiary has been denied any insurance coverage which it has sought or for
which it has applied.
(dd) Labor Matters. To the best of Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, subassemblers,
value added resellers, subcontractors, original equipment manufacturers,
authorized dealers or international distributors that might be expected to
result in a Material Adverse Change.
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<PAGE>
(ee) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
(ff) Lock-Up Agreements. Each officer and director of the company and
each beneficial owner of the outstanding issued share capital of the Company has
agreed to sign an agreement substantially in the form attached hereto as Exhibit
-------
A (the "Lock-up Agreements"). The Company has provided to counsel for the
- -
Underwriters a complete and accurate list of all securityholders of the Company
and the number and type of securities held by each securityholder. The Company
has provided to counsel for the Underwriters true, accurate and complete copies
of all of the Lock-up Agreements presently in effect or effected hereby. The
Company hereby represents and warrants that it will not release any of its
officers, directors or other stockholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of BancBoston
Robertson Stephens Inc.
(gg) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any other
person required to be described in the Prospectus which have not been described
as required.
(hh) No Unlawful Contributions or Other Payments. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made any contribution or
other payment to any official of, or candidate for, any federal, state or
foreign office in violation of any law or of the character required to be
disclosed in the Prospectus.
(ii) Environmental Laws. (i) the Company is in compliance with all
rules, laws and regulations relating to the use, treatment, storage and disposal
of toxic substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, except where the failure to comply
would not result in a Material Adverse Change, (ii) the Company has received no
notice from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) the Company will not be required to make
future material capital expenditures to comply with Environmental Laws and (iv)
no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. (S) 9601, et
--
seq.), or otherwise designated as a contaminated site under applicable state or
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local law.
(jj) Periodic Review of Costs of Environmental Compliance. In the
ordinary course of its business, the Company conducts a periodic review of the
effect of Environmental Laws on the business, operations and properties of the
Company and its subsidiaries, in the course of which it identifies and evaluates
associated costs and
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<PAGE>
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related constraints
on operating activities and any potential liabilities to third parties). On the
basis of such review and the amount of its established reserves, the Company has
reasonably concluded that such associated costs and liabilities would not,
individually or in the aggregate, result in a Material Adverse Change.
(kk) ERISA Compliance. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained by
the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are
in compliance in all material respects with ERISA. "ERISA Affiliate" means,
with respect to the Company or a subsidiary, any member of any group of
organizations described in Sections 414(b),(c),(m) or (o) of the Internal
Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company or such subsidiary
is a member. No "reportable event" (as defined under ERISA) has occurred or is
reasonably expected to occur with respect to any "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates. No "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates, if such "employee
benefit plan" were terminated, would have any "amount of unfounded benefit
liabilities" (as defined under ERISA). Neither the Company, its subsidiaries
nor any of their ERISA Affiliates has incurred or reasonably expects to incur
any liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or
4980B of the Code. Each "employee benefit plan" established or maintained by
the Company, its subsidiaries or any of their ERISA Affiliates that is intended
to be qualified under Section 401(a) of the Code is so qualified and nothing has
occurred, whether by action or failure to act, which would cause the loss of
such qualification.
(ll) Reincorporation. Neither the Agreement and Plan of Exchange dated
as of __________ between the Company and Ramp Networks, Inc., a California
corporation nor the exchange of shares consummated in connection therewith
contravened, conflicted with or resulted in a material violation or breach of,
or resulted in a default under, any provisions of any agreement or contract of
the Company or its predecessor California corporation, except for (i) any
contravention, conflict, violation, breach or default which could not reasonably
be expected to result in a material adverse effect on the Company; (ii) gave any
person the right to (a) declare a default or exercise any remedy under any such
agreement or contract, except where any such default or exercise of a remedy
could not reasonably be expected to result in a material adverse effect on the
Company, (b) accelerate the maturity or performance of any such agreement or
contract, except where such acceleration could not reasonably be expected to
result in a material adverse effect on the Company, or (c) cancel, terminate or
modify any such contract, except where any such cancellation, termination or
modification could not reasonably be expected to result in a material adverse
effect on the Company; or (iii) result in the
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imposition or creation of any encumbrance upon or with respect to any of the
shares of capital stock or the assets of the Company, except where such
encumbrance would not result in a material adverse effect on the Company.
Any certificate signed by an officer of the Company and delivered to the
Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
B. Representations and Warranties of the Selling Stockholders. Each
Selling Stockholder represents, warrants and covenants to each Underwriter as
follows:
(a) The Custody Agreement and Power of Attorney. Each of the (i)
Custody Agreement signed by such Selling Stockholder and Boston Equiserve L.P.,
as custodian (the "Custodian"), relating to the deposit of the Shares to be sold
by such Selling Stockholder (the "Custody Agreement") and (ii) Power of Attorney
appointing certain individuals named therein as such Selling Stockholder's
attorneys-in-fact (each, an "Attorney-in-Fact") to the extent set forth therein
relating to the transactions contemplated hereby and by the Prospectus (the
"Power of Attorney"), of such Selling Stockholder has been duly authorized,
executed and delivered by such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms,
except as rights to indemnification thereunder may be limited by applicable law
and except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles. Each
Selling Stockholder agrees that the Shares to be sold by such Selling
Stockholder on deposit with the Custodian is subject to the interests of the
Underwriters, that the arrangements made for such custody are to that extent
irrevocable, and that the obligations of such Selling Stockholder hereunder
shall not be terminated, except as provided in this Agreement or in the Custody
Agreement, by any act of the Selling Stockholder, by operation of law, by death
or incapacity of such Selling Stockholder or by the occurrence of any other
event. If such Selling Stockholder should die or become incapacitated, or in
any other event should occur, before the delivery of the Shares to be sold by
such Selling Stockholder hereunder, the documents evidencing the Shares to be
sold by such Selling Stockholder then on deposit with the Custodian shall be
delivered by the Custodian in accordance with the terms and conditions of this
Agreement as if such death, incapacity or other event had not occurred,
regardless of whether or not the Custodian shall have received notice thereof.
(b) Title to Shares to be Sold. Such Selling Stockholder is the lawful
owner of the Shares to be sold by such Selling Stockholder hereunder and upon
sale and delivery of, and payment for, such Shares, as provided herein, such
Selling Stockholder will convey good and marketable title to such Shares, free
and clear of all liens, encumbrances, equities and claims whatsoever.
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(c) All Authorizations Obtained. Such Selling Stockholder has, and on
the First Closing Date and the Second Closing Date (as defined below) will have,
good and valid title to all of the Company Shares which may be sold by such
Selling Stockholder pursuant to this Agreement on such date and the legal right
and power, and all authorizations and approvals required by law [and under its
charter or by-laws,] [partnership agreement,] [trust agreement] [or other
organizational documents] to enter into this Agreement and its Custody Agreement
and Power of Attorney, to sell, transfer and deliver all of the Shares which may
be sold by such Selling Stockholder pursuant to this Agreement and to comply
with its other obligations hereunder and thereunder.
(d) No Further Consents, Authorization or Approvals. No consent,
approval, authorization or order of any court or governmental agency or body is
required for the consummation by such Selling Stockholder of the transactions
contemplated herein, except such as may have been obtained under the Securities
Act and such as may be required under the federal and provincial securities laws
of Canada or the blue sky laws or any jurisdiction in connection with the
purchase and distribution of the Shares by the Underwriters and such other
approvals as have been obtained.
(e) Non-Contravention. Neither the sale of the Securities being sold by
such Selling Stockholder nor the consummation of any other of the transactions
herein contemplated by such Selling Stockholder or the fulfillment of the terms
hereof by such Selling Stockholder will conflict with, result in a breach or
violation of, or constitute a default under any law or the terms of any
indenture or other agreement or instrument to which such Selling Stockholder is
party or bound, any judgment, order or decree applicable to such Selling
Stockholder or any court or regulatory body, administrative agency, governmental
body or arbitrator having jurisdiction over such Selling Stockholder.
(f) No Registration or Other Similar Rights. Such Selling Stockholder
does not have any registration or other similar rights to have any equity or
debt securities registered for sale by the Company under the Registration
Statement or included in the offering contemplated by this Agreement, except for
such rights as are described in the Prospectus under "Shares Eligible for Future
Sale".
(g) No Preemptive, Co-sale or other Rights. Such Selling Stockholder
does not have, or has waived prior to the date hereof, any preemptive right, co-
sale right or right of first refusal or other similar right to purchase any of
the Shares that are to be sold by the Company or any of the other Selling
Stockholders to the Underwriters pursuant to this Agreement; and such Selling
Stockholder does not own any warrants, options or similar rights to acquire, and
does not have any right or arrangement to acquire, any capital stock, right,
warrants, options or other securities from the Company, other than those
described in the Registration Statement and the Prospectus.
(h) Disclosure Made by Such Selling Stockholder in the Prospectus. All
information furnished by or on behalf of such Selling Stockholder in writing
expressly for
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<PAGE>
use in the Registration Statement and Prospectus is, and on the First Closing
Date and the Second Closing Date (as defined below) will be, true, correct, and
complete in all material respects, and does not, and on the First Closing Date
and the Second Closing Date will not, contain any untrue statement of a material
fact or omit to state any material fact necessary to make such information not
misleading. Such Selling Stockholder confirms as accurate the number of shares
of Company Shares set forth opposite such Selling Stockholder's name in the
Prospectus under the caption "Principal and Selling Stockholders" (both prior to
and after giving effect to the sale of the Shares).
(i) No Price Stabilization or Manipulation. Such Selling Stockholder
has not taken and will not take, directly or indirectly, any action designed to
or that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Shares.
(j) No Transfer Taxes or Other Fees. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the sale by the Selling Stockholders
of the Shares.
(k) Distribution of Offering Materials by the Selling Stockholders. The
Selling Stockholders have not distributed and will not distribute, prior to the
later of the Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Shares, any offering material in connection
with the offering and sale of the Shares by such Selling Stockholder other than
a preliminary prospectus, the Prospectus or the Registration Statement.
(l) Confirmation of Company Representations and Warranties. Such
Selling Stockholder has no reason to believe that the representations and
warranties of the Company contained in Section 1(A) hereof are not true and
correct, is familiar with the Registration Statement and the Prospectus and has
no knowledge of any material fact, condition or information not disclosed in the
Registration Statement or the Prospectus which has had or may result in a
Material Adverse Change on the condition, financial or otherwise, or on the
earnings, business, operation or prospects, whether or not arising from
transactions in the ordinary course of business of the Company and its
subsidiaries, considered as one entity, and is not prompted to sell the Shares
to be sold by such Selling Stockholder by any information concerning the Company
which is not set forth in the Registration Statement and the Prospectus.
Any certificate signed by or on behalf of any Selling Stockholder and
delivered to the Representative or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Stockholder to each
Underwriter as to the matters covered thereby.
Section 2. Purchase, Sale and Delivery of the Shares.
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(a) The Firm Shares. Upon the terms herein set forth, (I) the Company
agrees to issue and sell to the several Underwriters an aggregate of 3,853,000
Firm Shares and (ii) the Selling Stockholders agree to sell to the several
Underwriters an aggregate of 147,000 Firm Shares, each Selling Stockholder
selling the number of Firm Shares set forth opposite such Selling Stockholder's
name on Schedule B. On the basis of the representations, warranties and
----------
agreements herein contained, and upon the terms but subject to the conditions
herein set forth, the Underwriters agree, severally and not jointly, to purchase
from the Company and the Selling Stockholders the respective number of Firm
Shares set forth opposite their names on Schedule A. The purchase price per
----------
Firm Share to be paid by the several Underwriters to the Company shall be $[___]
per share.
(b) The First Closing Date. Delivery of the Firm Shares to be purchased by
the Underwriters and payment therefor shall be made by the Company and the
Representatives at 6:00 a.m. San Francisco time, at the offices of Venture Law
Group, 2800 Sand Hill Road, Menlo Park, CA 94025 (or at such other place as may
be agreed upon among the Representatives and the Company), (i) on the third
(3rd) full business day following the first day that Shares are traded, (ii) if
this Agreement is executed and delivered after 1:30 P.M., San Francisco time,
the fourth (4th) full business day following the day that this Agreement is
executed and delivered or (iii) at such other time and date not later that seven
(7) full business days following the first day that Shares are traded as the
Representatives and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 8 hereof),
such time and date of payment and delivery being herein called the "Closing
Date;" provided, however, that if the Company has not made available to the
Representatives copies of the Prospectus within the time provided in Section
4(d) hereof, the Representatives may, in its sole discretion, postpone the
Closing Date until no later that two (2) full business days following delivery
of copies of the Prospectus to the Representatives.
(c) The Option Shares; the Second Closing Date. In addition, on the basis
of the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Company hereby grants
an option to the several Underwriters to purchase, severally and not jointly, up
to an aggregate of [___] Option Shares from the Company at the purchase price
per share to be paid by the Underwriters for the Firm Shares. The option
granted hereunder is for use by the Underwriters solely in covering any over-
allotments in connection with the sale and distribution of the Firm Shares. The
option granted hereunder may be exercised at any time upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. The time and date of delivery of the
Option Shares, if subsequent to the First Closing Date, is called the "Second
Closing Date" and shall be determined by the Representatives and shall not be
earlier than three nor later than five full business days after delivery of such
notice of exercise. If any Option Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Option Shares
(subject to such adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same
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<PAGE>
proportion to the total number of Option Shares to be purchased as the number of
Firm Shares set forth on Schedule A opposite the name of such Underwriter bears
----------
to the total number of Firm Shares. The Representatives may cancel the option at
any time prior to its expiration by giving written notice of such cancellation
to the Company.
(d) Public Offering of the Shares. The Representatives hereby advise the
Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Shares as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in its sole judgment, has determined
is advisable and practicable.
(e) Payment for the Shares. Payment for the Shares to be sold by the
Company shall be made at the First Closing Date (and, if applicable, at the
Second Closing Date) by wire transfers of immediately available funds to the
order of the Company. Payment for the Shares to be sold by the Selling
Stockholders shall be made at the First Closing Date (and, if applicable, at the
Second Closing Date) by wire transfer of immediately available funds to the
order of the Custodian.
It is understood that the Representatives have been authorized, for its own
account and the accounts of the several Underwriters, to accept delivery of and
receipt for, and make payment of the purchase price for, the Firm Shares and any
Option Shares the Underwriters have agreed to purchase. BancBoston Robertson
Stephens Inc., individually and not as the Representatives of the Underwriters,
may (but shall not be obligated to) make payment for any Shares to be purchased
by any Underwriter whose funds shall not have been received by the
Representatives by the First Closing Date or the Second Closing Date, as the
case may be, for the account of such Underwriter, but any such payment shall not
relieve such Underwriter from any of its obligations under this Agreement.
Each Selling Stockholder hereby agrees that (i) it will pay all stock
transfer taxes, stamp duties and other similar taxes, if any, payable upon the
sale or delivery of the Shares to be sold by such Selling Stockholder to the
several Underwriters, or otherwise in connection with the performance of such
Selling Stockholder's obligations hereunder and (ii) the Custodian is authorized
to deduct for such payment any such amounts from the proceeds to such Selling
Stockholder hereunder and to hold such amounts for the account of such Selling
Stockholder with the Custodian under the Custody Agreement.
(f) Delivery of the Shares. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company and
the Selling Stockholders shall also deliver, or cause to be delivered a credit
representing the Option Shares to an account or accounts at The Depository Trust
Company as designated by the Representative for the accounts of
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<PAGE>
the Representative and the several Underwriters, at the First Closing Date or
the Second Closing Date, as the case may be, against the irrevocable release of
a wire transfer of immediately available funds for the amount of the purchase
price therefor. Time shall be of the essence, and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00 noon
on the second business day following the date the Shares are released by the
Underwriters for sale to the public, the Company shall deliver or cause to be
delivered copies of the Prospectus in such quantities and at such places as the
Representatives shall request.
Section 3. Covenants of the Company and the Selling Stockholders.
A Covenants of the Company. The Company further covenants and agrees with
each Underwriter as follows:
(a) Registration Statement Matters. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b) under
the Securities Act a Prospectus in a form approved by the Representatives
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Securities Act and (iii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been advised
and furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Securities Act. If
the Company elects to rely on Rule 462(b) under the Securities Act, the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) under the Securities Act prior to the time
confirmations are sent or given, as specified by Rule 462(b)(2) under the
Securities Act, and shall pay the applicable fees in accordance with Rule 111
under the Securities Act.
(b) Securities Act Compliance. The Company will advise the
Representatives promptly (i) when the Registration Statement or any post-
effective amendment thereto shall have become effective, (ii) of receipt of any
comments from the Commission, (iii) of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the institution of any proceedings for that purpose.
The Company will use its best efforts to prevent the issuance of any such stop
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<PAGE>
order preventing or suspending the use of the Prospectus and to obtain as soon
as possible the lifting thereof, if issued.
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) Amendments and Supplements to the Prospectus and Other Securities Act
Matters. The Company will comply with the Securities Act and the Exchange
Act, and the rules and regulations of the Commission thereunder, so as to permit
the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Representatives or counsel for the Underwriters, it becomes
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances existing at the time the Prospectus
is delivered to a purchaser, not misleading, or, if it is necessary at any time
to amend or supplement the Prospectus to comply with any law, the Company
promptly will prepare and file with the Commission, and furnish at its own
expense to the Underwriters and to dealers, an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus as
so amended or supplemented will not, in the light of the circumstances when it
is so delivered, be misleading, or so that the Prospectus will comply with the
law.
(e) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto as the Representatives may
request.
(f) Insurance. The Company shall (i) obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby and (ii) shall cause BancBoston Robertson
Stephens Inc. to be added as an additional insured to such policy in respect of
the offering contemplated hereby.
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<PAGE>
(g) Notice of Subsequent Events. If at any time during the ninety (90)
day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(h) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.
(i) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Company Shares.
(j) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending [___]that satisfies the provisions of Section 11(a) of the Securities
Act.
(k) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The Company
will not, without the prior written consent of BancBoston Robertson Stephens
Inc., for a period of 180 days following the date of the Prospectus, offer, sell
or contract to sell, or otherwise dispose of or enter into any transaction which
is designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell Common Shares pursuant to any
director or employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the date of the Prospectus and
described in the Prospectus so long as none of those shares may be transferred
on during the period of 180 days from the date that the Registration Statement
is declared effective (the "Lock-Up Period") and the Company shall enter stop
transfer instructions with its transfer agent and registrar against the transfer
of any such Common Shares and (ii) the Company may issue Common Shares issuable
upon the conversion of securities or the exercise of warrants outstanding at the
date of the Prospectus and described in the Prospectus.
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<PAGE>
(m) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the National Association of Securities Dealers, LLC
or any securities exchange; and (iii) as soon as available, copies of any report
or communication of the Company mailed generally to holders of its capital
stock.
B. Covenants of the Selling Stockholders. Each Selling Stockholder
further covenants and agrees with each Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. Such Selling
Stockholder will not, during the Lock-Up Period, make a disposition of
Securities (as defined in Exhibit A hereto) now owned or hereafter acquired
directly by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) as a bona fide gift or
gifts, provided the donee or donees thereof agree in writing to be bound by this
restriction, (ii) as a distribution to partners or shareholders of such person,
provided that the distributees thereof agree in writing to be bound by the terms
of this restriction, (iii) with respect to dispositions of Common Shares
acquired on the open market or (iv) with the prior written consent of BancBoston
Robertson Stephens Inc. The foregoing restriction has been expressly agreed to
preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a disposition of Securities during the Lock-Up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited hedging
or other transactions would include, without limitation, any short sale (whether
or not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person has also agreed and consented to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with this
restriction.
(b) Delivery of Forms W-8 and W-9. To deliver to the Representative
prior to the First Closing Date a properly completed and executed United States
Treasury Department Form W-8 (if the Selling Stockholder is a non-United States
person) or Form W-9 (if the Selling Stockholder is a United States Person).]
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(c) Notification of Untrue Statements, etc. If, at any time prior to the
date on which the distribution of the Common Shares as contemplated herein and
in the Prospectus has been completed, as determined by the Representative, such
Selling Stockholder has knowledge of the occurrence of any event as a result of
which the Prospectus or the Registration Statement, in each case as then amended
or supplemented, would include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, such Selling
Stockholder will promptly notify the Company and the Representative.
Section 4. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholders set forth in Section 1 (A) and (B) hereof as of the date hereof and
as of the First Closing Date as though then made and, with respect to the Option
Shares, as of the Second Closing Date as though then made, to the timely
performance by the Company and the Selling Stockholders of their respective
covenants and other obligations hereunder, and to each of the following
additional conditions:
(a) Compliance with Registration Requirements; No Stop Order; No Objection
from the National Association of Securities Dealers, Inc. The Registration
Statement shall have become effective prior to the execution of this Agreement,
or at such later date as shall be consented to in writing by you; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Stockholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel; and the
National Association of Securities Dealers, Inc. shall have raised no objection
to the fairness and reasonableness of the underwriting terms and arrangements.
(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section.
(c) No Material Adverse Change. Subsequent to the execution and delivery
of this Agreement and prior to the First Closing Date, or the Second Closing
Date, as the case may be,
(i) there shall not have been any Material Adverse Change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the
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Company and its subsidiaries considered as one enterprise from that set
forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus; and
(d) Opinion of Counsel for the Company. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, an opinion
of Venture Law Group, counsel for the Company ("Company Counsel") substantially
in the form of Exhibit B attached hereto, and an opinion of S.N. Bathina,
---------
counsel for Ramp Networks Private Limited, the Company's subsidiary in India,
(the "Indian Subsidiary") substantially in the form of Exhibit B1, dated the
----------
First Closing Date, or the Second Closing Date, addressed to the Underwriters
and with reproduced copies or signed counterparts thereof for each of the
Underwriters.
Counsel rendering the opinion contained in Exhibit B may rely as to
---------
questions of law not involving the laws of the United States or the State of
California and the State of Delaware upon opinions of local counsel, and as to
questions of fact upon representations or certificates of officers of the
Company, and of government officials, in which case their opinion is to state
that they are so relying and that they have no knowledge of any material
misstatement or inaccuracy in any such opinion, representation or certificate.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to you, as Representatives of the Underwriters, and to Underwriters'
Counsel.
(e) Opinion of Patent Counsel for the Company. You shall have received on
the First Closing Date, or the Second Closing Date, as the case may be, an
opinion of Townsend and Townsend and Crew LLP and/or Dennis Fernandez, LLP,
patent counsel for the Company ("Patent Counsel") substantially in the form of
Exhibit C attached hereto.
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(f) Opinion of Counsel for the Underwriters. You shall have received on
the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Wilson, Sonsini, Goodrich & Rosati, substantially in the form of
Exhibit D hereto. The Company shall have furnished to such counsel such
- ---------
documents as they may have requested for the purpose of enabling them to pass
upon such matters.
(g) Accountants' Comfort Letter. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
Arthur Andersen LLP addressed to the Underwriters, dated the First Closing Date
or the Second Closing Date, as the case may be, confirming that they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the applicable published Rules and Regulations and based
upon the procedures described in such letter delivered to you concurrently with
the execution of this Agreement (herein called the "Original Letter"), but
carried out to a date not more than four (4) business days prior to the First
Closing Date or the Second Closing Date, as the case may be, (i) confirming, to
the extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the First Closing Date or the Second Closing Date, as
the case may be, and (ii) setting
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forth any revisions and additions to the statements and conclusions set forth in
the Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. The Original Letter from Arthur Andersen LLP shall be addressed
to or for the use of the Underwriters in form and substance satisfactory to the
Underwriters and shall (i) represent, to the extent true, that they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the applicable published Rules and Regulations, (ii) set
forth their opinion with respect to their examination of the consolidated
balance sheet of the Company as of December 31, 1998 and related consolidated
statements of operations, shareholders' equity, and cash flows for the twelve
(12) months ended December 31, 1998, (iii) state that Arthur Andersen has
performed the procedures set out in Statement on Auditing Standards No. 71 ("SAS
71") for a review of interim financial information and providing the report of
Arthur Andersen as described in SAS 71 on the financial statements for each of
the quarters in the nine-quarter period ended March 31, 1999 (the "Quarterly
Financial Statements"), (iv) state that in the course of such review, nothing
came to their attention that leads them to believe that any material
modifications need to be made to any of the Quarterly Financial Statements in
order for them to be in compliance with generally accepted accounting principles
consistently applied across the periods presented, and address other matters
agreed upon by Arthur Andersen and you. In addition, you shall have received
from Arthur Andersen a letter addressed to the Company and made available to you
for the use of the Underwriters stating that their review of the Company's
system of internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's consolidated
financial statements as of December 31, 1998, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(h) Officers' Certificate. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this Agreement are
true and correct, as if made on and as of the First Closing Date or the
Second Closing Date, as the case may be, and the Company has complied with
all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the First Closing Date or the Second
Closing Date, as the case may be;
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(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
contained all material information required to be included therein by the
Securities Act, and in all material respects conformed to the requirements
of the Securities Act, the Registration Statement and the Prospectus, and
any amendments or supplements thereto, did not and does not include any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; and, since the effective date of the Registration Statement,
there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been (a) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (b) any transaction that is
material to the Company and its subsidiaries considered as one enterprise,
except transactions entered into in the ordinary course of business, (c) any
obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of
business, (d) any change in the capital stock or outstanding indebtedness of
the Company or any of its subsidiaries that is material to the Company and
its subsidiaries considered as one enterprise, (e) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company or any of its subsidiaries, or (f) any loss or damage (whether or
not insured) to the property of the Company or any of its subsidiaries which
has been sustained or will have been sustained which has a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(i) Lock-up Agreement from Certain Stockholders of the Company. The
Company shall have obtained and delivered to you an agreement substantially in
the form of Exhibit A attached hereto from each officer and director of the
---------
Company, and each beneficial owner of the outstanding issued share capital of
the Company.
(j) Opinion of Counsel for the Selling Stockholders. You shall have
received on the First Closing Date and the Second Closing Date, as the case may
be, the following opinion of Venture Law Group, counsel for the Selling
Stockholders substantially in the form of Exhibit E attached hereto, dated as of
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such Closing Date, addressed to the Underwriters and with reproduced copies or
signed counterparts thereof for each of the Underwriters.
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In rendering such opinion, such counsel may rely as to questions of law not
involving the laws of the United States or State of California and Deleware upon
opinions of local counsel and as to questions of fact upon representations or
certificates of the Selling Stockholders or officers of the Selling Stockholders
(when the Selling Stockholder is not a natural person), and of governmental
officials, in which case their opinion is to state that they are so relying and
that they have no knowledge of any material misstatement or inaccuracy of any
material misstatement or inaccuracy in any such opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(k) Selling Stockholders' Certificate]. On each of the First Closing
Date and the Second Closing Date, as the case may be, the Representative shall
received a written certificate executed by each Selling Stockholder, dated as of
such Closing Date, to the effect that:
(i) the representations, warranties and covenants of such Selling
Stockholder set forth in Section 1(A) and (B) of this Agreement are true
and correct with the same force and effect as though expressly made by such
Selling Stockholder on and as of such Closing Date; and
(ii) such Selling Stockholder has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(l) Selling Stockholders' Documents]. At least three business days
prior to the date hereof, the Company and the Selling Stockholders shall have
furnished for review by the Representative copies of the Powers of Attorney and
Custody Agreements executed by each of the Selling Stockholders and such further
information, certificates and documents as the Representative may reasonably
request.
(m) Stock Exchange Listing. The Shares shall have been approved for
listing on the Nasdaq National Market, subject only to official notice of
issuance.
(n) Compliance with Prospectus Delivery Requirements. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of Prospectuses.
(o) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, as the case may be, the Representatives and counsel
for the Underwriters shall have received such information, documents and
opinions as they may reasonably require for the purposes of enabling them to
pass upon the issuance and sale of the Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties, or
the satisfaction of any of the conditions or agreements, herein contained.
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If any condition specified in this Section 4 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Shares, at any time prior to the
Second Closing Date, which termination shall be without liability on the part of
any party to any other party, except that Section 5 (Payment of Expenses),
Section 6 (Reimbursement of Underwriters' Expenses), Section 7 (Indemnification
and Contribution) and Section 10 (Representations and Indemnities to Survive
Delivery) shall at all times be effective and shall survive such termination.
Section 5. Payment of Expenses. The Company agrees to pay the Company and
the Selling Stockholders, jointly and severally, agree to pay in such
proportions as they may agree upon among themselves all costs, fees and
expenses incurred in connection with the performance of their obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Shares for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the Representatives,
preparing and printing a "Blue Sky Survey", an "International Blue Sky Survey"
or other memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the National Association of Securities Dealers,
Inc. review and approval of the Underwriters' participation in the offering and
distribution of the Common Shares, (viii) the fees and expenses associated with
listing the Common Shares on the Nasdaq National Market, (ix) all costs and
expenses incident to the preparation and undertaking of "road show" preparations
to be made to prospective investors, and (x) all other fees, costs and expenses
referred to in Item 13 of Part II of the Registration Statement. Except as
provided in this Section 5, Section 6, and Section 7 hereof, the Underwriters
shall pay their own expenses, including the fees and disbursements of their
counsel.
The Selling Stockholders further agree with each Underwriter to pay
(directly or by reimbursement) all fees and expenses incident to the performance
of their obligations under this Agreement which are not otherwise specifically
provided for herein, including but not limited to (i) fees and expenses of
counsel and other advisors for such Selling Stockholders, (ii) fees and expenses
of the Custodian and (iii) expenses and taxes incident
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to the sale and delivery of the Common Shares to be sold by such Selling
Stockholders to the Underwriters hereunder (which taxes, if any, may be deducted
by the Custodian under the provisions of Section 2 of this Agreement).
This Section 5 shall not affect or modify any separate, valid agreement
relating to the allocation of payment of expenses between the Company, on the
one hand, and the Selling Stockholders, on the other hand.
Section 6. Reimbursement of Underwriters' Expenses. If this Agreement is
terminated by the Representatives pursuant to Section 4, Section 7, Section 8,
Section 9, or if the sale to the Underwriters of the Shares on the First Closing
Date is not consummated because of any refusal, inability or failure on the part
of the Company to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse the Representatives and the other
Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and sale
of the Shares, including but not limited to fees and disbursements of counsel,
printing expenses, travel expenses, postage, facsimile and telephone charges.
Section 7. Indemnification and Contribution.
(a) Indemnification of the Underwriters.
(1) The Company and each of the Selling Stockholders, jointly and
severally, agree to indemnify and hold harmless each Underwriter, its officers
and employees, and each person, if any, who controls any Underwriter within the
meaning of the Securities Act and the Exchange Act against any loss, claim,
damage, liability or expense, as incurred, to which such Underwriter or such
controlling person may become subject, under the Securities Act, the Exchange
Act or other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company, which consent shall not be
unreasonably withheld), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule 430A or
Rule 434 under the Securities Act, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; or
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(iii) in whole or in part upon any inaccuracy in the representations and
warranties of the Company or the Selling Stockholders contained herein; or (iv)
in whole or in part upon any failure of the Company or the Selling Stockholders
to perform their obligations hereunder or under law; or (v) any act or failure
to act or any alleged act or failure to act by any Underwriter in connection
with, or relating in any manner to, the Shares or the offering contemplated
hereby, and which is included as part of or referred to in any loss, claim,
damage, liability or action arising out of or based upon any matter covered by
clause (i), (ii), (iii) or (iv) above, provided that the Company and the Selling
Stockholders shall not be liable under this clause (v) to the extent that a
court of competent jurisdiction shall have determined by a final judgment that
such loss, claim, damage, liability or action resulted directly from any such
acts or failures to act undertaken or omitted to be taken by such Underwriter
through its bad faith or willful misconduct; and to reimburse each Underwriter
and each such controlling person for any and all expenses (including the fees
and disbursements of counsel chosen by BancBoston Robertson Stephens Inc.) as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the extent,
arising out of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company and the Selling Stockholders by the
Representatives expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto); and
provided, further, that with respect to any preliminary prospectus, the
foregoing indemnity agreement shall not inure to the benefit of any Underwriter
from whom the person asserting any loss, claim, damage, liability or expense
purchased Shares, or any person controlling such Underwriter, if copies of the
Prospectus were timely delivered to the Underwriter pursuant to Section 2 and a
copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such loss, claim, damage, liability
or expense. The indemnity agreement set forth in this Section 7(a) shall be in
addition to any liabilities that the Company and the Selling Stockholders may
otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement, the Selling Stockholders and each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act, against any loss, claim, damage, liability or expense, as incurred, to
which the Company, or any such director, officer, the Selling Stockholders or
controlling person may become subject, under the Securities Act, the Exchange
Act, or other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement
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<PAGE>
is effected with the written consent of such Underwriter), insofar as such loss,
claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company and the
Selling Stockholders by the Representatives expressly for use therein; and to
reimburse the Company, or any such director, officer, Selling Stockholder or
controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer, Selling Stockholder or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. The indemnity
agreement set forth in this Section 7(b) shall be in addition to any liabilities
that each Underwriter may otherwise have.
(c) Information Provided by the Underwriters. The Company and each of the
Selling Stockholders, hereby acknowledge that the only information that the
Underwriters have furnished to the Company and the Selling Stockholders
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto) are the statements set
forth in the table in the first paragraph and the second paragraph under the
caption "Underwriting" in the Prospectus; and the Underwriters confirm that such
statements are correct.
(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses
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available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of such indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 7 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with local counsel), approved by the indemnifying
party (BancBoston Robertson Stephens Inc. in the case of Section 7(b) and
Section 8), representing the indemnified parties who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
(e) Settlements. The indemnifying party under this Section 7 shall not
be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(f) Contribution. If the indemnification provided for in this Section 7
is unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or
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(b) above in respect of any losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) then each indemnifying party shall contribute
to the aggregate amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other from the offering of
the Shares. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriter on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bears to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 7(f) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(f). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 7(f) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (f), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 7(f) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(g) Timing of Any Payments of Indemnification. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of invoice to the indemnifying party.
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(h) Survival. The indemnity and contribution agreements contained in
this Section 7 and the representation and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(i) Acknowledgements of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Securities Act and the Exchange Act.
Section 8. Default of One or More of the Several Underwriters. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the several Underwriters shall fail or refuse to purchase Shares that it
or they have agreed to purchase hereunder on such date, and the aggregate number
of Common Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase does not exceed 10% of the aggregate number of the
Shares to be purchased on such date, the other Underwriters shall be obligated,
severally, in the proportions that the number of Firm Common Shares set forth
opposite their respective names on Schedule A bears to the aggregate number of
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Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as may be specified by the
Representatives with the consent of the non-defaulting Underwriters, to purchase
the Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase on such date. If, on the First Closing Date or the Second
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares and the aggregate number of Shares with respect to
which such default occurs exceeds 10% of the aggregate number of Shares to be
purchased on such date, and arrangements satisfactory to the Representatives and
the Company for the purchase of such Shares are not made within 48 hours after
such default, this Agreement shall terminate without liability of any party to
any other party except that the provisions of Section 4, and Section 7 shall at
all times be effective and shall survive such termination. In any such case
either the Representatives or the Company shall have the right to postpone the
First Closing Date or the Second Closing Date, as the case may be, but in no
event for longer than seven days in order that the required changes, if any, to
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.
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As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
8. Any action taken under this Section 8 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
Section 9. Termination of this Agreement. Prior to the First Closing Date,
this Agreement may be terminated by the Representatives by notice given to the
Company and the Selling Stockholders if at any time (i) trading or quotation in
any of the Company's securities shall have been suspended or limited by the
Commission or by the Nasdaq Stock Market, or trading in securities generally on
either the Nasdaq Stock Market shall have been suspended or limited, or minimum
or maximum prices shall have been generally established on any of such stock
exchanges by the Commission or the National Association of Securities Dealers,
Inc.; (ii) a general banking moratorium shall have been declared by any of
federal, New York, Delaware or California authorities; (iii) there shall have
occurred any outbreak or escalation of national or international hostilities or
any crisis or calamity, or any change in the United States or international
financial markets, or any substantial change or development involving a
prospective change in United States' or international political, financial or
economic conditions, as in the judgment of the Representatives is material and
adverse and makes it impracticable or inadvisable to market the Common Shares in
the manner and on the terms described in the Prospectus or to enforce contracts
for the sale of securities; (iv) in the judgment of the Representatives there
shall have occurred any Material Adverse Change; or (v) the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as in the judgment of the Representatives may interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured. Any termination
pursuant to this Section 9 shall be without liability on the part of (a) the
Company or the Selling Stockholders to any Underwriter, except that the Company
and the Selling Stockholders shall be obligated to reimburse the expenses of the
Representatives and the Underwriters pursuant to Sections 5 and 6 hereof, (b)
any Underwriter to the Company or the Selling Stockholders, or (c) of any party
hereto to any other party except that the provisions of Section 7 shall at all
times be effective and shall survive such termination.
Section 10. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Shares sold
hereunder and any termination of this Agreement.
Section 11. Notices. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
-33-
<PAGE>
If to the Representatives:
BANCBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
If to the Company or its subsidiaries:
Ramp Networks, Inc.
3100 De La Cruz Blvd.
Santa Clara, California 95054
Facsimile: 408-988-6363
Attention: Mahesh Veerina
If to the Selling Stockholders:
Boston EquiServe L.P.
[address]
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
Section 12. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 9 hereof, and to the benefit of the employees, officers and directors
and controlling persons referred to in Section 7, and to their respective
successors, and personal representatives, and no other person will have any
right or obligation hereunder. The term "successors" shall not include any
purchaser of the Shares as such from any of the Underwriters merely by reason of
such purchase.
Section 13. Partial Unenforceability. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
Section 14. Governing Law Provisions.
(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
-34-
<PAGE>
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or the
courts of the State of California in each case located in the City and County of
San Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum. Each party not located in the
United States irrevocably appoints CT Corporation System, which currently
maintains a San Francisco office at 49 Stevenson Street, San Francisco,
California 94105, United States of America, as its agent to receive service of
process or other legal summons for purposes of any such suit, action or
proceeding that may be instituted in any state or federal court in the City and
County of San Francisco.
(c) Waiver of Immunity. With respect to any Related Proceeding, each
party irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment, including, without limitation, any immunity
pursuant to the United States Foreign Sovereign Immunities Act of 1976, as
amended.
Section 15. Failure of One or More of the Selling Stockholders to Sell and
Deliver Common Shares. If one or more of the Selling Stockholders shall fail to
sell and deliver to the Underwriters the Shares to be sold and delivered by such
Selling Stockholders at the First Closing Date pursuant to this Agreement, then
the Underwriters may at their option, by written notice from the Representative
to the Company and the Selling Stockholders, either (i) terminate this Agreement
without any liability on the part of any Underwriter or, except as provided in
Sections 5, 6, and 7 hereof, the Company or the Selling Stockholders, or (ii)
purchase the shares which the Company and other Selling Stockholders have agreed
to sell and deliver in accordance with the terms hereof. If one or more of the
Selling Stockholders shall fail to sell and deliver to the Underwriters the
Shares to be sold and delivered by such Selling Stockholders pursuant to this
Agreement at the First Closing Date or the Second Closing Date, then the
Underwriters shall have the right, by written notice from the Representative to
the Company and the Selling
-35-
<PAGE>
Stockholders, to postpone the First Closing Date or the Second Closing Date, as
the case may be, but in no event for longer than seven days in order that the
required changes, if any, to the Registration Statement and the Prospectus or
any other documents or arrangements may be effected.
Section 16. General Provisions. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
two or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
[The remainder of this page has been intentionally left blank.]
-36-
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company and the Custodian the enclosed copies
hereof, whereupon this instrument, along with all counterparts hereof, shall
become a binding agreement in accordance with its terms.
Very truly yours,
Ramp Networks, Inc.
By:________________________________
President and CEO
Selling Stockholders
By:________________________________
Attorney-in-fact for the Selling
Stockholders named in Schedule B
hereto.
The foregoing Underwriting Agreement is hereby confirmed and accepted by the
Representatives as of the date first above written.
BANCBOSTON ROBERTSON STEPHENS INC.
DAIN RAUSCHER WESSELS,
A DIVISION OF DAIN RAUSCHER INCORPORATED
HAMBRECHT & QUIST LLC
On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
- ----------
By BANCBOSTON ROBERTSON STEPHENS INC.
By:_________________________________
Authorized Signatory
-37-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Common Shares
Underwriters To be Purchased
<S> <C>
BANCBOSTON ROBERTSON STEPHENS INC.................... [___]
HAMBRECHT & QUIST LLC................................ [___]
DAIN RAUSCHER WESSELS, A DIVISION
OF DAIN RAUSCHER INCORPORATED........................ [___]
[___]................................................ [___]
[___]................................................ [___]
[___] ............................................... [___]
Total............................................. [___]
</TABLE>
S-A
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Maximum Number of
Selling Stockholder Firm Shares Option Shares to
to be Sold be Sold
<S> <C> <C>
Selling Stockholder #1
[address]
Attention: [___]........................................ [___] [___]
Selling Stockholder #2
[address]
Attention: [___]........................................ [___] [___]
Total:............................................... [___] [___]
=============== =====================
</TABLE>
S-B
<PAGE>
Exhibit A
Lock-Up Agreement
BancBoston Robertson Stephens Inc.
Dain Rauscher Wessels,
a division of Dain Rauscher Incorporated
Hambrecht & Quist LLC
As Representatives of the Several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
RE: Ramp Networks, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
representatives (the "Representatives") of the underwriters. The undersigned
recognizes that the Offering will be of benefit to the undersigned and will
benefit the Company by, among other things, raising additional capital for its
operations. The undersigned acknowledges that you and the other underwriters
are relying on the representations and agreements of the undersigned contained
in this letter in carrying out the Offering and in entering into underwriting
arrangements with the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") 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 (collectively, "Securities") now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to partners or shareholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, (iii) with respect to dispositions of Common
Shares acquired on the open market, (iv) with respect to sales or purchases of
Common Stock acquired on the open market or (v) with the prior written consent
of BancBoston Robertson Stephens Inc., for a period commencing on the date
hereof and continuing to a date 180 days after the
A-1
<PAGE>
Registration Statement is declared effective by the Securities and Exchange
Commission (the "Lock-up Period"). The foregoing restriction has been expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that included, relates to or derives any significant
part of its value from Securities. The undersigned also agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent and
registrar against the transfer of shares of Common Stock or Securities held by
the undersigned except in compliance with the foregoing restrictions.
This agreement is irrevocable and will be binding on the undersigned and
the respective successors, heirs, personal representatives, and assigns of the
undersigned.
Dated:_____________________________________
-------------------------------------------
Printed Name of Holder
By:________________________________________
Signature
-------------------------------------------
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
A-2
<PAGE>
Exhibit B
Matters to be Covered in the Opinion of Company Counsel
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation;
(ii) The Agreement and Plan of Merger dated ______ (the "Plan of Merger")
by and between the Company and Ramp Networks, Inc., a California corporation
("Ramp Networks, Inc. "), has been duly authorized by all necessary board of
directors and stockholder action on the part of the Company and Ramp
Networks, Inc. and has been duly executed and delivered by each of the
parties thereto. The execution and delivery of the Plan of Merger and the
consummation of the merger contemplated thereby (the "Merger") did not
contravene any provision of applicable law, of the certificate of
incorporation or bylaws of the Company or the articles of incorporation or
bylaws of Ramp Networks, Inc. or any agreement or other instrument binding
upon the Company that is material to the Company and that is set forth as an
exhibit to the Registration Statement or any judgment or decree of any
governmental body, agency or court having jurisdiction over the Company or
Ramp Networks, Inc. that is known to such counsel, except for any such
contravention that would not have a material adverse effect on the condition
(financial or otherwise), business, results of operations or prospects of
the Company, and no consent, approval, authorization or order of
qualification with any governmental body or agency was required for the
performance by the Company and Ramp Networks, Inc. of its obligations under
the Plan of Merger except such as were obtained and except such consent,
approval, authorization, order or qualification, which if not obtained,
would not have a material adverse effect on the condition (financial or
otherwise), business, results of operations or prospects of the Company.
The Merger is effective under the laws of the State of California and the
State of Delaware. The Company succeeded to all rights, privileges and
obligations of Ramp Networks, Inc., and the offer and sale of the securities
issued in connection with the Merger were in compliance with the applicable
federal and state securities laws. Neither the Agreement and Plan of
Exchange dated as of _____ between the Company and Ramp Networks, Inc., a
California corporation nor the exchange of shares consummated in connection
therewith contravened, conflicted with or resulted in a material violation
or breach of, or resulted in a default under, any provisions of any
agreement or contract of the Company or its predecessor California
corporation, except for (i) any contravention, conflict, violation, breach
or default which could not reasonably be expected to result in a material
adverse effect on the Company; (ii) gave any person the right to (a) declare
a default or exercise any remedy under any such agreement or contract,
except where any such default or exercise of a remedy could not
B-1
<PAGE>
reasonably be expected to result in a material adverse effect on the
Company, (b) accelerate the maturity or performance of any such agreement or
contract, except where such acceleration could not reasonably be expected to
result in a material adverse effect on the Company, or (c) cancel, terminate
or modify any such contract, except where any such cancellation, termination
or modification could not reasonably be expected to result in a material
adverse effect on the Company; or (iii) result in the imposition or creation
of any encumbrance upon or with respect to any of the shares of capital
stock or the assets of the Company, except where such encumbrance would not
result in a material adverse effect on the Company.
(iii) The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus;
(iv) The Company is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction, if any, in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a Material Adverse Effect. To such counsel's
knowledge, the Company does not own or control, directly or indirectly, any
corporation, association or other entity other than Ramp Networks Private
Limited;
(v) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus under the caption "Capitalization" as of
the dates stated therein, the issued and outstanding shares of capital stock
of the Company (including the Selling Stockholder shares) have been duly and
validly issued and are fully paid and nonassessable, and, to such counsel's
knowledge, will not have been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first refusal
or other similar right;
(vi) The Firm Shares or the Option Shares, as the case may be, to be
issued by the Company pursuant to the terms of this Agreement have been duly
authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully
paid and nonassessable, and will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right.
(vii) The Company has the corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Shares to
be issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered
by the
B-2
<PAGE>
Company and, assuming due authorization, execution and delivery by you, is a
valid and binding agreement of the Company, enforceable in accordance with
its terms, except as rights to indemnification hereunder may be limited by
applicable law and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or
affecting creditors' rights generally or by general equitable principles;
(ix) The Registration Statement has become effective under the Act and, to
such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or threatened under the Securities Act;
(x) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares
or the Option Shares have been validly registered under the Securities Act
and the Rules and Regulations of the Exchange Act and the applicable rules
and regulations of the Commission thereunder;
(xi) The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the financial statements (including
supporting schedules) and financial data derived therefrom as to which such
counsel need express no opinion), as of the effective date of the
Registration Statement, complied as to form in all material respects with
the requirements of the Act and the applicable Rules and Regulations;
(xii) The information in the Prospectus under the caption "Description of
Capital Stock," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair summary of such
matters and conclusions; and the forms of certificates evidencing the Common
Stock and filed as exhibits to the Registration Statement comply with
Delaware law;
(xiii) The description in the Registration Statement and the Prospectus of
the charter and bylaws of the Company and of statutes are accurate and
fairly present the information required to be presented by the Securities
Act;
(xiv) To such counsel's knowledge, there are no agreements, contracts,
leases or documents to which the Company or its subsidiary is a party of a
character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement which are not described or referred to therein or filed as
required;
B-3
<PAGE>
(xv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's charter or
bylaws or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default
under, any bond, debenture, note or other evidence of indebtedness, or any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument known to such counsel to which the
Company is a party or by which its properties are bound, or any applicable
statute, rule or regulation known to such counsel or, to such counsel's
knowledge, any order, writ or decree of any court, government or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries, or over any of their properties or operations;
(xvi) No consent, approval, authorization or order of or qualification with
any court, government or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries, or over any of their properties
or operations is necessary in connection with the consummation by the
Company of the transactions herein contemplated, except (i) such as have
been obtained under the Securities Act, (ii) such as may be required under
state or other securities or Blue Sky laws in connection with the purchase
and the distribution of the Shares by the Underwriters, (iii) such as may be
required by the National Association of Securities Dealers, Inc. and (iv)
such as may be required under the federal or provincial laws of Canada;
(xvii) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company or any of its
subsidiaries of a character required to be disclosed in the Registration
Statement or the Prospectus by the Securities Act, other than those
described therein;
(xiii) To such counsel's knowledge, neither the Company nor any of its
subsidiaries is presently (a) in material violation of its respective
charter or bylaws, or (b) in material breach of any applicable statute, rule
or regulation known to such counsel or, to such counsel's knowledge, any
order, writ or decree of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or over any of
their properties or operations; and
(xix) To such counsel's knowledge, except as set forth in the Registration
Statement and Prospectus, no holders of Company Shares or other securities
of the Company have registration rights with respect to securities of the
Company and, except as set forth in the Registration Statement and
Prospectus, all holders of securities of the Company having rights known to
such counsel to registration of such shares of Company Shares or other
securities, because of the filing of the Registration
B-4
<PAGE>
Statement by the Company have, with respect to the offering contemplated
thereby, waived such rights or such rights have expired by reason of lapse
of time following notification of the Company's intent to file the
Registration Statement or have included securities in the Registration
Statement pursuant to the exercise of and in full satisfaction of such
rights.
(xx) The Company is not and, after giving effect to the offering and the
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(xxi) The statements under the captions "Management - Limitation on
Directors' and Officers' Liability, " "Management - Employment Benefit
Plans", "Certain Transactions", "Description of Capital Stock" and "Shares
Eligible for Future Sale" in the Prospectus, insofar as such statements
constitute a summary of documents referred to therein or matters of law,
fairly summarize in all material respects the information called for with
respect to such documents and matters.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the First Closing Date or Second Closing Date, as the case may be, the
Registration Statement and any amendment or supplement thereto (other than the
financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the First Closing Date or the Second
Closing Date, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto (except as aforesaid) contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
B-5
<PAGE>
Exhibit B1
Matters to be Covered in the Opinion of
Counsel for the Indian Subsidiary
(i) The Indian Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation;
(ii) The Indian Subsidiary has the corporate power and authority to own,
lease and operate its properties and to conduct its business as described in
the Prospectus;
(iii) The Indian Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction, if any, in which
the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified or
be in good standing would not have a Material Adverse Effect. To such
counsel's knowledge, the Indian Subsidiary does not own or control, directly
or indirectly, any corporation, association or other entity;
(iv) All issued and outstanding shares of capital stock of the Indian
Subsidiary have been duly authorized and validly issued and are fully paid
and nonassessable, and, to such counsel's knowledge, have not been issued in
violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right and are owned by the
Company free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest;
(v) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Indian Subsidiary's
charter or bylaws or (b) to such counsel's knowledge, result in a material
breach or violation of any of the terms and provisions of, or constitute a
default under, any bond, debenture, note or other evidence of indebtedness,
or any lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument known to such counsel to
which the Indian Subsidiary is a party or by which its properties are bound,
or any applicable statute, rule or regulation known to such counsel or, to
such counsel's knowledge, any order, writ or decree of any court, government
or governmental agency or body having jurisdiction over the Indian
Subsidiary or any of its subsidiaries, or over any of their properties or
operations;
(vi) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Indian Subsidiary or any of
its subsidiaries of a
B-6
<PAGE>
character required to be disclosed in the Registration Statement or the
Prospectus by the Securities Act, other than those described therein;
(vii) To such counsel's knowledge, the Indian Subsidiary is not presently
(a) in material violation of its respective charter or bylaws, or (b) in
material breach of any applicable statute, rule or regulation known to such
counsel or, to such counsel's knowledge, any order, writ or decree of any
court or governmental agency or body having jurisdiction over the Indian
Subsidiary, or over any of their properties or operations;
(viii) The issuances of shares of capital stock of the Company including
options to purchase shares of capital stock of the Company to residents of
India were completed in compliance with the laws of India, including but not
limited to the Foreign Exchange Regulation Act of 1973.
(ix) The Indian subsidiary is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the
Company any loans or advances to such subsidiary from the Company or from
transferring any of such subsidiary's property or assets to the Company or
any other subsidiary of the Company, except as described in or contemplated
by the Prospectus.
The transfer of shares of capital stock of the Indian Subsidiary by Shri
B.P.S. Shekar and Smt. Pushparani to the Company were completed in
compliance with the laws of India, including but not limited to the Foreign
Exchange Regulation Act of 1973.
B-7
<PAGE>
Exhibit C
Matters to be Covered in the Opinion of
Patent Counsel for the Company
Such counsel are familiar with the technology used by the Company in
its business and the manner of its use thereof and have read the Registration
Statement and the Prospectus, including particularly the portions of the
Registration Statement and the Prospectus referring to patents, trade secrets,
trademarks, service marks or other proprietary information or materials and:
(i) The Company is listed in the records of the United States Patent and
Trademark Office as the holder of record of the patents listed on a
schedule to such opinion (the "Patents") and each of the applications
listed on a schedule to such opinion (the "Applications"). To the
knowledge of such counsel, there are no claims of third parties to any
ownership interest or lien with respect to any of the Patents or
Applications. Such counsel is not aware of any material defect in form in
the preparation or filing of the Applications on behalf of the Company. To
the knowledge of such counsel, the Applications are being pursued by the
Company. To the knowledge of such counsel, the Company owns as its sole
property the Patents and pending Applications;
(ii) The Company is listed in the records of the appropriate foreign
offices as the sole holder of record of the foreign patents listed on a
schedule to such opinion (the "Foreign Patents") and each of the
applications listed on a schedule to such opinion (the "Foreign
Applications"). Such counsel knows of no claims of third parties to any
ownership interest or lien with respect to the Foreign Patents or Foreign
Applications. Such counsel is not aware of any material defect of form in
the preparation or filing of the Foreign Applications on behalf of the
Company. To the knowledge of such counsel, the Foreign Applications are
being pursued by the Company. To the knowledge of such counsel, the
Company owns as its sole property the Foreign Patents and pending Foreign
Applications;
(iii) Such counsel knows of no reason why the Patents or Foreign Patents
are not valid as issued. Such counsel has no knowledge of any reason why
any patent to be issued as a result of any Application or Foreign
Application would not be valid or would not afford the Company useful
patent protection with respect thereto;
(iv) As to the statements under the captions "Risk Factors -- Dependence
on Patents and Proprietary Rights" and "Business -- Patents and Proprietary
Rights," nothing has come to the attention of such counsel which caused
them to believe
C-1
<PAGE>
that the above-mentioned sections of the Registration Statement, at the
time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on
which Option Shares are to be purchased the Registration Statement and any
amendment or supplement thereto made available and reviewed by such counsel
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the Closing Date or any later date
on which the Option Shares are to be purchased, as the case may be, the
above-mentioned sections of the Registration Statement, Prospectus and any
amendment or supplement thereto made available and reviewed by such counsel
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and
(v) Such counsel knows of no material action, suit, claim or proceeding
relating to patents, patent rights or licenses, trademarks or trademark
rights, copyrights, collaborative research, licenses or royalty
arrangements or agreements or trade secrets, know-how or proprietary
techniques, including processes and substances, owned by or affecting the
business or operations of the Company which are pending or threatened
against the Company or any of its officers or directors.
C-2
<PAGE>
Exhibit D
Matters to be Covered in the Opinion of Underwriters' Counsel
(i) The Firm Shares, or the Option Shares, as the case may be, have been
duly authorized and, upon issuance and delivery and payment therefor in
accordance with the terms of the Underwriting Agreement, will be validly
issued, fully paid and non-assessable.
(ii) The Registration Statement complied as to form in all material
respects with the requirements of the Act; the Registration Statement has
become effective under the Act and, to such counsel's knowledge, no stop
order proceedings with respect thereto have been instituted or threatened or
are pending under the Act.
(iii) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares
or the Option Shares have been validly registered under the Securities Act
and the Rules and Regulations of the Exchange Act and the applicable rules
and regulations of the Commission thereunder;
(iv) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
(v) The Underwriting Agreement has been duly authorized, executed and
delivered by the Selling Stockholders.
Such counsel shall state that such counsel has reviewed the opinions and
letters addressed to the Representatives from Company Counsel, counsel for the
Indian Subsidiary, Patent Counsel and Arthur Andersen LLP, each dated the date
hereof, and furnished to you in accordance with the provisions of the
Underwriting Agreement. Such opinions appear on their face to be appropriately
responsive to the requirements of the Underwriting Agreement.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the First Closing Date or Second Closing Date, as the case may be, the
Registration Statement and
E-1
<PAGE>
any amendment or supplement thereto (other than the financial statements
including supporting schedules and other financial and statistical information
derived therefrom, as to which such counsel need express no comment) contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or at the First Closing Date or the Second Closing Date, as the case
may be, the Registration Statement, the Prospectus and any amendment or
supplement thereto (except as aforesaid) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
E-2
<PAGE>
Exhibit E
Matters to be Covered in the Opinion of Selling Stockholder Counsel
(i) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of, and is a valid and binding agreement of, such
Selling Stockholder, enforceable in accordance with its terms, except as
rights to indemnification thereunder may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(ii) The execution and delivery by such Selling Stockholder of, and the
performance by such Selling Stockholder of its obligations under, the
Underwriting Agreement and its Custody Agreement and its Power of Attorney
will not contravene or conflict with, result in a breach of, or constitute
a default under, the charter or by-laws, partnership agreement, trust
agreement or other organization documents, as the case may be, of such
Selling Stockholder, or, to the best of such counsel's knowledge, violate,
result in a breach of or constitute a default under the terms of any other
agreement or instrument to which such Selling Stockholder is a party or by
which it is bound, or any judgement, order or decree applicable to such
Selling Stockholder of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over such Selling
Stockholder.
(iii) Such Selling Stockholder has good and valid title to all of the
Common Shares which may be sold by such Selling Stockholder under the
Underwriting Agreement and has the legal right and power, and all
authorization and approvals required under its charter and by-laws, to
enter into the Underwriting Agreement and its Custody Agreement and its
Power of Attorney, to sell, transfer and deliver all of the Common Shares
which may be sold by such Selling Stockholder under the Underwriting
Agreement and to comply with its other obligations under the Underwriting
Agreement, its Custody Agreement and its Power of Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of such Selling
Stockholder has been duly authorized, executed and delivered by such
Selling Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as [rights to
indemnification thereunder may be limited by applicable law and except as]
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or
E-3
<PAGE>
other similar laws relating to or affecting creditors' rights generally or
by general equitable principles.
(v) Assuming that the Underwriters purchase the Shares which are sold by
such Selling Stockholder pursuant to the Underwriting Agreement for value,
in good faith and without notice of any adverse claims, the delivery of
such Shares pursuant to the Underwriting Agreement will pass good and valid
title to such Shares, free and clear of any security interest, mortgage,
pledge, lieu encumbrance or other claim.
(vi) To the best of such counsel's knowledge, no consent, approval,
authorization or other order of, or registration or filing with, any court
or governmental authority or agency, is required for the consummation by
such Selling Stockholder of the transactions contemplated in the
Underwriting Agreement, except as required under the Securities Act,
applicable state securities or blue sky laws, and from the National
Association of Securities Dealers, LLC.
E-4
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF INCORPORATION
OF
RAMP NETWORKS, INC.
ARTICLE I
The name of the corporation is Ramp Networks, Inc. (the "Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of Delaware is
1013 Centre Road, City of Wilmington, County of New Castle, Delaware 19805. The
name of its registered agent at such address is Corporation Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
A. Authorized Stock. The corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock".
The total number of shares which the corporation is authorized to issue is
Thirty Five Million Nine Hundred Forty Nine Thousand Two Hundred Sixteen
(35,949,216) shares, each with a par value of $0.001 per share. The number of
shares of Preferred Stock authorized to be issued is Eleven Million Nine Hundred
Forty Nine Thousand Two Hundred Sixteen (11,949,216) shares, of which Four
Million Seven Hundred Ninety Seven Thousand Seven Hundred Eighty Seven
(4,797,787) shares shall be designated as Series A Preferred Stock, Two Million
Fifteen Thousand Fourteen (2,615,014) shares shall be designated as Series B
Preferred Stock, One Million Seven Hundred Eighty Nine Thousand One Hundred
Forty Seven (1,789,147) shares shall be designated as Series C Preferred Stock,
and Two Million Seven Hundred Forty Seven Thousand Two Hundred Sixty Eight
(2,747,268) shares shall be designated as Series D Preferred Stock. The number
of shares of Common Stock authorized to be issued is Forty Million (24,000,000)
shares, having no par value.
B. Preferred Stock. The rights, preferences, privileges and restrictions
---------------
granted to and imposed on the Preferred Stock are as follows:
1. Dividend Provisions. The holders of shares of Series A Preferred
-------------------
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock shall be entitled to receive dividends at the annual rate of $0.05,
$0.26, $0.37 and $0.49 per share, respectively (adjusted to reflect stock
splits, stock dividends and recapitalizations), payable out of funds legally
available therefor. All such dividends shall be payable only when, as, and if
declared by the Board of Directors and shall not be cumulative. No dividends
(other than those payable solely in Common Stock or other securities and rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of the
<PAGE>
corporation) shall be payable on any Common Stock of the corporation during any
fiscal year of the corporation until dividends in the amount of $0.046, $0.258,
$0.37 and $0.987 per share (adjusted to reflects stock splits, stock dividends,
and recapitalizations) on the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock, respectively,
shall have been paid or declared and set apart during that fiscal year.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
the corporation, either voluntary or involuntary, the holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of the assets or surplus funds of the corporation to the holders of
Common Stock by reason of their ownership thereof, the amount of $0.62 per
share for each share of Series A Preferred Stock then held by them and the
amount of $3.44 per share for each share of Series B Preferred Stock then held
by them and the amount of $4.93 per share for each share of Series C Preferred
Stock then held by them and the amount of $6.59 per share for each share of
Series D Preferred Stock then held by them (adjusted to reflect stock splits,
stock dividends and recapitalizations), plus all declared but unpaid dividends
on their respective shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock then held by them
and no more. The Series A, B, C and D Preferred Stock shall rank on a parity as
to the receipt of the respective preferential amounts for each such Series upon
the occurrence of such event. If, upon the occurrence of such an event, the
assets and funds thus distributed among the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then the entire assets and funds of the
corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock in proportion to the
preferential amount each such holder is entitled to receive.
(b) Upon the completion of the distribution required by Section
2(a) above, the remaining assets of the Corporation available for distribution
to shareholders shall be distributed among the holders of the Common Stock of
the corporation pro rata based on the number of shares of Common Stock held by
each such shareholder.
(c) For purposes of this Section 2, any acquisition of the
corporation by means of merger or other form of corporate reorganization in
which the outstanding shares of the corporation are exchanged for securities or
other consideration issued, or caused to be issued, by the acquiring corporation
or its subsidiary (other than a reincorporation transaction), a sale of all or
substantially all of the assets of the corporation or a transaction (or series
of related transactions) in which more than fifty percent (50%) of the voting
power of the corporation is disposed of to a single person or entity or group of
affiliated persons or entities shall be treated as a liquidation, dissolution or
winding up of the corporation and shall entitle the holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Common Stock to receive at the closing in cash, securities
or other property amounts as specified in Sections 2(a) and 2(b) above.
-2-
<PAGE>
(d) Any securities to be delivered to the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and/or Common Stock pursuant to Section 2(c) above shall be
valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
(A) If traded on a securities exchange or the NASDAQ
National Market System, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty (30) day
period ending three (3) days prior to the distribution;
(B) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid prices over the thirty (30)
day period ending three (3) days prior to the distribution; and
(C) If there is no active public market, the value
shall be the fair market value thereof, as determined in good faith by the Board
of Directors of the corporation.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in (i) (A),
(B) or (C) to reflect the approximate fair market value thereof, as determined
in good faith by the Board of Directors of the corporation.
3. Conversion. The holders of the Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
-----------------
(a) Right to Convert.
----------------
(i) Subject to subsection (c), each share of Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of the corporation or any transfer
agent for the Preferred Stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing (i) in the case of the
Series A Preferred Stock, $0.62 for each share of Series A Preferred Stock or
(ii) in the case of the Series B Preferred Stock, $3.44 for each share of
Series B Preferred Stock, or (iii) in the case of the Series C Preferred Stock,
$4.93 for each share of Series C Preferred Stock, or (iv) in the case of the
Series D Preferred Stock, $6.59 for each share of Series D Preferred Stock, in
each case by the applicable Conversion Price at the time in effect for such
share. The initial Conversion Price for shares of Series A Preferred Stock shall
be $0.62 per share, the initial Conversion Price for shares of Series B
Preferred Stock shall be $3.44 per share, the initial Conversion Price for
shares of Series C Preferred Stock shall be $4.93 per share and the initial
Conversion Price for shares of Series D Preferred Stock shall be $6.59 per
share; provided, however, that the Conversion Price for each Series of Preferred
Stock shall be subject to adjustment as set forth in subsection 3(c).
(ii) Each share of Preferred Stock shall automatically be
converted into shares of Common Stock at the Conversion Price at the time in
effect for such
-3-
<PAGE>
shares of Preferred Stock upon the earlier, as to each series, of (A) the date
specified by vote or written consent or agreement of holders of a majority of
the shares of such Series then outstanding or of (B) the consummation of the
corporation's sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement on Form S-1 (or any successor
such form) under the Securities Act of 1933, as amended (the "Securities Act"),
which results in aggregate gross cash proceeds to the corporation in excess of
Ten Million ($10,000,000) Dollars and the public offering price of which is not
less than Eight Dollars and Thirty Three Cents ($8.33) per share (adjusted to
reflect subsequent stock dividends, stock splits or recapitalizations).
(b) Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the corporation or of any transfer agent for the Preferred Stock, and shall
give written notice by mail, postage prepaid, to the corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act, the conversion will be
conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering, unless otherwise designated in writing by the holders
of such Preferred Stock, in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of the Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(c) Conversion Price Adjustments of Preferred Stock. The
-----------------------------------------------
Conversion Price of each Series of Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) (A) If the corporation, at any time or from time to time
after the date of the first issuance of shares of Series D Preferred Stock (the
"Purchase Date"), shall issue any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Conversion Price
for the Series A, Series B, Series C or Series D Preferred Stock in effect
immediately prior to the issuance of such Additional Stock, the Conversion Price
for such Series of Preferred Stock in effect immediately prior to each such
issuance shall forthwith be adjusted to a price determined by multiplying such
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of Common Stock which the aggregate consideration received by
the corporation for the total number of shares of Additional Stock so issued
would purchase at such Conversion Price, and the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the
-4-
<PAGE>
number of such shares of Additional Stock so issued. For the purposes of this
subsection, the number of shares of Common Stock outstanding immediately prior
to such issue shall be calculated on a fully diluted basis, as if all shares of
Preferred Stock and all convertible securities had been fully converted into
shares of Common Stock immediately prior to such issuance and any outstanding
warrants, options or other rights for the purchase of shares of stock or
convertible securities had been fully exercised immediately prior to such
issuance (and the resulting securities fully converted into shares of Common
Stock, if so convertible) as of such date, but not including in such calculation
any additional shares of Common Stock issuable with respect to shares of
Preferred Stock, convertible securities, or outstanding options, warrants or
other rights for the purchase of shares of stock or convertible securities,
solely as a result of the adjustment of the respective Conversion Prices (or
other conversion ratios) resulting from the issuance of the Additional Stock
causing the adjustment in question. Immediately after any Additional Stock is
deemed issued, such Additional Stock shall be deemed to be outstanding.
(B) No adjustment of the Conversion Price for a Series
of Preferred Stock shall be made in an amount less than one cent per share,
provided that any adjustments which are not required to be made by reason of
this sentence shall be carried forward and shall be either taken into account in
any subsequent adjustment made prior to three (3) years from the date of the
event giving rise to the adjustment being carried forward, or shall be made at
the end of three (3) years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent provided for in
subsections (E)(3) and (E)(4), no adjustment of the Conversion Price for any
Series of Preferred Stock pursuant to this subsection 3(c)(i) shall have the
effect of increasing such Conversion Price above the Conversion Price for such
Series of Preferred Stock in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by the corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance, whether before, on or
after the Purchase Date, of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities (which are not excluded from the definition of
Additional Stock), the following provisions shall apply:
1. The aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subsections 3(c)(i)(C) and 3(c) (i)(D)),
if any, received by the corporation upon the issuance of
-5-
<PAGE>
such options or rights plus the minimum purchase price provided in such options
or rights for the Common Stock covered thereby.
2. The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued and for a consideration equal to the consideration, if any, received by
the corporation for any such securities and related options or rights (excluding
any cash received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the corporation upon the
conversion or exchange of such securities or the exercise of any related options
or rights (the consideration in each case to be determined in the manner
provided in subsections 3(c)(i)(C) and 3(c)(i)(D)).
3. In the event of any change in the number of
shares of Common Stock deliverable or any increase in the consideration payable
to the corporation upon exercise of such options or rights or upon conversion of
or in exchange for such convertible or exchangeable securities, including, but
not limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock obtained with respect to
the adjustment which was made upon the issuance of such options, rights or
securities, and any subsequent adjustments based thereon, shall be recomputed to
reflect such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of such securities.
4. Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock obtained
with respect to the adjustment which was made upon the issuance of such options,
rights or securities or options or rights related to such securities, and any
subsequent adjustments based thereon, shall be recomputed to reflect the
issuance of only the number of shares of Common Stock actually issued upon the
exercise of such options or rights, upon the conversion or exchange of such
securities or upon the exercise of the options or rights related to such
securities. Upon the expiration of any such options or rights, the termination
of any such rights to convert or exchange or the expiration of any options or
rights related to such convertible or exchangeable securities, only the number
of shares of Common Stock actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities shall continue to be deemed
to be issued.
5. All Common Stock deemed issued pursuant to this
subsection 3(c)(i)(E) shall be considered issued only at the time of its deemed
issuance and any actual issuance of such stock shall not be an actual issuance
or a deemed issuance of the corporation's Common Stock under the provisions of
this Section 3; provided however, that in
-6-
<PAGE>
the case of any options to purchase or rights to subscribe for Common Stock
which expire by their terms not more than thirty (30) days after the date of
issue thereof, no adjustment of the Conversion Price for any Series of Preferred
Stock shall be made until the expiration or exercise of all such options or
rights, whereupon such adjustment shall be made in the same manner provided in
subsection (E)(4) above.
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection 3(c)(i)(E))
by the corporation on or after the Purchase Date other than shares of Common
Stock issued or issuable:
(A) pursuant to a transaction described in subsection
3(c)(iii) hereof;
(B) to officers, directors, employees and consultants
of the corporation directly or pursuant to a stock option plan or restricted
stock plan approved by the shareholders and directors of the corporation;
(C) for which adjustment of the Conversion Price is
made pursuant to this Section 3; or
(D) upon conversion of the Series A, Series B, Series C
or Series D Preferred Stock.
(iii) In the event the corporation should at any time or
from time to time after the Purchase Date fix a record date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
- -------------------------
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Prices of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock and the Series D Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of such Series shall be increased in proportion to such increase of
the aggregate shares of Common Stock outstanding and those issuable with respect
to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series A Preferred Stock and Series B
Preferred Stock and Series C Preferred Stock and Series D Preferred Stock shall
be appropriately increased so that the number of shares of Common Stock issuable
on conversion of each share of such Series shall be decreased in proportion to
such decrease in outstanding shares.
-7-
<PAGE>
(d) Other Distributions. In the event the corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 3(c)(iii), then,
in each such case for the purpose of this subsection 3(d), the holders of the
Series A Preferred Stock and Series B Preferred Stock and Series C Preferred
Stock and Series D Preferred Stock shall be entitled to a proportionate share of
any such distribution as though they were the holders of the number of shares of
Common Stock of the corporation into which their shares of Series A and Series B
and Series C and Series D Preferred Stock are convertible as of the record date
fixed for the determination of the holders of Common Stock of the corporation
entitled to receive such distribution.
(e) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
Sections 2 or 3) provision shall be made so that each holder of Preferred Stock
shall thereafter be entitled to receive upon conversion of the Preferred Stock
the number of shares of stock or other securities or property of the corporation
or otherwise, to which a holder of the number of shares of Common Stock
deliverable upon conversion of such Preferred Stock would have been entitled on
such recapitalization. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 3 with respect to the
rights of the holders of Preferred Stock after the recapitalization to the end
that the provisions of this Section 3 (including adjustment of the Conversion
Price then in effect and the number of shares purchasable upon conversion of the
Series A, Series B, Series C and Series D Preferred Stock) shall be applicable
after that event as nearly equivalent as may be practicable.
(f) No Impairment. Without the consent of the holders of
-------------
Preferred Stock in accordance with Article III(B)(5) below, the corporation will
not, by amendment of its Articles of Incorporation or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 3 and in the
taking of all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of the Preferred Stock against impairment .
(g) No Fractional Shares and Certificate as to Adjustments.
-------------------------------------------------------
(i) No fractional shares shall be issued upon conversion of
the Preferred Stock, and the number of shares of Common Stock to be issued upon
conversion shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of any Conversion Price of Series A, Series B, Series C or Series D Preferred
Stock pursuant to this Section 3, the corporation, at its expense, shall
promptly compute such adjustment or
-8-
<PAGE>
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A, Series B, Series C and Series D Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The corporation
shall, upon the written request at any time of any holder of Series A, Series B,
Series C or Series D Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price at the time in effect, and (C) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of a share of Series A, Series B, Series C or
Series D Preferred Stock.
(h) Notices of Record Date. In the event of any taking by the
----------------------
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the corporation
shall mail to each holder of Preferred Stock, at least twenty (20) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(i) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Preferred Stock such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, the corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
(j) Notices. Any notice required by the provisions of this
-------
Section 3 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at its address appearing on the books of the
corporation.
4. Voting Rights.
-------------
(a) The holder of each share of Preferred Stock shall have the
right to one vote for each share of Common Stock into which such Preferred Stock
could then be converted (with any fractional share determined on an aggregate
conversion basis being rounded to the nearest whole share), and with respect to
such vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any shareholders' meeting in
accordance with the by-laws of the corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Notwithstanding the foregoing,
the holders of Series C Preferred Stock,
-9-
<PAGE>
voting as a single class, shall be entitled to elect one (1) member of the
corporation's board of directors; the holders of Series B Preferred Stock,
voting as a single class, shall be entitled to elect two (2) members of the
corporation's board of directors; the holders of Series A Preferred Stock,
voting as a single class, shall be entitled to elect one (1) member of the
corporation's board of directors; and the holders of the Common Stock (excluding
the Preferred Stock on an as-converted basis), voting as a single class, shall
be entitled to elect the remaining members of the corporation's board of
directors.
(b) In the case of any vacancy in the office of a director
occurring among the directors elected by the holders of a Series of Preferred
Stock or Common Stock pursuant to Section 4(a) hereof, the remaining director or
directors so elected by the holders of such Series of Preferred Stock or Common
Stock may, by affirmative vote of a majority thereof (or the remaining director
so elected if there is but one, or if there is no such director remaining, by
the affirmative vote of the holders of a majority of the shares of that class)
elect a successor or successors to hold the office for the unexpired term of the
director or directors whose place or places shall be vacant. Any director who
shall have been elected by the holders of the Series A, Series B or Series C
Preferred Stock or Common Stock or any director so elected as provided in the
preceding sentence hereof, may be removed during the aforesaid term of office,
whether with or without cause, only by the affirmative vote of the holders of a
majority of the Series A, Series B or Series C Preferred Stock, or Common Stock,
as the case may be.
5. Protective Provisions. So long as shares of Preferred Stock are
---------------------
outstanding, the corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of (i) the holders of at least a
majority of the then outstanding shares of Preferred Stock, voting together as a
class, and (ii) the holders of at least a majority of the then outstanding
shares of Series C Preferred Stock, voting as a separate class, except where
otherwise required by law:
(a) sell, convey, or otherwise dispose of all or substantially
all of its property or business or merge into or consolidate with any other
corporation (other than a wholly owned subsidiary corporation in a merger not
involving a third party) or effect any transaction or Series of related
transactions in which more than fifty percent (50%) of the voting power of the
corporation is disposed of;
(b) liquidate, dissolve, recapitalize or reorganize the
corporation;
(c) create or issue any new class or Series of stock or any other
securities convertible into equity securities of the corporation (i) having a
preference over, or being on a parity with, the Series A, Series B, Series C or
Series D Preferred Stock with respect to voting, dividends, conversion or upon
liquidation, or (ii) having rights similar to any of the rights of the Series A,
Series B, Series C and Series D Preferred Stock under this Section 5;
(d) adversely alter or change the rights, preferences or
privileges of any of the Preferred Stock; or
(e) reclassify any of the Company's outstanding capital stock.
-10-
<PAGE>
6. Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to Section 3 hereof, the shares so converted
shall be canceled and shall not be issuable by the corporation, and the Articles
of Incorporation of the corporation shall be appropriately amended to effect the
corresponding reduction in the corporation's authorized capital stock.
7. Repurchase of Shares. In connection with repurchases by the
--------------------
corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof providing for such repurchases in the event of the termination
of the status of such holder as an employee, director or consultant to the
Company, each holder of Preferred Stock shall be deemed to have consented, for
purposes of Sections 502, 503 and 506 of the California General Corporation Law,
to distributions made by the corporation with respect to such repurchases.
8. Redemption.
----------
(a) Subject to the limitations of Section 500 et seq. of the
California Corporations Code, at any time after April 30, 2002, upon the written
request from the holders of not less than a majority of the then outstanding
shares of a Series of Preferred Stock, voting as one class, that such Series of
Preferred Stock be redeemed, this corporation shall, within thirty (30) days
(the "Initial Redemption Date") after the receipt by this corporation of such
-----------------------
written request, from any source of funds legally available therefor, redeem all
of the then outstanding shares of such Series of Preferred Stock in three annual
installments beginning on the Initial Redemption Date (the Initial Redemption
Date, together with the first and second anniversary of such date shall each be
referred to herein as a "Redemption Date"). The corporation shall effect such
---------------
redemptions by paying in cash therefor, $0.62 per share of Series A Preferred
Stock, $3.44 per share of Series B Preferred Stock, $4.93 per share of Series
C Preferred Stock and $6.59 per share of Series D Preferred Stock (as adjusted
for any stock dividends, combinations or splits with respect to such shares)
plus all declared but unpaid dividends on such shares to be redeemed (the
"Redemption Price"), in exchange for the shares of Series A, Series B, Series C
- -----------------
and Series D Preferred Stock to be redeemed (as adjusted for any stock
dividends, combinations or splits with respect to such shares), respectively.
The number of shares of Preferred Stock that the corporation shall be required
under this subsection 8(a) to redeem on any Redemption Date shall be equal to
the one-third (1/3) of the total number of shares of a Series of Preferred Stock
outstanding immediately prior to the Initial Redemption Date. Any redemption
effected pursuant to this subsection 8(a) shall be made on a pro rata basis
among the holders of a Series of Preferred Stock in proportion to the number of
shares of such Series of Preferred Stock then held by such holders.
(b) At least fifteen (15) but no more than thirty (30) days prior
to each Redemption Date, written notice shall be mailed, first class postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Preferred Stock to be
redeemed, at the address last shown on the records of this corporation for such
holder, notifying such holder of the redemption to be effected, specifying the
number of shares to be redeemed from such holder, the Redemption Date, the
Redemption Price, the place at which payment may be obtained and calling upon
such holder to surrender to this corporation, in the manner and at the place
designated, his, her or its certificate or certificates representing the shares
to be redeemed (the "Redemption Notice"). Except as
-----------------
-11-
<PAGE>
provided in subsection 8(c) below, on or after the Redemption Date, each holder
of Preferred Stock to be redeemed shall surrender to this corporation the
certificate or certificates representing such shares, in the manner and at the
place designated in the Redemption Notice, and thereupon the Redemption Price of
such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(c) From and after the applicable Redemption Date, unless there
shall have been a default in payment of the Redemption Price, all rights of the
holders of shares of Preferred Stock designated for redemption in the Redemption
Notice for redemption as of the applicable Redemption Date as holders of
Preferred Stock (except the right to receive the Redemption Price without
interest upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of this corporation or be deemed to be outstanding for any purpose
whatsoever. Subject to the rights of any Series of Preferred Stock which may
from time to time come into existence, if the funds of the corporation legally
available for redemption of shares of Preferred Stock on any Redemption Date are
insufficient to redeem the total number of shares of Preferred Stock to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of such shares ratably among the holders of
such shares to be redeemed based upon their holdings of Preferred Stock. The
shares of Preferred Stock not redeemed shall remain outstanding and entitled to
all the rights and preferences provided herein. Subject to the rights of a
Series of Preferred Stock which may from time to time come into existence, at
any time thereafter when additional funds of the corporation are legally
available for the redemption of shares of Preferred Stock, such funds will
immediately be used to redeem the balance of the shares which the corporation
has become obliged to redeem on any Redemption Date but which it has not
redeemed.
(d) On or prior to each Redemption Date, this corporation shall
deposit the Redemption Price of all shares of a Series of Preferred Stock
designated for redemption in the Redemption Notice, and not yet redeemed or
converted, with a bank or trust corporation having aggregate capital and surplus
in excess of One Hundred Million Dollars ($100,000,000) as a trust fund for the
benefit of the respective holders of the shares designated for redemption and
not yet redeemed, with irrevocable instructions and authority to the bank or
trust corporation to publish the notice of redemption thereof and pay the
Redemption Price for such shares to their respective holders on or after the
Redemption Date, upon receipt of notification from the corporation that such
holder has surrendered his, her or its share certificate to the corporation
pursuant to subsection 8(b) above. As of the date of such deposit (even if
prior to the Redemption Date), the deposit shall constitute full payment of the
shares to their holders, and from and after the date of the deposit the shares
so called for redemption shall be redeemed and shall be deemed to be no longer
outstanding, and the holders thereof shall cease to be shareholders with respect
to such shares and shall have no rights with respect thereto except the right to
receive from the bank or trust corporation payment of the Redemption Price of
the shares, without interest, upon surrender of their certificates therefor.
Such instructions shall also provide that any moneys deposited by the
corporation pursuant to this subsection 8(d) for the redemption of shares
thereafter converted into shares of the corporation's Common Stock pursuant to
Article III(B)(3) hereof prior to the Redemption Date shall be returned to the
-12-
<PAGE>
corporation forthwith upon such conversion. The balance of any moneys deposited
by this corporation pursuant to this subsection 8(d) remaining unclaimed at the
expiration of two (2) years following the Redemption Date shall thereafter be
returned to this corporation upon its request expressed in a resolution of its
Board of Directors.
C. Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the corporation, the assets of the corporation shall be distributed as
provided in Section B.2. of this Article III.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any shareholders
meeting in accordance with the By-laws of the corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal Bylaws of the Corporation.
ARTICLE VI
Elections of directors need not be by written ballot unless otherwise provided
in the Bylaws of the Corporation.
ARTICLE VII
(A) To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
(B) The Corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director or officer of the
Corporation or any predecessor of the Corporation, or serves or served at any
other enterprise as a director or officer at the request of the Corporation or
any predecessor to the Corporation.
-13-
<PAGE>
(C) Neither any amendment nor repeal of this Article VII, nor the adoption
of any provision of the Corporation's Certificate of Incorporation inconsistent
with this Article VII, shall eliminate or reduce the effect of this Article VII
in respect of any matter occurring, or any action or proceeding accruing or
arising or that, but for this Article VII, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE VIII
The name and mailing address of the incorporator are as follows:
David Lee
VENTURE LAW GROUP
2800 Sand Hill Road
Menlo Park, CA 94025
Executed this ___ day of __________, 1999.
______________________________
David Lee, Incorporator
-14-
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RAMP NETWORKS, INC.
The undersigned, Mahesh Veerina and Tae Hea Nahm, hereby certify that:
1. They are the duly elected and acting President and Assistant Secretary,
respectively, of Ramp Networks, Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on May __, 1999.
3. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:
ARTICLE I
"The name of this corporation is Ramp Networks, Inc. (the "Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, City of Wilmington, County of New Castle, Delaware 19805.
The name of its registered agent at such address is Corporation Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
(A) Classes of Stock. The Corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
------------ ---------------
The total number of shares which the Corporation is authorized to issue is one
hundred five million (105,000,000) shares, each with a par value of $0.001 per
share. One hundred million (100,000,000) shares shall be Common Stock and five
million (5,000,000) shares shall be Preferred Stock.
<PAGE>
(B) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Certificate of Incorporation, to determine or alter
the rights, preferences, privileges and restrictions granted to or imposed upon
any wholly unissued series of Preferred Stock and the number of shares
constituting any such series and the designation thereof, or any of them; and to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
ARTICLE V
The number of directors of the Corporation shall be fixed from time to time
by a bylaw or amendment thereof duly adopted by the Board of Directors.
ARTICLE VI
(A) The Board of Directors of the Corporation shall divide the directors
into two classes, as nearly equal in number as reasonably possible, with the
term of office of the first class to expire at the first annual meeting of
stockholders following the date this Article VI becomes effective (the
"Effective Date") or any special meeting in lieu thereof, the term of office of
--------------
the second class to expire at the second annual meeting of stockholders after
the Effective Date or any special meeting in lieu thereof. At each annual
meeting of stockholders or special meeting in lieu thereof following such
initial classification, directors elected to succeed those directors whose terms
expire shall be elected for a term of office to expire at the second succeeding
annual meeting of stockholders or special meeting in lieu thereof after their
election and until their successors are duly elected and qualified.
(B) Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director.
In the event of any increase or decrease in the authorized number of directors,
(i) each director then serving as such shall nevertheless continue as a director
of the class of which he or she is a member until the expiration of his or her
current term or his or her prior death, retirement, removal or resignation, and
(ii) the newly created or eliminated directorships resulting from such increase
or decrease shall, if reasonably possible, be apportioned by the Board of
Directors between the two classes of directors so as to ensure that no one class
has more than one director more than any other class. To the extent reasonably
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation and newly eliminated directorships shall
be subtracted from those classes whose terms of office are to expire at the
earliest dates following such allocation, unless otherwise provided for from
time to time by resolution adopted by a
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<PAGE>
majority of the directors then in office, although less than a quorum. In the
event of a vacancy in the Board of Directors, the remaining directors, except as
otherwise provided by law, may exercise the powers of the full Board of
Directors until the vacancy is filled. Vacancies in the Board of Directors and
newly created directorships resulting from any increase in the authorized number
of directors shall be filled by a vote of the majority of the directors then in
office, though less than a quorum, or by a sole remaining director.
ARTICLE VII
In the election of directors, each holder of shares of any class or series
of capital stock of the Corporation shall be entitled to one vote for each share
held. No stockholder will be permitted to cumulate votes at any election of
directors.
ARTICLE VIII
No action shall be taken by the stockholders of the Corporation other than
at an annual or special meeting of the stockholders, upon due notice and in
accordance with the provisions of the Corporation's bylaws.
ARTICLE IX
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
ARTICLE X
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal Bylaws of the Corporation.
ARTICLE XI
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE XII
The Corporation shall have perpetual existence.
-3-
<PAGE>
ARTICLE XIII
(A) To the fullest extent permitted by the General Corporation Law of
Delaware, as the same may be amended from time to time, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
If the General Corporation Law of Delaware is hereafter amended to authorize,
with the approval of a corporation's stockholders, further reductions in the
liability of the Corporation's directors for breach of fiduciary duty, then a
director of the Corporation shall not be liable for any such breach to the
fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
(B) Any repeal or modification of the foregoing provisions of this Article
XIII shall not adversely affect any right or protection of a director of the
Corporation with respect to any acts or omissions of such director occurring
prior to such repeal or modification.
ARTICLE XIV
(A) To the fullest extent permitted by applicable law, the Corporation is
also authorized to provide indemnification of (and advancement of expenses to)
such agents (and any other persons to which Delaware law permits the Corporation
to provide indemnification) through bylaw provisions, agreements with such
agents or other persons, vote of stockholders or disinterested directors or
otherwise, in excess of the indemnification and advancement otherwise permitted
by Section 145 of the Delaware General Corporation Law, subject only to limits
created by applicable Delaware law (statutory or non-statutory), with respect to
actions for breach of duty to a corporation, its stockholders, and others.
(B) Any repeal or modification of any of the foregoing provisions of this
Article XIV shall not adversely affect any right or protection of a director,
officer, agent or other person existing at the time of, or increase the
liability of any director of the Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification."
* * *
-4-
<PAGE>
The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this Corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at Santa Clara, California, on ____________________.
_________________________________
Mahesh Veerina, President
_________________________________
Tae Hea Nahm, Assistant Secretary
-5-
<PAGE>
- ------------ ------------
Number Shares
CS [RAMP NETWORKS (TM) LOGO]
- ------------ ------------
COMMON STOCK COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE
IN BOSTON, MA OR NEW YORK, NY
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 751567 10 8
THIS CERTIFIES THAT
SEE REVERSE FOR CERTAIN
DEFINITIONS AND A STATEMENT
AS TO THE RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS
OF SHARES
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK,
$0.0001 PAR VALUE PER SHARE, OF
RAMP NETWORKS, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned and registered by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
RAMP NETWORKS, INC.
CORPORATE SEAL
/s/ [Terry R. Gibson] /s/ Mahesh Veerina
DELAWARE
CHIEF FINANCIAL OFFICER PRESIDENT
COUNTERSIGNED AND REGISTERED:
BANKBOSTON, N.A.
TRANSFER AGENT AND REGISTRAR
By [Illegible]
AUTHORIZED SIGNATURE
- ---------------------------------------------
AMERICAN BANK NOTE COMPANY MAY 20, 1999 FM
3604 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 005003fc
(562) 968-2333
(FAX) (562) 426-7460 12MX Proof____ NEW
- ---------------------------------------------
<PAGE>
RAMP NETWORKS, INC.
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge at
the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT -- ................ Custodian ................
(Cust) (Minor)
under Uniform Gifts to Minors
Act........................................
(State)
UNIF TRF MIN ACT -- ............. Custodian (until age........)
(Cust)
................... under Uniform Transfers
(Minor)
to Minors Act..............................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
---------------------------------
X
--------------------------------------
X
--------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Art.15.
- ---------------------------------------------
AMERICAN BANK NOTE COMPANY MAY 20, 1999 fm
3604 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 005003bk
(562) 968-2333
(FAX) (562) 426-7450 12MX Proof____ NEW
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EXHIBIT 5.1
May 25, 1999
Ramp Networks, Inc.
3100 De La Cruz
Santa Clara, CA 95054
Registration Statement on Form S-1
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Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you with
the Securities and Exchange Commission on April 16, 1999 (the "Registration
Statement") in connection with the registration under the Securities Act of
1933, as amended, of a total of 4,600,000 shares of your Common Stock (the
"Shares") to be sold to the underwriters as described in the Registration
Statement for resale to the public, including an over-allotment option to
purchase 600,000 shares granted to the underwriters. As your counsel in
connection with this transaction, we have examined the proceedings taken and are
familiar with the proceedings proposed to be taken by you in connection with the
sale and issuance of the Shares.
It is our opinion that upon conclusion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares when issued and sold in the manner
described in the Registration Statement will be legally and validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and in any amendment thereto.
Sincerely,
VENTURE LAW GROUP
A Professional Corporation
/s/ VENTURE LAW GROUP
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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 LLP
San Jose, California
May 25, 1999
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CONSENT OF TOWNSEND AND TOWNSEND AND CREW LLP
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2, dated May 25, 1999, of the Registration Statement on form S1
and related Prospectus of Ramp Networks, Inc. for the registration of 4,000,000
shares of its common stock.
TOWNSEND AND TOWNSEND AND CREW LLP
By: /s/ PAUL C. HAUGHEY
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Paul C. Haughey, Partner
Palo Alto, California
May 25, 1999
