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Form 10-Q IPASS INC For: Mar 31

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May 7, 2015 5:21 PM EDT

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
000-50327
(Commission File Number)
 
iPass Inc.
(Exact name of Registrant as specified in its charter)
 
Delaware
 
93-1214598
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
3800 Bridge Parkway
Redwood Shores, California 94065
(Address of principal executive offices, including zip code)
(650) 232-4100
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232 405 of this chapter) during the preceding 12 months or for such shorter period that the registrant was required to submit and post such files.    Yes  x   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated filer
¨
Accelerated filer
x
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
The number of shares outstanding of the Registrant’s Common Stock, $0.001 par value, as of April 30, 2015 was 65,564,106.
 




IPASS INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED March 31, 2015
TABLE OF CONTENTS


2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

IPASS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
 
March 31,
2015
December 31,
2014
ASSETS
 
 
Current assets:
 
 
Cash and cash equivalents
$
28,600

$
33,814

Accounts receivable, net of allowance for doubtful accounts of $104 and $172, respectively
11,149

10,063

Prepaid expenses and other current assets
4,216

4,318

Total current assets
43,965

48,195

Property and equipment, net
5,805

6,213

Other assets
694

847

Total assets
$
50,464

$
55,255

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
Current liabilities:
 
 
Accounts payable
$
6,298

$
7,301

Accrued liabilities
6,399

7,188

Deferred revenue, short-term
1,158

437

Total current liabilities
13,855

14,926

Deferred revenue, long-term
324

115

Vendor financed property and equipment
572

854

Other long-term liabilities
1,034

879

Total liabilities
$
15,785

$
16,774

Stockholders’ equity:
 
 
Common stock
65

65

Additional paid-in capital
220,006

220,368

Accumulated deficit
(185,392
)
(181,952
)
Total stockholders’ equity
34,679

38,481

Total liabilities and stockholders’ equity
$
50,464

$
55,255

See Accompanying Notes to Condensed Consolidated Financial Statements


3

IPASS INC.
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except shares and per share amounts)
 
Three Months Ended 
 March 31,

 
2015

2014

Revenue
$
16,558


$
17,637


Cost of revenues and operating expenses:




Network access costs
6,675


7,207


Network operations
2,950


3,717


Research and development
2,998


3,384


Sales and marketing
3,182


4,565


General and administrative
4,236


4,771


Restructuring charges and related adjustments
21


14


Total cost of revenue and operating expenses
20,062


23,658


Operating loss
(3,504
)

(6,021
)

Interest expense, net
(21
)

(33
)

Foreign exchange gain (loss), net
189


(71
)

Other loss, net
(4
)
 
—

 
Loss from continuing operations before income taxes
(3,340
)

(6,125
)

(Provision for) benefit from income taxes
(100
)

179


Net loss from continuing operations
$
(3,440
)

$
(5,946
)

Net income from discontinued operations (Note 11)
$
—


$
397


Total net loss
$
(3,440
)
 
$
(5,549
)
 
Total comprehensive net loss
$
(3,440
)

$
(5,549
)








Total income (loss) per share - basic and diluted
 
 
 
 
Loss from continuing operations
$
(0.05
)

$
(0.09
)

Income loss from discontinued operations
$
—


$
—


Total net loss per share
$
(0.05
)

$
(0.09
)


 
 
 
 
Weighted average shares outstanding - basic and diluted
62,846,194


64,421,563


 
See Accompanying Notes to the Condensed Consolidated Financial Statements


4

IPASS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Three Months Ended 
 March 31,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net loss
$
(3,440
)
 
$
(5,549
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
 
Stock-based compensation (benefit) expense
(362
)
 
587

Depreciation and amortization
746

 
803

Deferred income taxes
(2
)
 
(6
)
Loss on disposal of property and equipment
4

 
—

Recovery of doubtful accounts
(63
)
 
(68
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(1,024
)
 
1,096

Prepaid expenses and other current assets
254

 
527

Other assets
3

 
31

Accounts payable
(1,152
)
 
(935
)
Accrued liabilities
(669
)
 
792

Deferred revenue
930

 
(459
)
Other liabilities
11

 
(63
)
Net cash used in operating activities
(4,764
)
 
(3,244
)
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(175
)
 
(457
)
Net cash used in investing activities
(175
)
 
(457
)
Cash flows from financing activities:
 
 
 
Net proceeds from issuance of common stock
—

 
36

Principal payments for vendor financed property and equipment
(275
)
 
(263
)
Net cash used in financing activities
(275
)
 
(227
)
Net decrease in cash and cash equivalents
(5,214
)
 
(3,928
)
Cash and cash equivalents at beginning of period
33,814

 
24,017

Cash and cash equivalents at end of period
$
28,600

 
$
20,089

Supplemental disclosures of cash flow information:
 
 
 
Net cash paid for taxes
$
50

 
$
47

Accrued amounts for acquisition of property and equipment
$
239

 
$
217

See Accompanying Notes to Condensed Consolidated Financial Statements


5

IPASS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Basis of Presentation and Recent Accounting Pronouncements

Basis of Presentation
The Condensed Consolidated Financial Statements include the accounts of iPass Inc. (the “Company”) and its wholly owned subsidiaries. The Condensed Consolidated Financial Statements that accompany these notes have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2014. The Condensed Consolidated Financial Statements as of and for December 31, 2014, were derived from audited financial statements but do not include all disclosures required by GAAP. The interim financial information is unaudited but reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair presentation for the interim periods presented. This interim financial information should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The results of operations for the three months ended March 31, 2015, are not necessarily indicative of the operating results for the full fiscal year or any future periods.
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results that the Company experiences may differ materially from those estimates. Estimates are used for, but not limited to, the valuation of accounts receivables, other long-lived assets, network access costs, stock-based compensation, legal contingencies, and income taxes.
The Company reports comprehensive loss in a single continuous financial statement within the Condensed Consolidated Statements of Comprehensive Loss. The Company’s comprehensive loss is equivalent to its net loss because the Company does not have any transactions that are recorded through other comprehensive loss.
The Condensed Consolidated Statements of Comprehensive Loss have been reclassified for all periods presented to reflect discontinued operations treatment. (Refer to Note 11 for discussion related to Divestiture of Business Segment).

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 changes the requirements for reporting discontinued operations under current U.S. GAAP (Accounting Standards Codification Subtopic 205-20 Discontinued Operations, “ASC 205-20”) and provides a new definition of discontinued operations. ASU No. 2014-08 is effective prospectively for fiscal years, and interim periods within those years beginning after December 15, 2014. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The adoption of ASU No. 2014-08 has not had a material impact on the Company’s financial position or results of operations.


Note 2. Financial Instruments and Fair Value
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction in the principal or most advantageous market between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers assumptions that market participants would use when pricing the asset or liability.
Fair Value Hierarchy
The three levels of inputs that may be used to measure fair value are as follows:
 
•
Level 1—Quoted prices in active markets for identical assets or liabilities;

6

•
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
•
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The recurring fair value measurements of these financial assets (excluding cash) were determined using the following inputs at March 31, 2015, and December 31, 2014, respectively: 
 
As of March 31, 2015
 
As of December 31, 2014
 
Fair Value
Measured Using
 
Total
Balance
 
Fair Value
Measured Using
 
Total
Balance
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
 
 
(In thousands)
Financial assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds(1)
$
25,308

 
$
—

 
$
—

 
$
25,308

 
$
29,306

 
$
—

 
$
—

 
$
29,306

Total financial assets
$
25,308

 
$
—

 
$
—

 
$
25,308

 
$
29,306

 
$
—

 
$
—

 
$
29,306

 
(1)
Held in cash and cash equivalents on the Company’s condensed consolidated balance sheets.
There were no transfers between Levels 1, 2, and 3 from December 31, 2014 through March 31, 2015. As of March 31, 2015 and December 31, 2014, the carrying amounts of accounts receivable, accounts payable, and accrued liabilities approximated fair value due to their short maturities. (Refer to Note 6 and 7 for discussion related to Accrued Restructuring and Vendor Financed Property and Equipment).

Note 3. Property and Equipment, net
Property and equipment, net, consisted of the following:

March 31,
2015
 
December 31, 2014
 
(In thousands)
Equipment
$
10,409

 
$
10,242

Furniture and fixtures
1,792

 
1,923

Computer software
9,319

 
9,356

Construction in progress
347

 
306

Leasehold improvements
662

 
912


22,529

 
22,739

Less: Accumulated depreciation and amortization
(16,724
)
 
(16,526
)
Property and equipment, net
$
5,805

 
$
6,213

Depreciation expense for continuing operations was approximately $0.7 million for the three months ended March 31, 2015, and March 31, 2014.
During the three months ended March 31, 2015, and March 31, 2014, the Company retired approximately $0.6 million and $0.4 million, respectively, of gross property and equipment related to continuing operations, nearly all of which were fully depreciated.
    
As of March 31, 2015, the Company held approximately $1.8 million of enterprise database software and infrastructure hardware in computer software and equipment, net of related accumulated depreciation.

Note 4. Other Assets
Other assets (non-current) consisted of the following:

7


March 31,
2015
 
December 31, 2014
 
(In thousands)
Deposits
$
560

 
$
563

Long-term deferred tax assets, net
134

 
134

Restricted cash
—

 
150


$
694

 
$
847


Note 5. Accrued Liabilities
Accrued liabilities consisted of the following:

March 31,
2015
 
December 31, 2014
 
(In thousands)
Tax liabilities
$
1,298

 
$
1,300

Accrued restructuring liabilities – current (1)
75

 
160

Accrued bonus, commissions and other employee benefits
1,567

 
2,043

Accrued for vendor financed property and equipment
839

 
832

Amounts due to customers
936

 
1,016

Other accrued liabilities
1,684

 
1,837


$
6,399

 
$
7,188

(1)
See Note 6 "Accrued Restructuring"

Note 6. Accrued Restructuring
During the year ended December 31, 2009, the Company announced restructuring plans (the “2009 Plans”) to reduce operating costs and focus resources on key strategic priorities, which resulted in a workforce reduction of 146 positions across all functional areas and abandonment of certain facilities and termination of a contract obligation. As of March 31, 2015, the Company had remaining lease payments of less than $0.1 million, which were recorded at fair value at the time of restructuring plan was announced. Management made assumptions in determining the fair value of the lease liabilities. The discounted cash flow valuation technique used to determine the Level 3 fair value included inputs, such as the future rent payment schedule, the discount rate and sublease income based on the executed sublease agreement through the end of the lease terms.
During the first quarter of 2013, the Company announced a restructuring plan (the “Q1 2013 Plan”) to re-align its cost structure to focus investments, resources and operating expenses on the Company’s growing Open Mobile business, which resulted in a workforce reduction of 16 positions across all functional areas and termination of a lease contract. As of December 31, 2014, the Company completed all of the related payments associated with this restructuring plan.
During the third quarter of 2014, the Company announced a restructuring plan (the "Q3 2014 Plan") to re-align its cost structure as a result of the divestiture of its Unity business, which resulted in workforce reduction of approximately 20 employees worldwide and the termination of lease contracts for certain leased facilities. The Company recorded approximately $0.7 million of restructuring charges at the third quarter of 2014, and had less than $0.1 million of payments remaining as of March 31, 2015.
The following is a rollforward of restructuring liability for the Q3 2014, Q1 2013, and 2009 Plans:

8

 
Three Months Ended March 31,
 
2015

2014
 
(In thousands)
Beginning balance
$
160


$
317

Restructuring charges and related adjustments
21


14

Payments and adjustments
(106
)

(81
)
Ending balance
$
75


$
250

As of March 31, 2015, less than $0.1 million of the balance represents employee termination costs and the remaining less than $0.1 million mainly relates to exit cost of certain leased facilities.
As of March 31, 2015 and 2014, less than $0.1 million and $0.2 million of the restructuring liability are included in accrued liabilities, respectively. There is no long-term restructuring liability as of March 31, 2015. The remaining restructuring liability of approximately $0.1 million is included in long-term liabilities at March 31, 2014.

Note 7. Vendor Financed Property and Equipment
In October 2013, the Company acquired enterprise database software and infrastructure hardware. This purchase was financed through a vendor and is to be paid over three years. In April 2014, the Company acquired additional enterprise infrastructure hardware which was financed through the vendor and is to be paid over two years. The total purchases financed by a vendor were approximately $3.1 million. Since October 2013, the Company made approximately $1.7 million of principal payments, and as of March 31, 2015, approximately $0.8 million and $0.6 million were recorded to accrued liabilities and vendor financed property and equipment, respectively, based on the payment terms. The Company expects to pay principal payments of $0.6 million and $0.8 million in fiscal year 2015 and fiscal year 2016, respectively.
As of March 31, 2015, vendor financed property and equipment is recorded at cost, which approximates a Level 3 fair value.

Note 8. Commitments and Contingencies
Lease and Purchase Commitments
The Company leases facilities under operating leases that expire at various dates through October 2020. Future minimum lease payments under these operating leases as of March 31, 2015, are as follows:
Year
Operating
Leases
 
(In thousands)
Remainder of 2015
$
1,465

2016
1,664

2017
1,490

2018
1,091

2019
1,082

Thereafter
1,017


$
7,809

The Company has contracts with certain network service providers which have minimum purchase commitments that expire on various dates through April 2017. 
Future minimum purchase commitments as of March 31, 2015, under all agreements are as follows:

9

Year
Minimum
Purchase
Commitments
 
(In thousands)
2015
$
4,669

2016
945

2017
43


$
5,657

Included above, the Company has a future minimum purchase commitment of approximately $0.4 million related to an annual support fee for acquired enterprise infrastructure hardware to be paid over the next two years. In addition, the Company expects to pay principal payments related to vendor financed property and equipments of $0.6 million and $0.8 million in fiscal year 2015, and fiscal year 2016, respectively.
Legal Proceedings
The Company is involved in legal proceedings and claims arising in the ordinary course of business. While there can be no assurances as to the ultimate outcome of any litigation involving the Company, management does not believe any such pending legal proceeding or claim will result in a judgment or settlement that would have a material adverse effect on the Company’s financial position, results of operations or cash flows.
In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third-parties. Certain indemnification agreements may not be subject to maximum loss clauses. If the potential loss from any indemnification claim is considered probable and the amount or the range of the loss can be estimated, the Company accrues a liability for the estimated loss. To date, claims under such indemnification provisions have not been significant.

Note 9. Net Loss Per Common Share

Basic net income (loss) per share is computed by dividing net income (loss) available to shareholders by the weighted average number of shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) available to shareholders by the weighted average number of diluted shares outstanding. Unvested participating securities that vest based on service are included in the weighted daily average number of shares outstanding used in the calculation of basic net income per share and excluded in the calculation of basic net loss per share.

When an entity has a loss from continuing operations, including potential shares in the denominator of diluted per-share computations for continuing operations will generally be antidilutive, even if the entity has net income after adjusting for discontinued operations. That is, including potential shares in the denominator of the earnings per share calculation for a loss-making entity will generally decrease the loss per share and therefore those shares should be excluded from calculations of diluted earnings per share. Accordingly, for all periods presented, basic weighted-average shares outstanding were used in calculating the diluted net income (loss) per share.


10

The following table sets forth the computation of basic and diluted net (loss) income per share:
 
Three Months Ended 
 March 31,
 
2015
 
2014
 
(In thousands, except share and per share amounts)
Numerator:

 

Net loss from continuing operations
$
(3,440
)
 
$
(5,946
)
Net income from discontinued operations
$
—

 
$
397

    Net loss
$
(3,440
)
 
$
(5,549
)
 
 
 
 
Denominator:
 
 
 
Weighted average shares outstanding - basic and diluted
62,846,194

 
64,421,563

 
 
 
 
Total income (loss) per share - basic and diluted:
 
 
 
Loss from continuing operations
$
(0.05
)
 
$
(0.09
)
Income from discontinued operations
$
—

 
$
—

    Total net loss per share
$
(0.05
)
 
$
(0.09
)
The following weighted average potential shares of common stock have been excluded from the computation of diluted net (loss) income per share because the effect of including these shares would have been anti-dilutive:
 
Three Months Ended 
 March 31,
 
2015

2014
Options to purchase common stock
5,563,894

 
4,375,367

Restricted stock awards, including participating securities
1,907,500

 
2,807,153

Total
7,471,394

 
7,182,520


Note 10. Segment and Geographical Information
The Company currently has a single reportable operating segment, Mobility Services, and geographical information is shown below.
The following table summarizes total Company revenue by country or by geographical region:
 
Three Months Ended
March 31,
 
2015

2014
United States
37
%

35
%
EMEA
50
%

46
%
Asia Pacific
11
%

17
%
Rest of the World
2
%

2
%
No individual country, except for the United States, Germany, and United Kingdom, represented 10% or more of total revenue for the three months ended March 31, 2015 and 2014. Revenues in Germany accounted for 16%, and 11% of total revenues for the three months ended March 31, 2015, and 2014, respectively. Revenues in the United Kingdom accounted for 10%, and 12% of total revenues for the three months ended March 31, 2015, and 2014, respectively. 
One customer accounted for 11% of total revenues for the three months ended March 31, 2015. No individual customer represented 10% or more of total revenue for the three months ended March 31, 2014.
Substantially all of the Company’s long-lived assets are located in the United States.

Note 11. Divestiture of Business Segment

11


On June 30, 2014, the Company entered into an agreement and completed the sale of its Unity business segment for gross cash proceeds of approximately $28.1 million, and accrued approximately $2.2 million of transaction costs which were fully paid in 2014. The Company recorded a gain on sale of approximately $25.0 million. The gross cash proceeds included $1.4 million that was placed into an escrow account to cover any contingent claims made by the buyer against iPass through June 30, 2015, and is recorded in Prepaid Expenses and Other Current Assets on the Condensed Consolidated Balance Sheets. As of March 31, 2015, no claims have been made against the escrow account. In accordance with ASC 205-20, the results of operations for the Unity business segment are reported as discontinued operations.  

Income tax expense was recorded in discontinued operations for the three months ended March 31, 2014, of approximately $0.3 million. This primarily reflects tax expense on discontinued operations with an offsetting benefit in continuing operations of $0.3 million for the three months ended March 31, 2014.

The following table presents the revenues and components of discontinued operations, net of tax.

 
Three Months Ended 
March 31,
 
 
2015
 
2014
 
Revenue
—

 
7,703

 
Income from discontinued operations before income taxes
—

 
697

 
Gain on sale of discontinued operations before income taxes
—

 
—

 
Provision for income taxes
—

 
(300
)
 
Income from discontinued operations, net of tax
$
—

 
$
397

 

The table above excludes certain shared overhead costs and transfer pricing adjustments that were previously allocated to the Unity business segment in the historical iPass consolidated financial statements that were filed with the Securities and Exchange Commission ("SEC") as ASC 205-20 prohibits the allocation of general overhead costs to the discontinued operation. The provisions for income taxes primarily reflect tax expense on discontinued operations including the gain on sale, which is mostly offset by benefit in continuing operations.

Note 12. Subsequent Event

On May 7, 2015, the Company announced a plan to flatten the organization, create a more nimble sales and delivery infrastructure to support a subscription go to market strategy, and accelerate the Company’s cash flow break-even point.  The restructuring will reduce the global workforce by 14% and result in a charge of approximately $2.7 million to $3.2 million in the second quarter of 2015. 


12

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (or “MD&A”) is provided in addition to the condensed consolidated financial statements and notes, included elsewhere in this report, to assist readers in understanding our results of operations, financial condition, and cash flows. The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q and with the MD&A in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2014.
This MD&A is organized as follows:
Overview
  
Discussion of our business
 
 
Business Portfolio and Our Strategy (Continuing Operations)
 
Description of our business and strategy
 
 
 
Significant Trends and Events
  
Operating, financial and other material trends and events that affect our company and may reflect our performance
 
 
Key Operating Metrics
  
Discussion of key metrics and measures that we use to evaluate our operating performance
 
 
Critical Accounting Policies and
Estimates
  
Accounting policies and estimates that we believe are most important to understanding the assumptions and judgments incorporated in our reported financial results
 
 
Results of Operations
  
An analysis of our financial results comparing the three months ended March 31, 2015, and March 31, 2014
 
 
Liquidity and Capital Resources
  
An analysis of changes in our balance sheet and cash flows, and discussion of our financial condition and potential sources of liquidity
The various sections of this MD&A contain forward-looking statements regarding future events and our future results that are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expect,” “will,” “anticipate,” “intend,” “believe,” “estimate,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements which refer to projections of our future financial performance, our anticipated trends in our business, and other characterizations of future events or circumstances, are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Readers are directed to risks and uncertainties identified in “Risk Factors” in Part II, Item 1A of this Current Report on Form 10-Q, for factors that may cause actual results to be different from those expressed in these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made and, except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.
Investors and others should note that we announce material financial information to our investors using our investor relations website, SEC filings, press releases, public conference calls and webcasts. We also use social media to communicate with our customers and the public about our company, our products and services and other matters relating to our business and market. It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the U.S. social media channels including the iPass Twitter Feed, the iPass LinkedIn Feed, the iPass Google+ Feed, the iPass Facebook Page, the iPass Blog, the iPass Instagram, and the iPass Pinterest. These social media channels may be updated from time to time.

Overview

iPass enables business travelers to stay connected by providing them with cost-effective and convenient global Wi-Fi access across smartphones, tablets and laptops. Founded in 1996, iPass (NASDAQ: IPAS) is the world's largest commercial Wi-Fi network, covering over 100 countries and selling to approximately 700 large corporations, telecom service providers and other strategic partners around the world. Through its cloud-based delivery model, iPass connects business travelers to approximately 19 million Wi-Fi hotspots in airports, airplanes, hotels and public areas. With the growing need for fast, high bandwidth connectivity, iPass lets business travelers stay close to what matters most while on the road including access to video, unified communications, web conferencing and other cloud based applications.

13

Strategic Mobility Assets
We believe iPass has a unique set of mobility assets that provides us with competitive advantages. We see our three core assets as follows:
Open Mobile Platform: Our Open Mobile (OM) platform is a cloud-based mobility management platform that securely manages network connectivity and subscribers across a wide variety of computing and mobile devices and provider networks. We believe this scalable subscriber management, billing and reporting platform is unique in the industry and would be time consuming and expensive to replicate.
Integrated Authentication Fabric: We have a global authentication fabric of integrated servers and software that is interconnected with over 150 global Wi-Fi networks. This infrastructure allows us to provide secure, highly-available and seamless four-party global authentication, clearing and settlement of Wi-Fi users for our partners and customers.
Global Wi-Fi Footprint: We have a Wi-Fi network footprint and supply chain that consists of approximately 19 million hotspots across 100 countries, including major airports, convention centers, airplanes, trains, train stations, hotels, restaurants, retail, and small business locations. In the second quarter of 2014 we began including both commercial grade venues and public access and community locations that are accessible in the iPass network. Our technology integration across multiple global network providers forms the basis of our network services and we believe creates a unique cost advantage for our customers. We typically contract with network service providers, integrate their networks into our global infrastructure, and monitor their performance to ensure that our customers have a consistent and reliable end user experience.
Business Portfolio and Our Strategy (Continuing Operations)
Mobility Services:
We provide iPass Open Mobile Enterprise Services ("iPass OME" or "OME") to large enterprises to deliver enhanced network mobility services, addressing large enterprises’ needs to manage their mobility economics, high speed network connectivity requirements and proliferation of mobile devices, including the “bring-your-own-device” trend. We also provide our iPass Open Mobile Exchange services ("iPass OMX" or "OMX") to strategic partners that incorporate iPass OMX into their core products and services, geared for the mass market. iPass OMX strategic partners include global OEMs (Original Equipment Manufacturers), premium brand partners, software product and service providers, and telecom carriers.

Our growth strategy for Mobility Services includes:
•
Launching of iPass UNLIMITED – Targeting sales to small and medium enterprises (SME) with a per-user-per-month fixed fee subscription service that includes unlimited usage.

•
Expansion into consumer markets – We call this iPass EVERYWHERE and are targeting end users by bundling our product into consumer-facing companies offerings such as Hewlett Packard laptops and Huawei Smart Phones.

•
Enhancements to our products and applications – We call this iPass INVISIBLE with the intent to optimize the user experience and make Wi-Fi connectivity seamless, always on, and secure.
For a detailed discussion regarding our mobility business, including our strategy and our service offerings, see “Item 1. Business” included in our Annual Report on Form 10-K for the year ended December 31, 2014.

Significant Trends and Events
The following describes significant trends and events of our business during the first quarter of 2015:
Continue to Focus on our Open Mobile Business
We grew our Open Mobile Platform users from 681,000 for the first quarter of 2014 and 814,000 for the fourth quarter of 2014 to 815,000 for the first quarter of 2015. Our Open Mobile Wi-Fi Network users were 71,000 for the first quarter of 2014, 84,000 for the fourth quarter of 2014, and 83,000 for the first quarter of 2015.
Historically our Open Mobile revenue growth has been driven by a combination of organic customer user and usage ramps, legacy platform customer migrations, and new enterprise customer acquisition. We are focused on growing Open Mobile revenues by growing two key metrics referenced in the preceding paragraph. See “Key Operating Metrics” below for a full discussion of our user metrics.

14

Continued to Broaden our Wholesale OMX Distribution Channels

Our OMX business was originally developed as a wholesale product for our carrier partners to resell Wi-Fi network access to their end-users. During the first quarter of 2015 we continued to broaden that wholesale distribution to a variety of other reseller partners including OEM, resulting in growing OMX revenue by approximately 38% from the fourth quarter of 2014. In addition, deferred revenue (short-term plus long-term) at March 31, 2015 and December 31, 2014 was $1.5 million and $0.6 million, respectively. The increase in deferred revenue was primarily driven by a new OEM deal that was signed in late 2014.

Potential Proxy Contest
A group of stockholders led by Maguire Asset Management, Francis Capital Management, and Foxhill Opportunity Fund (collectively "the Maguire Group"), has initiated a proxy contest with respect to the matters to be voted upon at our 2015 annual meeting of stockholders, or the Annual Meeting. Among other things, the Maguire Group is proposing to solicit proxies in opposition to us for the purpose of voting in favor of its five nominees for election to our board of directors. Responding to the potential proxy contest is costly and time-consuming, is a significant distraction for our board of directors, management and employees, and diverts the attention of our board of directors and senior management from the pursuit of our business strategy, which could adversely affect our results of operations and financial condition. Further, we have incurred, and will continue to incur, expenses for legal and advisory fees and administrative and associated costs incurred in connection with responding to the potential proxy contest, which may include related litigation, which costs may be substantial.

Key Operating Metrics
Described below are key metrics that we use to evaluate our operating performance and our success in transforming our business and driving future growth.
OM Wi-Fi Network Users
OM Wi-Fi Network Users is the number of our platform users each month in a given quarter that paid for Wi-Fi network services from iPass.
OM Platform Active Users
OM Platform Active Users is the number of users who were billed Open Mobile platform fees and who have used or deployed Open Mobile.
The following table summarizes the number of active users of iPass OME services (in thousands). Each user metric below is calculated as the average number of active users per month, during a given quarter, for which a fee was billed by iPass for either Wi-Fi or Platform services:
 
For the Quarter Ended
 
March 31,
2015
 
December 31,
2014
 
September 30,
2014
 
June 30,
2014
 
March 31,
2014
Wi-Fi Network Users
83

 
84

 
78

 
80

 
71

Active Platform Users:
815

 
814

 
770

 
753

 
681

Deferred Revenue (Short-term plus Long-term)
Deferred Revenue represents sales invoiced in advance of recognition under our revenue recognition policy. As noted above, deferred revenue more than doubled from $0.6 million as of December 31, 2014 to $1.5 million as of March 31, 2015. The increase in deferred revenue was primarily driven by a new OEM deal that was signed in late 2014.


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Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”)
Adjusted EBITDA is used by our management as a measure of operating efficiency, financial performance and as a benchmark against our peers and competitors. In addition, we also use this metric as a factor in our incentive compensation payouts. Management also believes that Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties to understand our performance excluding the impact of items which may obscure trends in our core operating performance. Furthermore, the use of Adjusted EBITDA facilitates comparisons with other companies in our industry which may use similar financial measures to supplement their GAAP results. We define Adjusted EBITDA as net loss adjusted for interest, income taxes, depreciation and amortization, stock-based compensation, restructuring charges, net income (loss) from discontinued operations, and CEO exit costs – severance. We adjust for these excluded items because we believe that, in general, these items possess one or more of the following characteristics: their magnitude and timing is largely outside of our control; they are unrelated to the ongoing operation of the business in the ordinary course; they are unusual or infrequent and we do not expect them to occur in the ordinary course of business; or non-cash expenses involving stock option grants and restricted stock issuances. Adjusted EBITDA is not a measure determined in accordance with GAAP and should not be considered in isolation or as a substitute for operating income (loss), net income (loss) or any other measure determined in accordance with GAAP.
The following table reconciles Adjusted EBITDA to GAAP total net loss:

 
Three Months Ended
March 31,
 
 
2015
 
2014
 
 
(In thousands)
Adjusted EBITDA
$
(2,293
)
 
$
(4,794
)
 
Interest expense
(21
)
 
(33
)
 
Income tax (expense) benefit
(100
)
 
179

 
Depreciation of property and equipment
(746
)
 
(713
)
 
Stock-based compensation benefit (expense)
362

 
(571
)
 
Restructuring charges and related adjustments
(21
)
 
(14
)
 
CEO exit costs – severance
(621
)
 
—

 
Net income from discontinued operations
—

 
397

 
GAAP Total Net Loss
$
(3,440
)
 
$
(5,549
)
 

In the table above, Adjusted EBITDA for prior periods has been recast to exclude net income from discontinued operations and related changes to adjustment items such as tax, depreciation and stock based compensation.


Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates and judgments on our historical experience, knowledge of current conditions and our belief of what could occur in the future considering available information, including assumptions that we believe to be reasonable under the circumstances. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these policies. On an ongoing basis, we evaluate our estimates and judgments.
There have been no significant changes in our critical accounting policies and estimates during the three months ended March 31, 2015, as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2014.
Recent Accounting Pronouncements
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to

16

customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is expected to be effective for us on January 1, 2017 or January 1, 2018 (if effective date of this guidance is delayed). Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
On August 27, 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management to assess an entity's ability to continue as a going concern, and provide related footnote disclosures in certain circumstances. The new standard is effective for us in the first annual period ending after December 31, 2016. Early adoption is permitted. We have not adopted ASU 2014-15 in the current fiscal year. We do not expect that this guidance will materially impact our consolidated financial statements.

Results of Operations
Sources of Revenues
On June 30, 2014, we entered into an agreement and completed the sale of our Unity business. Accordingly, we have a single reportable operating segment, Mobility Services, and analyze revenue from continuing operations. Within Mobility Services, we differentiate and analyze our Open Mobile and legacy generated revenues separately.
Open Mobile generated revenues consist of:
 
•
Network—Wi-Fi and minimum customer commitments based on the number of network users sourced from the Open Mobile platform.
•
Platform—Fees based on the number of Active Open Mobile monetized platform users and other fees specific to providing additional value add services to Open Mobile customers.
•
Open Mobile Exchange—Revenues generated from our OMX customers.
Legacy generated revenues consist of Dial-up and 3G network, our iPC platform, and related platform services, as well as iPC driven network usage, including iPC user driven Wi-Fi and minimum commit shortfall.
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Mobility Services
$
16,558

 
$
17,637

Open Mobile
15,313

 
13,539

Open Mobile Enterprise
14,190

 
12,760

Network
10,395

 
8,723

Platform
3,795

 
4,037

Open Mobile Exchange
1,123

 
779

Legacy iPC
1,245

 
4,098


For the three months ended March 31, 2015, Mobility Services revenue decreased $1.1 million or 6% compared to the same period in 2014 as the decrease in legacy iPC revenue of $2.9 million outpaced the increase in Open Mobile ("OM") revenue of $1.8 million. Legacy iPC declines were attributed to customer terminations, anticipated usage reductions in our 3G and Dial-up services, and continued migrations to OM. Growth in OM was attributable to organic growth of OM network and active platform users, and migration of Legacy iPC customers.
Network Gross Margin
We use network gross margin as a metric to assist us in assessing the profitability of our various network services. Our overall network gross margin is defined as network revenue less network access costs divided by network revenue.

17

 
Three Months Ended
March 31,
 
 
2015

2014
 
Network Gross Margin (%)
45.3
%

41.7
%
 
For the three months ending March 31, 2015, compared to the same periods in 2014, network gross margin increased by 3.6 percentage points, primarily due to strengthening of the US dollar against currencies in which we buy network access.

Operating Expenses
With the restructuring announced in the second quarter of 2015, we expect approximately $2.7 million to $3.2 million of restructuring charges in the second quarter of 2015, and our operating expense run rate to decline by approximately $2.0 million per quarter starting in the third quarter of 2015.
Network Access Costs (NAC)
NAC consist of charges for network access which we pay to our network service providers and other direct cost of sales.
 
Three Months Ended
March 31,
 
2015
 
2014
 
(Dollars in thousands)
Network access costs
$
6,675

 
$
7,207

As a percentage of total revenue
40.3
%
 
40.9
%
For the three months ended March 31, 2015, compared to the same period in 2014, network access costs decreased approximately $0.5 million or 7% primarily due to the decrease of 3G network access costs of $0.7 million due to a decline on 3G legacy customer, partially offset by an increase of OME network access costs of $0.2 million driven by the growth in Wi-Fi network users and usage. In addition, strengthening of the US dollar against currencies in which we buy network access costs contributed to the overall decrease in network access costs.
Network Operations
Network operations expenses consist of compensation and benefits for our network engineering, customer support and network access quality personnel, outside consultants, transaction center fees, network equipment depreciation, and allocated overhead costs.
 
Three Months Ended
March 31,
 
2015
 
2014
 
(Dollars in thousands)
Network operations expense
$
2,950

 
$
3,717

As a percentage of total revenue
17.8
%
 
21.1
%
Network operations expense for the three months ended March 31, 2015, decreased by approximately $0.8 million or 21% compared to the same period in 2014, primarily due to a decrease in headcount-related expenses of $0.7 million and depreciation and maintenance expenses of $0.1 million, as we continue to manage our cost structure.
Research and Development
Research and development expenses consist of compensation and benefits for our research and development personnel, consulting, and allocated overhead costs.

18

 
Three Months Ended
March 31,
 
2015
 
2014
 
(Dollars in thousands)
Research and development expense
$
2,998

 
$
3,384

As a percentage of total revenue
18.1
%
 
19.2
%
For the three months ended March 31, 2015, research and development expense decreased by approximately $0.4 million or 11% compared to the same period in 2014, mainly due to the decrease in headcount related expenses of $0.4 million as we continue to actively manage costs.
Sales and Marketing
Sales and marketing expenses consist of compensation, benefits, advertising and promotion costs, and allocated overhead costs.
 
 
Three Months Ended
March 31.
 
2015
 
2014
 
(Dollars in thousands)
Sales and marketing expenses
$
3,182

 
$
4,565

As a percentage of total revenue
19.2
%
 
25.9
%
Sales and marketing expenses for the three months ended March 31, 2015, decreased by approximately $1.4 million or 30% compared to the same period in 2014, primarily due to decreases in headcount-related costs of $1.1 million, driven by decreases in salaries, commissions, and incentive compensation. Remaining decrease of approximately $0.3 million relate to cost control of discretionary spend driven by cost management initiatives.
General and Administrative
General and administrative expenses consist primarily of compensation and benefits for general and administrative personnel, legal and accounting expenses.
 
Three Months Ended
March 31,
 
2015
 
2014
 
(Dollars in thousands)
General and administrative expenses
$
4,236

 
$
4,771

As a percent of total revenue
25.6
%
 
27.1
%
General and administrative expenses for the three months ended March 31, 2015, decreased by approximately $0.5 million or 11% compared to the same period in 2014, primarily due to a decrease in headcount related costs of $0.5 million. During the current quarter, we recognized approximately $0.7 million of stock based compensation benefit driven by forfeiture of awards upon the exit of our prior CEO, offset by approximately $0.6 million of CEO severance expense. Remaining decrease is primarily due to ongoing cost management initiatives.
Other Income and Expenses
Foreign Exchange Gains and Losses
Foreign exchange gains and losses primarily include realized and unrealized gains and losses on foreign currency transactions. Foreign currency exchange rate fluctuations impact the re-measurement of certain assets and liabilities denominated in currencies other than the U.S. Dollar and generate unrealized foreign exchange gains or losses. In addition, some of our network access costs are invoiced in currencies other than the U.S. Dollar. The transactional settlement of these outstanding invoices and other cross-currency transactions generate realized foreign exchange gains or losses depending on the fluctuation of exchange rates between the date of invoicing and the date of payment.

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For the three months ended March 31, 2015 and 2014, we did not enter into any hedging contracts. Foreign exchange gain for the three months ended March 31, 2015 was $0.2 million primarily due to strengthening of the U.S. dollar against British Pound and Euro. Foreign exchange loss for the three months ended March 31, 2014 was approximately $0.1 million.

Provision for Income Taxes
Income tax expense for the three months ended March 31, 2015 and 2014, was approximately $0.1 million and $0.1 million, respectively. The income tax expense recorded in the three months ended March 31, 2015 and 2014, primarily related to foreign taxes on expected profits in the foreign jurisdictions. For the first quarter of 2014, income tax expense represented $0.3 million of income tax expense from discontinued operations offset by $0.2 million of income tax benefit from continuing operations.

Divestiture of Business Segment
We announced on July 1, 2014, that we had completed the sale of our Unity business for $28.1 million to Tolt Solutions, and accrued approximately $2.2 million of transaction costs which were fully paid in 2014. Of the purchase price, $1.4 million was placed in an escrow account until June 30, 2015, to satisfy any claims for the indemnification obligations of iPass for breaches of representations, warranties and covenants and certain other specified matters. The sale resulted in a before tax gain of $25.0 million in the second quarter of 2014. The purchase agreement was signed and the sale was completed on June 30, 2014.
In accordance with applicable accounting guidance for the disposal of long-lived assets, the results of the Unity business are presented as discontinued operations and, as such, have been excluded from continuing operations and from segment results for all periods presented.

The following table presents the revenues and components of discontinued operations, net of tax.
 
Three Months Ended 
March 31,
 
2015
 
2014
Revenue
—

 
7,703

Income from discontinued operations before income taxes
—

 
697

Gain on sale of discontinued operations before income taxes
—

 
—

Provision for income taxes
—

 
(300
)
Income from discontinued operations, net of tax
$
—

 
$
397


In accordance with ASC 205-20 Discontinued Operations, the above table excluded certain shared overhead costs and transfer pricing adjustments that were previously allocated to the Unity business segment in the historical iPass consolidated financial statements that were filed with the Securities and Exchange Commission. The provisions for income taxes primarily reflect tax expense on discontinued operations including the gain on sale, which is mostly offset by the benefit in continuing operations.


Liquidity and Capital Resources
We had cash and cash equivalents of $28.6 million at March 31, 2015, compared to $33.8 million at December 31, 2014.
 
Three Months Ended
March 31,
 
2015
 
2014
 
(In thousands)
Cash Flows
 
Net cash used in operating activities
$
(4,764
)
 
$
(3,244
)
Net cash used in investing activities
(175
)
 
(457
)
Net cash used in financing activities
(275
)
 
(227
)
Net decrease in cash and cash equivalents
$
(5,214
)
 
$
(3,928
)

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Operating Activities
Net cash used in operating activities increased by approximately $1.5 million from $3.2 million for the three months ended March 31, 2014, to $4.7 million for the same period in 2015. This increase is mainly due to changes in working capital mainly driven by timing of payments partially offset by a decrease in net loss.
Investing Activities
Net cash used in investing activities decreased by approximately $0.3 million from the net cash used in investing activities of $0.5 million for the three months ended March 31, 2014, to the net cash used in investing activities of $0.2 million for the same period in 2015. This decrease is due to a decrease in purchases of property and equipment.
Financing Activities
Net cash used in financing activities stayed relatively consistent for the three months ended March 31, 2015, compared to the same period in 2014.


Sources of Cash and Future Cash Requirements
We have historically relied on existing cash and cash equivalents and cash flow from operations for our liquidity needs. We use a professional investment management firm to manage a large portion of our cash which is invested primarily in money market accounts. We believe that based on our current business plan and revenue prospects and our anticipated cash flows from operations, our existing cash balances will be sufficient to meet our working capital and operating resource expenditure requirements for at least the next twelve months.
The amount of cash and cash equivalents held by our foreign subsidiaries as of March 31, 2015, and December 31, 2014, was $0.4 million and $0.9 million, respectively. We currently do not intend to distribute any of our cumulative earnings by our foreign subsidiaries to the parent company in the U.S.

Primary Uses of Cash
Our principal use of cash during the three months ended March 31, 2015, was for network access costs, payroll related expenses, CEO exist costs, payments for vendor financing equipment purchase, and general operating expenses including marketing, office rent, and capital expenditures.

Contractual Obligations
The following are our contractual obligations as of March 31, 2015:
 
Total
 
Less Than
1 Year
 
1-3 Years
 
3-5 Years
 
(In thousands)
Operating Lease Obligations
$
7,809

 
$
1,907

 
$
4,068

 
$
1,834

Other Purchase Commitments
5,657

 
4,669

 
988

 
—

Total Contractual Obligations(1)
$
13,466

 
$
6,576

 
$
5,056

 
$
1,834

 
(1)
See Note 8. Commitments and Contingencies.
As of March 31, 2015, we had unrecognized tax benefits of $0.8 million associated with our uncertain tax positions. We are unable to estimate when any cash settlement with a taxing authority might occur. 
Included above, we have a future minimum purchase commitment of approximately $0.4 million related to an annual support fee for acquired enterprise infrastructure hardware to be paid over the next two years. In addition, we expect to pay principal payments related to vendor financed property and equipments of $0.6 million and $0.8 million in fiscal year 2015, and fiscal year 2016, respectively.
For information on our contractual commitments at December 31, 2014, see “Contractual Obligations” in Item 7, Management’s Discussion and Analysis of Financial Conditions and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2014.

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Off-Balance Sheet Arrangements
As part of our ongoing business, we do not participate in transactions that generate material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. We did not have any off-balance sheet arrangements at March 31, 2015, and December 31, 2014, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Exchange Rate Risk
We are exposed to foreign currency exchange rate risk inherent in conducting business globally in numerous currencies, of which the most significant to our operations for the three months ended March 31, 2015, were the Euro, the British Pound, and the Indian Rupee. We are primarily exposed to foreign currency fluctuations related to network access costs and other operating expenses denominated in currencies other than the U.S. Dollar. As such, we benefit from a stronger U.S. Dollar and may be adversely affected by a weaker U.S. Dollar relative to each foreign currency. Currently, we do not enter into currency forward exchange or option contracts to hedge foreign currency exposures. The impact of foreign currency fluctuations is also discussed in “Foreign Exchange Gains and Losses” under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Interest Rate Risk
As of March 31, 2015, we had cash and cash equivalents of $28.6 million, restricted cash of $1.6 million and no short-term investments. As of December 31, 2014, we had cash and cash equivalents of $33.8 million, restricted cash of $1.6 million and no short-term investments. Our cash balances are held primarily in bank deposits and money market accounts with a remaining maturity of three months or less at the time of purchase. As a result, we do not believe we are exposed to material interest rate risk.

Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, management of iPass conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level, as of the end of the period covered by this report, to ensure that information required to be disclosed was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to provide reasonable assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the quarter ended March 31, 2015, there have been no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Disclosure Control and Procedures and Internal Control over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within iPass have been detected.


22

PART II. OTHER INFORMATION

Item 1A. Risk Factors
In addition to the factors discussed elsewhere in this report and our other reports filed with the SEC, the following are important factors that could cause actual results or events to differ materially from those contained in any forward-looking statements made by us or on our behalf. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we deem immaterial also may impair our business operations. If any of the following risks or such other risks actually occurs, our business could be harmed.
We have marked with an asterisk (*) the risk factors below that reflect additional risk facing us from the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the Securities and Exchange Commission on March 13, 2015.
If customer adoption and deployment of our Open Mobile Platform is slow, especially on smartphone and tablet devices, our ability to grow our Mobility Services business could be harmed.
The future success of our business will depend in large part on our current and prospective customers’ timeliness of adoption and deployment of our Open Mobile Platform. Key risks associated with our Open Mobile Platform and services are as follows:
Customer adoption and deployment of our Open Mobile Platform, especially on smartphone and tablet devices, may be slow. We believe that the growth of our business is dependent on the timely adoption and deployment of the Open Mobile Platform by our customers. In particular, smartphone and tablet devices are becoming more relied upon by our customers for their mobile computing needs and may cause our users to stop using laptops while traveling, or to use them less often. We believe it is critical for our business that our services for smartphone and tablet devices achieve market acceptance and that our customers rapidly adopt and deploy our services on smartphone and tablet devices. A material delay in the adoption and deployment of the Open Mobile Platform by our customers, on smartphone and tablet devices in particular, will adversely impact our ability to grow revenues and achieve profitability.
Customer deployment of our Open Mobile Platform may not result in increased use of our services. We believe it is important to the future success of our business that users of our Mobility Services increase their usage of our platform and network services. We believe that the deployment by our customers of our Open Mobile Platform, especially on smartphone and tablet devices, will lead to increased usage of our platform services and correspondingly, our network services, which will lead to an increase in our revenue. However, even if a significant portion of our customers deploy our Open Mobile Platform, there is no guarantee that our customers will use our services more frequently.
Our Open Mobile Platform may have technical limitations that cause our customers to delay adoption or deployment. There is risk that the Open Mobile Platform may contain technological limitations, bugs or errors that would cause our customers to not adopt or delay the adoption of the Open Mobile Platform. If some or all of these risks associated with our Open Mobile Platform were to occur, adoption and deployment of our Open Mobile Platform may not occur and our business could be harmed.
Customers must be willing to continue to pay for our platform or our revenue growth may slow. We believe that it is important that the value proposition of our Open Mobile Platform is accepted by our customers such that they are willing to pay for their users to use our mobility services. If our customers are willing to adopt our Open Mobile Platform but are not willing to pay for the platform, our ability to grow revenues and achieve profitability could be adversely impacted.
If our OMX service offerings do not achieve expanded market acceptance our ability to grow our business could be harmed.
Our OMX service offerings were introduced in 2011 and incorporate our Open Mobile Platform, global authentication fabric, and global Wi-Fi network to provide reseller, wholesale, and carrier partners around the world with the infrastructure to offer their customers new mobility services. We have entered into contracts with a number of customers for our OMX services, but ramping revenues takes time to develop. We have and plan to continue to devote significant resources to building our OMX service line of business. If OMX service offerings do not achieve expanded market acceptance and generate meaningful revenues our financial condition may be harmed.
If Global 3G/4G data roaming rates decline precipitously, our ability to grow our business could be harmed.
For our network services to be attractive to our customers, the cost of 3G/4G roaming must be meaningfully greater than the cost of our Wi-Fi network services. Currently, in certain geographies such as Asia, 3G/4G roaming prices are not significantly higher than our rates for Wi-Fi access. In Europe, legislation has been enacted mandating the reduction of wholesale

23

3G/4G roaming prices. If 3G/4G roaming prices do not remain meaningfully higher than our Wi-Fi network prices then our ability to sell our Mobility Services could be impacted and our business harmed.
Our decision to “End-of-Life” our legacy iPC platform product has and will continue to impact our total revenues.
As of July 1, 2012 our iPC or legacy platform reached end-of-life. While the iPC platform continues to function for existing customers, we only provide basic support and only for customers that pay extended support fees. While we believe that the end-of-life of iPC will encourage our customers to migrate to our Open Mobile platform, iPC customers may decide to instead terminate their service with us. If the number of iPC customers who decide to terminate their service with us is greater than expected, our results of operations could be negatively impacted.
If key global Wi-Fi venues offer “no charge” Internet access to all users, our network revenues could be negatively affected.
We derive a significant portion of our network revenue from providing Wi-Fi access in certain key venues (e.g., hotels, airports and cafes). In general, these venues charge their customers for Wi-Fi access. If these venues begin offering Wi-Fi access at no charge, the amount we can charge our customers for Wi-Fi access at these venues will likely decrease or we may not charge our customers for Wi-Fi access at these venues. For example, Starbucks and certain airports in the United States have ceased charging their customers for Wi-Fi access and we have experienced reduced revenues as a result. If this trend continues at other key Wi-Fi venues, our network revenues and overall profitability may be negatively impacted.
*If we do not accurately predict network usage for our Flat Rate or iPass UNLIMITED price plans, our costs could increase without a corresponding increase in network revenue.
A significant number of our customers have purchased our Flat Rate network price plans, and we are signing new customers to our iPass UNLIMITED plan. In these plans, our customers pay a flat rate price to access our network services. However, in the majority of situations we continue to pay our providers based on actual network usage. The rate we charge in these plans is based on statistical predictions of usage across a pool of users within a customer. If actual usage is higher than expected our ability to achieve profitability could be negatively impacted.
In 2014, we implemented certain fixed rate buying structures with some providers to mitigate this risk. However, buying network access at a fixed rate creates additional risk if our customers were to use less Wi-Fi in the future, which could negatively impact our profitability.
If demand for mobility services does not grow or grows in ways that do not require use of our services, we may experience a decline in revenues and profitability.
The growth of our business is dependent, in part, upon the increased use of mobility services and our ability to capture a higher proportion of this market. If the demand for mobility services does not continue to grow, or grows in ways that do not require use of our services, then we may not be able to grow our business, or achieve or maintain profitability. Increased usage of our Mobility Services depends on numerous factors, including:
•
Willingness of enterprises to make additional information technology expenditures;
•
Availability of security services necessary to ensure data privacy over a variety of networks;
•
Quality, cost and functionality of our services and competing services;
•
Increased adoption of wireless broadband access methods and our ability to support these new methods;
•
Proliferation of smartphones, tablets and mobile handheld devices and related applications, and our ability to provide valuable services and support for those devices;
•
Our ability to partner with mobile network operators and service providers that are willing to stimulate consumer awareness and adoption of our Mobility Services; and
•
Our ability to timely implement technology changes to our services to meet evolving industry standards for mobile devices, Wi-Fi network access and customer business requirements.
If we are unable to meet the challenges posed by Wi-Fi access, our ability to profitably grow our business may be impaired.
A substantial portion of the growth of our business has depended, and will continue to depend, in part upon our ability to expand our global Wi-Fi network. Such an expansion may not result in additional revenues to us. Key challenges in expanding our Wi-Fi network include:
The Wi-Fi access market continues to develop at a rapid pace. We derive a significant portion of our revenues from wireless broadband “hotspots,” such as certain airports, hotels and convention centers. The Wi-Fi access market continues to develop rapidly, in particular: the market for enterprise connectivity services through Wi-Fi is characterized by evolving industry

24

standards and specifications and there is currently no uniform standard for Wi-Fi access. Furthermore, although the use of wireless frequencies generally does not require a license in the United States and abroad, if Wi-Fi frequencies become subject to licensing requirements, or are otherwise restricted, this would substantially impair the growth of Wi-Fi access. Some large telecommunications providers and other stakeholders that pay large sums of money to license other portions of the wireless spectrum may seek to have the Wi-Fi spectrum become subject to licensing restrictions. If the Wi-Fi access market develops in ways that limit access growth, our ability to generate substantial revenues from Wi-Fi access could be harmed.
The Wi-Fi service provider market is highly fragmented. There are currently many Wi-Fi service providers that provide coverage in only one or a small number of hotspots. We have entered into contractual relationships with numerous Wi-Fi service providers. These contracts generally have an initial term of two years or less. We must continue to develop relationships with many providers on terms commercially acceptable to us to provide adequate coverage for our customers’ mobile workers and to expand our Wi-Fi coverage. We may also be required to develop additional technologies to integrate new wireless broadband services into our service offering. If we are unable to develop these relationships or technologies, our ability to grow our business could be impaired.
Consolidation of large Wi-Fi service providers may impair our ability to expand network service coverage, negotiate favorable network access terms, and deliver consistent service in our network. The telecommunications industry is rapidly evolving and highly competitive. These factors may cause large Wi-Fi network service providers to consolidate, which would reduce the number of network service providers from which we are able to obtain network access in key locations. If significant consolidation occurs, we will have a smaller number of network service providers to acquire Wi-Fi network access from and we may not be able to provide additional or sufficient redundant access points in some geographic areas, which could diminish our ability to provide broad, reliable, redundant coverage. Further, our ability to negotiate favorable access rates from Wi-Fi network service providers could be impaired, which could increase our network access expenses and harm our operating results.
Wi-Fi service provider actions may restrict our ability to sell our services. Some Wi-Fi network providers restrict our ability to sell access to their networks to our resellers whom they consider competitive with them. This can reduce our revenue by limiting the footprint our partners can make available to their customers.
Significant dependency on key network providers could negatively affect our revenues.
There are certain venues (hotels, airports, airplanes, cafes, etc.) globally where we depend on key providers for network access in those venues. In addition, in certain geographies we depend on a small number of providers for a large portion of network access. If such a provider were to go out of business, terminate their agreement with us, encounter technical difficulty such that network access was not available to our customers for an extended period of time, it could have a negative impact on our revenues and profitability if we cannot find an alternative provider to enable network access in those venues or geographies.
We face competition in the market for mobility services, which could make it difficult for us to succeed.
While we do not believe there are service providers in the mobility services market that offer a platform or range of services in an integrated offering as we do, we compete with a variety of service providers, including facilities-based carriers, cloud-based platform operators and mobility management solution providers. Some of these providers have substantially greater resources, larger customer bases, longer operating histories and/or greater name recognition than we have. In addition, we face the following challenges:
Many of our competitors can compete on price. Because many of our facilities-based competitors own and operate physical networks they may be able to provide additional hotspot access at little incremental cost to them. As a result, they may offer network access services at a lower cost, and may be willing to discount or subsidize network access services to capture other sources of revenue. In contrast, we have traditionally purchased network access from facilities-based network service providers to enable our network access service and in these cases, may not be able to compete aggressively on price. In addition, new cloud-based platform operators may enter the mobility services market and compete on price. In either case, we may lose business or be forced to lower our prices to compete, which could reduce our revenues.
Many of our competitors offer additional services that we do not, which enables them to bundle these services and compete favorably against us. Some of our competitors provide services that we do not, such as 3G/4G data roaming, local exchange and long distance services, voicemail and digital subscriber line, or DSL, services. Potential customers that desire these services on a bundled basis may choose to subscribe to network access from a competitor that provides these additional services.
Our potential customers may have unrelated business relationships with our competitors and consider those relationships when deciding between our services and those of our competitors. Many of our competitors are large facilities-based carriers that purchase substantial amounts of services or provide other services or goods unrelated to network access services. As a result, if a potential customer is also a supplier to one of our large competitors, or purchases unrelated services or goods from our

25

competitor, the potential customer may be motivated to purchase its network access services from our competitor to maintain or enhance its business relationship with that competitor. In addition, our current or potential carrier customers may already have or may consider buying services from mobility management solution providers which may impact our ability to sell our services to those customers as well as drive market prices down for the services that we offer.
Users may take advantage of free Wi-Fi networks for Internet and corporate access. Telecommunications providers may offer free Wi-Fi as part of a home broadband or other service contract, which may force down the prices which the market will bear for our services and could reduce our revenues.
If our carrier and channel partners do not successfully market our services to their customers, then our ability to grow our revenues could be impaired.
We sell our services directly through our sales force and indirectly through our channel partners, which include telecommunication carriers, systems integrators and value-added resellers. A large percentage of our sales outside the United States are made through our carrier and channel partners. Our business depends on the efforts and the success of these carrier and channel partners in marketing our services to their customers. Our own ability to promote our services directly to our carrier and channel partners’ customers is often limited. Many of our carrier and channel partners may offer services to their customers that may be similar to, or competitive with, our services. Therefore, these channel partners may not actively promote our services. If our channel partners fail to market our services effectively, our ability to grow our revenue could be reduced and our business may be impaired.
Our revenue and overall profitability may be adversely impacted by material reductions in existing customer and partner purchase commitments.
Our customers and partners have traditionally entered into contractual provisions that require them to pay the greater of the fees generated from the use of our services or a minimum committed amount over a pre-determined time period. Minimum commitments are negotiated by customers to improve their unit pricing, effectively guaranteeing a certain volume to achieve a reduced unit price. Recent global economic conditions in certain cases caused our customers and partners to generate fees from the use of our services that are significantly less than their minimum committed amounts. Consequently this shortfall has caused some partners and customers upon renewal of their contracts with us, to renew with a lower minimum commitment and in some cases with no minimum commitment. Additionally, in some cases partners and customers are requesting a re-evaluation of their minimum commitments on a prospective basis during the term of their existing contract; to maintain these commercial relationships, we have addressed these requests on a contract by contract basis. The reduction or elimination of minimum purchase commitments could result in lower future revenues.
Our software is complex and may contain errors that could damage our reputation and decrease usage of our services.
Our software may contain errors that interrupt network access or have other unintended consequences. If network access is disrupted due to a software error, or if any other unintended negative results occur, such as the loss of billing information, a security breach, unauthorized access to our cloud-based platform or the introduction of a virus by our software onto our customers’ computers or networks, our reputation could be harmed and our business may suffer. Our contracts generally limit our exposure to incidental and consequential damages and to the extent possible, we further limit our exposure by entering into insurance policies that are designed to protect our customers and us from these and other types of losses. If these contract provisions are not enforced or enforceable, or if liabilities arise that are not effectively limited or insured, our operating results and financial condition could be harmed.
Because a meaningful portion of our business is international, we encounter additional risks, which may impact our revenues and profitability.
We generate a substantial portion of our revenues from international customers. Revenues from customers domiciled outside of the United States were approximately 63% of our revenues for the three months ended March 31, 2015, of which approximately 50% and 11% were generated in the EMEA and Asia Pacific regions, respectively, and 65% of our revenues for 2014, of which approximately 48% and 15% were generated in the EMEA and Asia Pacific regions, respectively. The functional currency of our foreign subsidiaries is the U.S. Dollar and we currently bill nearly all of our services in U.S. Dollars. However, we pay certain expenses in local currencies. During the three months ended March 31, 2015, and years ended December 31, 2014, 2013 and 2012, we have not entered into any hedging contracts to manage foreign currency exposure. Our international operations subject our business to specific risks that could negatively impact our business, including:
•
Generally longer payment cycles for foreign customers;
•
The impact of changes in foreign currency exchange rates on both the attractiveness of our USD-based pricing and our operating results, particularly upon the re-measurement of assets, liabilities, revenues and expenses and the transactional settlement of outstanding local currency liabilities;

26

•
High taxes in some foreign jurisdictions;
•
Difficulty in complying with Internet and data privacy related regulations in foreign jurisdictions;
•
Difficulty enforcing intellectual property rights and weaker laws protecting these rights; and
•
Ability to efficiently deploy capital and generate returns in foreign jurisdictions.
We may be exposed to credit risk, collection risk and payment delinquencies on our accounts receivable.
A substantial majority of our outstanding accounts receivables are not secured. Our standard terms and conditions permit payment within a specified number of days following the receipt of our services. While we have procedures to monitor and limit exposure to credit risk on our receivables, there can be no assurance such procedures will effectively limit our collection risk and avoid losses. In addition, under poor global economic conditions, certain of our customers have faced and may face liquidity concerns and have delayed and may delay or may be unable to satisfy their payment obligations, which may have a material adverse effect on our financial condition and operating results.
Our sales cycles are lengthy and could require us to incur substantial costs that may not result in related revenues.
Our business is characterized by a lengthy sales cycle. Once a contract with a customer is signed there is typically an extended period before the customer or customer’s end-users actually begin to use our services,
which is when we begin to realize network revenues. As a result, we may invest a significant amount of time and effort in attempting to secure a customer which may not result in any revenues in the near term. Even if we enter into a contract, we may have incurred substantial sales-related expenses well before we recognize any related revenues. If the expenses associated with sales efforts increase and, we are not successful in our sales efforts, or we are unable to generate associated offsetting revenues in a timely manner, our operating results could be harmed.
Cyber security risks and privacy concerns related to Internet-based services could reduce demand for our services.
The secure transmission of confidential information and mission critical data when using Internet-based services is extremely important to our customers. A key component of our ability to attract and retain customers is the security measures that we have engineered into our network for the authentication of the end-user’s credentials. These measures are designed to protect against unauthorized access to our customers’ networks. Because techniques used to obtain unauthorized access or to sabotage networks change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures against unauthorized access or sabotage. If an actual or perceived breach of network security occurs, that is attributable to our services, the market perception of the effectiveness of our cyber security measures could be harmed resulting in a negative impact to our business.
As part of providing our services, we collect certain information about the users of our service. As such we must comply with evolving laws and regulations regarding the protection and disclosure of such user information. While we have taken steps to comply with applicable privacy laws and regulations and to protect user information, any well-publicized compromises of our users’ data may reduce demand for our services and harm our business.
We rely significantly on information technology to accurately bill our customers and any failure, inadequacy or interruption of that technology could negatively impact our ability to report on our financial performance on a timely basis.
A key component of our ability to attract and retain customers is the timely and accurate furnishing of monthly detail billing records of activity on our network, rated for the agreements in place with both our customers and our suppliers. Our ability to meet these billing requirements, as well as to effectively manage and maintain our books and records and internal reporting requirements, depends significantly on our internal information technology.
If licenses to third party technologies do not continue to be available to us at a reasonable cost, or at all, our business and operations may be adversely affected.
We license technologies from several software providers that are incorporated into our services. We anticipate that we will continue to license technology from third parties in the future. Licenses to third party technologies may not continue to be available to us at a reasonable cost, or at all. The loss of the right to use these technologies or other technologies that we license could have an adverse effect on our services and increase our costs or cause interruptions, degradations or delays in our services until substitute technologies, if available, are developed or identified, licensed and successfully integrated into our services.
Litigation arising out of intellectual property infringement could be expensive and disrupt our business.
We cannot be certain that our services do not, or will not, infringe upon patents, trademarks, copyrights or other intellectual property rights held by third parties, or that other parties will not assert infringement claims against us. Any claim of

27

infringement of proprietary rights of others, even if ultimately decided in our favor, could result in substantial costs and diversion of our resources. Successful claims against us may result in an injunction or substantial monetary liability, which in either case could significantly impact our results of operations or materially disrupt the conduct of our business. If we are enjoined from using a technology, we will need to obtain a license to use the technology, but licenses to third-party technology may not be available to us at a reasonable cost, or at all.
To compete we must attract and retain key employees, and our failure to do so could harm our results of operations.
To compete we must attract and retain executives, sales representatives, engineers and other key employees. Hiring and retaining qualified executives, sales representatives and engineers are critical to our business, and competition for experienced employees in our industry can be intense. If we experience an unexpected significant turnover of our executives, sales representatives, engineers and other key employees it will be difficult to achieve our business objectives and could adversely impact our results of operations.

If we fail to develop and effectively market our brand, our operating results may be harmed.

We believe that expanding awareness of the iPass brand is important to growing and achieving acceptance of our iPass Open Mobile Platform. We have increased our marketing efforts, including new promotional and marketing activities, to further implement our global marketing objectives. These promotional and marketing activities may not result in any increased revenue. Further, any potential revenue increase as a result of these promotional and marketing activities may not offset the expenses incurred in further promoting the iPass brand.

*The proxy contest initiated by a dissident stockholder has the potential to adversely affect our business and the market price of our common stock.
A group of stockholders led by Maguire Asset Management, Francis Capital Management, and Foxhill Opportunity Fund, or the Maguire Group, has initiated a proxy contest with respect to the matters to be voted upon at our 2015 annual meeting of stockholders, or the Annual Meeting. Among other things, the Maguire Group is proposing to solicit proxies in opposition to us for the purpose of voting in favor of its five nominees for election to our board of directors. Our business, operating results or financial condition could be harmed by the proxy contest because, among other things:

•
responding to the proxy contest is costly and time-consuming, is a significant distraction for our board of directors, management and employees, and diverts the attention of our board of directors and senior management from the pursuit of our business strategy, which could adversely affect our results of operations and financial condition;
•
perceived uncertainties as to our future direction, our ability to execute on our strategy, or changes to the composition of our board of directors or senior management team, including our chief executive officer, may lead to the perception of a change in the direction of our business, instability or lack of continuity which may be exploited by our competitors,  and may result in the loss of potential business opportunities and make it more difficult to attract and retain qualified personnel and business partners;
•
the expenses for legal and advisory fees and administrative and associated costs incurred in connection with responding to proxy contests and any related litigation may be substantial; and
•
we may choose to initiate, or may become subject to, litigation as a result of the proxy contest or matters arising from the proxy contest, which would serve as a further distraction to our board of directors, management and employees and would require us to incur significant additional costs.

In addition, the market price of our common stock could be subject to significant fluctuation or otherwise be adversely affected by the uncertainties described above, the outcome of the proxy contest, or a threat of future stockholder activism.

Item 6. Exhibits
See the Exhibit Index which follows the signature page of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.


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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
 
iPass Inc.
 
 
 
Date: May 7, 2015
 
 
 
/s/ KAREN WILLEM
 
 
 
 
Karen Willem
 
 
 
 
Senior Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)


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INDEX TO EXHIBITS
 
Exhibit
Number
 
Description
 
 
3.1
 
Amended and Restated Certificate of Incorporation. (Filed as Exhibit 3.1 to our Form 10-Q (SEC File No. 000-50327), filed on November 13, 2003, and incorporated by reference herein.)
 
 
3.2
 
Certificate of Amendment to Amended and Restated Certificate of Incorporation. (Filed as Exhibit 3.2 to our Form 10-Q (SEC File No. 000-50327), filed on August 7, 2009, and incorporated by reference herein.)
 
 
3.3
 
Certificate of Change to Amended and Restated Certificate of Incorporation. (Filed as Exhibit 3.1 to our Form 8-K (SEC File No. 000-50327), filed on February 3, 2010, and incorporated by reference herein.)
 
 
3.4
 
Amended and Restated By-Laws. (Filed as Exhibit 3.4 to our Form 10-Q (SEC File No. 000-50327), filed on November 7, 2013, and incorporated by reference herein.)
 
 
4.1
 
Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4
 
 
4.2
 
Specimen stock certificate. (Filed as Exhibit 4.2 to our Registration Statement on Form S-1/A (SEC File No. 333-102715), filed on July 1, 2003, and incorporated by reference herein.)
 
 
 
10.1
 
Separation Agreement with Evan Kaplan dated March 13, 2015.
 
 
 
10.2
 
Offer Letter with Gary A. Griffiths, dated February 16, 2015. (Filed as Exhibit 10.28 to our Form 10-K (SEC File No. 000-50327), filed on March 13, 2015, and incorporated by reference herein.)
 
 
 
10.3
 
Offer Letter with Patricia Hume, dated February 16, 2015. (Filed as Exhibit 10.29 to our Form 10-K (SEC File No. 000-50327), filed on March 13, 2015, and incorporated by reference herein.)
 
 
 
10.4
 
2015 Management Compensation Plan (Described in Item 5.20 of our Form 8-K (SEC File No. 000-50327), filed on February 20, 2015, and incorporated by reference herein.)
 
 
 
31.1
 
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
31.2
 
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
32.1
 
Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
32.2
 
Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
101.INS
 
XBRL Instance Document
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document


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EXHIBIT 10.1
[IPASS COMPANY LOGO]
March 3, 2015
Via Hand Delivery

Evan Kaplan


Re:    Separation Agreement

Dear Evan:
This letter agreement (the “Agreement”) sets forth the terms of your separation and transition from iPass Inc. (“iPass” or the “Company”).
1.SEPARATION DATE. Your last date of employment with the Company will be March 13, 2015 (the “Separation Date”). On the Separation Date, the Company will pay you all accrued salary, subject to standard payroll deductions and withholdings. You are entitled to these payments regardless of whether you sign this Agreement. After the Separation Date, you will no longer be employed as Chief Executive Officer and President of the Company, or hold any other employment or officer position with the Company or any of its subsidiaries or affiliated entities. In addition, you agree, no later than the date that you sign this Agreement, to sign and return to the Company the Board resignation letter, which provides for your resignation as a director on the Company’s Board of Directors (the “Board”), and your resignations from the boards of directors (and from any other positions or offices held by you) of any subsidiary entities of the Company, domestic and foreign, on which you serve, such resignations to be effective on the Separation Date.
2.    SEVERANCE BENEFITS. If, on or within forty-five (45) days after you receive this Agreement, you sign, date and return this Agreement (along with the signed Board resignation letter), and you do not revoke the Agreement, the Company agrees to provide you the severance benefits described below as your sole severance benefit, pursuant to the terms of your Employment Offer Letter Agreement (the “Employment Agreement”), a copy of which is attached hereto as Exhibit A. The severance benefits you are eligible to receive are as follows (the “Severance Benefits”):
(a)    Base Salary Severance. The Company will pay you cash severance in the amount of $450,000.00, which is an amount equal to twelve (12) months of your base salary in effect as of the Separation Date (the “Severance Payment”). The Severance Payment will be subject to required payroll deductions and withholdings, and will be paid in a lump sum within ten (10) business days after the Effective Date of this Agreement, as defined in Paragraph 13(c) below.
(b)    Additional Lump Sum Severance Payment. As part of this Agreement, the Company will pay you an additional lump sum severance bonus payment in the amount of $207,726.99, which is calculated as follows (the “Additional Severance Payment”):
(i)    An amount equal to the portion of your annual bonus for 2014 which has been earned but not yet paid, if any (53.8% * $75,000.00 = $40,350.00);
(ii)    An amount equal to the pro rata portion of your annual bonus for 2015 (the pro rata portion is calculated by using the average percentage of your target bonus with respect to your prior quarterly bonus amounts in 2014) (72 days/365 * 46.6% achievement * $300,000.00 = $27,576.99); plus


    


(iii)    Your target bonus for 2015 multiplied by the percentage equal to the actual bonus paid to you for the prior four quarters, divided by target bonus for the prior four quarters. ($300,000.00 * 46.6% achievement = $139,800.00)
The Additional Severance Payment will be subject to required payroll deductions and withholdings, and will be paid in a lump sum within ten (10) business days after the Effective Date of this Agreement, as defined in Paragraph 13(c) below.
(c)    No Other Severance Benefits. You acknowledge that, except for the severance payment provided herein, you shall not be entitled to receive, and will not receive, any other severance benefits of any kind under the Employment Agreement, or its amendments. Additionally, the combined amount of the Severance Benefits and the Additional Severance Payment exceeds the amount of severance benefits you otherwise would receive under Section 3(a) of the iPass, Inc. Amended and Restated Executive Corporate Transaction and Severance Benefit Plan (the “Severance Plan”). Accordingly, as provided under Section 3(b)(i) of the Severance Plan, you will not receive any severance benefits of any kind under the Severance Plan.    
3.    HEALTH INSURANCE. To the extent provided by the federal COBRA law or, if applicable, state insurance laws (collectively, “COBRA”), and by the Company’s current group health insurance policies, you will be eligible to continue your group health insurance benefits at your own expense. Later, you may be able to convert to an individual policy through the provider of the Company’s health insurance, if you wish. You will be provided with a separate notice more specifically describing your rights and obligations to continuing health insurance coverage under COBRA on or after the Separation Date. If you timely elect continued group health insurance coverage pursuant to COBRA, the Company will pay your COBRA premiums sufficient to continue group health insurance coverage for you and your covered dependents (if applicable) at the level of coverage in effect as of the Separation Date, through the earlier of either: (i) eighteen (18) months after the Separation Date; or (ii) the date that you become eligible for group health insurance coverage through another employer.  In the event you receive the Severance Benefits, you must promptly notify the Company in writing if you become eligible for group health insurance coverage through another employer within eighteen (18) months after the Separation Date.

4.    EQUITY AWARDS.
(a)    Extended Exercise Period of Vested Options. During your employment, you were granted certain options to purchase shares of the Company’s common stock (the “Options”). Vesting of these Options shall cease on the Separation Date. However, as part of this Agreement, the Company will extend the period for you to exercise any Options vested as of the Separation Date until March 13, 2017, provided, however, you will not be entitled to this extended exercise period unless and until the Company successfully files with the Securities and Exchange Commission a Form 10-K with your signature for the year ending on December 31, 2014. Please note that extension of the exercise period for any incentive stock option will result in such option being deemed a nonqualified option for tax purposes. The Company makes no representation as to the tax treatment of any such options. Except as expressly modified in this Section 5(a), your stock options shall continue to be governed by the applicable grant notice, option agreement, and governing stock option plan.
(b)    Performance Shares. During your employment, you were granted performance shares of the Company’s common stock (the “Performance Shares”). Vesting of these Performance Shares shall cease on the Separation Date, and your unvested shares shall terminate. Your Performance Shares shall be governed by the terms of your operative agreements with the Company, and the applicable performance shares award agreement and grant document.
5.    OTHER COMPENSATION OR BENEFITS. You acknowledge that, except as expressly provided in this Agreement, you will not receive any additional compensation, severance, or benefits after the Separation Date. You further acknowledge and agree that you are not entitled to receive and will not receive any severance benefits under the terms and conditions of any employment agreement with the Company, any Company severance benefit plan, or any Company change of control severance benefit plan, with the exception of any vested right you may have under the express terms of a written ERISA-qualified benefit plan (e.g., 401(k) account).



    


6.    EXPENSE REIMBURSEMENTS. You agree to submit your final documented expense reimbursement statement within ten (10) days of the Separation Date, reflecting any and all business expenses you incurred through the Separation Date for which you seek reimbursement. The Company will reimburse you for such expenses pursuant to its regular business practice. The Company also will reimburse you for any reasonable attorneys’ fees incurred by you in connection with this Agreement up to a maximum reimbursement of $3,000.00.
7.    RETURN OF COMPANY PROPERTY. By the close of business on the Separation Date, you agree to return to the Company all Company documents (and all copies thereof) and other Company property which you have in your possession or control, including but not limited to any materials of any kind which contain or embody any proprietary or confidential information of the Company (and all reproductions thereof in whole or in part). You agree that you will make a diligent search to locate any such documents, property and information within the required timeframe. In addition, if you have used any personally owned computer, server, e-mail system, mobile phone, portable electronic device (e.g., BlackBerry, smartphone, iPad or the like), (collectively, “Personal Systems”) to receive, store, prepare or transmit any Company confidential or proprietary data, materials or information, then within five (5) business days after the Separation Date, you will provide the Company with a computer-useable copy of all such information and then permanently delete and expunge all such Company confidential or proprietary information from such Personal Systems without retaining any copy or reproduction in any form (in whole or in part); and you agree to provide the Company access to your Personal Systems as requested to verify that the necessary copying and/or deletion is done. You agree that, after the applicable timeframes noted above, you will neither use nor possess Company property. Notwithstanding the foregoing, the Company agrees that you may retain as your personal property your Company laptop, monitor and iPad, provided that you cooperate fully with the Company to remove any Company confidential, proprietary or trade secret information contained on these devices. Your timely compliance with this paragraph is a condition precedent to your receipt of the Severance Benefits.
8.    PROPRIETARY INFORMATION OBLIGATIONS. You acknowledge your continuing obligations under your Employee Confidentiality and Inventions Assignment Agreement dated November 3, 2008, which include, but are not limited to your continued obligation not to use or disclose confidential or proprietary information of the Company.
9.    NONDISPARAGEMENT. Both you and the Company’s officers and directors agree not to disparage the other party, and the other party’s officers, directors, employees, shareholders and agents, in any manner likely to be harmful to them or their business, business reputation or personal reputation; provided, however, that both you and the Company will respond accurately and fully to any question, inquiry or request for information when required by legal process.
10.    NONSOLICITATION. You agree that for one (1) year following the Separation Date, you will not, directly or indirectly, induce or encourage, or attempt to induce or encourage, any employee of the Company to terminate his or her relationship with the Company in order to become an employee, consultant, or independent contractor to or for any other person or entity.
11.    NO ADMISSIONS. Nothing in this Agreement shall be construed as an admission by you or the Company of any liability, obligation, wrongdoing or violation of law.
12.    NO VOLUNTARY ADVERSE ACTION; COOPERATION. You agree that you will not voluntarily provide assistance, information or advice, directly or indirectly (including through agents or attorneys), to any person or entity in connection with any claim or cause of action of any kind brought against the Company, nor shall you induce or encourage any person or entity to bring such claims. However, it will not violate this Agreement if you testify truthfully when required to do so by a valid subpoena or under similar compulsion of law. Further, you agree to voluntarily cooperate with the Company if you have knowledge of facts relevant to any threatened or pending litigation against the Company by making yourself reasonably available without further compensation for interviews with the Company or its legal counsel, for preparing for and providing deposition testimony, and for preparing for and providing trial testimony.





    



13.    RELEASE OF CLAIMS.
(a)    General Release. In exchange for the consideration under this Agreement to which you would not otherwise be entitled, you hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns (collectively, the “Released Parties”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to or on the date that you sign this Agreement (collectively, the “Released Claims”).
(b)    Scope of Release. This Released Claims include, but are not limited to: (i) all claims arising out of or in any way related to your employment with the Company, or the termination of that employment; (ii) all claims related to your compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (iii) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (iv) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (v) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), the California Labor Code, the California Family Rights Act, and the California Fair Employment and Housing Act (as amended).
(c)    ADEA Waiver. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you may have under the ADEA (“ADEA Waiver”). You also acknowledge that the consideration given for the ADEA Waiver is in addition to anything of value to which you were already entitled. You further acknowledge that you have been advised by this writing, as required by the ADEA, that: (i) your ADEA Waiver does not apply to any rights or claims that arise after the date you sign this Agreement; (ii) you should consult with an attorney prior to signing this Agreement; (iii) you have forty-five (45) days to consider this Agreement (although you may choose to voluntarily sign it sooner); (iv) you have seven (7) days following the date you sign this Agreement to revoke the ADEA Waiver, with such revocation to be effective only if you deliver written notice of revocation to the Company within the seven (7)-day period; and (v) the ADEA Waiver will not be effective until the date upon which the revocation period has expired unexercised, which will be the eighth day after you sign this Agreement (“Effective Date”). Nevertheless, your general release of claims, except for the ADEA Waiver, is effective immediately, and not revocable.
(d)    Section 1542 Waiver. YOU UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. Furthermore, in giving the releases set forth in this Agreement, which include claims which may be unknown to you at present, you acknowledge that you have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” You hereby expressly waive and relinquish all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to your release of claims herein, including but not limited to the release of unknown and unsuspected claims.
(e)    Excluded Claims. Exception to the foregoing, the following are not included in the Released Claims (the “Excluded Claims”): (i) any rights or claims for indemnification you may have pursuant to any fully signed written indemnification agreement with the Company to which you are a party, the charter, bylaws, or operating agreements of the Company, or under applicable law; (ii) any rights which are not waivable as a matter of law; and (iii) any rights you have under this Agreement. Further, nothing contained in this Agreement shall limit or alter any rights you may have as a shareholder of the Company’s stock. In addition, nothing in this Agreement prevents you from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, the California Fair Employment and Housing Commission, or any other government agency, except that you acknowledge and agree that you are hereby waiving your right to any monetary benefits in connection with any such claim, charge or proceeding. You hereby represent and warrant that, other than the Excluded Claims,



    


you are not aware of any claims you have or might have against any of the Released Parties that are not included in the Released Claims.    
14.    REPRESENTATIONS. You hereby represent that you have been paid all compensation owed and for all hours worked, you have received all the leave and leave benefits and protections for which you are eligible pursuant to the FMLA, CFRA, any applicable law, or Company policy, and you have not suffered any on-the-job injury or illness for which you have not already filed a workers’ compensation claim.
15.    SECTION 409A. It is intended that (i) the Separation Date is a “separation from service within the meaning of Treasury Regulation Section 1.409A-1(h); (ii) each installment of the Severance Benefits under Section 3 of this Agreement and the COBRA payments under Section 4 of this Agreement (collectively, the “Benefits”) is a separate “payment” for purposes of Internal Revenue Code Section 409A (together, with any state law of similar effect, “Section 409A”), (iii) the Benefits satisfy, to the greatest extent possible, the exemptions from the application of Section 409A provided under Treasury Regulation Sections 1.409A-1(b)(4) and 1.409A-1(b)(9)(v), and (iv) this Agreement will be construed to the greatest extent possible as consistent with those provisions.
16.    DISPUTE RESOLUTION. To ensure rapid and economical resolution of any disputes which may arise under this Agreement, you and the Company agree that any and all claims, disputes or controversies of any nature whatsoever arising from or regarding the interpretation, performance, negotiation, execution, enforcement or breach of this Agreement, your employment with the Company, or the termination of your employment from the Company, including but not limited to statutory claims, shall be resolved by confidential, final and binding arbitration conducted before a single arbitrator with JAMS, Inc. (“JAMS”) in San Francisco, California, in accordance with JAMS’ then-applicable arbitration rules, which can be found at http://www.jamsadr.com/rules-clauses/, and which will be provided to you upon request. The parties acknowledge that by agreeing to this arbitration procedure, they waive the right to resolve any such dispute through a trial by jury, judge or administrative proceeding. You will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be available under applicable law in a court proceeding; and (b) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions on which the award is based. Nothing in this Agreement shall prevent either you or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. The Company shall pay all filing fees in excess of those which would be required if the dispute were decided in a court of law, and shall pay the arbitrator’s fees and any other fees or costs unique to arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction.
17.    MISCELLANEOUS. This Agreement, including its Exhibits, constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to this subject matter. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. This Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company. This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question will be modified by the court so as to be rendered enforceable to the fullest extent permitted by law, consistent with the intent of the parties. This Agreement will be deemed to have been entered into and will be construed and enforced in accordance with the laws of the State of California without regard to conflicts of law principles. Any ambiguity in this Agreement shall not be construed against either party as the drafter. Any waiver of a breach of this Agreement, or rights hereunder, shall be in writing and shall not be deemed to be a waiver of any successive breach or rights hereunder. This Agreement may be executed in counterparts which shall be deemed to be part of one original, and facsimile signatures and signatures transmitted by PDF shall be equivalent to original signatures.
If this Agreement is acceptable to you, please sign and date below and return the signed Agreement to me within forty-five (45) days after you receive it. The Company’s offer contained herein will automatically expire if we do not receive the fully signed Agreement from you within this timeframe.



    


I wish you the best in your future endeavors and thank you for your contributions to the Company.


Sincerely,
IPASS INC.


By: /s/ John Beletic________________________
John Beletic
Chairman of the Board of Directors


Exhibit A—Employment Offer Letter Agreement


REVIEWED, UNDERSTOOD AND AGREED:
/s/ Evan Kaplan    
Evan Kaplan
March 13, 2015                    
Date





    


Exhibit A
EMPLOYMENT OFFER LETTER AGREEMENT

[IPASS LETTERHEAD]


October 31, 2008


Evan Kaplan


Re:           Employment Offer Letter Agreement
 
Dear Evan,
 
iPass Inc. (the “Company”) is pleased to offer you the positions of President and Chief Executive Officer of the Company, reporting to the Company’s Board of Directors (the “Board”).  The following letter agreement (the “Agreement”) provides the terms of our offer of employment.
 
I.           GENERAL TERMS OF EMPLOYMENT.
 
(1)           Duties and Position.  You will be employed in the positions of President and Chief Executive Officer of the Company (“CEO”), reporting to the Board.  You shall perform the duties of President and CEO as commonly associated with this position in the Company, as specified in the Bylaws of the Company, and as directed by the Board.  The Company will use its best efforts to have you elected to serve as a director on the Board.  If your employment with the Company terminates for any reason, you agree to promptly tender your resignation from the Board.
 
(2)           Start Date.  Your first date of employment will be November 3, 2008 (“Start Date”); provided, however, that you shall not assume the title or role of President and CEO until the first business day after the Company’s filing with the Securities Exchange Commission of a Form 10-Q for the quarter ended September 30, 2008.  You and the Company agree that your consulting relationship with the Company pursuant to our consulting agreement dated August 19, 2008 will terminate effective as of the Start Date by our mutual agreement, without the necessity for any other notice of termination, and that the remaining unpaid consulting fee payable to you will be paid in accordance with the terms of the consulting agreement.
 
(3)           Work Location and Other Activities.  You will work at the Company’s corporate headquarters which are currently located in Redwood Shores, California, subject to necessary business travel.  You will move to the San Francisco Bay Area as soon as is feasible. During your employment with the Company, you will devote your best efforts and substantially all of your business time and attention (except for vacation periods and reasonable periods of illness or other incapacity permitted by the Company’s general employment policies) to the business of the Company; provided, however, that you may serve as a director of one other corporation, provided that the name of this other corporation is disclosed in advance to the Board and the Board has determined that your director position with such other corporation will not present a conflict of interest with the Company.   You may also spend time on charitable and other such activities, so long as they do not materially impact your ability to perform your duties under this Agreement.
 
(4)           Company Policies and Procedures.  Your employment relationship with the Company also shall be governed by the general employment policies and procedures of the Company (including the Company’s Code of Conduct)(as may be changed from time to time in the discretion of the Company), and you agree to comply with these polices and procedures, except that if the terms of this Agreement differ from or are in conflict with the Company’s general employment policies or procedures, this Agreement will control.



    


 
II.           BASE SALARY AND BONUS.
 
(1)     Base Salary.  You will be paid an initial annual salary of $350,000 per year (or $14,583.33 semi-monthly), less standard deductions and withholdings.  Your cash compensation will next be reviewed by the Board for potential adjustment beginning in calendar year 2010, and will be reviewed annually thereafter in conjunction with the annual Board review of executive compensation, and will be based upon the Board’s assessment of both your performance and the Company’s performance.
 
(2)           Annual Bonus.  You also will be eligible to earn an annual bonus for each calendar year beginning with calendar year 2009 during your employment if you achieve the performance goals established each year as part of the management incentive plan.  The initial annual bonus target amount will be $250,000, less standard deductions and withholdings, and the performance goals for 2008 will be based upon short-term objectives.  The Board, in consultation with you, will set the performance goals for each year. The Board will have the sole discretion to determine whether the goals have been achieved and to determine the amount of any bonus.  The annual bonus will be paid to you on a quarterly basis for 2009 and 2010 (and thereafter on the same timing as the then current executive management program), with the final payment made no later than 30 days after the conclusion of the annual audit for the year in which the bonus was earned.  Effective January 1, 2010, your annual bonus target will be at least $350,000 if your performance meets the expectations of the Board.
 
(3)           2008 Guaranteed Bonus.  Notwithstanding the foregoing, if you remain an employee in good standing through the end of calendar year 2008, the Company will pay you a guaranteed 2008 annual performance bonus based on the target amount of $250,000 and prorated based on the Start Date to reflect your mid-year hire (the “Guaranteed Bonus”).  The Guaranteed Bonus will be paid to you at the time other members of management are paid their fourth quarter bonus.
 
III.           RELOCATION AND RELATED BENEFITS.
 
(1)           Monthly Reimbursement of Temporary Living Expenses.  The Company will reimburse your reasonable temporary living expenses incurred during the first six (6) months after the Start Date up to a maximum monthly reimbursement amount of $10,000, provided that these reimbursements will cease earlier if you close on the purchase of a residence in the San Francisco Bay Area prior to six (6) months after the Start Date.  The Company will consider and implement reasonable measures to minimize any adverse income tax effect to you of the reimbursements for temporary living expenses to be provided hereunder upon the advice of its tax advisors, which may include, for example, direct payment of expenses to third parties.  In addition, to the extent that you are required to recognize in taxable income any payments under this Section III(1) (the “Taxable Living Expenses”), you shall be entitled to receive an additional payment from the Company (the “Taxable Living Expenses Gross-Up”), such that after the payment of all federal and state income and employment taxes on the Taxable Living Expenses and the Taxable Living Expenses Gross-Up, you shall retain an amount equal to the Taxable Living Expenses.  For purposes of determining the amount of the Taxable Living Expenses Gross-Up, you shall be deemed to have (i) paid federal income taxes at the highest marginal rate of federal income taxation for the calendar year in which the Taxable Living Expenses Gross-Up is to be made; (ii) paid federal employment taxes at your actual marginal rate for the calendar year in which the Taxable Living Expenses Gross-Up is to be made; and (iii) paid applicable state and local income taxes at the highest rate of taxation for the calendar year in which the Taxable Living Expenses Gross-Up is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
 
(2)           Relocation-Related Expenses. The Company will either (as elected by the Company) pay directly to third parties or reimburse your reasonable expenses incurred for: (a) the reasonable and customary costs associated with moving your typical personal and household goods to the San Francisco Bay Area, including shipment of no more than two (2) automobiles, furniture, and personal effects, excluding any unusually large or expensive items such as pianos, work-out equipment, or the like; (b) airfare, rental car and hotel costs (covering you and your immediate family) for up to two (2) house hunting trips to the San Francisco Bay Area; and (c) the reasonable and customary brokerage fee for the sale of your residence in Seattle, provided that such residence is sold no later than fifteen (15) months after the Start Date.  In the event you are able to sell your Seattle residence without incurring a brokerage



    


fee, the Company will pay you an amount equivalent to the fee that would otherwise have been incurred. The Company will consider and implement reasonable measures to minimize any adverse income tax effect to you associated with payment of the brokerage fee hereunder upon the advice of its tax advisors, which may include, for example, direct payment of such fee to third parties.  In addition, to the extent that you are required to recognize in taxable income any payments under this Section III(2) (the “Taxable Relocation Expenses”), you shall be entitled to receive an additional payment from the Company (the “Taxable Relocation Expenses Gross-Up”), such that after the payment of all federal and state income and employment taxes on the Taxable Relocation Expenses and the Taxable Relocation Expenses Gross-Up, you shall retain an amount equal to the Taxable Relocation Expenses.  For purposes of determining the amount of the Taxable Relocation Expenses Gross-Up, you shall be deemed to have (i) paid federal income taxes at the highest marginal rate of federal income taxation for the calendar year in which the Taxable Relocation Expenses Gross-Up is to be made; (ii) paid federal employment taxes at your actual marginal rate for the calendar year in which the Taxable Relocation Expenses Gross-Up is to be made; and (iii) paid applicable state and local income taxes at the highest rate of taxation for the calendar year in which the Taxable Relocation Expenses Gross-Up is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
 
(3)           Additional Relocation-Related Reimbursements.  In addition to the above, the Company will reimburse you an additional amount of $12,000 to cover other ancillary reasonable expenses that may be incurred by you related to your relocation to the San Francisco Bay Area, such as additional temporary living expenses or expenses related to the sale of your current residence and purchase of a new residence in the San Francisco Bay Area.  No “tax gross-up” shall apply to this additional amount, regardless of whether or not any such expenses are taxed as income.
 
(4)           Moving Expenses for Return To Seattle.  In the event that the Company terminates your employment prior to November 1, 2012 other than for Cause, or if you resign for Good Reason, and no Corporate Transaction (as defined below) has been closed prior to your termination date, and you move to the Seattle Metropolitan Area within six months after such termination, the Company will either (as elected by the Company) pay directly to third parties or reimburse your reasonable expenses incurred solely for the reasonable and customary costs associated with moving your typical personal and household goods back to the Seattle Metropolitan Area, including shipment of no more than two (2) automobiles, furniture, and personal effects, excluding any unusually large or expensive items such as pianos, work-out equipment, or the like. Such payments, if any, shall be paid no later than your second taxable year following termination of your employment.
 
(5)           General Terms For Relocation and Related Benefits.  To qualify for reimbursement or payment under this Agreement, all expenses incurred by you or costs must be fully documented (including receipts) on a properly completed expense reimbursement report and otherwise comply with the Company’s standard expense reimbursement policy and practice.  Other than with respect to expenses incurred prior to the Start Date and moving expenses incurred for your return to Seattle provided under Section III(4), you must remain an employee in good standing of the Company as of the date that the cost or expenses is incurred.
 
IV.           EQUITY AWARDS.
 
(1)           Stock Option Grant.  Subject to the approval of the Board, you will be granted an option to purchase 500,000 shares of Company common stock (the “Option”), with an exercise price equal to the fair market value of the Company’s common stock as of the date of grant, pursuant to the Company’s 2003 Equity Incentive Plan (the “Plan”).  The Option will be an incentive stock option to the fullest extent permissible, with the remainder being a nonstatutory stock option.  The Option will vest with respect to 25% of the shares subject to the Option on the first anniversary of the Start Date, and thereafter in a series of thirty-six (36) successive equal monthly installments over the three-year period measured from the first anniversary of the Start Date, so long as you remain in continuous service with the Company on each applicable vesting date.  The Option shall be governed by the terms and conditions set forth in the Plan, and in the applicable stock option agreement and grant document.
 
(2)           Performance Shares.  Subject to the approval of the Board, you will be granted performance shares covering 500,000 shares of Company common stock (the “Performance Shares”) pursuant to the Plan.  The Performance Shares will vest in five installments, as set forth on Annex A hereto.  In order to vest in any Performance Shares, you must remain in continuous service with the Company on each applicable vesting date.  The



    


Performance Shares shall be governed by the terms and conditions set forth in the Plan, and in the applicable performance shares award agreement and grant document, and will contain a tax withholding right to permit the Company to pay the withholding tax in exchange for the return of shares to the Company to cover such withholding tax payment.
 
V.           EMPLOYEE BENEFITS AND VACATION.
 
You will be entitled to participate in the Company’s standard employee benefit plans pursuant to the terms and conditions of the benefit plans.  The Company currently offers its employees health, dental, vision, life, AD&D, short term and long term disability insurance, and 401(k) plan participation.  You will accrue vacation at an initial annual rate of four (4) weeks, subject to the terms and conditions of the Company’s vacation policy and practices.  The Company may modify benefits from time to time in its discretion.
 
VI.           CONFIDENTIALITY AND INVENTIONS ASSIGNMENT AGREEMENT.
 
As a condition of employment, you are required to sign and abide by the Company’s standard Employee Confidentiality and Inventions Assignment Agreement (the “Confidentiality Agreement”), a form of which is attached hereto as Exhibit A.
 
VII.           AT-WILL EMPLOYMENT STATUS, SEVERANCE AND CORPORATE TRANSACTION BENEFITS.
 
(1)           At-Will Employment Status. Your employment with the Company is at the will of each party, is not for a specific term and can be terminated by you or by the Company at any time, with or without Cause, and with or without advance notice.
 
(2)           Severance.  If: (i) the Company terminates your employment without Cause, you resign for Good Reason, and provided such termination or resignation, as applicable, qualifies as a “separation from service” within the meaning of Treasury Regulation 1.409A-1(h) (each, a “Covered Termination”); and (ii) you sign, date, return to the Company within forty-five (45) days following the Covered Termination and allow to become effective a general release of all known and unknown claims in the form as shall be provided to you by the Company (which may, at the Company’s election, be contained in a separation agreement) (the “Release”); and (iii) you promptly tender your resignation as a director on the Board; then you will be eligible to receive, as your sole severance benefits (the “Severance Benefits”):
 
(a)           Base Salary Severance. You will receive cash severance equal to twelve (12) months of your base salary in effect as of the date of the Covered Termination (the “Termination Date”), subject to required payroll deductions and withholdings, paid in a lump sum within ten (10) business days after the effective date of the Release.
 
(b)           Additional Lump Sum Severance Bonus Payment.  You will receive an additional lump sum cash severance payment, with the amount of such additional lump sum severance payment to be (i) the pro rata portion of the annual bonus for the year served to the Termination Date, less any amounts already paid for that year, such pro rata portion to be paid to be calculated using the same percentage of target bonus as average percentage of target bonus with respect to prior bonus amounts in that year (or if first quarter bonus has not yet been determined, the percentage target bonus paid for the prior year) plus (ii) target bonus for that year multiplied by the percentage equal to the actual bonus paid over the prior four quarters divided by target bonus for the prior four quarters (collectively, the “Additional Severance Payment”).  If paid, the Additional Severance Payment will be subject to required payroll deductions and withholdings and paid in a lump sum within ten (10) business days after the effective date of the Release.
 
(c)           Health Insurance. If you timely elect continued group health insurance coverage pursuant to federal COBRA law or comparable state insurance laws (collectively, “COBRA”), the Company will pay your COBRA premiums sufficient to continue group health insurance coverage for you and your covered dependents (if applicable) at the level of coverage in effect as of the Termination Date, through the earlier of either (i) eighteen (18) months after the Termination Date, or (ii) the date that you become eligible for group health insurance coverage



    


through another employer.  In the event you receive the Severance Benefits, you must promptly notify the Company in writing if you become eligible for group health insurance coverage through another employer within eighteen (18) months after the Termination Date.
 
(d)           Equity Award Acceleration and Extended Exercisability.   Subject to Section VII(3) below, you will receive accelerated vesting of the time-based component of any equity awards (including but not limited to restricted stock which have time-based vesting) which are not fully vested as of the Termination Date (collectively, the “Equity Awards”), in the amount of twelve (12) months of vesting acceleration, effective as of the Termination Date, and with respect to Equity Awards that are stock options, each vested stock option shall remain exercisable for the lesser of (i) the maximum term provided in the option grant or (ii) the period ending nine (9) months following the Termination Date.

(3)           Additional Corporate Transaction Benefits.  In addition to the benefits provided in Section VII(2)(a-c) above, and in lieu of the benefits provided in Section VII (2)(d) above, immediately upon the closing of a Corporate Transaction, any specified performance target or other vesting condition, whether determined by passage of time or by reference to performance targets or operations of the Company or an Affiliate (as defined below), in any Equity Awards issued to you pursuant to any equity incentive plan of the Company shall immediately be deemed satisfied.  
 
(4)           Definitions.  For purposes of this Agreement, the following definitions will apply:
 
(a)           Definition of Affiliate.  “Affiliate” means a “parent corporation” of the Company or a “subsidiary corporation” of the Company (whether now or hereafter existing), as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended (the “Code”).
 
(b)           Definition of Cause. “Cause” shall mean the occurrence of any of the following (and only the following): (i) your conviction of any felony involving fraud or act of dishonesty against the Company or its Affiliates; (ii) conduct by you which, based upon good faith and reasonable factual investigation and determination of the Board, demonstrates gross unfitness to serve; or (iii) intentional, material violation by you of any contractual, statutory or fiduciary duty owed by you to the Company or its Affiliates.
 
(c)           Definition of Good Reason. “Good Reason” shall mean any of the following actions or events: (i) the Company requires you to relocate to a worksite that is more than sixty (60) miles from its principal executive office as of the Start Date; (ii) the Company materially reduces your base salary and bonus potential below its then-existing gross rate; or (iii) following a Corporate Transaction, you are not the Chief Executive Officer of the surviving entity (unless you agree in writing not to be the Chief Executive Officer of the surviving entity), or otherwise have your duties/responsibilities materially reduced as a result of the Corporate Transaction.  A Corporate Transaction which results in the Company being private in which you remain as Chief Executive Officer does not constitute a material reduction in responsibilities.  Notwithstanding the foregoing, in order to qualify as “Good Reason,” you must submit to the Company or its successor (as applicable) a written notice, within ninety (90) days after the initial occurrence of any of the actions or events described in the preceding sentence, describing the applicable actions or events, and provide the Company or its successor with at least thirty (30) days from its receipt of your written notice in which to cure such actions or events prior to termination of your employment, and provided that, your employment must terminate no later than twelve (12) months after the applicable actions or events described in (i), (ii) and (iii) above.
 
(d)           Definition of Corporate Transaction.  “Corporate Transaction” shall mean the occurrence of either of the following events: (i) the sale of all or substantially all of the assets of the Company; or (ii) a merger of the Company with or into another entity in which the stockholders of the Company immediately prior to the closing of the transaction own less than a majority of the ownership interest of the Company immediately following such closing; provided, however, for purposes of determining whether the stockholders of the Company prior to the occurrence of a transaction described above own less than fifty percent (50%) of the voting securities of the relevant entity afterwards, only the lesser of the voting power held by a person either before or after the transaction shall be counted in determining that person’s ownership afterwards.
 
VIII.         PARACHUTE PAYMENTS AND DEFERRED COMPENSATION.



    


 
(1)           Parachute Payments.  If any payment or benefit you would receive from the Company pursuant to a Corporate Transaction or otherwise (“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be equal to the Reduced Amount.  The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax, or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in your receipt of the greatest economic benefit notwithstanding that all or some portion of the Payment may be subject to the Excise Tax.  If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in a manner necessary to provide you with the greatest economic benefit.  If more than one manner of reduction of payments or benefits necessary to arrive at the Reduced Amount yields the greatest economic benefit, the payments and benefits shall be reduced pro rata.  The independent registered public accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the event described in Section 280G(b)(2)(A)(i) of the Code shall perform the foregoing calculations.  The Company shall bear all expenses with respect to the determinations by such independent registered public accounting firm required to be made hereunder, and any good faith determinations of the independent registered public accounting firm made hereunder shall be final, binding and conclusive upon the Company and you.
 
(2)           Deferred Compensation.  All payments provided under this Agreement are intended to constitute separate payments for purposes of Treasury Regulation Section 1.409A-2(b)(2).  The cash severance payment provided under Section VII(2) shall be paid no later than the later of: (i) December 31st of the calendar year in which the Covered Termination occurs, or (ii) the fifteenth (15th) day of the third calendar month following the date of the Covered Termination.  It is the intention of the preceding sentence to apply the “short-term deferral rule” set forth in Treasury Regulation Section 1.409A-1(b)(4) to such payments.
 
IX.           MISCELLANEOUS.
 
(1)           Attorneys’ Fees.  The Company will reimburse your reasonable attorneys’ fees and costs associated with review of this Agreement, up to a maximum total reimbursement of $3,000 (in the aggregate).  These expenses must be fully documented (including receipts) on a properly completed expense reimbursement report, and will be reimbursed within thirty (30) days after the Start Date.
 
(2)           Legal Right to Work. Your employment pursuant to this offer is contingent on you providing the Company with the legally required proof of your identity and authorization to work in the United States.
 
(3)           General Terms.  This Agreement, including the attached Confidentiality Agreement, constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to the subject matter hereof.  It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other agreements, promises, warranties or representations concerning its subject matter.  Changes in your employment terms, other than those expressly reserved herein to the Company’s or the Board’s discretion herein, can only be made in a writing approved by the Board and signed by a duly-authorized member of the Board and you.  This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and assigns.  If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination shall not affect any other provision of this Agreement and the provision in question shall be modified so as to be rendered enforceable in a manner consistent with the intent of the parties insofar as possible under applicable law.  This Agreement shall be construed and enforced in accordance with the laws of the State of California without regard to conflicts of law principles.  Any ambiguity in this Agreement shall not be construed against either party as the drafter.  Any waiver of a breach of this Agreement, or rights hereunder, shall be in writing and shall not be deemed to be a waiver of any successive breach or rights hereunder.  This Agreement may be executed in counterparts which shall be deemed to be part of one original, and facsimile signatures or those transmitted by PDF shall be equivalent to original signatures.
 



    


Evan, we all look forward to working with you.  Please signify your acceptance by signing and dating below and signing the Confidentiality Agreement, and returning both fully signed agreements to me within five (5) business days.  If we do not receive these fully signed agreements from you within this timeframe, the Company’s offer contained herein will expire.
 
Sincerely,
 
IPASS INC.
 

 
By:  /s/ John Beletic
John Beletic
Chairman of the Board of Directors

Annex A – Performance Criteria For Performance Shares
 
Exhibit A – Employee Confidentiality and Inventions Assignment Agreement
 

 
Understood and Accepted By:
 
/s/ Evan Kaplan

Evan Kaplan

 



    


 
 

ANNEX A

PERFORMANCE CRITERIA FOR PERFORMANCE SHARES

1.           100,000 shares shall vest on the close of business on the date of the public announcement of the Company’s quarterly earnings which reflect that the Company has achieved $11.0 million of EBITA over the four full fiscal quarters preceding the date of the announcement.*

2.           100,000 shares shall vest on the close of business on the date of the public announcement of the Company’s quarterly earnings which reflect that the Company has achieved $22.0 million of EBITA over the four full fiscal quarters preceding the date of the announcement.*

3.           100,000 shares shall vest on the close of business on the date of the public announcement of the Company’s quarterly earnings which reflect that the Company has achieved $33.0 million of EBITA over the four full fiscal quarters preceding the date of the announcement.*

4.           100,000 shares shall vest on the close of business on the date of the public announcement of the Company’s quarterly earnings which reflect that the Company has achieved $44.0 million of EBITA over the four full fiscal quarters preceding the date of the announcement.*

5.           100,000 shares shall vest on the close of business on the date of the public announcement of the Company’s quarterly earnings which reflect that the Company has achieved $55.0 million of EBITA over the four full fiscal quarters preceding the date of the announcement.*

*   For the purposes hereof, 1.) EBITA shall mean earnings before interest, taxes and amortization from the Company’s current business (i.e. excluding any financial results from any businesses that the Company may acquire after the date of grant); 2) any losses incurred in quarters prior to your appointment as CEO will be excluded from the calculation; and 3.) in the event of a purchase or sale of assets that will materially impact the EBITA calculation, the performance criteria will be revised so as to provide you an incentive generally equivalent with that provided herein.
 
 
 
 




    


EXHIBIT A

EMPLOYEE CONFIDENTIALITY AND INVENTIONS ASSIGNMENT AGREEMENT

 
In consideration of my employment or continued employment by IPASS, INC. (“Company”), and the compensation now and hereafter paid to me, I hereby agree as follows:
 
1. Confidentiality.
 
1.1 Nondisclosure; Recognition of Company’s Rights.  At all times during my employment and thereafter, I will hold in confidence and will not disclose, use, lecture upon, or publish any of Company’s Confidential Information (defined below), except as such use is required in connection with my work for Company, or unless the Chief Executive Officer (the “CEO”) of Company expressly authorizes in writing such disclosure or publication.  I will obtain the CEO’s written approval before publishing or submitting for publication any material (written, oral, or otherwise) that relates to my work at Company and/or incorporates any Confidential Information.  I hereby assign to Company any rights I have or acquire in any and all Confidential Information and recognize that all Confidential Information shall be the sole and exclusive property of Company and its assigns.
 
1.2 Confidential Information.  The term “Confidential Information” shall mean any and all confidential knowledge, data or information related to Company’s business or its actual or demonstrably anticipated research or development, including without limitation: (a) trade secrets, inventions, ideas, processes, computer source and object code, data, formulae, programs, other works of authorship, know-how, improvements, discoveries, developments, designs, and techniques; (b) information regarding products, plans for research and development, marketing and business plans, budgets, financial statements, contracts, prices, suppliers, and customers; (c) information regarding the skills and compensation of Company’s employees, contractors, and any other service providers of Company; and (d) the existence of any business discussions, negotiations, or agreements between Company and any third party.
 
1.3 Third Party Information.  I understand, in addition, that Company has received and in the future will receive from third parties confidential or proprietary information (“Third Party Information”) subject to a duty on Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes.  During the term of my employment and thereafter, I will hold Third Party Information in strict confidence and will not disclose to anyone (other than Company personnel who need to know such information in connection with their work for Company) or use, except in connection with my work for Company, Third Party Information, unless expressly authorized by an officer of Company in writing.
 
1.4  No Improper Use of Information of Prior
Employers and Others.  I represent that my employment by Company does not and will not breach any agreement with any former employer, including any noncompete agreement or any agreement to keep in confidence information acquired by me in confidence or trust prior to my employment by Company.  I further represent that I have not entered into, and will not enter into, any agreement, either written or oral, in conflict herewith.  During my employment by Company, I will not improperly use or disclose any confidential information or trade secrets of any former employer or other third party to whom I have an obligation of confidentiality, and I will not bring onto the premises of Company or use any unpublished documents or any property belonging to any former employer or other third party to whom I have an obligation of confidentiality, unless consented to in writing by that former employer or person.  I will use in the performance of my duties only information that is generally known and used by persons with training and experience comparable to my own, is common knowledge in the industry or otherwise legally in the public domain, or is otherwise provided or developed by Company.
 
2. INVENTIONS.
 
2.1 Inventions and Intellectual Property Rights.  As used in this Agreement, the term “Invention” means any ideas, concepts, information, materials, processes, data, programs, know-how, improvements, discoveries, developments, designs, artwork, formulae, other copyrightable works, and techniques and all



    


Intellectual Property Rights therein.  The term “Intellectual Property Rights” means all trade secrets, copyrights, trademarks, mask work rights, patents and other intellectual property rights recognized by the laws of any jurisdiction or country.
 
2.2 Prior Inventions.  I agree that I will not incorporate, or permit to be incorporated, Prior Inventions (defined below) in any Company Inventions (defined below) without Company’s prior written consent. In addition, I agree that I will not incorporate into any Company software or otherwise deliver to Company any software code licensed under the GNU GPL or LGPL or any other license that, by its terms, requires or conditions the use or distribution of such code on the disclosure, licensing, or distribution of any source code owned or licensed by Company.  I have disclosed on Exhibit A a complete list of all Inventions that I have, or I have caused to be, alone or jointly with others, conceived, developed, or reduced to practice prior to the commencement of my employment by Company, in which I have an ownership interest or which I have a license to use, and that I wish to have excluded from the scope of this Agreement (collectively referred to as “Prior Inventions”).  If no Prior Inventions are listed in Exhibit A, I warrant that there are no Prior Inventions.  If, in the course of my employment with Company, I incorporate a Prior Invention into a Company process, machine or other work, I hereby grant Company a non-exclusive, perpetual, fully-paid and royalty-free, irrevocable and worldwide license, with rights to sublicense through multiple levels of sublicensees, to reproduce, make derivative works of, distribute, publicly perform, and publicly display in any form or medium, whether now known or later developed, make, have made, use, sell, import, offer for sale, and exercise any and all present or future rights in, such Prior Invention.
 
2.3 Assignment of Company Inventions. Subject to the section titled “Government or Third Party” and except for Inventions that I can prove qualify fully under the provisions of California Labor Code section 2870 and I have set forth in Exhibit A, I hereby assign and agree to assign in the future (when any such Inventions or Intellectual Property Rights are first reduced to practice or first fixed in a tangible medium, as applicable) to Company all my right, title, and interest in and to any and all Inventions (and all Intellectual Property Rights with respect thereto) made, conceived, reduced to practice, or learned by me, either alone or with others, during the period of my employment by Company.  Inventions assigned to Company or to a third party as directed by Company pursuant to the section titled “Government or Third Party” are referred to in this Agreement as “Company Inventions.”
 
2.4 Obligation to Keep Company Informed.  During the period of my employment and for one (1) year thereafter, I will promptly and fully disclose to Company in writing (a) all Inventions authored, conceived, or reduced to practice by me, either alone or with others, including any that might be covered under California Labor Code section 2870, and (b) all patent applications filed by me or in which I am named as an inventor or co-inventor.
 
2.5 Government or Third Party.  I also agree to assign all my right, title, and interest in and to any particular Company Invention to a third party, including without limitation the United States, as directed by Company.
 
2.6 Enforcement of Intellectual Property Rights and Assistance.  During the period of my employment and thereafter, I will assist Company in every proper way to obtain and enforce United States and foreign Intellectual Property Rights relating to Company Inventions in all countries.  In the event Company is unable to secure my signature on any document needed in connection with such purposes, I hereby irrevocably designate and appoint Company and its duly authorized officers and agents as my agent and attorney in fact, which appointment is coupled with an interest, to act on my behalf to execute and file any such documents and to do all other lawfully permitted acts to further such purposes with the same legal force and effect as if executed by me.
 
3. RECORDS.  I agree to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form that is required by Company) of all Inventions made by me during the period of my employment by Company, which records shall be available to, and remain the sole property of, Company at all times.
 
4. ADDITIONAL ACTIVITIES.  I agree that (a) during the term of my employment by Company, I will not, without Company’s express written consent, engage in any employment or business activity that is competitive with, or would otherwise conflict with my employment by, Company, and (b) for the period of my employment by



    


Company and for one (l) year thereafter, I will not, either directly or indirectly, solicit or attempt to solicit any employee, independent contractor, or consultant of Company to terminate his, her or its relationship with Company in order to become an employee, consultant, or independent contractor to or for any other person or entity.
 
5. RETURN OF COMPANY PROPERTY. Upon termination of my employment or upon Company’s request at any other time, I will deliver to Company all of Company’s property, equipment, and documents, together with all copies thereof, and any other material containing or disclosing any Inventions, Third Party Information or Confidential Information of Company and certify in writing that I have fully complied with the foregoing obligation.  I agree that I will not copy, delete, or alter any information contained upon my Company computer before I return it to Company.  I further agree that any property situated on Company’s premises and owned by Company is subject to inspection by Company personnel at any time with or without notice.  Prior to leaving, I will cooperate with Company in attending an exit interview and completing and signing Company’s termination statement.
 
6. NOTIFICATION OF NEW EMPLOYER.  In the event that I leave the employ of Company, I hereby consent to the notification of my new employer of my rights and obligations under this Agreement, by Company’s providing a copy of this Agreement or otherwise.
 
7. General Provisions.
 
7.1 Governing Law and Venue.  This Agreement and any action related thereto will be governed, controlled, interpreted, and defined by and under the laws of the State of California, without giving effect to any conflicts of laws principles that require the application of the law of a different state. I hereby expressly consent to the personal jurisdiction and venue in the state and federal courts for the county in which Company’s principal place of business is located for any lawsuit filed there against me by Company arising from or related to this Agreement.
 
7.2 Severability.  If any provision of this Agreement is, for any reason, held to be invalid or unenforceable, the other provisions of this Agreement will be unimpaired and the invalid or unenforceable provision will be deemed modified so that it is valid and enforceable to the maximum extent permitted by law.
 
7.3 Survival.  This Agreement shall survive the termination of my employment and the assignment of this Agreement by Company to any successor-in-interest or other assignee and be binding upon my heirs and legal representatives.
 
7.4 At-Will Employment. I agree and understand that nothing in this Agreement shall confer any right with respect to continuation of employment by Company, nor shall it interfere in any way with my right or Company’s right to terminate my employment at any time, with or without cause and with or without advance notice.
 
7.5 Notices. Each party must deliver all notices or other communications required or permitted under this Agreement in writing to the other party at the address listed on the signature page, by courier, by certified or registered mail (postage prepaid and return receipt requested), or by a nationally-recognized express mail service.  Notice will be effective upon receipt or refusal of delivery.  If delivered by certified or registered mail, any such notice will be considered to have been given five (5) business days after it was mailed, as evidenced by the postmark.  If delivered by courier or express mail service, any such notice shall be considered to have been given on the delivery date reflected by the courier or express mail service receipt. Each party may change its address for receipt of notice by giving notice of such change to the other party.
 

7.6 Injunctive Relief. I acknowledge that, because my services are personal and unique and because I will have access to the Confidential Information of Company, any breach of this Agreement by me would cause irreparable injury to Company for which monetary damages would not be an adequate remedy and, therefore, will entitle Company to injunctive relief (including specific performance).  The rights and remedies provided to each party in this Agreement are cumulative and in addition to any other rights and remedies available to such party at law or in equity.



    


 
7.7 Waiver. Any waiver or failure to enforce any provision of this Agreement on one occasion will not be deemed a waiver of any other provision or of such provision on any other occasion.
 
7.8 Export. I agree not to export, directly or indirectly, any U.S. technical data acquired from Company or any products utilizing such data, to countries outside the United States, because such export could be in violation of the United States export laws or regulations.
 
7.9 Entire Agreement.  The obligations pursuant to sections of this Agreement titled “Confidentiality” and “Inventions” shall apply to any time during which I was previously employed, or am in the future employed, by Company as an independent contractor if no other agreement governs nondisclosure and assignment of inventions during such period.  This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matters hereof and supersedes and merges all prior communications between us with respect to such matters.  No modification of or amendment to this Agreement, or any waiver of any rights under this Agreement, will be effective unless in writing and signed by me and the CEO of Company.  Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.
 
This Agreement shall be effective as of the first day of my employment with Company.
 
EMPLOYEE:
I acknowledge that I have read and understand this agreement and have been given the opportunity to discuss it with independent legal counsel.
 
 
(Signature)
By: _______________________________________________
 
Title: ______________________________________________
 
Date: ______________________________________________
Address: ___________________________________________
COMPANY:
ACCEPTED AND AGREED:
 
 
(Signature)
By: _______________________________________________
 
Title: ______________________________________________
 
Date: ______________________________________________
Address: ___________________________________________

                                                    .
 
 



    


 

EXHIBIT A
 
INVENTIONS
 
1.           Prior Inventions Disclosure.  The following is a complete list of all Prior Inventions:
 
None
 
See immediately below:
 

 

 

 
2.           Limited Exclusion Notification.
 
THIS IS TO NOTIFY you in accordance with Section 2872 of the California Labor Code that the foregoing Agreement between you and Company does not require you to assign or offer to assign to Company any Invention that you develop entirely on your own time without using Company’s equipment, supplies, facilities or trade secret information, except for those Inventions that either:
 
a.           Relate at the time of conception or reduction to practice to Company’s business, or actual or demonstrably anticipated research or development; or
 
b.           Result from any work performed by you for Company.
 
To the extent a provision in the foregoing Agreement purports to require you to assign an Invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.
 
This limited exclusion does not apply to any patent or Invention covered by a contract between Company and the United States or any of its agencies requiring full title to such patent or Invention to be in the United States.








Exhibit 31.1
CERTIFICATION
I, Gary A. Griffiths, certify that:
1. I have reviewed this Form 10-Q of iPass Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: May 7, 2015
 
 
 
By:
 
/S/    Gary A. Griffiths        
 
 
 
 
 
 
Gary A. Griffiths
 
 
 
 
 
 
President and Chief Executive Officer
(Principal Executive Officer)



Exhibit 31.2
CERTIFICATION
I, Karen Willem, certify that:
1. I have reviewed this Form 10-Q of iPass Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: May 7, 2015
 
 
 
By:
 
/S/    KAREN WILLEM        
 
 
 
 
 
 
Karen Willem
 
 
 
 
 
 
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)



Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 18 U.S.C SECTION 1350
In connection with the Quarterly Report of iPass Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gary A. Griffiths, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
 
 
 
 
 
Date: May 7, 2015
 
 
 
By:
 
/S/    Gary A. Griffiths       
 
 
 
 
 
 
Gary A. Griffiths
 
 
 
 
 
 
President and Chief Executive Officer
(Principal Executive Officer)
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of iPass Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.



Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 18 U.S.C SECTION 1350
In connection with the Quarterly Report of iPass Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Karen Willem, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
 
 
 
 
 
Date: May 7, 2015
 
 
 
By:
 
/S/    KAREN WILLEM        
 
 
 
 
 
 
Karen Willem
 
 
 
 
 
 
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of iPass Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.



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