-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ISFewqeTIH2jFLr8ZpbL9wysUi2KmK9115YOPOzexAwHL6mielQQdxG6ZFiEkuj/ fzaTMns84J8N+Y5KQNJ5Eg== 0000891618-00-002921.txt : 20000518 0000891618-00-002921.hdr.sgml : 20000518 ACCESSION NUMBER: 0000891618-00-002921 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 20000517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANDSPRING INC CENTRAL INDEX KEY: 0001091822 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 770490705 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-33666 FILM NUMBER: 638311 BUSINESS ADDRESS: STREET 1: 189 BERNARDO AVNEUE STREET 2: SUITE 300 CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043-5203 BUSINESS PHONE: 6502305000 S-1/A 1 AMENDMENT NO. 2 TO FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 2000 REGISTRATION NO. 333-33666 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ HANDSPRING, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 3571 77-0490705 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
189 BERNARDO AVENUE MOUNTAIN VIEW, CALIFORNIA 94043 (650) 230-5000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) BERNARD WHITNEY CHIEF FINANCIAL OFFICER 189 BERNARDO AVENUE MOUNTAIN VIEW, CALIFORNIA 94043 (650) 230-5000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: DENNIS R. DEBROECK, ESQ. WILLIAM M. KELLY, ESQ. ROBERT A. FREEDMAN, ESQ. DAVIS POLK & WARDWELL AUSTIN CHOI, ESQ. 1600 EL CAMINO REAL BENJAMIN HADARY, ESQ. MENLO PARK, CALIFORNIA FENWICK & WEST LLP (650) 752-2000 TWO PALO ALTO SQUARE PALO ALTO, CALIFORNIA 94306 (650) 494-0600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE PRICE(2) REGISTRATION FEE(3) - -------------------------------------------------------------------------------------------------------------------------------- Common stock, $0.001 par value per share............................. 11,500,000 $22.00 $253,000,000 $66,792 - -------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------
(1) Includes 1,500,000 shares that the underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933. (3) Previously paid. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED MAY 17, 2000 10,000,000 Shares [HANDSPRING LOGO] Common Stock ------------------ Prior to this offering, there has been no public market for our common stock. The initial public offering price of the common stock is expected to be between $19.00 and $22.00 per share. We have applied to list our common stock on The Nasdaq Stock Market's National Market under the symbol "HAND". The underwriters have an option to purchase a maximum of 1,500,000 additional shares to cover over-allotments of shares. INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7.
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS HANDSPRING, INC. ----------- ------------- ---------------- Per Share............................................ $ $ $ Total................................................ $ $ $
Delivery of the shares of common stock will be made on or about , 2000. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. CREDIT SUISSE FIRST BOSTON MERRILL LYNCH & CO. DONALDSON, LUFKIN & JENRETTE U.S. BANCORP PIPER JAFFRAY The date of this prospectus is , 2000. 3 DESCRIPTION OF GRAPHICS INSIDE FRONT COVER The right two-thirds of the page is a snapshot of the front of a Visor handheld computer. It is set at an angle on the page. The display shows a page from the calendar with entries. The left one-third of the page shows five snapshots of the Visor handheld computer set at a 45 degree angle on the page and in a column, with the display of each showing a different function of the unit. The five displays from the top of the page to the bottom of the page are: calendar, city time, memo list, to do list and the calculator. There are no captions. INSIDE BACK COVER The left two-thirds of the page is a snapshot of the back of a Visor handheld computer that is actual size. A module is half-inserted into the Springboard expansion slot. The right one-third of the page shows five snapshots of other modules for the Springboard expansion slot in a column inserted inside a device. Each screenshot shows the springboard module applications. There are no captions. 2 4 ------------------ TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUMMARY.................. 4 RISK FACTORS........................ 7 SPECIAL NOTE REGARDING FORWARD- LOOKING STATEMENTS................ 19 USE OF PROCEEDS..................... 20 DIVIDEND POLICY..................... 20 CAPITALIZATION...................... 21 DILUTION............................ 22 SELECTED CONSOLIDATED FINANCIAL DATA.............................. 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................... 24
PAGE ---- BUSINESS............................ 29 MANAGEMENT.......................... 41 RELATED PARTY TRANSACTIONS.......... 51 PRINCIPAL STOCKHOLDERS.............. 53 DESCRIPTION OF CAPITAL STOCK........ 55 SHARES ELIGIBLE FOR FUTURE SALE..... 57 UNDERWRITING........................ 59 NOTICE TO CANADIAN RESIDENTS........ 62 LEGAL MATTERS....................... 63 EXPERTS............................. 63 WHERE YOU MAY FIND MORE INFORMATION....................... 63 INDEX TO FINANCIAL STATEMENTS....... F-1
------------------ YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT. Except as otherwise indicated, information in this prospectus reflects the following: - the conversion of all our outstanding shares of preferred stock into shares of common stock immediately upon the closing of this offering; - no exercise of the underwriters' over-allotment option; and - a 3-for-2 stock split of our common stock in May 2000. Handspring, the Handspring logo, Springboard and Visor are our trademarks. Palm, Palm OS operating system and HotSync are trademarks of Palm, Inc. All other trademarks or trade names appearing elsewhere in this prospectus are the property of their respective owners. DEALER PROSPECTUS DELIVERY OBLIGATION UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 3 5 PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider before buying shares in this offering. You should read the entire prospectus carefully. HANDSPRING, INC. We are a leading provider of handheld computers. Our first product, the Visor handheld computer, is a personal organizer that is enhanced by an open expansion slot, which we refer to as our Springboard platform. Since its introduction in October 1999, our Visor has won numerous awards, including PC Magazine's annual "Technical Excellence" award for handheld devices, first place in CNET.com's Consumer Electronics "Top Ten Must-Haves" and inclusion in Business Week's "Best Products of the Year." More than 2,500 developers have registered with Handspring to receive support in developing modules that can be easily snapped into the Springboard expansion slot. Examples of modules commercially available or in development include content such as books and games; consumer applications such as an MP3 player, a digital camera and a global positioning system receiver; and communications applications such as wireless modems and two-way pagers offering Internet and intranet connectivity. We will continue to be an innovator in designing expandable handheld devices that enable new mobile computing and communications applications. The handheld computing and communications industry is growing rapidly as users, particularly mobile professionals, increasingly rely on electronic management of critical personal and professional information, interaction with Internet-based information resources and mobile voice and data communications. This increased need for productivity and connectivity "anywhere, anytime" has led to a wide array of handheld devices. Some handheld devices focus on handheld computing functions, including calendar and contact management, while others focus on communications functions, including voice communications, email and Internet access. While demand for these devices has grown rapidly, we believe that product evolution in this sector is still in its early stage. International Data Corporation estimates that worldwide shipments of smart handheld devices will grow from approximately 8.2 million units in 1999 to approximately 35.5 million units in 2003. We believe that the emergence of more powerful, flexible devices with increased functionality and broad consumer applications will further expand the potential market for handheld computing and communications devices. The key challenge in addressing this market is designing a device that is small, elegant and easy to use, yet flexible enough to support a wide variety of personal preferences and professional requirements. Our team has extensive experience in handheld computing design. Our Visor handheld computer combines the functionality of a handheld organizer with the flexibility of our Springboard expansion slot, enabling users to customize their device to deliver a broad range of applications. Key elements of our solution include: - EASY TO USE PRODUCTS. Our Visor handheld computers are designed to delight our customers with a simple, intuitive solution for their computing, information and entertainment needs. In addition, users can simply insert modules into our Springboard expansion slot without the need to separately install or delete software. - FLEXIBLE PLATFORM. The Springboard expansion slot enables users to customize the functionality of their Visor handheld computers. To encourage widespread module development, our Springboard expansion slot was designed with an open face allowing great flexibility in the size, form and functionality of the modules that developers create. 4 6 - OPEN DEVELOPMENT ENVIRONMENT. Our Springboard technology provides an open platform to developers, with all documentation available on our Web site, allowing them to create modules without paying royalties or license fees. We offer a wide variety of marketing and support programs to help our developers build successful businesses based on Springboard modules. - VALUE LEADERSHIP. Our products are designed to combine superior functionality with competitive pricing in order to drive widespread adoption within the broad consumer market. - COMPATIBILITY. The compatibility of our products with the Palm OS operating system, which we have licensed from Palm, allows our Visor handheld computers to run thousands of applications developed for that operating system. Our objective is to become a global market leader in the handheld computing and communications marketplace. Key elements of our strategy include: - DEVELOP PRODUCTS BASED ON CUSTOMER FOCUSED DESIGN AND INNOVATION. We intend to continue building on the history of innovation of key members of our management and product development teams, who founded and led the Palm Computing business from its inception until the founding of Handspring in mid-1998. - PENETRATE LARGE AND GROWING HANDHELD COMPUTING AND COMMUNICATIONS MARKET. Our Visor handheld computer's Springboard expandability, organizer functionality and competitive pricing provide us with immediate access to the large and growing handheld computing and communications market. - ESTABLISH MULTIPLE REVENUE SOURCES. We intend to derive additional sources of revenue from internally developed Springboard modules, distribution of Springboard modules developed by third parties, product accessories and services. - ESTABLISH A STRONG BRAND IDENTITY. Our goal is to establish Handspring as the premier brand in the consumer handheld computing market by creating an image that is innovative, fun, smart, approachable, compelling and personal. - ADDRESS ADDITIONAL MARKETS BY ATTRACTING AND SUPPORTING THE DEVELOPMENT COMMUNITY. Our goal is to develop a competitive advantage from a large and innovative developer community focused on our Springboard platform. These developers will enable Handspring to sell into new and broader areas, such as the education and medical device markets. - LEVERAGE OUTSOURCE MODEL. Our strategy is to focus on what we do best, creating innovative products. We believe that by outsourcing many other functions, including manufacturing, order fulfillment and repair, we will keep the number of our employees small relative to our scale. This strategy will allow us to be more creative, flexible, aggressive and competitive. We initiated our product launch exclusively through our handspring.com Web site. Beginning in March 2000, we extended our distribution to include initially three national retailers, Best Buy, CompUSA and Staples. In May 2000, we expanded our international presence by beginning to sell our products in Europe through both our Web site and retail distribution. In all markets, we plan to work closely with our retail partners to provide an outstanding retail presence, and to enable an efficient channel for broad consumer availability of our products. We recently announced the establishment of our office in Japan in order to start building our business in that market. We were incorporated in California as JD Technology, Inc. in July 1998 and changed our name to Handspring, Inc. in November 1998. We reincorporated in Delaware in May 2000. Our principal executive offices are located at 189 Bernardo Avenue, Mountain View, California, and our telephone number is (650) 230-5000. Our Web site address is handspring.com. The information on the Web site is not part of this prospectus. 5 7 THE OFFERING Common stock offered.................... 10,000,000 shares Common stock to be outstanding after the offering................................ 125,253,728 shares Use of proceeds......................... For general corporate purposes, including working capital. Proposed Nasdaq National Market Symbol.................................. HAND The number of shares of our common stock to be outstanding after this offering is based on the number outstanding on April 1, 2000 plus 895,342 shares issued in May 2000 upon the exercise of a right to purchase shares, and excludes: - 20,684,999 shares subject to options outstanding as of April 1, 2000 at a weighted average exercise price of $0.99 per share, and - 7,651,243 shares that are available for issuance under our stock option plans. After April 1, 2000, we adopted stock option and purchase plans, which will become effective on the effective date of this offering, with a total of 15,750,000 shares available for issuance. SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD FROM PERIOD FROM JULY 29, 1998 JULY 29, 1998 NINE MONTHS (DATE OF INCEPTION) (DATE OF INCEPTION) ENDED TO JUNE 30, 1999 TO MARCH 31, 1999 APRIL 1, 2000 ---------------------- ---------------------- ------------- CONSOLIDATED STATEMENT OF OPERATION DATA: Revenue......................................... $ -- $ -- $ 50,111 Cost of revenue................................. -- -- 34,171 Amortization of deferred stock compensation..... 3,646 2,425 26,420 Total costs and operating expenses.............. 8,835 4,460 91,212 Loss from operations............................ (8,835) (4,460) (41,101) Net loss........................................ (8,389) (4,159) (40,764) Basic and diluted net loss per share............ $ (0.71) $ (0.36) $ (1.34) Shares used in calculating basic and diluted net loss per share................................ 11,772 11,451 30,403
APRIL 1, 2000 ------------------------------------ PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- --------- ----------- CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................... $ 17,407 $18,907 $209,082 Working capital............................................. 6,297 7,797 197,972 Total assets................................................ 38,651 40,151 230,326 Long-term liabilities....................................... 64 64 64 Redeemable convertible preferred stock...................... 27,962 -- -- Total stockholders' equity (deficit)........................ (15,909) 13,553 203,728
See Note 2 to the notes to our consolidated financial statements for an explanation of the determination of the number of shares used in computing per share data. The pro forma column in the consolidated balance sheet data reflects the automatic conversion of all shares of preferred stock into common stock and the exercise of a right to purchase 895,342 shares of common stock at an exercise price of $1.6753 per share in May 2000. The pro forma as adjusted column in the consolidated balance sheet data reflects the receipt of the net proceeds from the sale of shares of common stock offered by us at the assumed initial public offering price of $20.50 per share, after deducting the estimated underwriting discounts and commissions and offering expenses payable by us. 6 8 RISK FACTORS You should carefully consider the risks described below before making a decision to buy our common stock. 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 currently deem immaterial may also materialize and impair our business operations. If any of the following risks actually materializes, our business could be harmed. In that case, the trading price of our common stock could decline, and you might lose all or part of your investment. You should also refer to the other information set forth in this prospectus, including our financial statements and the related notes. RISKS RELATED TO OUR BUSINESS AND INDUSTRY OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS AND PROSPECTS. We incorporated in July 1998. We did not start selling our Visor handheld computer or generating revenue until the quarter ended January 1, 2000. Accordingly, we are still in the early stages of development and have only a limited operating history upon which you can evaluate our business. The revenue and income potential of our products and business are unproven. You should consider our chances of financial and operational success in light of the risks, uncertainties, expenses, delays and difficulties associated with starting a new business in a highly competitive field, many of which may be beyond our control. If we fail to address these risks, uncertainties, expenses, delays and difficulties, the value of your investment will decline. FLUCTUATIONS IN OUR QUARTERLY REVENUES AND OPERATING RESULTS MIGHT LEAD TO REDUCED PRICES FOR OUR STOCK. Given our lack of operating history, you should not rely on quarter-to-quarter comparisons of our results of operations as an indication of our future performance. In some future periods, our results of operations could be below the expectations of investors and public market analysts, if any choose to follow our stock. In this event, the price of our common stock would likely decline. Factors that are likely to cause our results to fluctuate include the following: - the announcement and timely introduction of new products by us and our competitors; - the timing and the availability of software programs and Springboard modules that are compatible with our products; - market acceptance of existing and future versions of our products and compatible Springboard modules; - fluctuations in the royalty rates and manufacturing costs we pay to produce our handheld computers; - the seasonality of our product sales; - our ability to avoid potential system failures on our Web site; - the price of products that both we and our competitors offer; and - the mix of products that we offer. WE HAVE A HISTORY OF LOSSES, WE EXPECT LOSSES TO CONTINUE AND WE MIGHT NOT ACHIEVE OR MAINTAIN PROFITABILITY. Our accumulated deficit as of April 1, 2000 was approximately $49.2 million. We had net losses of approximately $8.4 million for the period from July 29, 1998 (date of inception) to June 30, 1999 7 9 and $40.8 million in the first nine months of fiscal 2000. To date we have funded our operations primarily through the sale of equity securities. Moreover, we expect to incur significant operating expenses. We also expect to incur substantial non-cash costs relating to the amortization of deferred compensation, which will contribute to our net losses. As of April 1, 2000, we had a total of $63.5 million of deferred compensation to be amortized. As a result, we expect to continue to incur losses into calendar year 2001. Even if we ultimately do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If our revenue grows more slowly than we anticipate, or if our operating expenses exceed our expectations and cannot be adjusted accordingly, our business will be harmed. See "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a more complete description of our historical losses. WE DEPEND HEAVILY UPON OUR LICENSE FROM PALM, INC. AND OUR FAILURE TO MAINTAIN THIS LICENSE COULD SERIOUSLY HARM OUR BUSINESS. We rely on technologies that we license or acquire from third parties, including Palm. Our failure to maintain these licenses could seriously harm our business. The Palm OS operating system is integrated with our internally-developed software and hardware, and is used to enhance the value of our products. Our license of the Palm OS operating system is critical to our Visor handheld computer. The license agreement extends until September 2003 and may be renewed for successive one-year terms if both parties agree. It is possible that Palm will choose not to renew the license at the end of its term for competitive or other reasons. Upon expiration or termination of the Palm OS operating system license agreement, other than due to our breach, we may choose to keep the license granted under the agreement for two years following the expiration or termination. However, the license during this two-year period is limited and does not entitle us to upgrades to the Palm OS operating system. If we were not a licensee of the Palm OS operating system, we would be required to license a substitute operating system, which could be less desirable and could be costly in terms of cash and other resources. In the alternative, we could develop our own operating system, which would take considerable time, resources and expense, would divert our engineers' attention from product innovations and would not have the advantage of Palm OS operating system applications compatability. In addition, we may not assign that license agreement to a third party without the written consent of Palm unless it is to a purchaser of substantially all of our assets who is not a competitor of Palm. The existence of these license termination provisions may have an anti-takeover effect in that it could discourage competitors of Palm from acquiring us. OUR BUSINESS COULD BE HARMED BY LAWSUITS WHICH HAVE BEEN FILED OR MAY IN THE FUTURE BE FILED AGAINST PALM INVOLVING THE PALM OS OPERATING SYSTEM. Suits against Palm involving the Palm OS operating system, which we license from Palm, could adversely affect us. A disruption in Palm's business because of these suits could disrupt our operations and cost us money. Palm is a defendant in several patent infringement lawsuits involving the Palm OS operating system. Although we are not a party to these cases and we are indemnified by Palm for damages arising from lawsuit of this type, we could still be adversely affected by a determination adverse to Palm as a result of market uncertainty or product changes that could arise from such a determination. A SIGNIFICANT PORTION OF OUR REVENUES HAS BEEN DERIVED FROM SALES ON OUR WEB SITE AND SYSTEM FAILURES OR DELAYS HAVE IN THE PAST AND MIGHT IN THE FUTURE HARM OUR BUSINESS. To date, we have generated a significant portion of our revenue through our Web site. As a result, our business depends on our ability to maintain and expand our computer systems. We must also protect our computer systems against damage from fire, water, power loss, telecommunications 8 10 failures, computer viruses, vandalism and other malicious acts and similar unexpected adverse events. During our initial product launch, we experienced system interruptions and slowdowns due to an improper design and implementation of our Web site from which consumers purchase our products. This caused long wait times on our Web site, long delivery times, lost orders, lost revenues and harm to our reputation. Despite precautions we have taken, unanticipated problems affecting our systems could again in the future cause temporary interruptions or delays in the services we provide. Our customers might become dissatisfied by any system failure or delay that interrupts our ability to provide service to them or slows our response time. Sustained or repeated system failures or delays would affect our reputation, which would harm our business. Slow response time or system failures could also result from straining the capacity of our systems due to an increase in the volume of traffic on our Web site. While we carry business interruption insurance, it might not be sufficient to cover any serious or prolonged emergencies. WE EXPECT TO INCREASE OUR RELIANCE ON RETAILERS TO SELL OUR PRODUCTS, AND DISRUPTIONS IN THIS CHANNEL AND OTHER EFFECTS OF SELLING THROUGH RETAILERS WOULD HARM OUR ABILITY TO GENERATE REVENUES FROM THE SALE OF OUR HANDHELD COMPUTERS. We sell our products both through our handspring.com Web site as well as through major retail partners. In March 2000, we entered into agreements with Best Buy, CompUSA (and Wynit, Inc., a supplier to CompUSA) and Staples to resell our products in their stores in the United States. In May 2000 we began selling our products through major European retailers, namely Dixons in the United Kingdom and MediaMarkt in Germany (and ALSO ABC Trading GmbH, a supplier to MediaMarkt). We expect to add additional retail partners through the remainder of 2000 including U.S. and Canadian retail chains, retailers in other international markets and Internet retailers. Because we expect to increase the portion of our products we sell to retailers, we are subject to many risks, including the following: - retailers may not maintain inventory levels sufficient to meet customer demand; - if we reduce the prices of our products, we may have to compensate retailers for the difference between the higher price they paid to buy their inventory and the new lower prices; - product returns could increase as a result of our strategic interest in assisting retailers in balancing inventories; - retailers may emphasize our competitors' products or decline to carry our products; - we may not be able to attract or retain a sufficient number of qualified retailers; and - as increased sales are made through our retail distribution channel, a conflict may develop between that channel and direct sales through our handspring.com Web site; In addition, as revenues through our retail distribution channel increase as a percentage of total revenues, we expect our gross margins will decrease as sales through retailers are made at lower margins than sales through our Web site. We also expect a higher percentage of retail distribution sales to negatively impact our cash cycle. OUR PRODUCTION WOULD BE SERIOUSLY HARMED IF OUR SUPPLIERS ARE NOT ABLE TO MEET OUR DEMAND AND ALTERNATIVE SOURCES ARE NOT AVAILABLE. Our products contain components, including liquid crystal displays, touch panels, memory chips and microprocessors, that are procured from a variety of suppliers. We do not carry any inventory of our products or product components. We rely on our suppliers to deliver necessary components in a timely manner based on forecasts that we provide. At various times, some of the key components for handheld computers, including display components and flash memory, have been in short supply, taking up to 180 days between ordering and delivery. The recurrence of this delay would harm our 9 11 ability to deliver our products on a timely basis. The cost, quality and availability of components are essential to the successful production and timely sale of our products. Some components, such as displays, power supply integrated circuits, microprocessors and certain discrete components, come from sole or single source suppliers. Alternative sources are not currently available for these sole and single source components. If suppliers are unable to meet our demand for sole source components and if we are unable to obtain an alternative source or if the price for an alternative source is prohibitive, our ability to maintain timely and cost-effective production of our handheld computer products would be seriously harmed. In addition, because we rely on purchase orders rather than long-term contracts with our suppliers, including our sole and single source suppliers, we cannot predict with certainty our ability to procure components in the longer term. If we receive a smaller allocation of components than is necessary to manufacture products in quantities sufficient to meet customer demand, customers could choose to purchase competing products. IF WE FAIL TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS, OUR PRODUCTS COULD BECOME LESS COMPETITIVE OR OBSOLETE. The market for our products is characterized by rapidly changing technology, evolving industry standards, changes in customer needs, heavy competition and frequent new product introductions. If we fail to modify or improve our products in response to changes in technology or industry standards, our products could rapidly become less competitive or obsolete. Our future success will depend, in part, on our ability to: - use leading technologies effectively; - continue to develop our technical expertise; - enhance our current products and develop new products that meet changing customer needs; - time new product introductions in a way that minimizes the impact of customers delaying purchases of existing products in anticipation of new product releases; - adjust the prices of our existing products to increase customer demand; - successfully advertise and market our products; and - influence and respond to emerging industry standards and other technological changes. We must respond to changing technology and industry standards in a timely and cost-effective manner. We may not be successful in effectively using new technologies, developing new products or enhancing our existing products on a timely basis. These new technologies or enhancements may not achieve market acceptance. Our pursuit of necessary technology may require substantial time and expense. We may need to license new technologies to respond to technological change. These licenses may not be available to us on terms that we can accept. Finally, we may not succeed in adapting our products to new technologies as they emerge. IF WE ARE NOT SUCCESSFUL IN THE DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS, DEMAND FOR OUR PRODUCTS COULD DECREASE. We depend on our ability to develop new or enhanced products that achieve rapid and broad market acceptance. We may fail to identify new product opportunities successfully and develop and bring to market new products in a timely manner. In addition, our product innovations may not achieve the market penetration or price stability necessary for profitability. As the uses for our Visor handheld computer and potential uses for our Springboard slot continue to evolve, we plan to develop additional complementary products and services as additional sources of revenue. Accordingly, we may change our business model to take advantage of new business opportunities, including business areas in which we do not have extensive experience. For 10 12 example, we may create products that rely on a wireless infrastructure. If we fail to develop these or other products successfully, our business would be harmed. IF POPULAR SPRINGBOARD MODULES ARE NOT DEVELOPED FOR OUR VISOR HANDHELD COMPUTER, DEMAND FOR OUR PRODUCTS MAY BE LIMITED. To differentiate our products from competitors and attract large numbers of consumer purchasers of our products, we and third parties need to develop compelling Springboard modules for our Visor handheld computer. We may be unable to attract a sufficient number of talented third-party Springboard module developers because of our relatively small market share in the handheld computer industry or for technological or other reasons. There is a limited number of Springboard modules available for sale. If Springboard module developers fail to anticipate market needs in a timely manner, or if there is not a successful distribution outlet for the sale of Springboard modules, demand for our Visor handheld computer may diminish. OUR REPUTATION COULD BE HARMED IF THE SPRINGBOARD MODULES DEVELOPED BY THIRD PARTIES ARE DEFECTIVE. Because we offer an open development environment, third party developers are free to design, market and sell modules for our Springboard slot without our consent, endorsement or certification. Nevertheless our reputation is inextricably tied to the Springboard modules designed for our Visor handheld computer. If modules sold by third parties are defective or are of poor quality, our reputation could be harmed and the demand for our Visor handheld computer and modules could decline. IF THE EXPANDABLE DESIGN OF OUR PRODUCTS IS NOT ACCEPTED BY CONSUMERS, OUR REVENUES WILL FAIL TO MEET OUR EXPECTATIONS. Much of the perceived value of our Visor handheld computer lies in the Springboard expansion slot, which enables users to add functions by inserting modules into the base device. Many of these modules will perform functions that are today generally performed by a dedicated standalone device. While we believe that the simple customization provided by the Springboard slot will be attractive to users, the uniqueness of the feature combined with the recent introduction of the product make it unclear whether consumers will prefer our approach as compared either to multiple dedicated devices or to other designs for multifunction devices. IF WE FAIL TO ACCURATELY ANTICIPATE DEMAND FOR OUR PRODUCTS, WE MAY NOT BE ABLE TO SECURE SUFFICIENT QUANTITIES OR COST-EFFECTIVE PRODUCTION OF OUR HANDHELD COMPUTERS OR WE COULD HAVE COSTLY EXCESS PRODUCTION. Because we have a limited operating history and did not begin selling our products until October 1999, we have very little information about demand for our products. The demand for our products depends on many factors and is difficult to forecast. We experienced product shortages when we introduced our Visor handheld computer because we underestimated initial demand. We expect that it will become even more difficult to forecast demand as we introduce and support multiple products and as competition in the market for our products intensifies. Significant unanticipated fluctuations in demand could cause problems in our operations. If demand does not develop as expected, we could have excess production resulting in excess inventories of finished products and components, which would use cash. We have limited capability to reduce manufacturing capacity within a 90-day period. Excess materials would likely result in material scrap and obsolesence costs. If demand exceeds our expectations, we will need to rapidly increase production at our third-party manufacturers. We will also need our suppliers to provide additional volumes of components, 11 13 which may not be possible within our timeframe. For example, some components, including plastics, require a lead time of approximately three months to increase quantity. Even if we are able to obtain enough components, our third-party manufacturers might not be able to produce enough of our products as fast as we need them. The inability of either our manufacturers or our suppliers to increase production rapidly enough could cause us to fail to meet customer demand. In addition, rapid increases in production levels to meet unanticipated demand could result in higher costs for manufacturing and supply of components and other expenses. These higher costs would lower our profit margins. IF ANY OF OUR MANUFACTURING PARTNERS FAIL TO PRODUCE QUALITY PRODUCTS ON TIME AND IN SUFFICIENT QUANTITIES, OUR REPUTATION AND RESULTS OF OPERATIONS WOULD SUFFER. We depend on third-party manufacturers to produce sufficient volume of our handheld devices, modules and accessories in a timely fashion and at satisfactory quality levels. The cost, quality and availability of third-party manufacturing operations are essential to the successful production and sale of our products. We have a manufacturing agreement with Flextronics under which we order products on a purchase order basis in accordance with a forecast. In addition, in April 2000, we qualified a second manufacturer of our products, Solectron. We expect Solectron's Guadalajara, Mexico facility to be operational by the end of summer 2000. The absence of dedicated capacity under our manufacturing agreements means that, with little or no notice, our manufacturers could refuse to continue to manufacture all or some of the units of our devices that we require or change the terms under which they manufacture our device products. If they were to stop manufacturing our devices, it could take up to six months to qualify an alternative manufacturer to replace the lost manufacturing capacity and our results of operations could be harmed. In addition, if our manufacturers were to change the terms under which they manufacture for us, our manufacturing costs could increase and our profitability could suffer. Our reliance on third-party manufacturers exposes us to the following risks outside our control: - unexpected increases in manufacturing and repair costs; - interruptions in shipments if one of our manufacturers is unable to complete production; - inability to control quality of finished products; - inability to control delivery schedules; - unpredictability of manufacturing yields; and - potential lack of adequate capacity to fill all or a part of the services we require. WE RELY ON THIRD PARTIES FOR ORDER FULFILLMENT, REPAIR SERVICES AND TECHNICAL SUPPORT. OUR REPUTATION AND RESULTS OF OPERATIONS COULD BE HARMED BY OUR INABILITY TO CONTROL THEIR OPERATIONS. We rely on third parties to package and ship customer orders, repair units and provide technical support. If our order fulfillment services, repair services or technical support services are interrupted or experience quality problems, our ability to meet customer demands would be harmed, causing a loss of revenue and harm to our reputation. Although we have the ability to add new service providers or replace existing ones, transition difficulties and lead times involved in developing additional or new third party relationships could cause interruptions in services and harm our business. WE EXPECT TO FACE SEASONALITY IN OUR SALES, WHICH COULD CAUSE OUR QUARTERLY OPERATING RESULTS TO FLUCTUATE. We expect to experience seasonality in the sales of our products. We anticipate sales to be higher in our second fiscal quarter due to increased consumer spending patterns on electronic devices 12 14 during the holiday season. We also expect that sales may decline during the summer months because of typical slower consumer spending in this period. These seasonal variations in our sales may lead to fluctuations in our quarterly operating results. OUR FAILURE TO DEVELOP BRAND RECOGNITION COULD LIMIT OR REDUCE THE DEMAND FOR OUR PRODUCTS. We believe that continuing to strengthen our brand will be critical to increasing demand for, and achieving widespread acceptance of, our handheld computer products. Some of our competitors and potential competitors have better name recognition and powerful brands. Promoting and positioning our brand will depend largely on the success of our marketing efforts, our ability and the ability of third party developers to deliver software and Springboard modules that are engaging to our users and our ability to provide high quality support. To promote our brand, we expect to increase our marketing expenditures and otherwise increase our financial commitment to creating and maintaining brand loyalty among users. Brand promotion activities may not yield increased revenues or customer loyalty and, even if they do, any increased revenues may not offset the expenses we incur in building and maintaining our brand. IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH EXISTING OR NEW COMPETITORS, OUR RESULTING LOSS OF COMPETITIVE POSITION COULD RESULT IN PRICE REDUCTIONS, FEWER CUSTOMER ORDERS, REDUCED MARGINS AND LOSS OF MARKET SHARE. The market for handheld computing and communication products is highly competitive and we expect competition to increase in the future. Some of our competitors or potential competitors have significantly greater financial, technical and marketing resources than we do. These competitors may be able to respond more rapidly than us to new or emerging technologies or changes in customer requirements. They may also devote greater resources to the development, promotion and sale of their products than we do. Our handheld computers compete with a variety of handheld devices, including keyboard-based devices, sub-notebook computers, smart phones and two-way pagers. Our principal competitors include: - Palm, from whom we license the Palm OS operating system; - licensees of the Microsoft Windows CE operating system for devices such as the PocketPC, including Casio, Compaq and Hewlett-Packard; - members of the Symbian consortium, including Psion, Ericsson and Motorola; and - other Palm OS operating system licensees, including Nokia, Sony and QUALCOMM. We expect our competitors to continue to improve the performance of their current products and to introduce new products, services and technologies. For example, in April 2000, Microsoft and its partners introduced the PocketPC handheld computer based on Microsoft's Windows CE operating system. Successful new product introductions or enhancements by our competitors could reduce sales and the market acceptance of our products, cause intense price competition or make our products obsolete. To be competitive, we must continue to invest significant resources in research and development, sales and marketing and customer support. We cannot be sure that we will have sufficient resources to make these investments or that we will be able to make the technological advances necessary to be competitive. Increased competition could result in price reductions, fewer customer orders, reduced margins and loss of market share. Our failure to compete successfully against current or future competitors could seriously harm our business. 13 15 OUR MANAGEMENT AND INTERNAL SYSTEMS MIGHT BE INADEQUATE TO HANDLE OUR POTENTIAL GROWTH. We have experienced rapid growth and expansion since our inception. From July 29, 1998 to April 1, 2000, we increased the number of our employees from two to 132. This growth has placed, and will continue to place, a significant strain on our management and information systems and operational and financial resources. To manage future growth, our management must continue to improve our operational and financial systems and expand, train, retain and manage our employee base. Our management may not be able to manage our growth effectively. If our systems, procedures and controls are inadequate to support our operations, our expansion would be halted and we could lose our opportunity to gain significant market share. Any inability to manage growth effectively may harm our business. OUR PRODUCTS MAY CONTAIN ERRORS OR DEFECTS, WHICH COULD RESULT IN THE REJECTION OF OUR PRODUCTS AND DAMAGE TO OUR REPUTATION, AS WELL AS LOST REVENUES, DIVERTED DEVELOPMENT RESOURCES AND INCREASED SERVICE COSTS AND WARRANTY CLAIMS. Our Visor handheld computer and Springboard modules are complex and must meet stringent user requirements. We must develop our products quickly to keep pace with the rapidly changing handheld computing and communications market. Products as sophisticated as ours are likely to contain undetected errors or defects, especially when first introduced or when new models or versions are released. In addition, we have been selling our products for only a very short period of time. In the future, we may experience delays in releasing new products as problems are corrected. Our products may not be free from errors or defects after commercial shipments have begun, which could result in the rejection of our products, damage to our reputation, lost revenues, diverted development resources and increased customer service and support costs and warranty claims. In addition, some undetected errors or defects may only become apparent as new functions are added to our Visor handheld computer through the use of future Springboard modules. Currently, consumers may return their Visor handheld computer for any reason within 30 days of purchase. In addition, we warrant that our hardware will be free of defects for one year from date of purchase. Delays, costs and damage to our reputation due to product defects could harm our business. IF WE LOSE OUR KEY PERSONNEL, WE MAY NOT BE ABLE TO MANAGE OUR BUSINESS SUCCESSFULLY. Our future success depends to a significant extent on the continued service of our key technical, sales and senior management personnel and their ability to execute our growth strategy. In particular, we rely on Jeffrey C. Hawkins, our Chief Product Officer, Donna L. Dubinsky, our Chief Executive Officer, and Edward T. Colligan, our Senior Vice President, Marketing and Sales. The loss of the services of any of our senior level management, or other key employees, could harm our business. Our future performance will depend, in part, on the ability of our executive officers to work together effectively. Our executive officers may not be successful in carrying out their duties or running our company. Any dissent among executive officers could impair our ability to make strategic decisions quickly in a rapidly changing market. IF WE FAIL TO ATTRACT, RETAIN AND MOTIVATE QUALIFIED EMPLOYEES, OUR ABILITY TO EXECUTE OUR BUSINESS PLAN WOULD BE COMPROMISED. Our future success also depends on our ability to attract, retain and motivate highly skilled employees. Competition for employees in our industry is intense. Although we provide compensation packages that include stock options, cash incentives and other employee benefits, we may be unable to retain our key employees or to attract, assimilate and retain other highly qualified employees in the future. For example, after this offering, fluctuations in the market price of our common stock could lead potential and existing employees to believe that our equity incentives are less attractive, which 14 16 could adversely affect our ability to attract and retain qualified employees. We expect to experience difficulty in hiring and retaining highly skilled employees with appropriate qualifications. WE DEPEND ON PROPRIETARY RIGHTS TO DEVELOP AND PROTECT OUR TECHNOLOGY. Our success and ability to compete substantially depends on our internally developed proprietary technologies, which we protect through a combination of patent, copyright, trade secret and trademark laws. No U.S. or foreign patents have been granted to us and only three U.S. patent applications have been filed. Patent applications or trademark registrations may not be approved. Even if they are approved, our patents or trademarks may be successfully challenged by others or invalidated. In addition, any patents that may be granted to us may not provide us a significant competitive advantage. If our trademark registrations are not approved because third parties own these trademarks, our use of these trademarks would be restricted unless we enter into arrangements with the third-party owners, which might not be possible on commercially reasonable terms or at all. If we fail to protect or enforce our intellectual property rights successfully, our competitive position could suffer. We may be required to spend significant resources to monitor and police our intellectual property rights. We may not be able to detect infringement and may lose competitive position in the market before we do so. In addition, competitors may design around our technology or develop competing technologies. Intellectual property rights may also be unavailable or limited in some foreign countries, which could make it easier for competitors to capture market share. WE COULD BE SUBJECT TO CLAIMS OF INFRINGEMENT OF THIRD-PARTY INTELLECTUAL PROPERTY, WHICH COULD RESULT IN SIGNIFICANT EXPENSE AND LOSS OF INTELLECTUAL PROPERTY RIGHTS. Our industry is characterized by uncertain and conflicting intellectual property claims and frequent intellectual property litigation, especially regarding patent rights. From time to time, third parties have in the past and may in the future assert patent, copyright, trademark or other intellectual property rights to technologies that are important to our business. We recently received a letter from NCR notifying us of potential infringement of its patents. While we are still reviewing these patents, we do not believe that resolution of this matter would have a material impact on us. We may in the future receive other notices of claims that our products infringe or may infringe intellectual property rights. Any litigation to determine the validity of these claims, including claims arising through our contractual indemnification of our business partners, regardless of their merit or resolution, would likely be costly and time consuming and divert the efforts and attention of our management and technical personnel. We cannot assure you that we would prevail in this litigation given the complex technical issues and inherent uncertainties in intellectual property litigation. If this litigation resulted in an adverse ruling, we could be required to: - pay substantial damages; - cease the manufacture, use or sale of infringing products; - discontinue the use of certain technology; or - obtain a license under the intellectual property rights of the third party claiming infringement, which license may not be available on reasonable terms, or at all. OUR FUTURE RESULTS COULD BE HARMED BY ECONOMIC, POLITICAL, REGULATORY AND OTHER RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS. To date, we have generated substantially all of our revenue from sales in the United States. In May 2000, we entered the European market, and we expect to enter additional international markets over time. To the extent that our revenue from international operations represents an increasing 15 17 portion of our total revenue, we will be subject to increased exposure to international risks. In addition, the facility where our Visor handheld computers are manufactured today is located outside the United States. A substantial number of our material suppliers are based outside of the United States, and are subject to a wide variety of international risks. Accordingly, our future results could be harmed by a variety of factors, including: - changes in foreign currency exchange rates; - changes in a specific country's or region's political or economic conditions, particularly in emerging markets; - trade protection measures and import or export licensing requirements; - development risks and expenses associated with customizing our products for local languages; - potentially negative consequences from changes in tax laws; - impact of natural disasters with an inability of the local government to quickly provide recovery services; - difficulty in managing widespread sales and manufacturing operations; and - less effective protection of intellectual property. WE MAY PURSUE STRATEGIC ACQUISITIONS AND WE COULD FAIL TO SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES. We expect to evaluate acquisition opportunities that could provide us with additional product or services offerings, technologies or additional industry expertise. Any future acquisition could result in difficulties assimilating acquired operations and products, diversion of capital and management's attention away from other business issues and opportunities and amortization of acquired intangible assets. Integration of acquired companies may result in problems related to integration of technology and management teams. Our management has had limited experience in assimilating acquired organizations and products into our operations. We could fail to integrate the operations, personnel or products that we may acquire in the future. If we fail to successfully integrate acquisitions, our business could be materially harmed. WE MIGHT NEED ADDITIONAL CAPITAL IN THE FUTURE AND ADDITIONAL FINANCING MIGHT NOT BE AVAILABLE. We currently anticipate that our available cash resources, combined with the net proceeds from this offering and financing available under our existing loan agreement, will be sufficient to meet our anticipated working capital and capital expenditure requirements for the next 12 months. However, our resources may prove to be insufficient for these working capital and capital expenditure requirements. We may need to raise additional funds through public or private debt or equity financing in order to: - take advantage of opportunities, including the purchase of technologies or acquisitions of complementary businesses; - develop new products or services; or - respond to competitive pressures. Any additional financing we need may not be available on terms acceptable to us, or at all. If adequate funds are not available or are not available on acceptable terms, we might not be able to take advantage of unanticipated opportunities, develop new products or services or otherwise respond to unanticipated competitive pressures, and our business could be harmed. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward- 16 18 looking statement that involves risks and uncertainties, and actual results could vary materially as a result of a number of factors, including those set forth in this "Risk Factors" section. RISKS RELATED TO THIS OFFERING THE PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE AND SUBJECT TO WIDE FLUCTUATIONS. The market price of the securities of technology-related companies have been especially volatile. Thus, the market price of our common stock is likely to be subject to wide fluctuations. If our revenues do not grow or grow more slowly than we anticipate, or, if operating or capital expenditures exceed our expectations and cannot be adjusted accordingly, or if some other event adversely affects us, the market price of our common stock could decline. In addition, if the market for technology-related stocks or the stock market in general experiences a loss in investor confidence or otherwise fails, the market price of our common stock could fall for reasons unrelated to our business, results of operations and financial condition. The market price of our stock also might decline in reaction to events that effect other companies in our industry even if these events do not directly affect us. The initial public offering price of the common stock will be determined through negotiations between the representatives of the underwriters and us and may not be representative of the price that will prevail in the open market. You might be unable to resell your shares of our common stock at or above the offering price. In the past, companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation. If we were to become the subject of securities class action litigation, it could result in substantial costs and a diversion of management's attention and resources. PROVISIONS IN OUR CHARTER DOCUMENTS MIGHT DETER A COMPANY FROM ACQUIRING US. We have adopted a classified board of directors. In addition, our stockholders are unable to call special meetings of stockholders, to act by written consent, to remove any director or the entire board of directors without a super majority vote or to fill any vacancy on the board of directors. Our stockholders must also meet advance notice requirements for stockholder proposals. Our board of directors may also issue preferred stock without any vote or further action by the stockholders. These provisions and other provisions under Delaware law could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. See "Description of Capital Stock" for a more complete description of the anti-takeover provisions of our charter and Delaware law. OUR OFFICERS AND DIRECTORS EXERT SUBSTANTIAL INFLUENCE OVER US. We anticipate that our executive officers, our directors and entities affiliated with them together will beneficially own approximately 83.2% of our outstanding common stock following the completion of this offering. As a result, these stockholders will be able to exercise substantial influence over all matters requiring approval by our stockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying or preventing a change in our control that may be viewed as beneficial by other stockholders. MANAGEMENT COULD INVEST OR SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH OUR STOCKHOLDERS MIGHT NOT AGREE. We have no specific allocations for the net proceeds of this offering. Consequently, management will retain a significant amount of discretion over the application of these proceeds. Because of the number and variability of factors that will determine our use of these proceeds, our applications may vary substantially from our current intentions to invest the net proceeds of the offering in short-term, interest-bearing, investment-grade securities. 17 19 FUTURE SALES OF SHARES BY EXISTING STOCKHOLDERS COULD AFFECT OUR STOCK PRICE. If our existing stockholders sell substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decline. Based on shares outstanding as of April 1, 2000, upon completion of this offering we will have outstanding approximately 125,253,728 shares of common stock including the exercise of a right to purchase 895,342 shares of common stock in May 2000 and assuming no exercise of the underwriters' over-allotment option. Of these shares, only the 10,000,000 shares of common stock sold in this offering will be freely tradeable, without restriction, in the public market. After the lockup agreements pertaining to this offering expire 180 days from the date of this prospectus, an additional 115,253,728 shares will be eligible for sale in the public market at various times, 102,980,142 of which are held by directors, executive officers and other affiliates, and are subject to volume limitations under Rule 144 of the Securities Act of 1933 and various vesting agreements. In addition, the 20,684,999 shares subject to outstanding options and 23,401,243 shares reserved for future issuance under our stock option and purchase plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, the lock-up agreements and Rules 144 and 701 under the Securities Act. See "Shares Eligible for Future Sale" for more information regarding shares of our common stock that may be sold by existing stockholders after the closing of this offering. YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION. The initial public offering price is substantially higher than the pro forma net book value per share of the outstanding common stock. As a result, if you purchase common stock in this offering, you will incur immediate and substantial dilution in the amount of $18.87 per share. In addition, we have issued options to acquire common stock at prices significantly below the initial public offering price. To the extent these outstanding options are exercised, you will be further diluted. See "Dilution" for a more complete description of the dilution that you will incur. 18 20 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS We have made statements under the captions "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and in other sections of this prospectus that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as "may," "might," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue," the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled "Risk Factors." You should specifically consider the numerous risks outlined under "Risks Factors." Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations. 19 21 USE OF PROCEEDS We estimate that the net proceeds to us from the sale of 10,000,000 shares of common stock in this offering will be approximately $190.2 million, or approximately $218.9 million if the underwriters exercise their over-allotment option in full, at an assumed initial public offering price of $20.50 per share, after deducting the estimated underwriting discounts and commissions and offering expenses payable by us. The principal purposes of this offering are to obtain additional working capital, establish a public market for our common stock and facilitate our future access to public capital markets. We currently expect to use the net proceeds from this offering for general corporate purposes, including sales and marketing expenses and working capital. Our management will retain broad discretion in the allocation of the net proceeds of this offering. The amounts we actually spend will depend on a number of factors, including the amount of our future revenues and other factors described elsewhere in this prospectus. We may use a portion of the net proceeds to acquire or invest in complementary businesses, technologies, products or services. We have no present commitments or agreements with respect to any acquisition or investment. Pending these uses, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities. DIVIDEND POLICY We have never declared or paid cash dividends on our capital stock. We currently expect to retain earnings, if any, to finance the growth and development of our business. Therefore, we do not anticipate declaring or paying cash dividends on our common stock in the foreseeable future. In addition, under our loan agreement with Comdisco, Inc., we cannot declare or pay any cash dividend without the prior written consent of Comdisco. 20 22 CAPITALIZATION The following table sets forth our capitalization as of April 1, 2000. Our capitalization is presented: - on an actual basis; - on a pro forma basis to reflect the conversion of our outstanding preferred stock into common stock immediately prior to the closing of this offering and the exercise of a right to purchase 895,342 shares of common stock at an exercise price of $1.6753 per share in May 2000; and - on a pro forma as adjusted basis to reflect the sale of the shares of common stock offered by us at an assumed initial public offering price of $20.50 per share, after deducting the estimated underwriting discounts and commissions and offering expenses payable by us.
APRIL 1, 2000 ------------------------------------ PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- --------- ----------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) Long-term liabilities................................ $ 64 $ 64 $ 64 Redeemable convertible preferred stock, $0.001 par value per share, 9,300,000 shares authorized, actual and pro forma, 9,005,430 shares issued and outstanding, actual, no shares, issued or outstanding, pro forma and no shares authorized, issued or outstanding pro forma as adjusted..... 27,962 -- -- Stockholders' equity (deficit): Preferred stock, $0.001 par value per share, no shares authorized, actual or pro forma, 10,000,000 shares authorized, pro forma as adjusted, no shares issued or outstanding, actual, pro forma or pro forma as adjusted...... -- -- -- Common stock, $0.001 par value per share, 105,000,000 shares authorized, actual and pro forma, 73,833,951 shares issued and outstanding, actual, 115,253,728 shares issued and outstanding, pro forma, 1,000,000,000 shares authorized, pro forma as adjusted, 125,253,728 shares issued and outstanding pro forma as adjusted........................................ 74 115 125 Additional paid-in capital......................... 96,580 126,001 316,166 Deferred stock compensation........................ (63,458) (63,458) (63,458) Accumulated other comprehensive income............. 48 48 48 Accumulated deficit................................ (49,153) (49,153) (49,153) -------- -------- -------- Total stockholders' equity (deficit)............ (15,909) 13,553 203,728 -------- -------- -------- Total capitalization............................ $ 12,117 $ 13,617 $203,792 ======== ======== ========
The common stock to be outstanding after the offering, as of April 1, 2000, excludes: - 20,684,999 shares of our common stock subject to options outstanding as of April 1, 2000 at a weighted average exercise price of $0.99 per share; and - 7,651,243, additional shares of our common stock that are available for issuance under our stock option and purchase plans. After April 1, 2000, we adopted stock option and purchase plans, which will become effective on the effective date of this offering, with a total of 15,750,000 shares available for issuance. 21 23 DILUTION Our pro forma net tangible book value as of April 1, 2000 was approximately $13.6 million, or $0.12 per share of common stock. Our pro forma net tangible book value per share represents our total tangible assets less total liabilities divided by the pro forma total number of shares of common stock outstanding at such date and including the exercise of a right to purchase 895,342 shares of common stock at an exercise price of $1.6753 per share in May 2000, assuming the conversion of all outstanding shares of preferred stock into shares of common stock immediately prior to the closing of this offering. The dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of our common stock in this offering and the net tangible book value per share of our common stock immediately following this offering. Without taking into account any changes in net tangible book value after April 1, 2000, other than to give effect to the sale of the shares of common stock offered by us at an assumed initial public offering price of $20.50 per share, after deducting the estimated underwriting discounts and commissions and offering expenses payable by us, our pro forma net tangible book value as of April 1, 2000 would have been approximately $203.7 million or $1.63 per share of common stock. This amount represents an immediate increase in pro forma net tangible book value of $1.51 per share to the existing stockholders and an immediate dilution in pro forma net tangible book value of $18.87 per share to new investors purchasing shares in this offering. The following table illustrates the dilution in pro forma net tangible book value per share to new investors. Assumed initial public offering price per share............. $20.50 Pro forma net tangible book value per share as of April 1, 2000................................................... $0.12 Increase per share attributable to new investors.......... 1.51 ----- Pro forma net tangible book value per share after the offering.................................................. $ 1.63 ------ Dilution per share to new investors......................... $18.87 ======
The following table summarizes on a pro forma basis as of April 1, 2000, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and to be paid by new investors purchasing shares of common stock in this offering at an assumed initial public offering price of $20.50 per share, before deducting estimated underwriting discounts and commissions and offering expenses payable by us.
SHARES PURCHASED TOTAL CONSIDERATION ---------------------- ----------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ----------- ------- ------------ ------- ------------- Existing stockholders...... 115,253,728 92.0% $ 31,993,833 13.5% $ 0.28 New investors.............. 10,000,000 8.0 205,000,000 86.5 20.50 ----------- ---- ------------ ---- Total.................... 125,253,728 100% $236,993,833 100% 1.89 =========== ==== ============ ====
The above information assumes no exercise of the underwriters' over-allotment option and excludes exercises of stock options after April 1, 2000. As of April 1, 2000, there were outstanding options to purchase a total of 20,684,999 shares of our common stock at a weighted average exercise price of $0.99 per share. After April 1, 2000, we adopted stock option and purchase plans, which will become effective on the effective date of this offering, with a total of 15,750,000 shares available for issuance. To the extent any of these options are exercised, there will be further dilution to new investors. 22 24 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus. The selected consolidated balance sheet data as of June 30, 1999 and April 1, 2000 and the selected consolidated statement of operations data for the period from July 29, 1998 (date of inception) to June 30, 1999 and the nine-month period ended April 1, 2000 have been derived from our audited consolidated financial statements, and are included elsewhere in this prospectus. The consolidated statement of operations data for the period from July 29, 1998 (date of inception) to March 31, 1999, are derived from unaudited interim financial statements included elsewhere in this prospectus. The unaudited financial statements have been prepared on substantially the same basis as the audited financial statements and, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations for such periods. Historical results are not necessarily indicative of the results to be expected in the future, and results of interim periods are not necessarily indicative of results for the entire year.
PERIOD FROM PERIOD FROM JULY 29, 1998 JULY 29, 1998 NINE MONTHS (DATE OF INCEPTION) (DATE OF INCEPTION) ENDED TO JUNE 30, 1999 TO MARCH 31, 1999 APRIL 1, 2000 ------------------- ------------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue.................................. $ -- $ -- $ 50,111 ------- ------- -------- Costs and operating expenses: Cost of revenue....................... -- -- 34,171 Research and development.............. 2,738 1,137 6,733 Selling, general and administrative... 2,451 898 23,888 Amortization of deferred stock compensation........................ 3,646 2,425 26,420 ------- ------- -------- Total costs and operating expenses......................... 8,835 4,460 91,212 ------- ------- -------- Loss from operations.................. (8,835) (4,460) (41,101) Interest and other income, net........... 446 301 337 ------- ------- -------- Net loss................................. $(8,389) $(4,159) $(40,764) ======= ======= ======== Basic and diluted net loss per share..... $ (0.71) $ (0.36) $ (1.34) ======= ======= ======== Shares used in calculating basic and diluted net loss per share............ 11,772 11,451 30,403 ======= ======= ========
JUNE 30, APRIL 1, 1999 2000 -------- -------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents and short-term investments...... $13,767 $ 17,407 Working capital........................................... 13,108 6,297 Total assets.............................................. 15,631 38,651 Long-term liabilities..................................... -- 64 Redeemable convertible preferred stock.................... 17,972 27,962 Total stockholders' deficit............................... (3,616) (15,909)
23 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our results of operations and financial condition should be read in conjunction with the consolidated financial statements and other financial information included in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may be materially different from those anticipated in these forward-looking statements resulting from various factors, including those discussed under "Risk Factors" and elsewhere in this prospectus. OVERVIEW We were incorporated in July 1998 to develop innovative handheld computers that are fun, smart, approachable, compelling and personal. Our business is focused on the sale of our Visor handheld computer, Springboard modules that we have developed and related accessories. Shipments of these products began in October 1999 for orders received through our Web site. In March 2000, we began shipping our products to selected retailers. During the period from inception to June 30, 1999, our operating activities were focused on developing our products, obtaining license rights, establishing third party manufacturing and distribution relationships, recruiting personnel and raising capital. During that period, we incurred expenses and generated no revenue. We first recognized revenue in the second quarter of fiscal 2000. The following discussion compares the period from inception to March 31, 1999 with the nine-month period ended April 1, 2000 and also addresses activity from the date of inception to June 30, 1999. For the purpose of this discussion, when we refer to the period ended March 31, 1999, we are referring to the period from inception to March 31, 1999, and when we refer to fiscal 1999, we are referring to the period from inception to June 30, 1999. During fiscal 1999 our fiscal months coincided with calendar month ends. Effective July 1, 1999, we changed our fiscal year to a 52-53 week fiscal year ending on the Saturday nearest to June 30. Unless otherwise stated, all years and dates refer to our fiscal year and fiscal periods. We expect to experience seasonality in the sales of our products. We anticipate sales to be higher in our second fiscal quarter due to increased consumer spending patterns on electronic devices during the holiday season. We also expect that sales may decline during the summer months because of typical decreased consumer spending patterns during this period. These seasonal variations in our sales may lead to fluctuations in our quarterly operating results. RESULTS OF OPERATIONS Revenue. Revenue is comprised almost entirely of sales of our handheld computer devices and related peripherals and accessories. We began shipping products in October 1999 for orders received through our handspring.com Web site. In March 2000, we extended our distribution strategy to include initially three national retailers, Best Buy, CompUSA and Staples. Product orders placed by end user customers are received via our handspring.com Web site or over the telephone via our third party customer support partner. Retail sales orders are placed in our internal order processing system. All orders are then transmitted to our logistics partner. We take title at the point of transfer from this logistics partner to the common carrier. Once the carrier has received the products, title then transfers to the customer. We may in the future enter into agreements under which title is transferred to the customer upon the customer's receipt. We recognize revenue when a purchase order has been received, the product has been shipped, the sales price is fixed and determinable and collection of the resulting receivable is probable. Provisions are made at the time the related revenue is recognized for estimated product returns and warranty. Total revenue recognized during the nine months ended April 1, 2000 was $50.1 million. 24 26 Cost of revenue. Cost of revenue consists primarily of materials, labor, royalty expenses, warranty expenses and freight. Cost of revenue was $34.2 million during the nine months ended April 1, 2000. Research and development. Research and development expenses consist principally of salaries and related personnel expenses, consultant fees and the cost of materials and software used in product development. Research and development expenses increased from $1.1 million during the period ended March 31, 1999 to $6.7 million during the nine months ended April 1, 2000. The increase is associated with the hiring of personnel devoted to the development of new products. Research and development expenses for fiscal 1999 were $2.7 million. We believe that continued investment in research and development is critical to attaining our strategic objectives and we expect research and development expenses to increase in the future. Selling, general and administrative. Selling, general and administrative expenses consist primarily of Web site design and maintenance expenses, salaries and related expenses, promotional and advertising costs, accounting and administrative expenses, costs for legal and professional services and general corporate expenses. Selling, general and administrative expenses increased from $898,000 during the period ended March 31, 1999 to $23.9 million during the nine months ended April 1, 2000 due to a general increase in the level of operations, including more personnel and larger facilities. Fiscal year 1999 selling, general and administrative expenses totaled $2.5 million. Amortization of deferred stock compensation. We granted stock options to our officers and employees at prices subsequently deemed to be below the fair value of the underlying stock. The cumulative difference between the fair value of the underlying stock at the date the options were granted and the exercise price of the granted options was $93.5 million at April 1, 2000. This amount is being amortized, using the multiple option method, over the four-year vesting period of the granted options. Accordingly, our results of operations will include amortization of deferred stock compensation through fiscal 2004. We recognized $2.4 million of this expense during the period ended March 31, 1999 and $26.4 million during the nine months ended April 1, 2000. A total of $3.6 million of deferred stock compensation amortization was recognized during fiscal year 1999. Future compensation expense from options granted through April 1, 2000 is estimated to be $11,152,000, $28,380,000, $16,188,000, $6,742,000 and $996,000 for the fiscal years ended 2000, 2001, 2002, 2003 and 2004, respectively, assuming no change in the number of outstanding options. Interest and other income, net. Interest and other income, net increased from $301,000 during the period ended March 31, 1999 to $337,000 during the nine months ended April 1, 2000. The increase was primarily a result of increased interest income from higher average cash and cash equivalents and short-term investments balances during the nine months ended April 1, 2000 as compared with the period ended March 31, 1999. This increase was partially offset by costs associated with our financing agreement which were amortized to interest expense during the nine months ended April 1, 2000. These costs relate to the inclusion of a right granted to our lender to purchase 198,965 shares of Series A preferred stock in our subordinated debt facility agreement obtained in June 1999. The total cost is being amortized over the 12 month term of the agreement. Interest and other income, net was $446,000 during fiscal year 1999, which was almost entirely associated with interest earned on cash and cash equivalents and short-term investments. This income was slightly offset by amortization of costs to interest expense during June 1999. QUARTERLY RESULTS OF OPERATIONS The following table shows unaudited consolidated statements of operations data for each of the seven fiscal quarters ended April 1, 2000. The information for each of these quarters has been prepared on the same basis as the audited consolidated financial statements included in this 25 27 prospectus. In the opinion of management, all necessary adjustments, which consist only of normal and recurring accruals, have been included to fairly present the unaudited quarterly results. This data should be read together with our consolidated financial statements and the notes to those statements included in this prospectus. The historical financial information for any quarter is not necessarily indicative of results for any future period.
PERIOD FROM THREE MONTHS ENDED JULY 29, 1998 ------------------------------------------------------------------------ (DATE OF INCEPTION) TO DECEMBER 31, MARCH 31, JUNE 30, OCTOBER 2, JANUARY 1, APRIL 1, SEPTEMBER 30, 1998 1998 1999 1999 1999 2000 2000 ---------------------- ------------ --------- -------- ---------- ---------- -------- (IN THOUSANDS) CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenue...................... $-- $ -- $ -- $ -- $ -- $ 15,790 $ 34,321 --- ------- ------- ------- ------- -------- -------- Costs and operating expenses: Cost of revenue............ -- -- -- -- -- 10,822 23,349 Research and development... -- 367 770 1,601 2,472 2,146 2,115 Selling, general and administrative........... 9 443 446 1,553 3,656 6,720 13,512 Amortization of deferred stock compensation....... -- 1,590 835 1,221 3,202 6,221 16,997 --- ------- ------- ------- ------- -------- -------- Total costs and operating expenses............... 9 2,400 2,051 4,375 9,330 25,909 55,973 --- ------- ------- ------- ------- -------- -------- Loss from operations......... (9) (2,400) (2,051) (4,375) (9,330) (10,119) (21,652) Interest and other income, net........................ -- 142 159 145 129 59 149 --- ------- ------- ------- ------- -------- -------- Net loss..................... $(9) $(2,258) $(1,892) $(4,230) $(9,201) $(10,060) $(21,503) === ======= ======= ======= ======= ======== ========
Before the second quarter of fiscal 2000, our operations were limited and consisted primarily of start-up activities. During the second quarter of fiscal 2000 we began shipping products for orders received through our handspring.com Web site, resulting in revenue of $15.8 million and associated cost of revenue of $10.8 million during that quarter. In March 2000, we extended our distribution strategy to include initially three national retailers, Best Buy, CompUSA and Staples. Revenue generated from Web site sales as well as shipments to our retailers totaled $34.3 million during the quarter ended April 1, 2000, with associated cost of revenues of $23.3 million. Our operating expenses were minimal during the first quarter of fiscal 1999, as we were incorporated in July 1998 and had no development, manufacturing, selling or marketing personnel. From inception there was a consistent increase in research and development expenses until the quarter ended January 1, 2000 when all start-up production expenses were then included within cost of revenue. The increase in research and development expenses is due to our growth and continuous focus on the development of new products. Selling, general and administrative expenses have also steadily increased with a general increase in the level of operations and personnel. Interest and other income, net consists of interest income which has fluctuated over the quarters with the average cash and cash equivalents balance, as well as short-term investments. Also included within interest and other income, net is the amortization of costs associated with our financing agreement which is being amortized over the one-year term of our subordinated debt facility expiring in June 2000. Most of our cash has been provided by private placement financing, and is used in operations. We sold Series A convertible preferred stock in October 1998 for net proceeds of $18.0 million, and sold Series B convertible preferred stock in July 1999 for net proceeds of $10.0 million. Our limited operating history makes the prediction of future operating results difficult. We have a history of losses and we expect to continue to incur losses into calendar year 2001. We believe that period-to-period comparisons of our operating results should not be relied upon as predictive of future 26 28 performance. In some future periods, our results of operations could be below the expectations of investors and public market analysts, if any choose to follow our stock. In this event, the price of our common stock would likely decline. LIQUIDITY AND CAPITAL RESOURCES Since inception, we have funded our operations primarily from the sale of preferred stock, through which we raised net proceeds of $28.0 million through April 1, 2000. As of April 1, 2000 cash and cash equivalents were $17.4 million. We also have a $6.0 million subordinated debt facility, which is available until June 2000. Borrowings under this facility bear interest at 10.0% per annum, and are collateralized by substantially all of our assets. Without the lender's consent, we may not incur any other indebtedness in excess of $1.0 million. There has been no drawdown on this facility to date. In addition, we have a secured equipment lease facility with this lender that allows a maximum borrowing of $1.0 million, of which $904,000 was available as of April 1, 2000. Net cash used in operating activities for the nine months ended April 1, 2000 was $3.1 million, primarily attributable to a net loss of $40.8 million and an increase in accounts receivable of $13.7 million. These uses of cash were largely offset by the amortization of deferred stock compensation of $26.4 million as well as an increase in accounts payable and accrued liabilities of $25.2 million. During the period ended March 31, 1999 and fiscal 1999 net cash used in operating activities was $1.7 million and $4.0 million, respectively, which was primarily attributable to a net loss of $4.2 million during the period ended March 31, 1999 and $8.4 million during fiscal 1999. These net losses were partially offset by the amortization of deferred stock compensation of $2.4 million and $3.6 million during the period ended March 31, 1999 and fiscal 1999, respectively. Net cash provided by investing activities for the nine months ended April 1, 2000 was $981,000, and primarily consisted of $8.3 million received from maturities of short-term investments. This source of cash was partially offset by purchases of short-term investments of $2.0 million as well as purchases of property and equipment of $5.4 million. During the period ended March 31, 1999 net cash used in investing activities was $9.1 million, and was attributable to purchases of short-term investments of $9.5 million as well as property and equipment of $577,000, offset by maturities or sales of short-term investments of $982,000. During fiscal 1999 net cash used in investing activities was $6.9 million, due to purchases of short-term investments and property and equipment of $11.0 million and $780,000, respectively, partially offset by maturities or sales of short-term investments of $4.8 million. Net cash provided by financing activities totaled $12.0 million during the nine months ended April 1, 2000, primarily due to net proceeds of $10.0 million received from the issuance of Series B redeemable convertible preferred stock. We received an additional $2.0 million from the issuance of common stock upon exercise of stock options by employees. During the period ended March 31, 1999, and fiscal 1999 net cash provided by financing activities was $18.0 million and $18.5 million, respectively, primarily attributable to the issuance of Series A redeemable convertible preferred stock, and to a lesser extent the issuance of common stock. Our future capital requirements will depend upon many factors, including the timing of research and product development efforts and expansion of our marketing efforts. We believe that the net proceeds of this offering, together with our current cash and cash equivalents balance, will be sufficient to meet our working capital needs for at least the next 12 months. To the extent that we grow more rapidly than expected in the future, we may need additional cash to finance our operating and investing needs. Our management intends to invest the cash received from this offering in excess of current operating requirements in short-term, interest-bearing, investment-grade securities. 27 29 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Sensitivity. We maintain an investment portfolio consisting mainly of fixed income securities with an average maturity of less than one year. Because all of the securities in our portfolio have original maturities of three months or less at April 1, 2000, the balances have been recorded as cash equivalents. These securities are subject to interest rate risk and will fall in value if market interest rates increase. We have the ability to hold our fixed income investment until maturity, and therefore we do not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates. We do not hedge any interest rate exposures. Foreign Currency Exchange Risk. Expenses of our international operations are denominated in each country's local currency, and therefore are subject to foreign currency exchange risk. To date, the effect of changes in foreign currency exchange rates on operating expenses have not been material. All of our revenue is currently earned in U.S. dollars, and we did not have any significant balances that were due or payable in foreign currencies at April 1, 2000. We currently do not hedge our foreign currency exposure. We intend to assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivatives and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for derivative investments, including certain derivative instruments embedded in other contracts, and for hedging activities. In July 1999, the FASB issued SFAS No. 137, Accounting for Derivative and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133. SFAS No. 137 deferred the effective date of SFAS No. 133 until fiscal years beginning after June 15, 2000. We will adopt SFAS No. 133 during fiscal 2001. To date, we have not engaged in derivative or hedging activities. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements. SAB 101 provides guidance for revenue recognition under certain circumstances. SAB 101 is effective for our fiscal year beginning July 2, 2000. Implementation of SAB 101 is not expected to require us to change existing revenue recognition policies and therefore is not expected to have a material effect on our financial position or results of operations. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN 44") Accounting for Certain Transactions Involving Stock Compensation an Interpretation of APB Opinion No. 25. FIN 44 clarifies the application of Opinion No. 25 for (a) the definition of employee for purposes of applying Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998, or January 12, 2000. We believe that the impact of FIN 44 will not have a material effect on our financial position or results of operations. IMPACT OF THE YEAR 2000 We have not experienced any year 2000-related disruption in the operation of our systems. Although most year 2000 problems should have become evident on January 1, 2000 or on the so-called "century leap year" algorithm, additional year 2000-related problems may become evident after these dates. We are not aware of any material problems with our customers or vendors. Accordingly, we do not anticipate incurring material expenses or experiencing any material operational disruptions as a result of any year 2000 issues. 28 30 BUSINESS OVERVIEW We are a leading provider of handheld computers. Our first product, the Visor handheld computer, is a personal organizer that is enhanced by our Springboard platform, an open expansion slot. Since the Visor's introduction in October 1999, more than 2,500 developers have registered with Handspring's developer program to receive support in developing modules. Examples of modules commercially available or in development include a digital camera, an MP3 player, a two-way pager, a global positioning system and content such as books and games. We will continue to design innovative expandable handheld devices enabling new mobile computing and communications applications. INDUSTRY OVERVIEW Users' increasing reliance on the electronic management of personal and business information, Internet-based information resources and mobile voice and data communications has led to a proliferation of handheld devices. While some handheld devices focus on handheld computing functions including calendar and contact management, others focus on communications applications, such as voice, data, paging, email and Internet access. Despite rapidly growing demand for such devices, we believe that this industry sector is still in its early stages. International Data Corporation estimates that worldwide shipments of smart handheld devices will grow from approximately 8.2 million units in 1999 to approximately 35.5 million units in 2003. We believe that the emergence of more powerful, flexible devices enabling broad consumer applications will further expand the potential handheld computing and communications device market. Key factors driving widespread consumer adoption of handheld computing and communications devices include: DEMANDS OF A MOBILE SOCIETY. As our society becomes ever more mobile, consumers are demanding the same productivity and communications capability on the road as they get at their desks. This demand is at the heart of a powerful cycle: new devices enable new applications, which in turn enable greater mobility, which only increases the demand for more functional devices. Reductions in device size and cost and improvements in functionality, storage capacity and reliability are all fostering these trends. Each turn of the cycle drives increased volume, with the result that a product category once targeted at upscale "mobile professionals" is increasingly becoming a mass consumer product sector. NEED FOR MOBILE INTERNET AND INTRANET ACCESS. The growing prominence of the Internet and corporate intranets in users' everyday lives is increasing demand for access "anywhere, anytime". Demand for mobile data Internet applications such as email, stock quotes and trading, news, content and location-based services continues to increase. In addition, workers and their employers are demanding mobile access to corporate intranets to obtain critical business information such as inventory levels and customer profiles. IMPROVEMENT IN WIRELESS COMMUNICATIONS ENABLE COMPELLING APPLICATIONS. Digital wireless communications have become widely adopted due to declining consumer costs, expanding network coverage and the availability of extended service features such as voice and text messaging. Digital wireless technologies, which are currently designed for voice transmission and allow only limited data transmission capabilities, are evolving toward more advanced technologies enabling higher data transmission rates at lower costs. Widespread deployment of these technologies in wireless networks will increasingly enable the delivery of higher bandwidth applications such as streaming video and audio to handheld communications devices. Dataquest estimates that the number of wireless data subscribers worldwide will grow from approximately 14 million at the end of 1998 to approximately 102 million at the end of 2003. 29 31 PROLIFERATION OF DIGITAL CONSUMER APPLICATIONS. The development of applications for the digital delivery of consumer products and services, such as photographs, music, video games, news, books, driving directions, weather and stock quotes and trading, has accelerated as physical products and services are increasingly being replaced with bytes of data. This trend has contributed to the success of new consumer products such as MP3 players and digital cameras. GROWING, INNOVATIVE DEVELOPER COMMUNITY. As the handheld computing and communications device market has grown to millions of units, a large and growing community of independent developers is driving new applications and functionality. Developers are creating software applications and complementary hardware peripherals and accessories that address new markets. This innovation is in turn creating new market opportunities and is stimulating increased demand for handheld devices. These trends are accelerating toward the emergence of a device that integrates handheld computing applications and a broad range of communications functions. Current handheld products provide consumers with limited choices, typically between a simple device without expandability or a complex, multi-function device that is expensive, heavy and difficult to use. We believe the key challenge is one of design. The handheld device must be small, elegant and easy to use, yet flexible enough to support a wide variety of personal preferences and professional requirements. THE HANDSPRING SOLUTION Our product design team has extensive experience in handheld computing design. Our Visor handheld computer combines the functionality of a handheld organizer with the flexibility of our Springboard expansion slot. The result is a flexible, open platform that enables users to customize their handheld device to deliver a broad range of computing and communications applications. Key elements of our solution include: EASY TO USE PRODUCTS. Our Visor handheld computers are designed to delight our customers by providing a simple, intuitive solution for their computing, communications, information and entertainment needs. Our products need little technical knowledge to operate effectively. For example, users can simply insert modules into our Springboard expansion slot without the need to separately install or delete software. In addition, our customers can easily synchronize their Visors' data with their desktop computers by pressing one button. FLEXIBLE PLATFORM. The Springboard expansion slot allows users to add and remove modules to customize the functions of their Visor computers. To encourage widespread module development, the Springboard expansion slot was designed to provide developers with great flexibility in the size, form and functionality of the modules they create. The Springboard modules commercially available or in development address a wide range of applications including: - content, such as books and games; - consumer applications, such as MP3 players, digital cameras and global positioning system receiver modules; - Internet and intranet connectivity; and - communications capabilities, such as pager and modem modules. OPEN DEVELOPMENT ENVIRONMENT. Our Springboard technology provides an open platform to developers, with all documentation available on our Web site, allowing developers to create modules without paying royalties or license fees. We offer a wide variety of marketing and support programs to help our developers build successful businesses based on Springboard modules. To enable broad module production and distribution, we assist developers in relationships with suppliers and manufacturers and in marketing their modules. 30 32 VALUE LEADERSHIP. Our products are designed to combine superior functionality with competitive pricing in order to drive widespread adoption within the broad consumer market. Our Springboard platform allows users to achieve optimal price performance, by enabling users to pay only for the features and functionality they will actually use. COMPATIBILITY. The compatibility of our products with the Palm OS operating system, which we have licensed from Palm, allows our Visor handheld computers to run thousands of applications developed for the Palm OS operating system. These applications can be installed through the docking cradle, over the Internet or through infrared transmission from another device. In addition, our products can be synchronized with many of the widely used desktop organizer software packages, including Microsoft Outlook, and can easily import personal data from another Palm OS operating system device. BUSINESS STRATEGY Our objective is to become a global market leader in the handheld computing and communications marketplace. We will continue to be an innovator in designing expandable handheld devices that enable new mobile computing and communications applications. Key elements of our strategy include: DEVELOP PRODUCTS BASED ON CUSTOMER FOCUSED DESIGN AND INNOVATION. Our business is founded on the notion that we must constantly innovate in order to design simple, yet powerful, products that delight our customers. Key members of our management and product development teams have a history of innovation and technology leadership in the handheld computing markets, having founded and led the Palm Computing business from its inception until the founding of Handspring in mid-1998. Handspring's first product, the Visor handheld computer, builds on this experience. We intend to continue to develop innovative handheld computing products. PENETRATE LARGE AND GROWING HANDHELD COMPUTING AND COMMUNICATIONS MARKET. Our Visor handheld computer's Springboard expandability, organizer functionality and competitive pricing provide us with immediate access to the large and growing handheld computing and communications market. Our initial strategy was to enter the market quickly by selling exclusively through our Web site. To further expand our distribution, we began shipping our products to selected retailers in March 2000. We also plan to expand our available market by entering international markets as well as the enterprise, education and government markets. ESTABLISH MULTIPLE REVENUE SOURCES. Currently, almost all of our revenues come from the sale of our Visor handheld computers. We intend to derive additional sources of revenue from internally developed Springboard modules, distribution of Springboard modules developed by third parties and product accessories. We are developing new products to address the wireless and Internet access markets. In addition, we intend to license our Springboard technology to other companies. ESTABLISH A STRONG BRAND IDENTITY. Our goal is to establish Handspring as the premier brand in the consumer handheld computing market by creating an image that is innovative, fun, smart, approachable, compelling and personal. We will build on our brand awareness through innovative products, advertising, strategic promotional relationships and creative marketing. In addition, we believe that our promotion of the Springboard platform, along with our support of the module developer community, will broaden consumer awareness of our products and enhance our brand identity. ADDRESS ADDITIONAL MARKETS BY ATTRACTING AND SUPPORTING THE DEVELOPMENT COMMUNITY. Our goal is to develop a competitive advantage from a large and innovative developer community focused on our Springboard platform. These developers will enable Handspring to sell into new and broader areas, such as the education and medical device markets. For example, the development of the sensor 31 33 modules for education and science by Imagiworks facilitates our access to the education market. We encourage developers through open, royalty-free developer tools, access to our technical developer support and to manufacturing partners and module distribution through the handspring.com Web site. LEVERAGE OUTSOURCE MODEL. Our strategy is to focus on what we do best, creating innovative products. We believe that by outsourcing many other functions, including manufacturing, order fulfillment and repair, we will keep the number of employees small relative to our scale. This strategy will allow us to be more creative, flexible, aggressive and competitive. In addition, our outsource model lets us scale quickly, reduce fixed costs and select best of breed outsource partners. PRODUCTS Our Visor is a sleek, compact and lightweight handheld computer, with dimensions of 4.8" x 3.0" x 0.7", and a weight of 5.4 ounces. Each Visor includes a Springboard expansion slot, stylus writing utensil, infrared transceiver, backlight display and a hard cover. A microphone is included in each Visor, which allows developers to create communications modules based on this feature. Our Visor is compatible with thousands of software applications developed for the Palm OS operating system. The Visor contains Microsoft Windows and Macintosh desktop synchronization software, including the ability to synchronize with Microsoft Outlook. Our Visor handheld also runs organizer applications, including an address book, date book, to-do list, memo pad, calculator, expense system, email compatibility and a world clock. The Visor's docking cradle, together with the bundled HotSync software, allows customers to easily and quickly synchronize, or exchange, data between the Visor and their desktop or laptop computer. Our Visor handheld computer is attractively priced and is currently available in two different models: Visor and Visor Deluxe. The Visor features two megabytes of RAM memory and a Universal Serial Bus (USB) docking cradle with desktop software for a retail price of $179. Two megabytes of RAM memory stores approximately 6,000 addresses, five years of appointments, 1,500 to do items, 1,500 memos and 200 email messages. The Visor Deluxe sells for $249 and includes eight megabytes of RAM memory, a USB docking cradle with desktop software and a case. The Visor Deluxe is available in five colors: ice, green, blue, orange and graphite. In addition, we sell the Visor Solo, a Visor packaged without a docking cradle and desktop software for an entry price of $149. Starting in May 2000, our Visor handheld computer became available in Europe, both in English and in German language versions. Our Visor handheld computer's Springboard platform consists of an expansion slot that offers an easy and elegant way to add hardware and software applications. While other handheld computers can support a limited number of peripheral devices attachable through cables or a docking cradle, the Springboard expansion slot offers smooth integration and "plug and play" operation: - the "open face" design of the slot provides an intuitive and robust mechanism for effortless insertion and removal of modules; - the software required to run a module is contained within the module itself, and can install and run automatically, relieving the user from the burden of installing special software in order to use a module; and - in most module designs, the software is automatically uninstalled when the module is removed, which reduces the opportunity for conflict with other software and frees up memory for other purposes. SPRINGBOARD MODULES. To offer customers a broad range of functionality and content, we and third-party developers have developed and continue to develop modules that snap into our Springboard expansion slot. Beginning in October 1999 when we launched our Visor handheld 32 34 computer, we made tools and documentation widely available for module developers. Since that time more than 2,000 developers have registered with Handspring. Third party developers may sell their modules through their own marketing and sales efforts and through our handspring.com Web site. We test modules offered on our Web site and certify them as "Springboard compatible." The following table shows Springboard modules that are currently available. COMMERCIALLY AVAILABLE SPRINGBOARD MODULES
- ----------------------------------------------------------------------------------------------------------- PRODUCT NAME DESCRIPTION DEVELOPER - ----------------------------------------------------------------------------------------------------------- Backup Module Backs up data on the Visor handheld computer Handspring without connecting to a desktop computer - ----------------------------------------------------------------------------------------------------------- Modem Module Module that enables users to connect to Handspring their desktops via standard phone lines and synchronize their data from a remote location. With third party software, users can also check their email, surf the web and send faxes - ----------------------------------------------------------------------------------------------------------- 8MB Flash Module Storage module for user applications and Handspring data - ----------------------------------------------------------------------------------------------------------- EASports Tiger Woods Golf game Electronic Arts; PGA Tour Golf Distributed by Handspring - ----------------------------------------------------------------------------------------------------------- eyemodule Digital Camera Enables users to capture color or black and IDEO Product Development white digital images and beam them from Inc. Visor's infrared port to another Visor or synchronize them with a personal computer - ----------------------------------------------------------------------------------------------------------- Physician's Desk Reference Medical reference guide Franklin Electronic Publishers - ----------------------------------------------------------------------------------------------------------- IntelliGolf Tracks and analyzes golf performance Karrier Communications - ----------------------------------------------------------------------------------------------------------- InnoPak/2V A 2MB memory expansion with a vibrating Innogear alarm - -----------------------------------------------------------------------------------------------------------
33 35 The following table shows selected Springboard modules that have been announced by developers as being under development. ANNOUNCED SPRINGBOARD MODULES IN DEVELOPMENT
- ----------------------------------------------------------------------------------------------------------- PRODUCT NAME DESCRIPTION DEVELOPER - ----------------------------------------------------------------------------------------------------------- @ctiveLink two-way wireless Wireless access to the Internet and email Glenayre Technologies Inc. communications module - ----------------------------------------------------------------------------------------------------------- Blue-connect Bluetooth A wireless communications module designed to Widcomm, Inc. communication module allow the Visor handheld computer to communicate with other Bluetooth-enabled devices, such as laptops or cell phones - ----------------------------------------------------------------------------------------------------------- FM Radio module Allows users to listen to music over the CUE Corporation radio and receive traffic alerts and personal messages - ----------------------------------------------------------------------------------------------------------- HandyGPS module Global positioning system receiver Navicom Co., Ltd. and MarcoSoft, Inc. - ----------------------------------------------------------------------------------------------------------- InfoMitt one way pager Receives alphanumeric pages, email and Innogear electronic magazines - ----------------------------------------------------------------------------------------------------------- Lonely Planet City Sync City guides Concept Kitchen Travel Guides - ----------------------------------------------------------------------------------------------------------- Merriam-Webster Dictionary Dictionary LandWare, Inc. - ----------------------------------------------------------------------------------------------------------- MiniJam MP3 Player An MP3 player and a voice recorder, with Innogear memory and a headphone jack - ----------------------------------------------------------------------------------------------------------- Sensor Modules for Education Sensors for data collection, including ImagiWorks and Science temperature and light measurements, and heart rate monitoring - ----------------------------------------------------------------------------------------------------------- SixPak Combo Card Combination of LED and vibrating alarm, Innogear wireline modem, cellular capable modem, expanded memory and voice recorder - ----------------------------------------------------------------------------------------------------------- SpringPort Modem 56 56Kbps modem Xircom, Inc. GlobalACCESS - ----------------------------------------------------------------------------------------------------------- SpringPort Wired Ethernet Ethernet module for connecting to corporate Xircom, Inc. networks - ----------------------------------------------------------------------------------------------------------- SpringPort Wireless Data Wireless data communications using GSM and Xircom, Inc. PDC network standards - ----------------------------------------------------------------------------------------------------------- SpringPort Wireless Ethernet Wireless module for connecting to corporate Xircom, Inc. networks using the 802.11b standard - ----------------------------------------------------------------------------------------------------------- Targus Recorder 1850 Voice recorder and playback module Digital 5 - ----------------------------------------------------------------------------------------------------------- Wave Communicator Cordless telephone and remote control Zilog, Inc. - -----------------------------------------------------------------------------------------------------------
Accessories. We offer a full line of accessories through our handspring.com Web site. To address a broad range of customer preferences, we offer a variety of stylus packs, a selection of over 150 cases, including leather, and a line of clothing and travel bags displaying the Handspring name and logo. In addition, third parties have also announced and are shipping accessories for the Visor handheld computer, including the GoType! keyboard from Landware and the Stowaway portable keyboard from Targus. 34 36 DEVELOPERS Our Springboard platform was designed to foster a large community of third party developers. We seek to encourage developers to create new high value modules with integrated applications for use with the Visor handheld computer, which we believe will create new markets and expand existing ones for Handspring devices. For developers, the Springboard expansion slot provides a well defined and flexible power management structure for ease of designing and using modules. The slot is open faced on two sides, which allows developers great freedom in designing a module's form factor. This feature also provides a secure mechanism for attaching the module to the Visor handheld computer so that the two devices look cosmetically and physically integrated. Each Visor handheld computer also includes a built-in microphone that developers can use for voice input products. We have a growing team of employees dedicated to serving the developer community, both in technical support and co-marketing opportunities. Our developer support program provides developers open access to underlying technical information regarding our products and the Springboard platform, including a thoroughly documented Handspring Development Kit available at our handspring.com Web site. We offer our Handspring Development Kit and a license to our Springboard-related intellectual property on a royalty-free, non-exclusive basis. We also offer an optional, paid support program to those developers that require a more detailed level of support. To assist developers in the production of modules, we provide them with access to our manufacturing partners and materials suppliers. We facilitate distribution of modules over the handspring.com Web site that we created in partnership with PalmGear. We also provide introductions for our developers to our retail channel partners. In the future we expect to host developers conferences to further promote our developer community. As of March 31, 2000, more than 2,500 developers have registered in our developer program. SALES AND MARKETING Our initial distribution strategy was to sell exclusively through our handspring.com Web site. This strategy enabled us to get to market quickly, and provided us with detailed information about our initial purchasers. We intend to continue to promote our handspring.com Web site as a major site to buy our products on the Internet. With this in mind, we have expanded our offerings at our site to include software links and links to various third party module vendors, including a Web store run by PalmGear H.Q., where Handspring customers can purchase Springboard expansion modules and Visor accessories. We have provided customers the ability to register for ongoing communications with us via an e-newsletter, and we enable customers to register their product purchases on our site. We also offer a broad array of accessories and cases on our site to continue to drive traffic back to the site for incremental purchases. To expand our market presence, we extended our distribution strategy in March 2000 to include initially three national retailers, Best Buy, CompUSA and Staples. These retailers serve three major segments of buyers -- consumer electronics purchasers, computer purchasers and office supply purchasers -- with retail locations across the United States. We have expanded our distribution into international markets, and we expect to add additional retail and Internet sales partners within the United States throughout 2000. We plan to work closely with these partners to provide an outstanding retail presence, and to enable an efficient channel for broad consumer availability of our products. We have introduced Visor handheld computers in English and German in the European markets. We expect to introduce the Japanese version of the Visor in summer 2000. We plan to engage local value-added distributors in all the major markets in Western Europe and Asia where our localized 35 37 language versions meet market needs. We also plan to develop partnerships to establish a local e-commerce presence for international customers interested in purchasing Handspring products online. We believe there is an opportunity to expand our market presence through strategic promotional efforts and through OEM or private label partnerships. We have broad interest from major brand marketers, who supply our target customers with various products or services, to co-promote the Visor handheld computers along with their products or services. An example is a recent promotion in which Virgin Atlantic Airlines provided first class and business class passengers with a free Visor. In addition, there is strong interest from potential partners that serve other computing markets to partner with us to provide a handheld computing solution to their customers. For example, with the availability of a Global Positioning System receiver Springboard module, a partner that serves the traditional GPS market could bundle together a Visor handheld computer and the GPS receiver module to deliver a complete solution to customers. We will actively seek these opportunities to extend our market reach outside our traditional target categories. We believe building brand awareness is important to our success. We use a variety of marketing programs to build awareness of our products through mass-media advertising, targeted advertising, end user promotions, public relations campaigns, strategic promotional efforts and in-store retail merchandising. We will work with our third party developers to promote their Springboard modules as they are introduced to the market. This strategy should provide us with several opportunities to build product and brand awareness. CUSTOMER SERVICE AND SUPPORT We provide telephone-based customer support and technical support to our customers through outsource partners. We also provide customer support and technical support information to our customers through our handspring.com Web site. Our retail and reseller partners provide first-line customer and technical support to their customers. We provide escalation service and support and technical training for our outsource providers and reseller partners. We sell our products with a one-year limited warranty. We currently outsource our repair services to Jabil's Louisville, Kentucky facility. Jabil receives products from customers that need repair, provides replacement or repaired units to customers and refurbishes devices for ongoing service repair stock. We depend on Jabil to perform these services in a timely fashion and at satisfactory quality levels. PRODUCT DEVELOPMENT AND TECHNOLOGY Our products are conceived, designed and implemented through the collaboration of our internal engineering, marketing and manufacturing organizations. Our product design efforts are focused on improving our existing products as well as developing new products. We intend to continue to employ a customer focused design approach by providing innovative products that respond to and anticipate customer needs for functionality, mobility, simplicity, style and ease of use. Technologies required to support product development are either created internally or licensed from outside providers. Our internal staff includes engineers of many disciplines including software architects, electrical engineers, mechanical engineers, quality engineers, manufacturing process engineers and user interface design specialists. Once a project is initiated and approved, a multi-disciplinary team is created to complete the design of the product and transition it into manufacturing. In order to achieve our objective of being a leader in innovation for handheld computing and communications, we have parallel development teams working on multiple projects. We have a formal product release process in which products must pass established quality benchmarks and manufacturing guidelines before they are released into production. We use a quality 36 38 assurance process that provides feedback to our manufacturing and engineering organizations, as well as our outsource manufacturing and materials partners, allowing them to take corrective actions if defects are reported after a product has been released into production. We expect to continue to invest aggressively to develop new products. To this end, we expect to make material expenditures on research and development during at least the next 12 months. Our research and development expenditures totaled approximately $2.7 million in fiscal 1999 and approximately $6.7 million for the nine months ended April 1, 2000. As of April 1, 2000, we had 32 people engaged in research and development activities. MANUFACTURERS AND SUPPLIERS All of our Visor handheld computers are currently manufactured by Flextronics at its facilities in Malaysia on a purchase order basis. Flextronics procures components and other supplies, manufactures, assembles and tests our products. By outsourcing the entire manufacturing process, we are able to focus on our strengths, including product development and design, minimize capital expenditures, conserve working capital necessary to fund inventory, rely on a third party with more manufacturing expertise than ourselves and avoid the need to find and maintain facilities for manufacturing operations. However, if one of our manufacturers were to stop manufacturing our devices, it could take up to six months to qualify an alternative manufacturer and our results of operations could be harmed. In April 2000, we selected Solectron as a second manufacturing partner for Visor handheld computers. We expect to be operational at its Guadalajara, Mexico site by the end of summer 2000. We currently outsource the manufacturing of our Handspring labeled Springboard modules to Smart Modular of Fremont, California. We outsource the design and production of our accessory products to several outside partners. We purchase the components that make up our products from various vendors, including key suppliers such as Motorola, which supplies microprocessors, Acura Tech Ltd., which supplies connector systems, and Picvue, which supplies display assemblies. Some of our components are currently supplied by single source suppliers for which alternative sources are not readily available in sufficient quantities or at an attractive cost. Displays, power supply integrated circuits, microprocessors and some discrete components are examples of key components that we obtain from a sole source. We and our partners follow a formal manufacturing quality process that includes qualification of material supplier sources, product-specific process definition and qualification, daily measurement of key manufacturing processes and test metrics, a closed-loop corrective action process and an outgoing sampling audit of finished product. In addition, we have placed a supplier quality manager in each manufacturing region and conduct periodic on-site audits of our manufacturing partners and key component suppliers. Manufactured devices are sent to Logistix. Some end-user customers place orders on our handspring.com Web site, or over the telephone to our third party customer support partner. Retail sales orders are placed in our internal order processing system. All orders are transmitted to Logistix, which completes the pack-out process by assembling a finished goods box consisting of the Visor handheld computer, a docking cradle, a CD of desktop software and other assorted materials. They then match the product to the order and confirm shipment, which initiates a credit card charge or invoice. COMPETITION The market for handheld computer products is highly competitive and we expect competition to increase in the future. Some of our competitors or potential competitors have significantly greater financial, technical and marketing resources than we do. These competitors may be able to respond more 37 39 rapidly than we can to new or emerging technologies or changes in customer requirements. They may also devote greater resources to the development, promotion and sale of their products than we do. We believe that the principal competitive factors impacting the market for our handheld computers are design, features, performance, price, brand and availability. We believe that we compete favorably compared to many of our current competitors with respect to some or all of these factors. Our handheld computers compete with a variety of handheld devices, including keyboard-based devices, sub-notebook computers, smart phones and two-way pagers. Our principal competitors include: - Palm, from whom we license our operating system; - licensees of the Microsoft Windows CE operating system for devices such as the PocketPC, including Casio, Compaq and Hewlett-Packard; - members of the Symbian consortium, including Psion, Ericsson and Motorola; and - other Palm OS operating system licensees, including Nokia, Sony and QUALCOMM. We expect our competitors to continue to improve the performance of their current products and to introduce new products, services and technologies. For example, in April 2000, Microsoft and its partners introduced the PocketPC handheld computer based on Microsoft's Windows CE operating system. Successful new product introductions or enhancements by our competitors could reduce the sales and market acceptance of our products, cause intense price competition or make our products obsolete. To be competitive, we must continue to invest significant resources in research and development, sales and marketing and customer support. We cannot be sure that we will have sufficient resources to make these investments or that we will be able to make the technological advances necessary to be competitive. Increased competition could result in price reductions, fewer customer orders, reduced margins and loss of market share. Our failure to compete successfully against current or future competitors could seriously harm our business. INTELLECTUAL PROPERTY Our success depends upon our ability to maintain the proprietary aspects of our technology and operate without infringing the proprietary rights of others. We rely on a combination of patent, trademark, copyright and trade secret laws and contractual restrictions on disclosure to protect our intellectual property rights. We do not have any issued U.S. or foreign patents, but we have applied for three U.S. patents and have filed foreign patent applications based on our U.S. patent applications. We own a number of trademarks, including Handspring, the Handspring logo, Springboard and Visor. It is possible that patents we have applied for, if issued, or our potential future patents may be successfully challenged or that no patents will be issued from our patent applications. It is also possible that we may not develop proprietary products or technologies that are patentable, that any patent issued to us may not provide us with any competitive advantages, or that the patents of others will harm our ability to do business. Legal protections afford only limited protection for our technology. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Any resulting litigation could result in substantial costs and diversion of resources. Our means of protecting our proprietary rights may not be adequate and our competitors may independently develop technology that is similar to ours. 38 40 We license various technologies from third parties that have been integrated into our products. We believe that licensing complementary technologies improves our products in an efficient manner, allowing us to focus on our core competencies. Our most significant license is of the Palm OS operating system from Palm. We also license conduit software from Chapura, Inc. that allows for synchronization with Microsoft Outlook and CDMA technology from QUALCOMM. Our Palm OS operating system license requires the payment of royalties and maintenance and support fees to Palm. The license is non-exclusive, and Palm has previously licensed and could continue to license the Palm OS operating system to others, including our competitors. The license agreement extends until September 2003 and may be renewed for successive one-year terms if both parties agree. We have a close working relationship with Palm. We have collaborated and continue to collaborate with Palm in advancing the Palm OS operating system technology. It is possible that Palm will choose not to renew the license at the end of its term for competitive or other reasons. Upon expiration or termination of the Palm OS operating system license agreement, other than due to our breach, we may choose to keep the license granted under this agreement for two years following the expiration or termination. However, the license during this two-year period is limited and does not entitle us to upgrades to the Palm OS operating system. If we were not a licensee of the Palm OS operating system, we would be required to license a substitute operating system, which could be less desirable and could be costly in terms of cash and other resources. In the alternative, we could develop our own operating system, which would take considerable time, resources and expense, would divert our engineers' attention from product innovations and would not have the advantage of Palm OS operating system application compatability. In addition, we may not assign that license agreement to a third party without the written consent of Palm unless it is to a purchaser of substantially all of our assets who is not a competitor of Palm. The existence of these license provisions may have an anti-takeover effect in that it could discourage competitors of Palm from making a bid to acquire us. PLAN OF OPERATION We believe that the net proceeds of this offering, together with our current cash and cash equivalents, will be sufficient to meet our working capital needs for at least the next 12 months. Our current cash position includes the proceeds from the sale of our preferred stock in July 1999 and the exercise of a preferred stock purchase right in May 2000. During the remainder of fiscal year 2000 and the first half of fiscal year 2001, we expect to increase our capital expenditures and expand operations in new markets internationally. In addition, we expect our selling, general and administrative expenses to increase as we promote and maintain our brand and market our products. We also expect to increase our spending on research and development. The amount of these expenditures depends on the amount of our future revenues and the pace of our expansion. Our expansion plans may also be affected by the availability and cost of capital. We expect to materially increase our number of employees as we expand our operations internationally and to add personnel engaged in sales and marketing and research and development. EMPLOYEES As of April 1, 2000, we had a total of 132 employees, of which 32 were in research and development, 23 were in manufacturing services, 47 were in marketing and sales and 30 were in general and administrative. We plan to hire substantial numbers of additional personnel in all areas of our business, particularly in sales and marketing. We consider our relationships with employees to be good. None of our employees is covered by collective bargaining agreements. Competition for qualified personnel in our industry and geographical location is intense, and we cannot assure you that we will be successful in attracting, integrating, retaining and motivating a sufficient number of qualified personnel to conduct our business in the future. 39 41 FACILITIES Our headquarters are located in approximately 58,400 square feet of leased office space in Mountain View, California. The lease term extends to August 2004. We recently entered into another lease for approximately 28,000 square feet of additional office space in Mountain View which extends to June 2008. In addition, we currently lease office space in Singapore, Japan, the United Kingdom and Switzerland. We believe our current office space is adequate for our current operations and that additional office space, if required, can be readily obtained. Handspring U.K. Ltd., located in the United Kingdom, and Handspring B.V., located in the Netherlands, are engaged in customer service, support and marketing activities of Handspring. Handspring International Ltd., located in Switzerland, and Handspring K.K., located in Japan, are engaged in sales as well as customer service, support and marketing activities. Handspring Singapore Pte. Ltd., located in Singapore, is engaged in quality assurance and manufacturing support services. LEGAL PROCEEDINGS From time to time, we may be involved in litigation relating to claims arising out of our operations. As of the date of this prospectus, we are not subject to any material legal proceedings. 40 42 MANAGEMENT The following table shows information concerning our executive officers, directors and other key employees. Ages are as of March 31, 2000.
NAME AGE POSITION ---- --- -------- Donna L. Dubinsky.............. 44 President and Chief Executive Officer and a Director Jeffrey C. Hawkins............. 42 Chief Product Officer and a Director Edward T. Colligan............. 39 Senior Vice President, Marketing and Sales Bernard J. Whitney............. 43 Chief Financial Officer and Secretary Michael Gallucci............... 43 Vice President, Worldwide Manufacturing Celeste Baranski............... 42 Vice President, Engineering David G. Pine.................. 41 Vice President and General Counsel William Holtzman............... 47 Vice President, International John Hartnett.................. 37 Vice President, Service and Support Patricia A. Tomlinson.......... 42 Vice President, Human Resources Kim B. Clark(1)................ 51 Director L. John Doerr(2)............... 48 Director Bruce W. Dunlevie(1)(2)........ 43 Director Mitchell E. Kertzman(1)........ 51 Director
- ------------------------- (1) Member of audit committee (2) Member of compensation committee Ms. Dubinsky is a co-founder of Handspring. She has been the President and Chief Executive Officer and a director since July 1998. She served as President and Chief Executive Officer of Palm Computing, Inc. from June 1992 to July 1998. From 1982 to 1991, she was with Claris Corporation, a subsidiary of Apple Computer, Inc., and with Apple Computer, Inc., where she served in a number of logistics, sales and marketing positions, most recently as Vice President International of Claris from 1987 to January 1991. Ms. Dubinsky is also a director of Intuit Inc. She holds a B.A. degree in history from Yale University and an M.B.A. from the Harvard Graduate School of Business Administration. Mr. Hawkins is a co-founder of Handspring. He has been the Chief Product Officer and a director since July 1998. He was a founder of Palm and served as its Product Architect and one of its directors from 1992 to June 1998. From 1982 to 1992, Mr. Hawkins was Vice President of Research at GRiD Systems Corporation, a laptop computer company. He holds a B.S. degree in electrical engineering from Cornell University. Mr. Colligan is a co-founder of Handspring. He has served as Senior Vice President, Marketing and Sales, of Handspring since October 1998. Before he joined Handspring, he served as Vice President of Marketing of Palm Computing from January 1993 to September 1998. From 1986 to 1993, Mr. Colligan was at Radius Corporation, a provider of displays and graphics cards, most recently serving as Vice President of Strategic and Product Marketing. He holds a B.A. degree in political science from the University of Oregon. Mr. Whitney has served as Chief Financial Officer and Secretary of Handspring since June 1999. From August 1997 to June 1999, he served as Executive Vice President and Chief Financial Officer of Sanmina, Inc., an electronics manufacturing company. From June 1995 to August 1997, Mr. Whitney served as Vice President of Finance for Network General Corporation, a network fault tolerance and performance management solutions company. From 1987 to June 1995, Mr. Whitney held a variety of corporate finance positions at Conner Peripherals, a storage device manufacturer. He 41 43 holds a B.S. degree in finance from California State University at Chico and an M.B.A. from San Jose State University. Mr. Gallucci has served as Vice President, Worldwide Manufacturing, for Handspring since November 1998. From November 1996 to November 1998, he served as Director, Worldwide Manufacturing and Logistics at Palm. From February 1992 to November 1996, Mr. Gallucci served as Director of Materials at Bay Networks (now Nortel), a computer networking company. He holds a B.S. degree in marketing and an M.B.A. from Arizona State University. Ms. Baranski has served as Vice President, Engineering, of Handspring since September 1999. From January 1999 to August 1999, she served as a Product Development Manager at Set Engineering, Inc., a product development consulting company. She served as a Research and Development Manager for the Mobile Computing Division at Hewlett Packard Company from March 1996 to November 1998. Before that she served as Director of Product Development at Norand Corporation, a supplier of handheld computers to vertical markets, from June 1994 to February 1996, and as Vice President of Engineering at EO, Inc., a start-up PDA company, from 1990 to 1994. She holds B.S. and M.S. degrees in electrical engineering from Stanford University. Mr. Pine has served as Vice President and General Counsel since May 2000. From April 1996 to May 2000, Mr. Pine served with At Home Corporation, most recently as Senior Vice President and General Counsel and Secretary. From 1990 to March 1996, he was Vice President, General Counsel and Secretary of Radius Inc., a manufacturer of Macintosh computer peripherals. Mr. Pine also has served as a state legislator in the New Hampshire House of Representatives. Mr. Pine holds an A.B. degree in government from Dartmouth College and a J.D. degree from the University of Michigan Law School. Mr. Holtzman has served as Vice President, International, of Handspring since November 1999. From January 1998 to August 1999, he served as Vice President of Strategic Channels and International at Beyond.com, an e-commerce company. From July 1997 to January 1998, he served as an independent consultant for companies including Netscape, Palm and NetObjects. Mr. Holtzman served as Vice President of Asia - Latin America at Macromedia, Inc., a multimedia software company, from March 1995 to July 1997. He holds a B.S. in journalism from Boston University. Mr. Hartnett has served as Vice President, Distribution, Service and Support, of Handspring since February 2000. From July 1999 to February 2000, he served as Senior Vice President of Marketing, Support and Operations of MetaCreations, a creative web software company. Mr. Hartnett also served as Vice President of Worldwide Support and Operations for MetaCreations from December 1997 to July 1999 and Vice President of International Operations for MetaCreations from July 1996 to December 1997. Prior to joining MetaCreations, Mr. Hartnett was with Claris Corporation from 1992 to July 1996 where he most recently held the position of Director of International Operations. He holds a degree in marketing from the Marketing Institute of Ireland and a Post Graduate degree in finance through the ACCA and the University of Limerick. Ms. Tomlinson has served as Vice President, Human Resources, of Handspring since January 2000. From April 1996 to November 1999, she was Vice President of Human Resources at Edify Corporation, a self-service software company. From March 1995 to April 1996, she was Vice President of Human Resources for the Desktop Document Systems Division of Xerox Corporation. Ms. Tomlinson also served as Director of Human Resources at Synopsys, Inc., an electronic design automation software company, from June 1992 to March 1995. From July 1983 to June 1992, she held human resources management positions with Apple Computer, Inc. Ms. Tomlinson holds a B.A. degree in sociology from Pomona College. 42 44 Dr. Clark has served as a director of Handspring since April 2000. Dr. Clark is Dean of the Faculty and George F. Baker Professor of Administration at Harvard Business School, where he has been a member of the faculty since 1978. His current research focuses on modularity in design and the integration of technology and competition in industry evolution, with a particular focus on the computer industry. Earlier research has focused on the areas of technology, productivity, product development and operations strategy. He serves as a director of Guidant Corporation and Tower Automotive, Inc. Dr. Clark received his B.A., M.A. and Ph.D. degrees in economics from Harvard University. Mr. Doerr has served as a director of Handspring since October 1998. He has been a general partner of Kleiner Perkins Caufield & Byers since September 1980. Before his tenure at Kleiner Perkins, Mr. Doerr was employed by Intel Corporation for five years. He serves on the board of directors of Amazon.com, Inc., At Home Corporation, Drugstore.com, Epicore, Healtheon/WebMD, Homestore.com, Intuit Inc., Martha Stewart Living Omnimedia and Sun Microsystems, Inc. Mr. Doerr holds B.S.E.E. and M.E.E. degrees from Rice University and an M.B.A. from the Harvard Graduate School of Business Administration. Mr. Dunlevie has served as a director of Handspring since October 1998. Mr. Dunlevie has been a Managing Member of Benchmark Capital, a venture capital firm, since its founding in May 1995. From 1989 to 1995, Mr. Dunlevie was a general partner at Merrill, Pickard, Anderson & Eyre, a venture capital firm. Mr. Dunlevie has also served as Vice President and General Manager of the Personal Computer Division of Everex Systems, Inc., a personal computer manufacturer, and as an investment banker with Goldman, Sachs & Co. He is also a director of Wink Communications and Rambus, Inc. as well as several privately held companies. Mr. Dunlevie holds a B.A. degree from Rice University and an M.B.A. from the Stanford School of Business. Mr. Kertzman has served as a director of Handspring since April 2000. He has been President, Chief Executive Officer and a director of Liberate Technologies, an interactive TV software company, since November 1998. Prior to joining Liberate, Mr. Kertzman was a member of the board of directors of Sybase, Inc., a database company, from February 1995 to November 1998. He served as Chairman of Sybase's board of directors from July 1997 to November 1998. Between February 1998 and August 1998, he also served as Co-Chief Executive Officer of Sybase. From July 1996 until February 1997, Mr. Kertzman served as Chief Executive Officer of Sybase and, from July 1996 until July 1997, he also served as President of Sybase. Between February 1995 and July 1996 he served as an Executive Vice President of Sybase. In February 1995, Sybase merged with Powersoft Corporation, a provider of application development tools. Mr. Kertzman had served as Chief Executive Officer and a director of Powersoft since he founded it in 1974. He also served as President of Powersoft from April 1974 to June 1992. Mr. Kertzman also serves as a director of Chordiant Software, Inc., CNET Networks, Inc. and Extensity, Inc. COMPOSITION OF BOARD OF DIRECTORS Our board of directors currently consists of six directors. Upon completion of this offering, our board of directors will be divided into three classes that serve staggered three-year terms. The class I directors, initially Bruce W. Dunlevie and Kim B. Clark, will stand for reelection at the 2001 meeting of stockholders. The class II directors, initially Jeffrey C. Hawkins and L. John Doerr, will stand for reelection at the 2002 meeting of stockholders. The class III directors, initially Donna L. Dubinsky and Mitchell E. Kertzman, will stand for reelection at the 2003 meeting of stockholders. As a result, only one class of directors will be elected each year, while the directors in the other classes continue on the board for the remainder of their terms. This classification of our board could make it more difficult for a third party to acquire, or could discourage a third party from acquiring, control of Handspring. 43 45 COMMITTEES OF BOARD OF DIRECTORS Our board of directors has a compensation committee and an audit committee. Our compensation committee consists of Mr. Doerr and Mr. Dunlevie. The compensation committee reviews and makes recommendations to our board of directors concerning the salaries and incentive compensation of our officers and employees. Although the board of directors currently administers the issuance of stock options and other awards under our 1998 Equity Incentive Plan and 1999 Executive Equity Incentive Plan, the compensation committee will administer our 2000 Equity Incentive Plan and our 2000 Employee Stock Purchase Plan. The members of the audit committee are Dr. Clark, Mr. Dunlevie and Mr. Kertzman. The audit committee reviews and monitors our financial statements and accounting practices, makes recommendations to our board regarding the selection of independent auditors and reviews the results and scope of the audit and other services provided by our independent auditors. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee. DIRECTOR COMPENSATION None of the board members receives a fee for attending board or committee meetings. In April 2000, we granted an option for 37,500 shares of our common stock to each of Dr. Clark and Mr. Kertzman under our 1999 Executive Equity Incentive Plan. Each member of the board, who is not our employee, or an employee of a parent, subsidiary or affiliate of ours, will be considered an outside director and will be eligible to participate in our 2000 Equity Incentive Plan, which will become effective immediately upon the completion of this offering. Under this plan, the option grants to outside directors are automatic and nondiscretionary. Each outside director who first becomes a member of our board of directors on or after the date of this offering will automatically be granted an option to purchase 37,500 shares of our common stock on the date the outside director joins the board of directors. Immediately after each annual meeting of our stockholders, each director who is an outside director at that time will automatically be granted an additional option to purchase 11,250 shares if the director has served continuously as a member of our board since the date of the director's initial grant and for a period of at least one year before the annual meeting. The options granted to Dr. Clark and Mr. Kertzman and options granted in the future to outside directors under the 2000 Equity Incentive Plan have or will have an exercise price equal to the fair market value of our common stock on the date of grant. The options have or will have ten-year terms and will terminate three months after the date the director ceases to be a director or 12 months if the termination is due to death or disability. All options granted to outside directors vest over a four year period at a rate of 25% of the total shares granted on the first anniversary of the date of grant, and ratably over the next 36 months, so long as the outside director continuously remains our director or consultant. In the event of our dissolution or liquidation or a "change in control" transaction, options granted to our outside directors will become 100% vested and exercisable in full. 44 46 EXECUTIVE COMPENSATION The following table shows the total compensation received for services rendered to us during the fiscal year ended June 30, 1999 by our Chief Executive Officer and each of our other most highly compensated executive officers whose compensation in fiscal 1999 was more than $100,000. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ANNUAL ------------------- COMPENSATION SHARES OF COMMON ----------------- STOCK UNDERLYING NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS --------------------------- -------- ----- ------------------- Donna L. Dubinsky................................ $111,442 $-- -- President and Chief Executive Officer Jeffrey C. Hawkins............................... 111,442 -- -- Chief Product Officer Edward T. Colligan............................... 109,712 -- 6,057,693 Senior Vice President, Marketing and Sales
For fiscal 2000, Donna L. Dubinsky, Jeffrey C. Hawkins, Edward Colligan, Michael Gallucci and Celeste Baranski have an annual base salary of $150,000 and Bernard J. Whitney has an annual base salary of $180,000. OPTION GRANTS IN FISCAL 1999 The following table shows information about grants of stock options to those executive officers listed in the Summary Compensation Table above for the fiscal year ended June 30, 1999. The potential realizable value is calculated based on the ten-year term of the option and the market value at the time of grant. Stock price appreciation of 5% and 10% is assumed under rules of the Securities and Exchange Commission and does not represent our prediction of our stock price performance. The potential realizable values at 5% and 10% appreciation are calculated by - Multiplying the number of shares of common stock subject to the option by the assumed initial public offering price of $20.50 per share; - Assuming that the total stock value derived from that calculation compounds at the annual 5% or 10% rate shown in the table until the expiration of the options; and - Subtracting from that result the total option exercise price. The option listed in the following table is immediately exercisable. The option vested as to 25% of the total shares on October 8, 1999 and vests ratably over the next 36 months. The option has a ten-year term, subject to earlier termination if the option holder's service with us ceases.
POTENTIAL REALIZABLE INDIVIDUAL GRANTS VALUE AT ASSUMED --------------------------------------------------- ANNUAL RATES NUMBER OF PERCENT OF OF STOCK PRICE SHARES OF TOTAL OPTIONS APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OPTION TERM OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------- NAME GRANTED FISCAL 1999 PER SHARE DATE 5% 10% ---- ---------- ------------- --------- ---------- ------------ ------------ Donna L. Dubinsky......... -- --% $ -- -- $ -- $ -- Jeffrey C. Hawkins........ -- -- -- -- -- -- Edward T. Colligan........ 6,057,693 33.6 0.05 10/11/08 201,997,659 321,795,074
45 47 AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES The table below shows information regarding shares acquired upon exercise of options in fiscal 1999 and about options held as of June 30, 1999 by the officers indicated below. There was no public trading market for our common stock as of June 30, 1999. Accordingly, the values in the table have been calculated on the basis of an assumed initial public offering price of $20.50 per share less the applicable exercise price.
NUMBER OF NUMBER OF SHARES VALUE OF UNEXERCISED SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS ACQUIRED OPTIONS AT JUNE 30, 1999 AT JUNE 30, 1999 ON VALUE ---------------------------- ----------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- --------- ----------- ----------- ------------- ------------ ------------- Donna L. Dubinsky..... -- $ -- -- -- $ -- $-- Jeffrey C. Hawkins.... -- -- -- -- -- -- Edward T. Colligan.... 900,000 18,405,000 5,157,693 -- 105,474,822 --
CHANGE OF CONTROL ARRANGEMENTS In August 1998, we entered into founder's restricted stock purchase agreements with Donna L. Dubinsky and Jeffrey C. Hawkins. Ms. Dubinsky purchased 22,050,000 shares of our common stock subject to our right to repurchase 80% of the shares upon termination of her employment. Mr. Hawkins purchased 40,950,000 shares of our common stock subject to our right to repurchase 80% of the shares upon termination of his employment. Under these agreements, our right of repurchase lapsed as to an additional 20% of the shares in July 1999 and lapses as to the remainder in equal monthly installments until July 2002. If we are acquired by or sell all or substantially all of our assets to another entity, the vesting on the shares held by Ms. Dubinsky and Mr. Hawkins will accelerate so that our right of repurchase will lapse on an additional 25% of the shares. In October 1998, we issued an option to Edward T. Colligan, our Vice President, Marketing and Sales, to purchase 6,057,693 shares of our common stock. The option was immediately exercisable in full. The option vested as to 25% of the shares in October 1999. The remaining shares vest in equal monthly installments until October 2002. Unvested shares issued upon exercise of the option are subject to our right of repurchase upon termination of Mr. Colligan's employment. Under the option agreement, if we are acquired by or sell all or substantially all of our assets to another entity, the vesting on the shares held by Mr. Colligan will accelerate so that our right of repurchase will lapse on an additional 25% of the shares. In June 1999, we issued an option to Bernard J. Whitney, our Chief Financial Officer, to purchase 1,350,000 shares of our common stock. The option becomes exercisable over three years. In August 1999, we issued an option to Mr. Whitney to purchase 46,516 shares of our common stock. The option was immediately exercisable in full. Both of these options vest as to 25% of the shares on the first anniversary of the grant date. The remaining shares vest in equal monthly installments over a period of three years. Unvested shares issued upon exercise of the option are subject to our right of repurchase upon termination of Mr. Whitney's employment. Under the option agreement, if we are acquired by or sell all or substantially all of our assets to another entity, the vesting on the shares held by Mr. Whitney will accelerate in full, so that both options will be immediately exercisable in full and our right of repurchase will lapse on all of the shares. EMPLOYEE BENEFIT PLANS 1998 Equity Incentive Plan. As of April 1, 2000, options to purchase 15,801,356 shares of our common stock were outstanding under our 1998 Equity Incentive Plan, 9,002,078 shares had been issued upon exercise of options and 3,904,259 shares of our common stock remained available for 46 48 issuance upon the exercise of options that may be granted in the future. The options outstanding as of April 1, 2000 had a weighted average exercise price of $0.71 per share. Our 2000 Equity Incentive Plan will be effective upon the effectiveness of this offering. As a result, no options will be granted under our 1998 Equity Incentive Plan after this offering. However, any outstanding options under our 1998 Equity Incentive Plan will remain outstanding and subject to our 1998 Equity Incentive Plan and stock option agreement until exercise or until they terminate or expire by their terms. Options granted under our 1998 Equity Incentive Plan are subject to terms substantially similar to those described below with respect to options granted under our 2000 Equity Incentive Plan. 1999 Executive Equity Incentive Plan. As of April 1, 2000, options to purchase 4,883,643 shares of our common stock were outstanding under our 1999 Executive Equity Incentive Plan, 1,719,373 shares had been issued upon exercise of options and 3,746,984 shares of our common stock remained available for issuance upon the exercise of options that may be granted in the future. The options outstanding as of April 1, 2000 had a weighted average exercise price of $1.91 per share. Our 2000 Equity Incentive Plan will be effective upon the effectiveness of this offering. As a result, no options will be granted under our 1999 Executive Equity Incentive Plan after this offering. However, any outstanding options under our 1999 Executive Equity Incentive Plan will remain outstanding and subject to our 1999 Executive Equity Incentive Plan and stock option agreement until exercise or until they terminate or expire by their terms. Options granted under our 1999 Executive Equity Incentive Plan are subject to terms substantially similar to those described below with respect to options granted under our 2000 Equity Incentive Plan. 2000 Equity Incentive Plan. In April 2000, our board of directors adopted and in May 2000 our stockholders approved the 2000 Equity Incentive Plan subject to stockholder approval. The 2000 Equity Incentive Plan will become effective on the date of this prospectus and will serve as the successor to our 1998 Equity Incentive Plan and 1999 Executive Equity Incentive Plan. The 2000 Equity Incentive Plan authorizes the award of options, restricted stock and stock bonuses. The 2000 Equity Incentive Plan will be administered by the compensation committee of our board of directors, which consists of Mr. Doerr and Mr. Dunlevie, each of whom is an outside director as defined under applicable federal tax laws. The compensation committee will have the authority to interpret this plan and any agreement entered into under the plan, grant awards and make all other determinations for the administration of the plan. Our 2000 Equity Incentive Plan will provide for the grant of both incentive stock options that qualify under Section 422 of the Internal Revenue Code and nonqualified stock options. The incentive stock options may be granted only to our employees or employees of any of our subsidiaries. The nonqualified stock options, and all awards other than incentive stock options, may be granted to our employees, officers, directors, consultants, independent contractors and advisors and those of any of our subsidiaries. However, consultants, independent contractors and advisors are only eligible to receive awards if they render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of incentive stock options must be at least equal to the fair market value of our common stock on the date of grant. The exercise price of incentive stock options granted to 10% stockholders must be at least equal to 110% of the fair market value of our common stock on the date of grant. The exercise price of nonqualified stock options must be at least equal to 85% of the fair market value of our common stock on the date of grant. The maximum term of the options granted under our 2000 Equity Incentive Plan is ten years. The awards granted under this plan may not be transferred in any manner other than by will or by the laws of descent and distribution and options may be exercised during the lifetime of the option holder only by the option holder. The compensation committee may allow exceptions to this 47 49 restriction for awards that are not incentive stock options. Options granted under our 2000 Equity Incentive Plan generally expire three months after the termination of the option holder's service to us or to a parent or subsidiary of ours, or 12 months if the termination is due to death or disability. If an option holder is terminated for cause, then options granted to that holder will expire immediately on the date of termination. In the event of a liquidation, dissolution or "change in control" transaction, except for options granted to non-employee directors, all outstanding options may be assumed or substituted by the successor company. If, within one year after a change in control, an option holder is terminated without cause, then the vesting of that option holder's option will accelerate so that an additional 25% of the option holder's shares become vested. The vesting of options granted to non-employee directors will accelerate in full upon a change in control transaction. We have reserved 15,000,000 shares of our common stock for issuance under the 2000 Equity Incentive Plan. The number of shares reserved for issuance under this plan will be increased to include: - any shares of our common stock reserved under our 1998 Equity Incentive Plan and 1999 Executive Equity Incentive Plan that are not issued or subject to outstanding grants on the date of this prospectus; - any shares of our common stock issued under our 1998 Equity Incentive Plan and 1999 Executive Equity Incentive Plan that are repurchased by us at the original purchase price; and - any shares of our common stock issuable upon exercise of options granted under our 1998 Equity Incentive Plan and 1999 Executive Equity Incentive Plan that expire or become unexercisable without having been exercised in full at any time after this offering. In addition, under the terms of the 2000 Equity Incentive Plan, the number of shares of our common stock reserved for issuance under the plan will increase automatically on January 1 of each year by an amount equal to 5% of our total outstanding shares of common stock as of the immediately preceding December 31. Shares available for grant and issuance under our 2000 Equity Incentive Plan include: - shares of our common stock issuable upon exercise of an option granted under this plan that is terminated or cancelled before the option is exercised; - shares of our common stock issued upon exercise of any option granted under this plan that we repurchase at the original purchase price; - shares of our common stock subject to awards granted under this plan that are forfeited or repurchased by us at the original issue price; and - shares of our common stock subject to stock bonuses granted under this plan that otherwise terminate without shares being issued. During any calendar year, no person will be eligible to receive more than 3,000,000 shares, or 4,500,000 shares in the case of a new employee, under the 2000 Equity Incentive Plan. The 2000 Equity Incentive Plan will terminate in March 2010, unless it is terminated earlier by our board of directors. 2000 Employee Stock Purchase Plan. In April 2000, our board of directors adopted and in May 2000 our stockholders approved the 2000 Employee Stock Purchase Plan. The 2000 Employee Stock Purchase Plan will become effective on the first day on which price quotations are available for our common stock on The Nasdaq National Market. The employee stock purchase plan is designed to enable eligible employees to purchase shares of our common stock at a discount on a periodic basis through payroll deductions. 48 50 Our compensation committee will administer the 2000 Employee Stock Purchase Plan. Our employees generally will be eligible to participate in this plan if they are employed by us, or a subsidiary of ours that we designate, for more than 20 hours per week and more than five months in a calendar year. Our employees are not eligible to participate in our 2000 Employee Stock Purchase Plan if they are 5% stockholders or would become 5% stockholders as a result of their participation in the plan. Under the 2000 Employee Stock Purchase Plan, eligible employees may acquire shares of our common stock through payroll deductions. Our eligible employees may select a rate of payroll deduction between 1% and 10% of their cash compensation. An employee's participation in this plan will end automatically upon termination of employment for any reason. No participant will be able to purchase shares having a fair market value of more than $25,000, determined as of the first day of the applicable offering period, for each calendar year in which the employee participates in the 2000 Employee Stock Purchase Plan. Except for the first offering period, each offering period will be for two years and will consist of four six-month purchase periods. The first offering period is expected to begin on the first business day on which price quotations for our common stock are available on The Nasdaq National Market. The first purchase period may be more or less than six months long. After that, the offering periods will begin on January 31 and July 31. The purchase price for shares of our common stock purchased under the 2000 Employee Stock Purchase Plan will be 85% of the lesser of the fair market value of our common stock on the first day of the applicable offering period or the last day of each purchase period. Our compensation committee will have the power to change the starting date of any later offering period, the purchase date of a purchase period and the duration of any offering period or purchase period without stockholder approval if this change is announced before the relevant offering period or purchase period. Our 2000 Employee Stock Purchase Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code. We have initially reserved 750,000 shares of our common stock for issuance under the 2000 Employee Stock Purchase Plan. The number of shares reserved for issuance under the plan will increase automatically on January 1 of each year by an amount equal to 1% of our total outstanding shares as of the immediately preceding December 31. Our board of directors or compensation committee may reduce the amount of the increase in any particular year. The 2000 Employee Stock Purchase Plan will terminate in March 2010, unless it is terminated earlier by our board of directors. 401(k) Plan. We sponsor a defined contribution plan intended to qualify under Section 401 of the Internal Revenue Code, or a 401(k) plan. Employees are generally eligible to participate and may enter the plan on the first day of the plan year in which the employee met the eligibility requirements. Participants may make pre-tax contributions to the plan of a percentage of their eligible compensation, not to exceed the limits allowable under the Internal Revenue Code. Each participant is fully vested in his or her contributions and the investment earnings. The plan does not provide for any matching contributions by us. Contributions by the participants to the plan, and the income earned on these contributions, are generally not taxable to the participants until withdrawn. Participant contributions are held in trust as required by law. Individual participants may direct the trustee to invest their accounts in authorized investment alternatives. INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION ON LIABILITY Our certificate of incorporation provides that our directors shall not be liable to us or our stockholders for monetary damages for any breach of fiduciary duty, except to the extent otherwise required by the Delaware General Corporation Law. This provision will not prevent our stockholders 49 51 from obtaining injunctive or other relief against our directors nor does it shield our directors from liability under federal or state securities laws. Our bylaws require us to indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to certain very limited exceptions where indemnification is not permitted by applicable law. Our bylaws also require us to advance expenses, as incurred, to our directors and executive officers in connection with any legal proceeding to the fullest extent permitted by the Delaware General Corporation Law. These rights are not exclusive. In addition to the indemnification provisions contained in our bylaws, before the completion of this offering, we intend to enter into indemnity agreements with each of our current directors and executive officers. These agreements will provide for the indemnification of our executive officers and directors for all expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were agents of Handspring. We also intend to obtain directors' and officers' insurance to cover our directors, executive officers and some of our employees for specific liabilities, including public securities matters. We believe that these indemnification provisions and agreements and this insurance are necessary to attract and retain qualified directors and officers. The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and other stockholders. Furthermore, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification by Handspring is sought, nor are we aware of any threatened litigation that may result in claims for indemnification. 50 52 RELATED PARTY TRANSACTIONS Other than the transactions described in "Management" and the transactions described below, since our inception there has not been nor is there currently proposed any transaction or series of similar transactions to which we were or will be a party in which the amount involved exceeded or will exceed $60,000 and in which any director, executive officer, holder of more than 5% of our common stock or any member of his or her immediate family had or will have a direct or indirect material interest. TRANSACTIONS WITH PROMOTERS In August 1998, we sold 40,950,000 shares of common stock to Jeffrey C. Hawkins and 22,050,000 shares of common stock to Donna L. Dubinsky at a price per share of $0.00111 under restricted stock purchase agreements. On the same day that they purchased their shares, Mr. Hawkins and Ms. Dubinsky transferred their shares to trusts of which they are trustees. At the time of issuance, 80% of the shares held by Mr. Hawkins and Ms. Dubinsky were unvested and subject to our right of repurchase upon termination of their employment. On July 13, 1999, this right of repurchase expired as to an additional 20% of the shares, and continues to expire as to an additional 1.667% of the shares each following month so long as we continue to employ Mr. Hawkins and Ms. Dubinsky, as applicable. If we are acquired by, or sell all or substantially all of our assets to, another entity, then our right of repurchase with respect to the shares held by Mr. Hawkins and Ms. Dubinsky will expire as to an additional 25% of the shares. On or before July 13, 2002, the right of repurchase will expire in full. Jeffrey C. Hawkins loaned us $300,000 under a three-month unsecured promissory note dated October 1, 1998 bearing interest at a rate of 5.6% annually. We repaid this loan in full, with interest, on October 26, 1998. ISSUANCE OF SERIES A PREFERRED STOCK In October 1998, we sold a total of 8,076,924 shares of Series A preferred stock at a price per share of $2.23 to the following investors: - entities affiliated with Kleiner Perkins Caufield & Byers VIII, L.P., which purchased a total of 4,038,462 shares of Series A preferred stock, which is convertible into 18,173,079 shares of common stock, for a total purchase price of $9.0 million. These entities hold more than 5% of our capital stock and L. John Doerr, one of our directors, is a general partner of KPCB VIII Associates, L.P., which is a general partner of Kleiner Perkins Caufield & Byers VIII, L.P.; and - Benchmark Capital Partners II, L.P., which purchased a total of 4,038,462 shares of Series A preferred stock, which is convertible into 18,173,079 shares of common stock, for a total purchase price of $9.0 million as nominee for several affiliated entities. These entities hold more than 5% of our capital stock and Bruce W. Dunlevie, one of our directors, is a managing member of Benchmark Capital Management Co. II, L.L.C., which is a general partner of Benchmark Capital Partners II, L.P. ISSUANCE OF SERIES B PREFERRED STOCK In July 1999, we sold a total of 928,506 shares of Series B preferred stock at a price per share of $10.77 to the following investors: - QUALCOMM Incorporated, which purchased a total of 649,954 shares of Series B preferred stock, which is convertible into 2,924,793 shares of common stock, for a total purchase price of $7.0 million. QUALCOMM licenses CDMA technology to us; 51 53 - entities affiliated with Kleiner Perkins Caufield & Byers VIII, L.P., which purchased a total of 139,276 shares of Series B preferred stock, which is convertible into 626,742 shares of common stock, for a total purchase price of $1.5 million; and - Benchmark Capital Partners II, L.P., which purchased a total of 139,276 shares of Series B preferred stock, which is convertible into 626,742 shares of common stock, for a total purchase price of $1.5 million as nominee for several affiliated entities. INVESTORS RIGHTS AGREEMENT In connection with our issuances of Series A preferred stock and Series B preferred stock, we have entered into an investors rights agreement granting the holders of the preferred stock registration rights with respect to the common stock issuable upon conversion of their preferred stock. Their registration rights are described in more detail under "Description of Capital Stock -- Registration Rights." 52 54 PRINCIPAL STOCKHOLDERS The following table sets forth information regarding the beneficial ownership of our common stock as of April 1, 2000, and as adjusted to reflect the sale of the shares in this offering for: - each person known by us to own beneficially more than 5% of our of common stock; - each of our directors; - each executive officer listed in the Summary Compensation Table above; and - all directors and executive officers as a group. The percentage of beneficial ownership for the following table is based on 115,253,728 shares of common stock outstanding on April 1, 2000, assuming the conversion of all outstanding shares of preferred stock into common stock, and 125,253,728 shares of common stock outstanding after the completion of this offering, including the exercise of right to purchase 895,342 shares of common stock in May 2000, and assuming no exercise of the underwriters' over-allotment option. Unless otherwise indicated below, to our knowledge, all persons and entities listed below have sole voting and investment power over their shares of common stock, except to the extent that individuals share authority with spouses under applicable law. Unless otherwise indicated, each entity or person listed below maintains a mailing address of c/o Handspring, Inc., 189 Bernardo Avenue, Mountain View, California 94043. The number of shares beneficially owned by each stockholder is determined in accordance with the rules of the Securities and Exchange Commission and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of common stock over which the stockholder exercises sole or shared voting or investment power. It also includes shares of common stock that the stockholder has a right to acquire within 60 days after January 1, 2000 through the exercise of any option. The percentage ownership of the outstanding common stock, however, is based on the assumption, expressly required by the rules of the Securities and Exchange Commission, that only the person or entity whose ownership is being reported has converted options into shares of common stock.
NUMBER OF PERCENT BENEFICIALLY OWNED SHARES BENEFICIALLY --------------------------------- NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING ------------------------ ------------------- --------------- -------------- Jeffrey C. Hawkins(1)..................... 40,932,000 35.5% 32.7% Donna L. Dubinsky(2)...................... 22,032,000 19.1 17.6 L. John Doerr(3).......................... 18,799,821 16.3 15.0 Kleiner Perkins Caufield & Byers 2750 Sand Hill Road Menlo Park, California 94205 Bruce W. Dunlevie(4)...................... 18,799,821 16.3 15.0 Benchmark Capital Partners II, L.P. 2480 Sand Hill Road Menlo Park, California 94205 Edward T. Colligan(5)..................... 6,012,693 5.0 4.6 Kim B. Clark(6)........................... -- -- Mitchell E. Kertzman(6)................... -- -- Executive officers and directors as a group (11 persons)(7)................... 110,218,004 90.0 83.2
53 55 - ------------------------- (1) Includes 40,684,500 shares held of record by Mr. Hawkins and his spouse as trustees under the Strauss-Hawkins Trust Agreement dated April 17, 1991 of which 19,108,908 shares are subject to a lapsing repurchase right. Also includes 247,500 shares held of record by various charitable trusts for which Mr. Hawkins is the trustee. (2) Represents shares held of record by Ms. Dubinsky as trustee under the Amended and Restated Dubinsky Trust Agreement dated May 23, 1995, of which 10,289,412 shares are subject to a lapsing repurchase right. (3) Represents 17,325,915 shares held by Kleiner Perkins Caufield & Byers VIII, L.P., 1,003,911 shares held by KPCB VIII Founders Fund, L.P. and 469,995 shares held by KPCB Information Sciences Zaibatsu Fund II, L.P. Mr. Doerr is a general partner of KPCB VIII Associates, L.P., which is a general partner of Kleiner Perkins Caulfield & Byers VIII, L.P. (4) Represents 18,799,821 shares held by Benchmark Capital Partners II, L.P. as nominee for Benchmark Capital Partners II, L.P., Benchmark Founders' Fund II, L.P., Benchmark Founders' Fund II-A, L.P. and Benchmark Members' Fund II, L.P. Mr. Dunlevie is a Managing Member of Benchmark Capital Management Co. II, LLC, the general partner of Benchmark Capital Partners II, L.P., Benchmark Founders' Fund II, L.P., Benchmark Founders' Fund II-A, L.P. and Benchmark Members' Fund II, L.P. Mr. Dunlevie disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest in the Benchmark funds. (5) Represents 855,000 shares held by Mr. Colligan and his spouse and 5,157,693 shares subject to fully exercisable options held by Mr. Colligan. (6) Dr. Clark and Mr. Kertzman were appointed to the board of directors in April 2000. (7) Includes 1,561,500 shares held by our executive officers who were not individually listed in this table, of which 1,272,116 shares are subject to a lapsing repurchase right, and 7,237,862 shares subject to exercisable options held by Mr. Colligan and the other executive officers who were not individually listed in this table. 54 56 DESCRIPTION OF CAPITAL STOCK Immediately after the closing of this offering, our authorized capital stock will consist of 1,000,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. As of April 1, 2000, including the exercise of a right to purchase 895,342 shares of common stock in April 2000, and assuming the conversion of all outstanding shares of preferred stock into common stock immediately prior to the closing of this offering there were outstanding 115,253,728 shares of common stock, held of record by approximately 116 stockholders. We also had outstanding options to purchase 20,684,999 shares of common stock. COMMON STOCK Each holder of common stock is entitled to one vote for each share on all matters to be voted upon by the stockholders. There are no cumulative voting rights. Subject to preferences to which holders of preferred stock issued after the sale of the common stock in this offering may be entitled, holders of common stock will be entitled to receive ratably any dividends that may be declared from time to time by the board of directors out of funds legally available for that purpose. In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share in our assets remaining after the payment of liabilities and the satisfaction of any liquidation preference granted to the holders of any shares of preferred stock that may be outstanding. Holders of common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions that apply to the common stock. All shares of common stock outstanding are, and the shares of common stock offered in this offering, when they are issued and paid for will be, fully paid and nonassessable. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate in the future. PREFERRED STOCK Upon the closing of this offering, the board of directors will be authorized, subject to any limitations imposed by law, without stockholder approval, from time to time to issue up to a total of 10,000,000 shares of preferred stock, par value $0.001 per share, in one or more series, each series to have rights and preferences, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as the board of directors may determine. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of our voting stock outstanding. We have no present plans to issue any shares of preferred stock. REGISTRATION RIGHTS We entered into an Investors' Rights Agreement with our preferred stockholders that grants rights for registration under the Securities Act to the holders of 40,524,435 shares of our common stock upon the completion of this offering. At any time after six months after the effective date of this offering, the holders of a majority of the shares that have registration rights can request that we register all or a portion of their shares as long as the total offering price of the shares to the public in that offering is at least $20.0 million. We are required to file up to two registration statements under this right. The holders of shares that have registration rights can request that we register their shares if we are eligible to file a registration statement on Form S-3 and if the total price of the shares offered to the public is at least $2.0 million. We could be required to file one Form S-3 registration statement in any period of 12 months. 55 57 In addition, the stockholders with registration rights have the right to include their shares in any registration statement that we file, except for registration statements that cover an employee benefit plan or a corporate reorganization. These stockholders have waived their rights with respect to this offering. If marketing reasons dictate, the managing underwriter of any underwritten offering will have the right to limit the number of shares registered for these holders in the registration to 25% of the total shares covered by the registration statement. We will pay all expenses incurred in connection with these registration statements, except for underwriters' and brokers' discounts and commissions, which the selling stockholders will pay. The registration rights expire for any particular stockholder if the stockholder can sell all of its shares in one period of three months under Rule 144 under the Securities Act. The registration rights expire for all stockholders five years after completion of this offering. ANTI-TAKEOVER EFFECTS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW Provisions of our restated certificate of incorporation and bylaws that will be in effect after this offering may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions: - divide our board of directors into three classes serving staggered three-year terms; - eliminate the right of stockholders to act by written consent without a meeting; - eliminate the right of stockholders to call special meetings of stockholders; - eliminate cumulative voting in the election of directors; - allow us to issue preferred stock without any vote or further action by the stockholders; and - require approval of at least two-thirds of the outstanding shares of common stock to remove a director. The classification system of electing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us and may maintain the incumbency of our board of directors, as the classification of the board of directors increases the difficulty of replacing a majority of the directors. These provisions may have the effect of deterring hostile takeovers, or delaying changes in our control or management, or may make it more difficult for stockholders to take certain corporate actions. The amendment of any of these provisions would require approval by holders of at least two-thirds of the outstanding common stock. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which, subject to some exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder unless specified conditions are met. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for our common stock is EquiServe Trust Company, N.A. LISTING We have applied to list our common stock on The Nasdaq Stock Market's National Market under the trading symbol "HAND." 56 58 SHARES ELIGIBLE FOR FUTURE SALE The sale of a substantial amount of our common stock, including shares issued upon exercise of outstanding options, in the public market after this offering could cause a decline in the prevailing market price of our common stock. Furthermore, because no shares will be available for sale shortly after this offering due to the contractual restrictions on resale described in the section entitled "Underwriting" and the legal restrictions on resale described below, the sale of a substantial amount of common stock in the public market after these restrictions lapse could adversely affect the prevailing market price of our common stock and our ability to raise equity capital in the future. Upon completion of this offering, we will have 125,253,728 shares of common stock outstanding, based on shares of common stock outstanding as of April 1, 2000, including the exercise of a right to purchase 895,342 shares of common stock in May 2000, and assuming no exercise of the underwriters' over-allotment option. Of these shares, all of the 10,000,000 shares of our common stock sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless the shares are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. Any shares purchased by an affiliate may not be resold except under an effective registration statement or an exemption from registration, including an exemption under Rule 144 of the Securities Act. The remaining 115,253,728 shares of common stock held by existing stockholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act. Of these shares, 102,980,142 shares are held by our directors, executive officers and other affiliates, and are subject to volume limitations under Rule 144 and various vesting agreements. These restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act. These rules are summarized below. All of the remaining shares of common stock that constitute restricted securities held by existing stockholders are subject to contractual restrictions on resale as described more fully in the section entitled "Underwriting." Upon the expiration of the contractual restrictions on resale described in the section entitled "Underwriting" and subject to various vesting agreements and the provisions of Rule 144 and Rule 701, 115,253,728 restricted shares of common stock will be available for sale in the public market beginning 180 days after the date of this prospectus. The sale of these restricted securities is subject, in the case of shares held by affiliates, to the volume restrictions contained in Rule 144. RULE 144 In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year from the later of the date those shares of common stock were acquired from us or from an affiliate of ours would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: (1) one percent of the number of shares of common stock then outstanding, which will equal approximately 1,252,537 shares immediately after this offering; or (2) the average weekly trading volume of the common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale of any shares of common stock. Sales of shares under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. Affiliates may sell shares not constituting restricted securities in accordance with the volume limitations and other restrictions, but without regard to the one-year holding period. 57 59 RULE 144(k) In addition, under Rule 144(k), a person who is not one of our affiliates at any time during the three months before a sale, and who has beneficially owned the shares proposed to be sold for at least two years from the later of the date the shares were acquired from us or from an affiliate of ours, including the holding period of any previous owner other than an affiliate, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. RULE 701 In general, under Rule 701 under the Securities Act as currently in effect, each of our employees, consultants or advisors who purchased shares from us in connection with a compensatory stock plan or other written agreement is eligible to resell those shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144. 58 60 UNDERWRITING Under the terms and subject to the conditions contained in the underwriting agreement dated , 2000, we have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and U.S. Bancorp Piper Jaffray Inc. are acting as representatives, the following respective numbers of shares of common stock:
NUMBER OF SHARES UNDERWRITER ---------- Credit Suisse First Boston Corporation...................... Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... Donaldson, Lufkin & Jenrette Securities Corporation......... U.S. Bancorp Piper Jaffray Inc. ............................ ---------- Total............................................. 10,000,000 ==========
The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults the purchase commitments of non-defaulting underwriters may be increased or the offering of common stock may be terminated. We have granted to the underwriters a 30-day option to purchase on a pro rata basis up to 1,500,000 additional shares from us at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock. The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker/dealers. After the initial public offering, the public offering price and concession and discount to broker/dealers may be changed by the representatives. The following table summarizes the compensation and estimated expenses we will pay.
Per Share Total ------------------------------- ------------------------------- Without With Without With Over-allotment Over-allotment Over-allotment Over-allotment -------------- -------------- -------------- -------------- Underwriting discounts and commissions paid by us............ $ $ $ $ Expenses payable by us.............. $ $ $ $
The underwriters have informed us that they do not expect discretionary sales to exceed 5% of the shares of common stock being offered. We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus, except in the 59 61 case of issuances pursuant to the exercise of employee stock options outstanding on the date of this prospectus. Our officers and directors and the holders of substantially all our common stock have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any such aforementioned transaction is to be settled by delivery of our common stock or such other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any such transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus. The underwriters have reserved for sale, at the initial public offering price, up to 300,000 shares of common stock for business partners, such as suppliers, developers and consultants, who have expressed an interest in purchasing common stock in the offering. The number of shares available for sale to the general public in the offering will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares. We have agreed to indemnify the underwriters against liabilities under the Securities Act, or contribute to payments which the underwriters may be required to make in that respect. We have applied to list the shares of common stock on The Nasdaq Stock Market's National Market under the symbol "HAND." Prior to this offering, there has been no public market for the common stock. The initial public offering price will be determined by negotiation between us and the underwriters. The principal factors to be considered in determining the public offing price include: - the information set forth in this prospectus and otherwise available to the underwriters; - the history and the prospects for the industry in which we will compete; - the ability of our management; - the prospects for our future earnings; - the present state of our development and our current financial condition; - the general condition of the securities markets at the time of this offering; and - the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies. The representatives may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act. - Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. - Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. - Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. - Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by such syndicate member is purchased in a syndicate covering transaction to cover syndicate short positions. 60 62 These stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the common stock to be higher than it would otherwise be in the absence of these transactions. These transactions may be effected on The Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. A prospectus in electronic format may be made available on the Web sites maintained by one or more of the underwriters participating in this offering. The representatives may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters that will make Internet distributions on the same basis as other allocations. 61 63 NOTICE TO CANADIAN RESIDENTS RESALE RESTRICTIONS The distribution of the common stock in Canada is being made only on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are effected. Accordingly, any resale of the common stock in Canada must be made in accordance with applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with available statutory exemptions or pursuant to a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock. REPRESENTATIONS OF PURCHASERS Each purchaser of common stock in Canada who receives a purchase confirmation will be deemed to represent to us and the dealer from whom the purchase confirmation is received that (i) the purchaser is entitled under applicable provincial securities laws to purchase the common stock without the benefit of a prospectus qualified under such securities laws, (ii) where required by law, that such purchaser is purchasing as principal and not as agent, and (iii) the purchaser has reviewed the text above under "Resale Restrictions." RIGHTS OF ACTION (ONTARIO PURCHASERS) The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual right of action prescribed by Ontario securities law. As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damages or rescission or rights of action under the civil liability provisions of the U.S. federal securities laws. ENFORCEMENT OF LEGAL RIGHTS All of the issuer's directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon the issuer or such persons. All or a substantial portion of the assets of the issuer and such persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or such persons in Canada or to enforce a judgment obtained in Canadian courts against such issuer or persons outside of Canada. NOTICE TO BRITISH COLUMBIA RESIDENTS A purchaser of common stock to whom the Securities Act (British Columbia) applies is advised that such purchaser is required to file with the British Columbia Securities Commission a report within ten days of the sale of any common stock acquired by the purchaser in this offering. Such report must be in the form attached to British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one such report must be filed in respect of common stock acquired on the same date and under the same prospectus exemption. TAXATION AND ELIGIBILITY FOR INVESTMENT Canadian purchasers of common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the common stock in their particular circumstances and with respect to the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation. 62 64 LEGAL MATTERS Fenwick & West LLP, Palo Alto, California, will pass upon the validity of the common stock that we are selling in this offering. Davis Polk & Wardwell, Menlo Park, California, is representing the underwriters. EXPERTS The financial statements as of June 30, 1999 and April 1, 2000 and for the period from July 29, 1998 (date of inception) to June 30, 1999 and the nine month period ended April 1, 2000 have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. WHERE YOU MAY FIND MORE INFORMATION We have filed with the Securities and Exchange Commission a Registration Statement on Form S-1, including exhibits and schedule, under the Securities Act with respect to the common stock to be sold in this offering. This prospectus, which constitutes a part of the Registration Statement, does not contain all of the information that is in the Registration Statement or the exhibits and schedule. Any statements made in this prospectus as to the contents of any contract, agreement or other document are not necessarily complete. With respect to each contract, agreement or other document filed as an exhibit to the Registration Statement, we refer you to the exhibit for a more complete description of the matter involved, and each statement in this prospectus is qualified in its entirety by this reference. You may read and copy all or any portion of the Registration Statement or any reports, statements or other information at the following public reference facilities of the Securities and Exchange Commission: Washington, D.C. New York, New York Chicago, Illinois Room 1024, Judiciary Plaza Seven World Trade Center 500 West Madison Street 450 Fifth Street, N.W. Suite 1300 Suite 1400 Washington, D.C., 20549 New York, New York 10048 Chicago, Illinois 60661
You can request copies of these documents upon payment of a duplicating fee by writing to the Commission. You may call the Commission at 1-800-SEC-0330 for further information on the operation of its public reference rooms. Our filings, including the Registration Statement, will also be available to you on the Web site maintained by the Commission at sec.gov. We intend to furnish our stockholders with annual reports containing financial statements audited by our independent auditors, and make available to our stockholders quarterly reports for the first three quarters of each year containing unaudited interim financial statements. 63 65 HANDSPRING, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Accountants........................... F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Operations....................... F-4 Consolidated Statements of Stockholders' Deficit and Comprehensive Loss........................................ F-5 Consolidated Statements of Cash Flows....................... F-6 Notes to Consolidated Financial Statements.................. F-7
F-1 66 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Handspring, Inc. In our opinion, the accompanying balance sheets and the related statements of operations, of stockholders' deficit and comprehensive loss and of cash flows present fairly, in all material respects, the financial position of Handspring, Inc. at June 30, 1999 and April 1, 2000 and the results of its operations and its cash flows for the period from July 29, 1998 (date of inception) to June 30, 1999 and for the nine months ended April 1, 2000, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP San Jose, California May 16, 2000 F-2 67 HANDSPRING, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
PRO FORMA JUNE 30, 1999 APRIL 1, 2000 APRIL 1, 2000 ------------- ------------- ------------- ASSETS Current assets: Cash and cash equivalents.............................. $ 7,533 $ 17,407 $ 18,907 Short-term investments................................. 6,234 -- -- Accounts receivable, net............................... -- 13,736 13,736 Prepaid expenses and other current assets.............. 616 1,688 1,688 ------- -------- -------- Total current assets................................ 14,383 32,831 34,331 Property and equipment, net.............................. 1,034 5,033 5,033 Other assets............................................. 214 787 787 ------- -------- -------- Total assets........................................ $15,631 $ 38,651 $ 40,151 ======= ======== ======== LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable....................................... $ 1,208 $ 17,007 $ 17,007 Accrued liabilities.................................... 67 9,527 9,527 ------- -------- -------- Total current liabilities........................... 1,275 26,534 26,534 Long-term liabilities.................................... -- 64 64 Redeemable convertible preferred stock, $0.001 par value per share, 9,300,000 shares authorized actual and pro forma, 8,076,924 and 9,005,430 shares issued and outstanding at June 30, 1999 and April 1, 2000, respectively; no shares issued or outstanding pro forma; (aggregate liquidation preference of $17,972 and $27,962 at June 30, 1999 and April 1, 2000, respectively; pro forma, nil).......................... 17,972 27,962 -- Commitments and contingencies (Note 7) Stockholders' equity (deficit): Common stock, $0.001 par value per share, 105,000,000 shares authorized actual and pro forma; 69,365,078 and 73,833,951 shares issued and outstanding at June 30, 1999 and April 1, 2000 respectively; 115,253,728 shares issued and outstanding pro forma............. 69 74 115 Additional paid-in capital............................. 14,455 96,580 126,001 Deferred stock compensation............................ (9,745) (63,458) (63,458) Accumulated other comprehensive income (loss).......... (6) 48 48 Accumulated deficit.................................... (8,389) (49,153) (49,153) ------- -------- -------- Total stockholders' equity (deficit)................ (3,616) (15,909) 13,553 ------- -------- -------- Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit).......... $15,631 $ 38,651 $ 40,151 ======= ======== ========
See accompanying notes to consolidated financial statements. F-3 68 HANDSPRING, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD FROM PERIOD FROM JULY 29, 1998 JULY 29, 1998 NINE MONTHS (DATE OF INCEPTION) (DATE OF INCEPTION) ENDED TO JUNE 30, 1999 TO MARCH 31, 1999 APRIL 1, 2000 ------------------- ------------------- ------------- (UNAUDITED) Revenue.................................... $ -- $ -- $ 50,111 ------- ------- -------- Costs and operating expenses: Cost of revenue.......................... -- -- 34,171 Research and development................. 2,738 1,137 6,733 Selling, general and administrative...... 2,451 898 23,888 Amortization of deferred stock compensation(*)....................... 3,646 2,425 26,420 ------- ------- -------- Total costs and operating expenses.... 8,835 4,460 91,212 ------- ------- -------- Loss from operations....................... (8,835) (4,460) (41,101) Interest and other income, net............. 446 301 337 ------- ------- -------- Net loss................................... $(8,389) $(4,159) $(40,764) ======= ======= ======== Basic and diluted net loss per share....... $ (0.71) $ (0.36) $ (1.34) ======= ======= ======== Shares used in calculating basic and diluted net loss per share............... 11,772 11,451 30,403 ======= ======= ======== Pro forma basic and diluted net loss per share (Note 2)........................... $ (0.22) $ (0.57) ======= ======== Shares used in calculating pro forma basic and diluted net loss per share (Note 2)....................................... 38,976 71,731 ======= ======== (*)Amortization of deferred stock compensation: Cost of revenue.......................... $ 526 $ 236 $ 4,131 Research and development................. 1,217 907 6,789 Selling, general and administrative...... 1,903 1,282 15,500 ------- ------- -------- $ 3,646 $ 2,425 $ 26,420 ======= ======= ========
See accompanying notes to consolidated financial statements. F-4 69 HANDSPRING, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT AND COMPREHENSIVE LOSS PERIOD FROM JULY 29, 1998 (DATE OF INCEPTION) TO JUNE 30, 1999 AND FOR THE NINE MONTHS ENDED APRIL 1, 2000 (IN THOUSANDS)
ACCUMULATED COMMON STOCK ADDITIONAL DEFERRED OTHER --------------- PAID-IN STOCK COMPREHENSIVE ACCUMULATED SHARES AMOUNT CAPITAL COMPENSATION INCOME (LOSS) DEFICIT TOTAL ------ ------ ---------- ------------ ------------- ----------- -------- Issuance of common stock................... 63,000 $ 63 $ 7 $ -- $ -- $ -- $ 70 Issuance of common stock for services...... 90 -- 15 -- -- -- 15 Issuance of common stock on exercise of stock options............................ 6,275 6 443 -- -- -- 449 Issuance of right to purchase Series A convertible preferred stock in connection with financing agreement................. -- -- 599 -- -- -- 599 Deferred stock compensation................ -- -- 13,391 (13,391) -- -- -- Amortization of deferred stock compensation............................. -- -- -- 3,646 -- -- 3,646 Unrealized loss on securities.............. -- -- -- -- (6) -- (6) Net loss................................... -- -- -- -- -- (8,389) (8,389) ------ ------ -------- --------- ---- -------- -------- Balances, June 30, 1999.................... 69,365 69 14,455 (9,745) (6) (8,389) (3,616) Issuance of common stock for services...... 23 -- 15 -- -- -- 15 Issuance of common stock on exercise of stock options............................ 4,446 5 1,977 -- -- -- 1,982 Deferred stock compensation................ -- -- 80,133 (80,133) -- -- -- Amortization of deferred stock compensation............................. -- -- -- 26,420 -- -- 26,420 Unrealized gain on securities.............. -- -- -- -- 40 -- 40 Foreign currency translation adjustments... -- -- -- -- 14 -- 14 Net loss................................... -- -- -- -- -- (40,764) (40,764) ------ ------ -------- --------- ---- -------- -------- Balances, April 1, 2000.................... 73,834 $ 74 $ 96,580 $ (63,458) $ 48 $(49,153) $(15,909) ====== ====== ======== ========= ==== ======== ========
See accompanying notes to consolidated financial statements. F-5 70 HANDSPRING, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD FROM PERIOD FROM JULY 29, 1998 JULY 29, 1998 NINE MONTHS (DATE OF INCEPTION) (DATE OF INCEPTION) ENDED TO JUNE 30, 1999 TO MARCH 31, 1999 APRIL 1, 2000 ------------------- ---------------------- --------------- (UNAUDITED) Cash flows from operating activities: Net loss...................................... $ (8,389) $(4,159) $(40,764) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization............... 70 34 1,456 Amortization of deferred stock compensation.............................. 3,646 2,425 26,420 Amortization of costs associated with financing agreement....................... 31 -- 453 Amortization of premium or discount on short-term investments.................... (108) (45) (100) Stock compensation to non-employees......... 15 -- 15 Changes in assets and liabilities: Accounts receivable....................... -- -- (13,736) Prepaid expenses and other current assets................................. (48) (33) (1,491) Other assets.............................. (214) (204) (573) Accounts payable.......................... 884 242 15,799 Accrued liabilities....................... 67 29 9,435 -------- ------- -------- Net cash used in operating activities........................... (4,046) (1,711) (3,086) -------- ------- -------- Cash flows from investing activities: Purchases of short-term investments........... (10,965) (9,499) (1,968) Proceeds from maturities or sales of short-term investments...................... 4,833 982 8,308 Purchases of property and equipment........... (780) (577) (5,359) -------- ------- -------- Net cash provided by (used in) investing activities................. (6,912) (9,094) 981 -------- ------- -------- Cash flows from financing activities: Principal payments on equipment financing obligations................................. -- -- (7) Issuance of Series A redeemable convertible preferred stock, net........................ 17,972 17,972 -- Issuance of Series B redeemable convertible preferred stock, net........................ -- -- 9,990 Proceeds from issuance of common stock........ 519 70 1,982 -------- ------- -------- Net cash provided by financing activities........................... 18,491 18,042 11,965 -------- ------- -------- Effect of exchange rate changes on cash................................. -- -- 14 -------- ------- -------- Net increase in cash and cash equivalents....... 7,533 7,237 9,874 Cash and cash equivalents: Beginning of period........................... -- -- 7,533 -------- ------- -------- End of period................................. $ 7,533 $ 7,237 $ 17,407 ======== ======= ======== Supplemental disclosures of non-cash investing and financing activities: Accounts payable incurred upon acquisition of property and equipment...................... $ 324 $ -- $ -- -------- ------- -------- Purchase of property and equipment under financing agreement......................... $ -- $ -- $ 96 -------- ------- -------- Unrealized gain (loss) on securities.......... $ (6) $ (2) $ 40 -------- ------- -------- Deferred stock compensation................... $ 13,391 $ 7,347 $ 80,133 -------- ------- -------- Issuance of right to purchase Series A redeemable convertible preferred stock in connection with financing agreement......... $ 599 $ -- $ -- -------- ------- --------
See accompanying notes to consolidated financial statements. F-6 71 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Description of business -- Handspring, Inc. (the "Company") was incorporated in California on July 29, 1998 under the name of JD Technology, Inc. to develop innovative handheld computer devices and related accessories. In November 1998, the Company changed its name to Handspring, Inc. During fiscal year 2000 the Company completed the development of its first handheld computer device, which was named "the Visor." Shipments of the Visor began in October 1999 via the Company's Web site. In March 2000, the Company began shipping its products to selected retailers. Principles of consolidation and basis of presentation -- The consolidated financial statements of Handspring, Inc. include the accounts of its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Stock Split -- On March 16, 2000, the Board of Directors authorized a three-for-one stock split of the outstanding shares of common stock and on May 12, 2000, the Board of Directors authorized a three-for-two stock split of the outstanding shares of common stock. All common share and per share information included in these financial statements has been retroactively adjusted to reflect this stock split. Reincorporation -- In May 2000, the Company reincorporated in the State of Delaware. As a result of the reincorporation, the Company is authorized to issue 105,000,000 shares of $0.001 par value common stock and 9,300,000 shares of $0.001 par value preferred stock. The accompanying financial statements reflect the reincorporation. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal year -- During fiscal 1999 our fiscal months coincided with calendar month ends. Effective July 1, 1999, we changed our fiscal year to a 52-53 week fiscal year ending on the Saturday nearest to June 30. Unless otherwise stated, all years and dates refer to our fiscal year and fiscal periods. Interim financial information -- The consolidated financial statements for the period from inception to March 31, 1999 are unaudited and should be read in conjunction with the Company's financial statements for the period from July 29, 1998 (date of inception) to June 30, 1999 and for the nine months ended April 1, 2000. Such interim financial statements have been prepared in conformity with the rules and regulations of the Securities and Exchange Commission. Certain disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations pertaining to interim financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation have been included. Cash and cash equivalents -- The Company considers all highly liquid debt or equity instruments purchased with an original maturity at the date of purchase of 90 days or less to be cash equivalents. Fair value of financial instruments -- Amounts reported for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are considered to approximate fair value primarily due to their short maturities. Short-term investments -- Short-term investments consist primarily of highly liquid debt securities and commercial paper purchased with an original maturity at the date of purchase of greater than 90 days. Short-term investments are classified as available-for-sale securities and are stated at market value with any temporary difference between an investment's amortized cost and its market value F-7 72 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) recorded as a separate component of stockholders' equity (deficit) until such gains or losses are realized. Gains or losses on the sales of securities are determined on a specific identification basis. Concentration of credit risk -- Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, short-term investments and accounts receivable. Risks associated with cash are mitigated by banking and creditworthy institutions. The objective of the Company's investment policy is the preservation of capital, the maximization of pre-tax return, and the maintenance of liquidity until funds are needed for use in business operations. Funds are diversified to minimize risk and the inappropriate concentrations of investments. Under policy guidelines, the following are considered eligible investments: obligations of the U.S. government agencies, certain financial institutions and corporations, as well as investment in money market funds. All investments are limited to those highly rated by outside organizations. The Company's accounts receivable are derived from revenue earned from customers located primarily in the United States. The Company performs periodic credit evaluations of its open account customers' financial condition and, generally, requires no collateral. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable. At April 1, 2000, three customers accounted for 32%, 31%, and 30% of net receivables. There was no customer which accounted for more than 10% of revenue during the nine months ended April 1, 2000. Property and equipment -- Property and equipment, including leasehold improvements, are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally one to five years. Leasehold improvements and assets held under capital leases are amortized over the term of the lease or estimated useful lives, whichever is shorter. Assets acquired under capital leases are recorded at the present value of the related lease obligation. Long-Lived Assets -- The Company evaluates the recoverability of its long-lived assets in accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. The Company assesses the impairment of its long-lived assets when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Foreign currency translation -- The majority of the Company's operations are denominated in U.S. dollars. For foreign operations with the local currency as the functional currency, assets and liabilities are translated at year-end exchange rates, and statements of operations are translated at the average exchange rates during the year. Gains or losses resulting from foreign currency translation are included as a component of other comprehensive income (loss). Income taxes -- The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. This statement prescribes the use of the liability method whereby deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities and measured at tax rates that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets where it is more likely than not that the deferred tax asset will not be realized. F-8 73 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Stock-based compensation -- The Company accounts for stock compensation arrangements in accordance with provisions of Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and complies with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB No. 25, unearned stock compensation is based on the difference, if any, on the date of the grant, between the fair value of the Company's common stock and the exercise price. Unearned stock compensation is amortized and expensed in accordance with FASB Interpretation No. 28. The Company accounts for stock issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force No. 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services. Segment reporting -- The FASB issued SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, which establishes annual and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas and major customers. During each of the periods presented, the Company operated in one operating segment with sales primarily in the United States. Comprehensive loss -- The FASB issued SFAS No. 130, Reporting Comprehensive Income, which requires an enterprise to report by major components and as a single total, the change in its net assets during the period from non-stockholder sources. Statements of comprehensive loss have been included within the statements of stockholders' deficit. Net loss per share -- Basic net loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding for the period (excluding shares subject to repurchase). Diluted net loss per common share was the same as basic net loss per common share for all periods presented since the effect of any potentially dilutive securities is excluded as they are anti-dilutive because of the Company's net losses. Unaudited pro forma information -- As discussed in Note 6 to the consolidated financial statements, there was an outstanding right to purchase 198,965 shares of Series A redeemable convertible preferred stock at $7.539 per share at April 1, 2000. This right was exercised on May 1, 2000. In addition, upon the closing of the initial public offering, each of the outstanding shares of redeemable convertible preferred stock will convert into three shares of common stock. The pro forma balance sheet presents the Company's balance sheet as if both of these events had occurred at April 1, 2000. Pro forma net loss per share -- Pro forma basic and diluted net loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding for the period (excluding shares subject to repurchase) and the weighted average number of common shares resulting from the assumed conversion of outstanding shares of redeemable convertible preferred stock, including those redeemable convertible preferred shares assumed to have been purchased under the outstanding right as discussed in the previous paragraph. Revenue recognition -- Revenue from sales is recognized when a purchase order has been received, the product has been shipped, the sales price is fixed and determinable and collection of the resulting receivable is probable. Provisions are made at the time the related revenue is recognized for estimated product returns and warranty. Shipping and handling fees and costs -- The Company classifies amounts billed to customers for shipping and handling as revenue. Costs incurred by the Company for shipping and handling have been classified as cost of revenue. F-9 74 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Advertising costs -- The cost of advertising is expensed as incurred. For the period from July 29, 1998 (date of inception) to June 30, 1999 and for the nine months ended April 1, 2000 advertising costs totaled $114,000 and $2,727,000, respectively. Recently issued accounting pronouncements -- In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for derivative investments, including certain derivative instruments embedded in other contracts, and for hedging activities. In July 1999, the FASB issued SFAS No. 137, Accounting for Derivative and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133. SFAS No. 137 deferred the effective date of SFAS No. 133 until fiscal years beginning after June 15, 2000. The Company will adopt SFAS No. 133 during fiscal 2001. To date, the Company has not engaged in derivative or hedging activities. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements. SAB 101 provides guidance for revenue recognition under certain circumstances. SAB 101 is effective for our fiscal year beginning July 2, 2000. Implementation of SAB 101 is not expected to require us to change existing revenue recognition policies and therefore is not expected to have a material effect on the Company's financial position or results of operations. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN 44") Accounting for Certain Transactions Involving Stock Compensation an Interpretation of APB Opinion No. 25. FIN 44 clarifies the application of Opinion 25 for (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequences of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998, or January 12, 2000. We believe that the impact of FIN 44 will not have a material affect on our financial position or results of operations. Use of estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 3. SHORT-TERM INVESTMENTS The fair value and the amortized cost of investments at June 30, 1999 are presented below. There were no short-term investments at April 1, 2000. Fair values are based on quoted market prices obtained from the Company's brokers. All of the Company's investments are classified as available- F-10 75 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) for-sale, since the Company intends to sell them as needed for operations. The following table presents the unrealized holding gains and losses related to each category of investment securities:
UNREALIZED UNREALIZED AMORTIZED MARKET HOLDING HOLDING COST VALUE GAINS LOSSES --------- ------ ---------- ---------- (IN THOUSANDS) JUNE 30, 1999 Corporate obligations....................... $5,248 $5,245 $-- $(3) Government obligations...................... 992 989 -- (3) ------ ------ --- --- $6,240 $6,234 $-- $(6) ====== ====== === ===
The Company realized no gains or losses on the sale of securities during the period from July 29, 1998 (date of inception) to June 30, 1999. There were no sales of available-for-sale investments during the nine months ended April 1, 2000. 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
JUNE 30, 1999 APRIL 1, 2000 ------------- --------------- (IN THOUSANDS) Tooling..................................... $ 633 $ 2,136 Computer and office equipment............... 304 2,090 Furniture and fixtures...................... 89 1,407 Software.................................... 78 332 Leasehold improvements...................... -- 561 ------ ------- Total property and equipment.............. 1,104 6,526 Less: Accumulated depreciation and amortization.............................. (70) (1,493) ------ ------- Property and equipment, net............... $1,034 $ 5,033 ====== =======
There were no assets acquired under capital leases during fiscal 1999. At April 1, 2000 property, plant and equipment includes $96,000 of computer and office equipment acquired under capital leases. Accumulated amortization of assets under capital leases totaled $14,000 at April 1, 2000. 5. ACCRUED LIABILITIES Accrued liabilities consist of the following:
JUNE 30, 1999 APRIL 1, 2000 ------------- ------------- (IN THOUSANDS) Accrued product warranty...................... $-- $3,948 Accrued royalty expense....................... -- 1,867 Accrued compensation and related benefits..... 31 225 Other......................................... 36 3,487 --- ------ $67 $9,527 === ======
F-11 76 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. SUBORDINATED DEBT AND EQUIPMENT LEASE FACILITY In June 1999, the Company obtained a subordinated debt facility of $6,000,000, which is available until June 2000. Borrowings under this facility bear interest at 10.0% per annum, and are collateralized by the Company's assets and subordinated to senior indebtedness. Without the lender's consent the Company may not incur any other indebtedness in excess of $1,000,000. The lender, at its sole discretion, has the right to purchase 198,965 shares of Series A redeemable convertible preferred stock at $7.539 per share. The Company valued this right using the Black-Scholes option pricing model, applying an actual life of 11 months, a weighted average risk-free rate of 4.78%, an expected dividend yield of zero percent, an expected volatility of 70% and a deemed fair value of common stock of $1.96 per share. The fair value of the right of $599,000 is being amortized over the period of the agreement. The Company has reserved 198,965 shares of Series A redeemable convertible preferred stock for exercise which shares will automatically convert into common stock in accordance with the terms described in Note 8. Only monthly interest is payable until the earlier of the completion of an initial public offering of the Company's stock or 18 months from the date of any advance under the loan followed by 18 monthly payments of principal and interest. There were no outstanding borrowings at June 30, 1999 or April 1, 2000. The subordinated debt facility prohibits declaration or payment of any cash dividend without the prior consent of the lender. In connection with the above agreement, the Company also obtained an equipment and software lease facility of $1,000,000, which is available until September 2000. Equipment leases up to $600,000 under this facility have a 42 month term. Leases for software, tooling, tenant improvements and other costs up to $400,000 under this facility have a 36 month term. All borrowings under this agreement bear interest at 7.5% per annum. There were no outstanding borrowings at June 30, 1999 and $89,000 was outstanding as of April 1, 2000. 7. COMMITMENTS AND CONTINGENCIES The Company leases its facilities under operating leases which expire through August 2004. Under the terms of the leases, the Company is responsible for its share of common area and operating expenses. Collateral for lease payments consists of a payment bond certificate of $150,000, expiring July 7, 2002 and a $400,000 standby letter of credit established on August 3, 1999, and required until the expiration of the lease in August 2004. The payment bond certificate was included in the other assets balance at June 30, 1999. Both the bond certificate and the letter of credit are included in other assets at April 1, 2000. F-12 77 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As of April 1, 2000, the future minimum lease commitments under all leases were as follows:
CAPITAL OPERATING PERIODS ENDING JUNE 30, LEASES LEASES ----------------------- ------- --------- (IN THOUSANDS) 2000 (three months).................................... $ 8 $ 463 2001................................................... 31 1,781 2002................................................... 31 1,746 2003................................................... 30 1,661 2004................................................... -- 1,719 2005................................................... -- 288 ---- ------ Total minimum lease payments........................... 100 $7,658 ====== Less: Amounts representing interest.................... (11) ---- Present value of minimum lease payments................ $ 89 ====
Rent expense under operating leases, net of sublease income, for the period from July 29, 1998 (date of inception) to June 30, 1999 and for the nine months ended April 1, 2000 was $283,000 and $1,026,000, respectively. The Company has entered into a purchase agreement with a manufacturer in Malaysia. The contract provides for the manufacturer to supply certain levels of handheld computer products according to rolling forecasts and purchase orders provided by Handspring, Inc. The Company guarantees a minimum production commitment based on this rolling forecast. However, the Company may cancel orders with scheduled delivery greater than 90 days from the date of cancellation without liability. The Company is liable for orders cancelled within 30 days of scheduled delivery. The handheld computer products are to be purchased by a third-party subcontractor. Handspring, Inc. has guaranteed prompt payment of all invoices and charges in the event of default related to said charges by the third-party subcontractor. The Company has also entered into an agreement with an outsource provider for telephone-based customer support and technical support. The contract provides for the outsource provider to supply certain levels of support according to a rolling 90-day forecast provided by the Company. The Company may revise the forecast within fifteen days of each subsequent month. The Company is liable for 80% of a given months forecast. 8. REDEEMABLE CONVERTIBLE PREFERRED STOCK At April 1, 2000, the amounts, terms and liquidation values of Series A and Series B redeemable convertible preferred stock are as follows:
SHARES OF COMMON AGGREGATE SHARES ISSUED AND AMOUNT, NET OF STOCK RESERVED LIQUIDATION SERIES DESIGNATED OUTSTANDING ISSUANCE COSTS FOR CONVERSION PREFERENCE ------ ---------- ----------------- -------------- ---------------- ----------- (IN THOUSANDS) A..................... 8,300 8,077 $17,972 36,346 $17,972 B..................... 1,000 928 9,990 4,178 9,990 ----- ----- ------- ------ ------- 9,300 9,005 $27,962 40,524 $27,962 ===== ===== ======= ====== =======
F-13 78 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At June 30, 1999 only shares of Series A redeemable convertible preferred stock were outstanding. Significant terms of the outstanding redeemable convertible preferred stock are as follows: - Each share of redeemable convertible preferred stock is convertible into 4.5 shares of common stock, subject to certain adjustments. Such shares will be converted automatically immediately into common stock prior to the closing of a firm commitment underwritten public offering of at least $20 million and at least $2.39 per share, or upon the written consent of a majority of the shares of preferred stock outstanding at the time of such vote. The stockholders have certain registration rights, and the right to participate in future issuances of the Company's securities. - Each share of redeemable convertible preferred stock has voting rights equivalent to the number of shares of common stock into which it is convertible. So long as at least 2,000,000 shares of Series A redeemable convertible preferred stock are outstanding, the holders of the redeemable convertible preferred stock, voting together as a separate class, are entitled to elect two directors of the Company. The holders of common stock, voting together as a separate class, are also entitled to elect two directors of the Company. Remaining directors are elected jointly by all stockholders. So long as any shares of redeemable convertible preferred stock are outstanding, the Company shall not, without the approval of a majority of the then outstanding redeemable convertible preferred stock, (i) amend its articles of incorporation or bylaws in any manner that would change or affect the rights, preferences, privileges or restrictions of the redeemable convertible preferred stock, (ii) authorize any other equity security having rights or preferences senior to or on a parity with the redeemable convertible preferred stock as to dividend rights, liquidation preferences, redemption or voting, (iii) effect any merger or other transaction that would result in a change in the majority voting control of the Company, (iv) sell all or substantially all of the assets in a single transaction or series of transactions, liquidate or dissolve or (v) declare or pay any dividends, other than dividends payable solely in shares of the Company's own common stock. So long as any shares of a particular series of redeemable convertible preferred stock remain outstanding, the Company shall not, without the approval of a majority of the then outstanding shares of the particular series of redeemable convertible preferred stock, authorize additional shares of such series of redeemable convertible preferred stock. - Stockholders are entitled to receive noncumulative dividends at the per annum rate of $0.0892 per share for Series A redeemable convertible preferred stock and $0.4308 per share for Series B redeemable convertible preferred stock, when and if declared by the Board of Directors. If after dividends have been fully paid or declared and set apart for the redeemable convertible preferred stock, the Company declares additional dividends in the same year, then the holders of redeemable convertible preferred stock will also be entitled to participate in the additional dividends on common stock based on the number of shares of common stock held on an as-if converted basis. No dividends have been declared in the period from inception to April 1, 2000. - In the event of liquidation, dissolution or winding up of the Company, holders of Series A and Series B redeemable convertible preferred stock are entitled to receive the original issue price ($2.23 per share and $10.77 per share, respectively), plus any declared and unpaid dividends with respect to such shares. If the assets and funds to be distributed are insufficient to permit F-14 79 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) full payment of the preferential amount, then the funds shall be distributed on an equal priority, pro rata basis to the redeemable convertible preferred stockholders. Upon completion of the distribution to the redeemable convertible preferred stockholders, the holders of the common stock will receive all remaining assets of the corporation. A reorganization, consolidation or merger of the Company with another company or a sale of all or substantially all of the assets of the Company is deemed to be a liquidation, dissolution or winding up of the Company. 9. COMMON STOCK Common stock issued to the founders is subject to repurchase agreements whereby the Company has the option to repurchase unvested shares upon termination of employment at the original issue price. These shares vest 20% at the date of the agreements, an additional 20% on July 13, 1999, 1.667% per month thereafter and an additional 25% in the event of an acquisition or merger of the Company. There were 50,400,000 and 29,398,320 shares of the founders' common stock subject to repurchase by the Company at June 30, 1999 and April 1, 2000, respectively. The Company has the right of first refusal should any common stockholder decide to sell shares. In addition, if the Company does not exercise its first refusal right with respect to common stock proposed to be sold by the founders, the preferred stockholders have the right to participate in the sale of stock by the founders. The Company issued 90,000 and 22,500 shares of common stock for services during fiscal 1999 and the nine months ended April 1, 2000, respectively. The per share price of these shares was equal to the fair value of the common stock, as determined by the Board of Directors, on the date the Board of Directors approved the stock issuances. Common Stock Reserved for Issuance The Company has 105,000,000 shares of common stock authorized, of which 69,365,078 and 73,833,951 were issued and outstanding as of June 30, 1999 and April 1, 2000, respectively. Common stock reserved for future issuances is as follows:
JUNE 30, 1999 APRIL 1, 2000 ------------- ------------- (IN THOUSANDS) Issuance under stock options.................. 15,533 28,336 Conversion of redeemable convertible preferred stock....................................... 36,346 40,524 Exercise of right to purchase redeemable convertible preferred stock................. 895 895 ------ ------ Total shares reserved....................... 52,774 69,755 ====== ======
Stock Option Plans Under the 1998 Equity Incentive Plan (the "1998 Plan"), the Company may grant options to purchase up to 28,707,693 shares of common stock to employees, officers, directors and consultants. Options granted under the 1998 Plan may be either incentive stock options or nonqualified stock options. Incentive stock options ("ISO") may be granted only to Company employees (including officers and directors who are also employees). Nonqualified stock options ("NSO") may be granted to Company employees, officers, directors, and consultants. Options under the 1998 Plan may be F-15 80 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) granted at prices no less than 85% of the estimated fair value of the shares at the date of grant, provided, however, that (i) the exercise price of an ISO shall not be less than 100% of the fair value of the shares on the date of grant, and (ii) the exercise price of any option granted to a 10% shareholder shall not be less than 110% of the fair value of the shares on the date of grant, respectively. Options generally vest 25% one year from the vest start date and ratably over the next 36 months and expire 10 years (five years in certain instances) from the date of grant. Options granted prior to December 1999 are immediately exercisable, and options granted on or after December 1999 are generally exercisable only as the shares underlying the option become vested. Shares issued upon exercise of options that are unvested are subject to repurchase by the Company upon termination of that option recipient's services to the Company. The Company is not obligated to repurchase such unvested shares. The repurchase price is the original exercise price, proportionately adjusted for any stock split or similar change in the capital structure of the Company. A stockholder who holds unvested shares is entitled to vote those shares and is entitled to receive dividends declared on those shares, but may not freely sell the shares until they become vested. There were 6,275,078 and 5,463,268 shares issued under the 1998 Plan outstanding at June 30, 1999 and April 1, 2000 that were subject to repurchase, respectively. The 1999 Executive Equity Incentive Plan was adopted by the Company during August 1999. A total of 10,350,000 shares of common stock has been reserved for issuance under the 1999 Executive Equity Incentive Plan. The terms of options issued under the 1999 Executive Equity Incentive Plan are generally the same as those that may be issued under the 1998 Equity Incentive Plan. There were 1,719,373 shares issued under the 1999 Executive Equity Incentive Plan that were subject to repurchase at April 1, 2000. In March 2000, the Board of Directors approved the Company's 2000 Equity Incentive Plan and the 2000 Employee Stock Purchase Plan ("ESPP"), subject to stockholder approval. The Plans become effective on the effective date of the Company's initial public offering. Options granted under the 2000 Equity Incentive Plan may be either incentive stock options or nonqualified stock options. ISOs may be granted only to Company employees (including officers and directors who are also employees). NSOs may be granted to Company employees, officers, directors, consultants, independent contractors and advisors of the Company. All other terms of options issued are generally the same as those that may be issued under the 1999 Executive Equity Incentive Plan. Under the ESPP, eligible employees may purchase common stock through payroll deductions, which may not exceed 10% of any employee's compensation. A total of 750,000 and 15,000,000 shares of common stock have been reserved for issuance under the ESPP and 2000 Equity Incentive Plan, respectively. F-16 81 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Option activity under the 1998 Equity Incentive Plan and 1999 Executive Equity Incentive Plan is as follows:
OPTIONS OUTSTANDING ---------------------------- OPTIONS WEIGHTED AVAILABLE AVERAGE FOR GRANT SHARES EXERCISE PRICE ----------- ---------- -------------- Authorized............................ 21,807,693 -- Options granted....................... (18,050,884) 18,050,884 $0.08 Options exercised..................... -- (6,275,078) 0.07 ----------- ---------- Balance at June 30, 1999................ 3,756,809 11,775,806 0.08 Authorized............................ 17,250,000 -- Options granted....................... (13,355,566) 13,355,566 1.61 Options exercised..................... -- (4,446,373) 0.45 ----------- ---------- Balance at April 1, 2000................ 7,651,243 20,684,999 $0.99 =========== ==========
The following table summarizes information concerning options outstanding and exercisable at April 1, 2000:
OPTIONS OUTSTANDING -------------------------------------------- WEIGHTED OPTIONS EXERCISABLE AVERAGE ---------------------------- RANGE OF REMAINING WEIGHTED WEIGHTED EXERCISE NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE -------- ----------- ------------- -------------- ----------- -------------- $ 0.05.............. 7,707,806 8.54 $ 0.05 7,707,806 $0.05 $0.11 - $ 0.17.............. 2,149,875 9.12 0.15 2,149,875 0.15 $0.22 - $ 0.44.............. 2,789,266 9.41 0.40 2,789,266 0.40 $0.67 - $ 0.89.............. 4,023,752 9.70 0.81 2,502,752 0.75 $ 1.33.............. 1,224,000 9.80 1.33 -- -- $1.56 - $ 2.11.............. 2,029,950 9.90 1.80 -- -- $13.33.............. 760,350 9.99 13.33 -- -- ---------- ---------- $0.05 - $13.33.............. 20,684,999 9.20 $ 0.99 15,149,699 $0.25 ========== ==========
DEFERRED STOCK COMPENSATION During the period ended June 30, 1999 and nine months ended April 1, 2000 the Company issued stock options under the 1998 Equity Incentive Equity Plan and the 1999 Executive Equity Incentive Plan at exercise prices deemed by the Board of Directors at the date of grant to be the fair value. For financial statement purposes, the Company has recorded deferred compensation for the difference between the purchase price of the stock issued to employees under stock options and the fair value of the Company's stock at the date of grant. This deferred compensation is amortized to expense over the period during which the Company's right to repurchase the stock lapses or options become exercisable, generally four years. At June 30, 1999 and April 1, 2000, the Company had recorded deferred stock compensation related to these options of $13,391,000 and $93,524,000, respectively, of which $3,646,000 and $26,420,000 has been amortized to expense during the period ended June 30, 1999 and nine months ended April 1, 2000, respectively. As discussed in Note 2, the Company accounts for its stock-based compensation using the method prescribed by APB No. 25, Accounting for Stock Issued to Employees. Had the Company F-17 82 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) determined its stock-based compensation cost based on the fair value at the grant dates for the awards under the method prescribed by SFAS No. 123, the Company's net loss would have been increased to the pro forma amounts indicated below:
PERIOD FROM JULY 29, 1998 NINE MONTHS (DATE OF INCEPTION) ENDED TO JUNE 30, 1999 APRIL 1, 2000 ------------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net loss: As reported.................................. $(8,389) $(40,764) Pro forma.................................... (8,483) (41,917) Basic and diluted net loss per share: As reported.................................. $ (0.71) $ (1.34) Pro forma.................................... (0.72) (1.38)
The Company calculated the fair value of each option grant on the date of grant using the Black-Scholes option pricing model and the following assumptions: weighted average expected option term of four years; risk free interest rates of 4.18% to 6.66%; expected dividend yield of zero percent, and a volatility of 70% for the periods above. The weighted average fair value of options granted during the period from July 29, 1998 (date of inception) to June 30, 1999 and the nine months ended April 1, 2000 was $0.76 and $6.65, respectively. 10. INCOME TAXES At April 1, 2000, the Company had net operating loss carryforwards of approximately $12,000,000 available to reduce future federal and state taxable income. The carryforwards expire beginning in 2020 for federal and 2007 for state tax purposes unless utilized. For federal and state tax purposes, the Company's net operating loss carryforwards may be subject to an annual limitation in the case of a greater than 50% change in stock ownership, as defined by federal and state tax law. Temporary differences which gave rise to significant portions of deferred tax assets are as follows:
JUNE 30, 1999 APRIL 1, 2000 ------------- ------------- (IN THOUSANDS) Net operating losses.......................... $ 1,716 $ 4,797 Capitalized assets............................ 78 326 Tax credit carryforwards...................... 223 670 Reserves and other............................ 12 2,209 ------- ------- 2,029 8,002 Valuation allowance........................... (2,029) (8,002) ------- ------- Net deferred tax asset........................ $ -- $ -- ======= =======
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. The Company has established a 100% valuation allowance to the extent of its net deferred tax assets as no immediate benefit is expected to be received due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets. F-18 83 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The extent to which the loss carryforwards can be used to offset future taxable income may be limited depending on the extent of ownership changes within any three-year period as provided in the Tax Reform Act of 1986 and the California Conformity Act of 1987. 11. EMPLOYEE BENEFIT PLAN Effective January 1, 1999, the Company adopted a 401(k) tax-deferred savings plan (the "Plan") for essentially all of its employees. Eligible employees may make voluntary contributions to the Plan up to 15% of their annual eligible compensation. The Company does not make any matching contributions to the Plan. F-19 84 HANDSPRING LOGO 85 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the various expenses in connection with the sale and distribution of the securities being registered, other than the underwriting discounts and commissions. All amounts shown are estimates, except the Securities and Exchange Commission Registration Fee and the National Association of Securities Dealers, Inc. Filing Fee. Securities and Exchange Commission Registration Fee......... $ 79,200 National Association of Securities Dealers Filing Fee....... 30,500 Nasdaq National Market Listing Fee.......................... 90,000 Blue Sky Fees and Expenses.................................. 5,000 Transfer Agent and Registrar Fees........................... 15,000 Accounting Fees and Expenses................................ 450,000 Legal Fees and Expenses..................................... 500,000 Printing Expenses........................................... 250,000 Miscellaneous............................................... 80,300 ---------- Total............................................. $1,500,000 ==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation authorizes a court to award, or the board of directors of a corporation to grant, indemnity to directors and officers in terms sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement for expenses incurred, arising under the Securities Act of 1933. As permitted by the Delaware General Corporation Law, the Registrant's Certificate of Incorporation provides that its directors shall not be liable to the Registrant or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent that the exculpation from liabilities is not permitted under the Delaware General Corporation Law as in effect at the time such liability is determined. As permitted by the Delaware General Corporation Law, the Bylaws of the Registrant provide that the Registrant shall indemnify its directors to the full extent permitted by the laws of the State of Delaware. The Registrant has also entered into indemnification agreements with its directors and officers obligating the Registrant to indemnify such directors and officers against losses incurred in connection with certain claims in their capacities as agents of the Registrant. The Underwriting Agreement provides for the indemnification of officers and directors of the Registrant by the Underwriters against certain liabilities. The Registrant is in the process of obtaining directors and officers liability insurance. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since our inception in July 1998 to the effective date of this Registration Statement, we have issued and sold the following unregistered securities, all of which reflect the two-for-one stock split effected in October 1998 and the three-for-one stock split effected in March 2000: 1. On August 20, 1998, we issued and sold 40,950,000 shares of common stock to Jeffrey C. Hawkins for a purchase price of $45,500 in cash. II-1 86 2. On August 21, 1998, we issued and sold 22,050,000 shares of common stock to Donna L. Dubinsky for a purchase price of $24,500 in cash. 3. On October 22, 1998, we issued and sold 8,076,924 shares of Series A preferred stock, which are convertible into 36,346,158 shares of common stock, to four venture capital funds for a total purchase price of $18,011,541 in cash. 4. On May 25, 1999, we issued and sold 90,000 shares of common stock to Pimlico Software, Inc. in consideration of consulting services rendered. 5. On June 10, 1999, we granted Comdisco, Inc. a right to purchase 198,965 shares of Series A preferred stock at a price of $7.539 per share, under a Subordinated Loan and Security Agreement dated June 10, 1999. On May 1, 2000, Comdisco exercised this right. These shares of Series A preferred stock are convertible into 895,342 shares of common stock. 6. On July 7, 1999, we issued and sold 928,506 shares of Series B preferred stock, which are convertible into 4,178,277 shares of common stock, to four venture capital funds and one corporate investor for a total purchase price of $10,000,010 in cash. 7. On November 23, 1999, we issued and sold 11,250 shares of common stock to a consultant in consideration for consulting services rendered in connection with establishing our customer support call center. 8. On November 24, 1999, we issued and sold 11,250 shares of common stock to a consultant in consideration for consulting services rendered in connection with establishing our customer support call center. 9. As of April 30, 2000, we had issued 9,022,328 shares of common stock to employees upon exercise of options under our 1998 Equity Incentive Plan, with exercise prices ranging from $0.05 to $0.89 per share. As of April 30, 2000, there were 15,781,106 shares of common stock issuable upon exercise of outstanding options under our 1998 Equity Incentive Plan, with exercise prices ranging from $0.05 to $13.33 per share. 10. As of April 30, 2000, we had issued 1,719,373 shares of common stock to employees upon exercise of options under our 1999 Executive Equity Incentive Plan, with exercise prices ranging from $0.44 to $0.89 per share. As of April 30, 2000, there were 4,958,643 shares of common stock issuable upon exercise of outstanding options under our 1999 Executive Equity Incentive Plan, with exercise prices ranging from $0.22 to $13.33 per share. All of the 8,275,889 outstanding shares of Series A preferred stock and all of the 928,506 outstanding shares of Series B preferred stock will automatically convert on a nine-for-two basis into shares of common stock upon the consummation of this offering. The sales and issuances of securities listed above, other than the sales and issuances in Item 9, were deemed to be exempt from registration under Section 4(2) of the Securities Act or Regulation D thereunder as transactions not involving a public offering. The sales and issuances of securities listed above in Item 9 were deemed to be exempt from registration under the Securities Act by virtue of Rule 701 promulgated under Section 3(b) of the Securities Act of 1933 as transactions pursuant to compensation benefit plans and contracts relating to compensation. All of the foregoing securities are deemed restricted securities for purposes of the Securities Act. II-2 87 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following exhibits are filed herewith:
EXHIBIT NUMBER EXHIBIT TITLE - ------- ------------- 1.1 Form of Underwriting Agreement 3.1 Certificate of Incorporation as filed March 27, 2000* 3.2 Form of First Amended and Restated Certificate of Incorporation to be effective before closing of the offering 3.3 Form of Second Amended and Restated Certificate of Incorporation to be effective upon the closing of the offering* 3.4 Bylaws* 3.5 Restated Bylaws 4.1 Specimen Common Stock Certificate 4.2 Amended and Restated Investors' Rights Agreement dated July 7, 1999 5.1 Opinion of Fenwick & West LLP 10.1 Form of Indemnity Agreement entered into between the Registrant and all executive officers and directors 10.2 1998 Equity Incentive Plan 10.3 1999 Executive Equity Incentive Plan 10.4 Form of 2000 Equity Incentive Plan 10.5 Form of 2000 Employee Stock Purchase Plan 10.6 Single Tenant Absolute Net Lease between Registrant and Chan-Paul Partnership dated June 22, 1999* 10.7 Software License Agreement between Palm Computing, Inc. and Registrant dated September 24, 1998, as amended+* 10.8 Subordinated Loan and Security Agreement between Registrant and Comdisco, Inc. dated June 10, 1999* 10.9 International Manufacturing Contract between Registrant and Flextronics (Malaysia) SDN.BHD dated June 29, 1999+* 10.10 Founder's Restricted Stock Purchase Agreement between Registrant and Donna Dubinsky dated August 21, 1998* 10.11 Founder's Restricted Stock Purchase Agreement between Registrant and Jeff Hawkins dated August 20, 1998* 10.12 Offer Letter of Employment between Registrant and Bernard Whitney dated May 31, 1999* 10.13 Stock Option Agreement between Registrant and Edward Colligan dated October 12, 1998* 10.14 Lease between Registrant and Spieker Properties, L.P. dated April 24, 2000 21.1 List of Subsidiaries of Registrant 23.1 Consent of Fenwick & West LLP (See Exhibit 5.1) 23.2 Consent of PricewaterhouseCoopers LLP 23.3 Consent of Dataquest 23.4 Consent of International Data Corporation 24.1 Power of Attorney (see page II-5 of this Registration Statement as filed on March 31, 2000)* 24.2 Power of Attorney for Kim B. Clark
II-3 88
EXHIBIT NUMBER EXHIBIT TITLE - ------- ------------- 24.3 Power of Attorney for Mitchell E. Kertzman 27.1 Financial Data Schedule
- ------------------------- * Previously filed + Confidential treatment has been requested for certain portions of this document pursuant to an application for confidential treatment sent to the Securities and Exchange Commission. Such portions are omitted from this filing and filed separately with the Securities and Exchange Commission. (b) The following financial statement schedule is filed herewith: Schedule II -- Valuation and Qualifying Accounts Report of Independent Accountants on Schedule Other financial statement schedules are omitted because the information called for is not required or is shown either in the financial statements or the notes thereto. ITEM 17. UNDERTAKINGS. (a) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under "Item 14 -- Indemnification of Directors and Officers" above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (b) The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. II-4 89 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mountain View, State of California, on the 16th day of May, 2000. HANDSPRING, INC. By: /s/ BERNARD J. WHITNEY ------------------------------------ Bernard J. Whitney Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment Registration Statement has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- PRINCIPAL EXECUTIVE OFFICER: /s/ DONNA L. DUBINSKY* President, Chief Executive May 16, 2000 - ----------------------------------------------------- Officer and a Director Donna L. Dubinsky PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER: /s/ BERNARD J. WHITNEY Chief Financial Officer May 16, 2000 - ----------------------------------------------------- Bernard J. Whitney ADDITIONAL DIRECTORS: /s/ JEFFREY C. HAWKINS* Director May 16, 2000 - ----------------------------------------------------- Jeffrey C. Hawkins /s/ L. JOHN DOERR* Director May 16, 2000 - ----------------------------------------------------- L. John Doerr /s/ BRUCE W. DUNLEVIE* Director May 16, 2000 - ----------------------------------------------------- Bruce W. Dunlevie /s/ KIM B. CLARK Director May 16, 2000 - ----------------------------------------------------- Kim B. Clark /s/ MITCHELL E. KERTZMAN Director May 16, 2000 - ----------------------------------------------------- Mitchell E. Kertzman *By: /s/ BERNARD J. WHITNEY --------------------------------------------------- Bernard J. Whitney Attorney-in-Fact
II-5 90 SCHEDULE II HANDSPRING, INC. VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO COSTS BALANCE AT JUNE 30, 1999 AND EXPENSES DEDUCTIONS APRIL 1, 2000 ------------- ---------------- ---------- ------------- Allowance for Bad Debt........... $ -- $131,147 $(81,147) $50,000
S-1 91 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT TITLE - ------- ------------- 1.1 Form of Underwriting Agreement 3.1 Certificate of Incorporation as filed March 27, 2000* 3.2 Form of First Amended and Restated Certificate of Incorporation to be effective before closing of the offering 3.3 Form of Second Amended and Restated Certificate of Incorporation to be effective upon the closing of the offering* 3.4 Bylaws* 3.5 Restated Bylaws 4.1 Specimen Common Stock Certificate 4.2 Amended and Restated Investors' Rights Agreement dated July 7, 1999 5.1 Opinion of Fenwick & West LLP 10.1 Form of Indemnity Agreement entered into between the Registrant and all executive officers and directors 10.2 1998 Equity Incentive Plan 10.3 1999 Executive Equity Incentive Plan 10.4 Form of 2000 Equity Incentive Plan 10.5 Form of 2000 Employee Stock Purchase Plan 10.6 Single Tenant Absolute Net Lease between Registrant and Chan-Paul Partnership dated June 22, 1999* 10.7 Software License Agreement between Palm Computing, Inc. and Registrant dated September 24, 1998, as amended+* 10.8 Subordinated Loan and Security Agreement between Registrant and Comdisco, Inc. dated June 10, 1999* 10.9 International Manufacturing Contract between Registrant and Flextronics (Malaysia) SDN.BHD dated June 29, 1999+* 10.10 Founder's Restricted Stock Purchase Agreement between Registrant and Donna Dubinsky dated August 21, 1998* 10.11 Founder's Restricted Stock Purchase Agreement between Registrant and Jeff Hawkins dated August 20, 1998* 10.12 Offer Letter of Employment between Registrant and Bernard Whitney dated May 31, 1999* 10.13 Stock Option Agreement between Registrant and Edward Colligan dated October 12, 1998* 10.14 Lease between Registrant and Spieker Properties, L.P. dated April 24, 2000 21.1 List of Subsidiaries of Registrant 23.1 Consent of Fenwick & West LLP (See Exhibit 5.1) 23.2 Consent of PricewaterhouseCoopers LLP 23.3 Consent of Dataquest 23.4 Consent of International Data Corporation 24.1 Power of Attorney (see page II-5 of this Registration Statement as filed on March 31, 2000)* 24.2 Power of Attorney for Kim B. Clark
92
EXHIBIT NUMBER EXHIBIT TITLE - ------- ------------- 24.3 Power of Attorney for Mitchell E. Kertzman 27.1 Financial Data Schedule
- ------------------------- * Previously filed + Confidential treatment has been requested for certain portions of this document pursuant to an application for confidential treatment sent to the Securities and Exchange Commission. Such portions are omitted from this filing and filed separately with the Securities and Exchange Commission. EX-1.1 2 EXHIBIT 1.1 1 EXHIBIT 1.1 ____ SHARES HANDSPRING, INC. COMMON STOCK UNDERWRITING AGREEMENT ____, 2000 CREDIT SUISSE FIRST BOSTON CORPORATION MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION U.S. BANCORP PIPER JAFFRAY INC., As Representatives of the Several Underwriters, c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, N.Y. 10010-3629 Dear Sirs: 1. Introductory. Handspring, Inc., a Delaware corporation ("COMPANY"), proposes to issue and sell ____ shares ("FIRM SECURITIES") of its Common Stock, $0.001 par value ("SECURITIES") and also proposes to issue and sell to the Underwriters, at the option of the Underwriters, an aggregate of not more than ____ additional shares ("OPTIONAL SECURITIES") of its Securities as set forth below. The Firm Securities and the Optional Securities are herein collectively called the "OFFERED SECURITIES". As part of the offering contemplated by this Agreement, Credit-Suisse First-Boston Corporation (the "DESIGNATED UNDERWRITER") has agreed to reserve out of the Firm Securities purchased by it under this Agreement, up to ____ shares, for sale to the Company's directors, officers, employees and other parties associated with the Company (collectively, "PARTICIPANTS"), as set forth in the Prospectus (as defined herein) under the heading "Underwriting" (the "DIRECTED SHARE PROGRAM"). The Firm Securities to be sold by the Designated Underwriter pursuant to the Directed Share Program (the "DIRECTED SHARES") will be sold by the Designated Underwriter pursuant to this Agreement at the public offering price. Any Directed Shares not subscribed for by the end of the business day on which this Agreement is executed will be offered to the public by the Underwriters as set forth in the Prospectus. The Company hereby agrees with the several Underwriters named in Schedule A hereto ("UNDERWRITERS") as follows: 2. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the several Underwriters that: (a) A registration statement (No. 333-33666) relating to the Offered Securities, including a form of prospectus, has been filed with the Securities and Exchange Commission ("COMMISSION") and either (i) has been declared effective under the Securities Act of 1933 ("ACT") and is not proposed to be amended or (ii) is proposed to be amended by amendment or post-effective amendment. If such registration statement ("INITIAL REGISTRATION STATEMENT") has been declared effective, either (i) an additional registration statement ("ADDITIONAL REGISTRATION STATEMENT") relating to the Offered Securities may have been filed with the Commission pursuant to Rule 462(b) ("RULE 462(b)") under the Act and, if so filed, has become effective upon filing pursuant to such Rule and the Offered Securities all have been duly registered under the Act pursuant to the initial registration statement and, if applicable, the additional registration statement or (ii) such an additional registration statement is proposed to be filed with the Commission pursuant to Rule 462(b) and will become effective upon filing pursuant to such Rule and upon such filing the Offered Securities will all have been duly 2 registered under the Act pursuant to the initial registration statement and such additional registration statement. If the Company does not propose to amend the initial registration statement or if an additional registration statement has been filed and the Company does not propose to amend it, and if any post-effective amendment to either such registration statement has been filed with the Commission prior to the execution and delivery of this Agreement, the most recent amendment (if any) to each such registration statement has been declared effective by the Commission or has become effective upon filing pursuant to Rule 462(c) ("RULE 462(c)") under the Act or, in the case of the additional registration statement, Rule 462(b). For purposes of this Agreement, "EFFECTIVE TIME" with respect to the initial registration statement or, if filed prior to the execution and delivery of this Agreement, the additional registration statement means (i) if the Company has advised the Representatives that it does not propose to amend such registration statement, the date and time as of which such registration statement, or the most recent post-effective amendment thereto (if any) filed prior to the execution and delivery of this Agreement, was declared effective by the Commission or has become effective upon filing pursuant to Rule 462(c), or (ii) if the Company has advised the Representatives that it proposes to file an amendment or post-effective amendment to such registration statement, the date and time as of which such registration statement, as amended by such amendment or post-effective amendment, as the case may be, is declared effective by the Commission. If an additional registration statement has not been filed prior to the execution and delivery of this Agreement but the Company has advised the Representatives that it proposes to file one, "EFFECTIVE TIME" with respect to such additional registration statement means the date and time as of which such registration statement is filed and becomes effective pursuant to Rule 462(b). "EFFECTIVE DATE" with respect to the initial registration statement or the additional registration statement (if any) means the date of the Effective Time thereof. The initial registration statement, as amended at its Effective Time, including all information contained in the additional registration statement (if any) and deemed to be a part of the initial registration statement as of the Effective Time of the additional registration statement pursuant to the General Instructions of the Form on which it is filed and including all information (if any) deemed to be a part of the initial registration statement as of its Effective Time pursuant to Rule 430A(b) ("RULE 430A(b)") under the Act, is hereinafter referred to as the "INITIAL REGISTRATION STATEMENT". The additional registration statement, as amended at its Effective Time, including the contents of the initial registration statement incorporated by reference therein and including all information (if any) deemed to be a part of the additional registration statement as of its Effective Time pursuant to Rule 430A(b), is hereinafter referred to as the "ADDITIONAL REGISTRATION STATEMENT". The Initial Registration Statement and the Additional Registration Statement are herein referred to collectively as the "REGISTRATION STATEMENTS" and individually as a "REGISTRATION STATEMENT". The form of prospectus relating to the Offered Securities, as first filed with the Commission pursuant to and in accordance with Rule 424(b) ("RULE 424(b)") under the Act or (if no such filing is required) as included in a Registration Statement, is hereinafter referred to as the "PROSPECTUS". No document has been or will be prepared or distributed in reliance on Rule 434 under the Act. (b) If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement: (i) on the Effective Date of the Initial Registration Statement, the Initial Registration Statement conformed in all respects to the requirements of the Act and the rules and regulations of the Commission ("RULES AND REGULATIONS") and did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) on the Effective Date of the Additional Registration Statement (if any), each Registration Statement conformed, or will conform, in all respects to the requirements of the Act and the Rules and Regulations and did not include, or will not include, any untrue statement of a material fact and did not omit, or will not omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) on the date of this Agreement, the Initial Registration Statement and, if the Effective Time of the Additional Registration Statement is prior to the execution and delivery of this Agreement, the Additional Registration Statement each conforms, and at the time of filing of the Prospectus pursuant to Rule 424(b) or (if no such filing is required) at the Effective Date of the Additional Registration Statement 2 3 in which the Prospectus is included, each Registration Statement and the Prospectus will conform, in all respects to the requirements of the Act and the Rules and Regulations, and neither of such documents includes, or will include, any untrue statement of a material fact or omits, or will omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading. If the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement: on the Effective Date of the Initial Registration Statement, the Initial Registration Statement and the Prospectus will conform in all respects to the requirements of the Act and the Rules and Regulations, neither of such documents will include any untrue statement of a material fact or will omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and no Additional Registration Statement has been or will be filed. The two preceding sentences do not apply to statements in or omissions from a Registration Statement or the Prospectus based upon written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(b) hereof. (c) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not individually or in the aggregate have a material adverse effect on the condition (financial or otherwise), business, properties or results of operations of the Company and its subsidiaries taken as a whole (hereinafter, a "MATERIAL ADVERSE EFFECT"). (d) Each subsidiary of the Company has been duly incorporated and is an existing corporation in good standing under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; and each subsidiary of the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification except where the failure to be so qualified would not individually or in the aggregate have a Material Adverse Effect; all of the issued and outstanding capital stock of each subsidiary of the Company has been duly authorized and validly issued and is fully paid and nonassessable; and the capital stock of each subsidiary owned by the Company, directly or through subsidiaries, is owned free from liens, encumbrances and defects. (e) The Offered Securities and all other outstanding shares of capital stock of the Company have been duly authorized; all outstanding shares of capital stock of the Company are, and, when the Offered Securities have been delivered and paid for in accordance with this Agreement on each Closing Date (as defined below), such Offered Securities will have been, validly issued, fully paid and nonassessable and will conform in all material respects to the description thereof contained in the Prospectus; and the stockholders of the Company have no preemptive rights with respect to the Securities. (f) Except as disclosed in the Prospectus, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or any Underwriter for a brokerage commission, finder's fee or other like payment in connection with this offering. (g) Except as disclosed in the Prospectus, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to a Registration Statement or in any securities being registered pursuant 3 4 to any other registration statement filed by the Company under the Act, except for contracts or understandings, the requirements of which have been validly satisfied or waived. (h) The Offered Securities have been approved for listing on The Nasdaq Stock Market's National Market subject to notice of issuance. (i) No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement in connection with the issuance and sale of the Offered Securities by the Company, except such as have been obtained and made under the Act and such as may be required under state securities laws. (j) The execution, delivery and performance of this Agreement, and the issuance and sale of the Offered Securities will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any subsidiary of the Company or any of their properties, or any material agreement or instrument to which the Company or any such subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any such subsidiary is subject, or the charter or by-laws of the Company or any such subsidiary (the "ORGANIZATIONAL DOCUMENTS"), and the Company has full power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement. (k) This Agreement has been duly authorized, executed and delivered by the Company. (l) Except as disclosed in the Prospectus, the Company and its subsidiaries have good and marketable title to all real properties and all other properties and assets owned by them, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them; and except as disclosed in the Prospectus, the Company and its subsidiaries hold any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or to be made thereof by them. (m) The Company and its subsidiaries possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect. (n) No labor dispute with the employees of the Company or any subsidiary exists or, to the knowledge of the Company, is imminent that might have a Material Adverse Effect. (o) The Company and its subsidiaries own, possess, license or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, "INTELLECTUAL PROPERTY RIGHTS") necessary to conduct the business now operated by them, or presently employed by them, and have not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect. (p) Except as disclosed in the Prospectus, neither the Company nor any of its subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to 4 5 hazardous or toxic substances (collectively, "ENVIRONMENTAL LAWS"), owns or operates any real property contaminated with any substance that is subject to any environmental laws, is liable for any off-site disposal or contamination pursuant to any environmental laws, or is subject to any claim relating to any environmental laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse Effect; and the Company is not aware of any pending investigation which might lead to such a claim. (q) Except as disclosed in the Prospectus, there are no pending actions, suits or proceedings against or affecting the Company, any of its subsidiaries or any of their respective properties that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect, or would materially and adversely affect the ability of the Company to perform its obligations under this Agreement, or which are otherwise material in the context of the sale of the Offered Securities; and no such actions, suits or proceedings are threatened or, to the Company's knowledge, contemplated. (r) The financial statements included in each Registration Statement and the Prospectus present fairly the financial position of the Company as of the dates shown and its results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis; and the schedules included in each Registration Statement present fairly the information required to be stated therein. (s) Except as disclosed in the Prospectus, since the date of the latest audited financial statements included in the Prospectus there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole, and, except as disclosed in or contemplated by the Prospectus, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (t) The Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Prospectus, will not be an "investment company" as defined in the Investment Company Act of 1940. (u) Furthermore, the Company represents and warrants to the Underwriters that (i) the Registration Statement, the Prospectus and any preliminary prospectus comply, and any further amendments or supplements thereto will comply, with any applicable laws or regulations of foreign jurisdictions in which the Prospectus or any preliminary prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program, and that (ii) no authorization, approval, consent, license, order, registration or qualification of or with any government, governmental instrumentality or court, other than such as have been obtained, is necessary under the securities law and regulations of foreign jurisdictions in which the Directed Shares are offered outside the United States. (v) The Company has not offered, or caused the Underwriters to offer, any Offered Securities to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer's or supplier's level or type of business with the Company or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products. 3. Purchase, Sale and Delivery of Offered Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriters, and the Underwriters agree, severally and not jointly, to purchase 5 6 from the Company, at a purchase price of $o per share, the respective numbers of shares of Firm Securities set forth opposite the names of the Underwriters in Schedule A hereto. The Company will deliver the Firm Securities to the Representatives for the accounts of the Underwriters, at the office of Davis Polk & Wardwell, 1600 El Camino Real, Menlo Park, CA 94025, against payment of the purchase price in Federal (same day) funds by official bank check or checks or wire transfer to an account at a bank acceptable to Credit Suisse First Boston Corporation ("CSFBC") drawn to the order of Handspring, Inc. at the above office of Davis Polk & Wardwell at 10:00 A.M., New York time, on o, 2000 or at such other time not later than seven full business days thereafter as CSFBC and the Company determine, such time being herein referred to as the "FIRST CLOSING DATE". For purposes of Rule 15c6-1 under the Securities Exchange Act of 1934, the First Closing Date (if later than the otherwise applicable settlement date) shall be the settlement date for payment of funds and delivery of securities for all the Offered Securities sold pursuant to the offering. The certificates for the Firm Securities so to be delivered will be in definitive form, in such denominations and registered in such names as CSFBC requests and will be made available for checking and packaging at the office of CSFBC, Eleven Madison Avenue, New York, New York, at least 24 hours prior to the First Closing Date. In addition, upon written notice from CSFBC given to the Company from time to time not more than 30 days subsequent to the date of the Prospectus, the Underwriters may purchase all or less than all of the Optional Securities at the purchase price to be paid for the Firm Securities. The Company agrees to sell to the Underwriters the number of shares of Optional Securities specified in such notice and the Underwriters agree, severally and not jointly, to purchase such Optional Securities. Such Optional Securities shall be purchased for the account of each Underwriter in the same proportion as the number of shares of Firm Securities set forth opposite such Underwriter's name bears to the total number of shares of Firm Securities (subject to adjustment by CSFBC to eliminate fractions) and may be purchased by the Underwriters only for the purpose of covering over-allotments made in connection with the sale of the Firm Securities. No Optional Securities shall be sold or delivered unless the Firm Securities previously have been, or simultaneously are, sold and delivered. The right to purchase the Optional Securities or any portion thereof may be exercised from time to time and to the extent not previously exercised may be surrendered and terminated at any time upon notice by CSFBC to the Company. Each time for the delivery of and payment for the Optional Securities, being herein referred to as an "Optional Closing Date", which may be the First Closing Date (the First Closing Date and each Option Closing Date, if any, being sometimes referred to as a "Closing Date"), shall be determined by CSFBC but shall be not later than five full business days after written notice of election to purchase Optional Securities is given. The Company will deliver the Optional Securities being purchased on each Optional Closing Date to the Representatives for the accounts of the several Underwriters, at the office of Davis Polk & Wardwell, against payment of the purchase price therefor in Federal (same day) funds by official bank check or checks or wire transfer to an account at a bank acceptable to CSFBC drawn to the order of Handspring, Inc., at the above office of Davis Polk & Wardwell. The certificates for the Optional Securities being purchased on each Optional Closing Date will be in definitive form, in such denominations and registered in such names as CSFBC requests upon reasonable notice prior to such Optional Closing Date and will be made available for checking and packaging at the above office of CSFBC, Eleven Madison Avenue, New York, New York, at a reasonable time in advance of such Optional Closing Date. 4. Offering by Underwriters. It is understood that the several Underwriters propose to offer the Offered Securities for sale to the public as set forth in the Prospectus. 5. Certain Agreements of the Company. The Company agrees with the several Underwriters that: (a) If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, the Company will file the Prospectus with the Commission pursuant to and in accordance with subparagraph (1) (or, if applicable and if consented to by CSFBC, subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the second business day following 6 7 the execution and delivery of this Agreement or (B) the fifteenth business day after the Effective Date of the Initial Registration Statement. The Company will advise CSFBC promptly of any such filing pursuant to Rule 424(b). If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement and an additional registration statement is necessary to register a portion of the Offered Securities under the Act but the Effective Time thereof has not occurred as of such execution and delivery, the Company will file the additional registration statement or, if filed, will file a post-effective amendment thereto with the Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00 P.M., New York time, on the date of this Agreement or, if earlier, on or prior to the time the Prospectus is printed and distributed to any Underwriter, or will make such filing at such later date as shall have been consented to by CSFBC. (b) The Company will advise CSFBC promptly of any proposal to amend or supplement the initial or any additional registration statement as filed or the related prospectus or the Initial Registration Statement, the Additional Registration Statement (if any) or the Prospectus and will not effect such amendment or supplementation without CSFBC's consent; and the Company will also advise CSFBC promptly of the effectiveness of each Registration Statement (if its Effective Time is subsequent to the execution and delivery of this Agreement) and of any amendment or supplementation of a Registration Statement or the Prospectus and of the institution by the Commission of any stop order proceedings in respect of a Registration Statement and will use its best efforts to prevent the issuance of any such stop order and to obtain as soon as possible its lifting, if issued. (c) If, at any time when a prospectus relating to the Offered Securities is required to be delivered under the Act in connection with sales by any Underwriter or dealer, any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Act, the Company will promptly notify CSFBC of such event and will promptly prepare and file with the Commission, at its own expense, an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance. Neither CSFBC's consent to, nor the Underwriters' delivery of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6. (d) As soon as practicable, but not later than the Availability Date (as defined below), the Company will make generally available to its securityholders an earnings statement covering a period of at least 12 months beginning after the Effective Date of the Initial Registration Statement (or, if later, the Effective Date of the Additional Registration Statement) which will satisfy the provisions of Section 11(a) of the Act. For the purpose of the preceding sentence, "AVAILABILITY DATE" means the 45th day after the end of the fourth fiscal quarter following the fiscal quarter that includes such Effective Date, except that, if such fourth fiscal quarter is the last quarter of the Company's fiscal year, "AVAILABILITY DATE" means the 90th day after the end of such fourth fiscal quarter. (e) The Company will furnish to the Representatives copies of each Registration Statement five of which will be signed and will include all exhibits), each related preliminary prospectus, and, so long as a prospectus relating to the Offered Securities is required to be delivered under the Act in connection with sales by any Underwriter or dealer, the Prospectus and all amendments and supplements to such documents, in each case in such quantities as CSFBC requests. The Prospectus shall be so furnished on or prior to 3:00 P.M., New York time, on the business day following the later of the execution and delivery of this Agreement or the Effective Time of the Initial Registration Statement. All other documents shall be so furnished as soon as available. The Company will pay the expenses of printing and distributing to the Underwriters all such documents. 7 8 (f) The Company will arrange for the qualification of the Offered Securities for sale under the laws of such jurisdictions as CSFBC designates and will continue such qualifications in effect so long as required for the distribution. (g) During the period of five years hereafter, the Company will furnish to the Representatives and, upon request, to each of the other Underwriters, as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year; and the Company will furnish to the Representatives (i) as soon as available, a copy of each report and any definitive proxy statement of the Company filed with the Commission under the Securities Exchange Act of 1934 or mailed to stockholders, and (ii) from time to time, such other information concerning the Company as CSFBC may reasonably request. (h) The Company will pay all expenses incident to the performance of its obligations under this Agreement, for any filing fees and other expenses (including fees and disbursements of counsel) incurred in connection with qualification of the Offered Securities for sale under the laws of such jurisdictions as CSFBC designates and the printing of memoranda relating thereto, for the filing fee incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by the National Association of Securities Dealers, Inc. of the Offered Securities, for any travel expenses of the Company's officers and employees and any other expenses of the Company in connection with attending or hosting meetings with prospective purchasers of the Offered Securities and for expenses incurred in distributing preliminary prospectuses and the Prospectus (including any amendments and supplements thereto) to the Underwriters. (i) For a period of 180 days after the date of the initial public offering of the Offered Securities, the Company will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Commission a registration statement under the Act relating to, any additional shares of its Securities or securities convertible into or exchangeable or exercisable for any shares of its Securities, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of CSFBC, except issuances of Securities pursuant to the conversion or exchange of convertible or exchangeable securities or the exercise of rights to purchase securities or options, in each case outstanding on the date hereof, grants of employee stock options pursuant to the Company's 2000 Equity Incentive Plan or 2000 Employee Stock Purchase Plan, issuances of Securities pursuant to the exercise of such options or issuances of Securities pursuant to the Company's dividend reinvestment plan. (j) In connection with the Directed Share Program, the Company will ensure that the Directed Shares will be restricted to the extent required by the National Association of Securities Dealers, Inc. (the "NASD") or the NASD rules from sale, transfer, assignment, pledge or hypothecation for a period of three months following the date of the effectiveness of the Registration Statement. The Designated Underwriter will notify the Company as to which Participants will need to be so restricted. The Company will direct the transfer agent to place stop transfer restrictions upon such securities for such period of time. (k) The Company will pay all fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the underwriters in connection with the Directed Share Program. Furthermore, the Company covenants with the Underwriters that the Company will comply with all applicable securities and other applicable laws, rules and regulations in each foreign jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program. 6. Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters to purchase and pay for the Firm Securities on the First Closing Date and the Optional Securities to be purchased on each Optional Closing Date will be subject to the accuracy of the representations and warranties 8 9 on the part of the Company herein, to the accuracy of the statements of Company officers made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions precedent: (a) The Representatives shall have received a letter, dated the date of delivery thereof (which, if the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, shall be on or prior to the date of this Agreement or, if the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement, shall be prior to the filing of the amendment or post-effective amendment to the registration statement to be filed shortly prior to such Effective Time), of PricewaterhouseCoopers LLP confirming that they are independent public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating to the effect that: (i) in their opinion the financial statements and schedules examined by them and included in the Registration Statements comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; (ii) they have performed the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in Statement of Auditing Standards No. 71, Interim Financial Information, on the unaudited financial statements included in the Registration Statements; (iii) on the basis of the review referred to in clause (ii) above, a reading of the latest available interim financial statements of the Company, inquiries of officials of the Company who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that: (A) the unaudited financial statements included in the Registration Statements do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations or any material modifications should be made to such unaudited financial statements for them to be in conformity with generally accepted accounting principles; (B) at the date of the latest available balance sheet read by such accountants, or at a subsequent specified date not more than three business days prior to the date of this Agreement, there was any change in the capital stock or any increase in short-term indebtedness or long-term debt of the Company and its consolidated subsidiaries or, at the date of the latest available balance sheet read by such accountants, there was any decrease in consolidated net current assets or, as compared with amounts shown on the latest balance sheet included in the Prospectus; or (C) for the period from the closing date of the latest income statement included in the Prospectus to the closing date of the latest available income statement read by such accountants there were any decreases, as compared with the corresponding period of the previous year and with the period of corresponding length ended the date of the latest income statement included in the Prospectus, in consolidated net sales in the total or per share amounts of income before extraordinary items or of net income, except in all cases set forth in clauses (B) and (C) above for changes, increases or decreases which are described in such letter; and 9 10 (iv) they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Registration Statements (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of the Company and its subsidiaries subject to the internal controls of the Company's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement with such results, except as otherwise specified in such letter. For purposes of this subsection, (i) if the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement, "REGISTRATION STATEMENTS" shall mean the initial registration statement as proposed to be amended by the amendment or post-effective amendment to be filed shortly prior to its Effective Time, (ii) if the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement but the Effective Time of the Additional Registration is subsequent to such execution and delivery, "REGISTRATION STATEMENTS" shall mean the Initial Registration Statement and the additional registration statement as proposed to be filed or as proposed to be amended by the post-effective amendment to be filed shortly prior to its Effective Time, and (iii) "PROSPECTUS" shall mean the prospectus included in the Registration Statements. (b) If the Effective Time of the Initial Registration Statement is not prior to the execution and delivery of this Agreement, such Effective Time shall have occurred not later than 10:00 P.M., New York time, on the date of this Agreement or such later date as shall have been consented to by CSFBC. If the Effective Time of the Additional Registration Statement (if any) is not prior to the execution and delivery of this Agreement, such Effective Time shall have occurred not later than 10:00 P.M., New York time, on the date of this Agreement or, if earlier, the time the Prospectus is printed and distributed to any Underwriter, or shall have occurred at such later date as shall have been consented to by CSFBC. If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, the Prospectus shall have been filed with the Commission in accordance with the Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing Date, no stop order suspending the effectiveness of a Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or, to the knowledge of the Company or the Representatives, shall be contemplated by the Commission. (c) Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) any change, or any development or event involving a prospective change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as one enterprise which, in the judgment of a majority in interest of the Underwriters including the Representatives, is material and adverse and makes it impractical or inadvisable to proceed with completion of the public offering or the sale of and payment for the Offered Securities; (ii) any downgrading in the rating of any debt securities of the Company by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (iii) any material suspension or material limitation of trading in securities generally on the New York Stock Exchange, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (iv) any banking moratorium declared by U.S. Federal or New York authorities; or (v) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of a majority in interest 10 11 of the Underwriters including the Representatives, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the public offering or the sale of and payment for the Offered Securities. (d) The Representatives shall have received an opinion, dated such Closing Date, of Fenwick & West LLP, counsel for the Company, to the effect that: (i) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as described in the Prospectus; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification (except where the failure to so qualify would not have a Material Adverse Effect); (ii) The Offered Securities delivered on such Closing Date and all other outstanding shares of the Common Stock of the Company have been duly authorized and validly issued, and, to our knowledge, are fully paid and nonassessable and conform to the description thereof contained in the Prospectus, insofar as such descriptions purport to summarize certain provisions of the outstanding shares of the capital stock of the Company; and the stockholders of the Company have (A) no statutory preemptive rights (B) no preemptive rights pursuant to the Organizational Documents or (C) to such counsel's knowledge, any similar rights with respect to the Securities; (iii) Except as disclosed in the Prospectus, there are no contracts, agreements or understandings known to such counsel between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Act; (iv) No consent, approval, authorization or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement in connection with the issuance or sale of the Offered Securities by the Company (other than as may be required by the securities and Blue Sky laws of the various states and other jurisdictions as to which such counsel need not express any opinion), except such as have been obtained and made under the Act and such as may be required under state securities laws; (v) The execution, delivery and performance of this Agreement and the issuance and sale of the Offered Securities will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, any rule, regulation or, to such counsel's knowledge, order of any governmental agency or body or any court having jurisdiction over the Company or any subsidiary of the Company or any of their properties (except that such counsel need not express any opinion with regard to foreign or state securities or Blue Sky laws or regulations), or any agreement or instrument that is filed as an exhibit to the Registration Statement to which the Company or any such subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any such subsidiary is subject, or the charter or by-laws of the Company or any such subsidiary, and the Company has full power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement; 11 12 (vi) The Initial Registration Statement was declared effective under the Act as of the date and time specified in such opinion, the Additional Registration Statement (if any) was filed and became effective under the Act as of the date and time (if determinable) specified in such opinion, the Prospectus either was filed with the Commission pursuant to the subparagraph of Rule 424(b) specified in such opinion on the date specified therein or was included in the Initial Registration Statement or the Additional Registration Statement (as the case may be), and, to the best of the knowledge of such counsel, no stop order suspending the effectiveness of a Registration Statement or any part thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Act, and each Registration Statement and the Prospectus, and each amendment or supplement thereto, as of their respective effective or issue dates, complied as to form in all material respects with the requirements of the Act and the Rules and Regulations (except that such counsel need not express any opinion as to the financial statements and schedules, related notes and other financial information included therein); such counsel have no reason to believe that any part of a Registration Statement or any amendment thereto, as of its effective date or as of such Closing Date, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto, as of its issue date or as of such Closing Date, contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (except that such counsel need not express any opinion as to the financial statements and schedules, related notes and other financial information included therein); the descriptions in the Registration Statements and the Prospectus of statutes, legal and governmental proceedings and contracts and other documents are accurate and fairly present the information required to be shown; and such counsel do not know of any legal or governmental proceedings required to be described in a Registration Statement or the Prospectus which are not described as required or of any contracts or documents of a character required to be described in a Registration Statement or the Prospectus or to be filed as exhibits to a Registration Statement which are not described and filed as required; and (vii) This Agreement has been duly authorized, executed and delivered by the Company. (e) The Representatives shall have received from Davis Polk & Wardwell, counsel for the Underwriters, such opinion or opinions, dated such Closing Date, with respect to the incorporation of the Company, the validity of the Offered Securities delivered on such Closing Date, the Registration Statements, the Prospectus and other related matters as the Representatives may require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (f) The Representatives shall have received a certificate, dated such Closing Date, of Donna Dubinsky and Bernard Whitney, as Chief Executive Officer and Chief Financial Officer, respectively, of the Company in which such officers, to the best of their knowledge after reasonable investigation, shall state that: the representations and warranties of the Company in this Agreement are true and correct; the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to such Closing Date; no stop order suspending the effectiveness of any Registration Statement has been issued and no proceedings for that purpose have been instituted or are contemplated by the Commission; the Additional Registration Statement (if any) satisfying the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule 462(b), including payment of the applicable filing fee in accordance with Rule 111(a) or (b) under the Act, prior to the time the Prospectus was printed and distributed to any Underwriter; and, subsequent to the dates of the most recent financial statements in the Prospectus, there has been no material adverse change, nor any development or event involving a prospective material adverse 12 13 change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole except as set forth in or contemplated by the Prospectus or as described in such certificate. (g) The Representatives shall have received a letter, dated such Closing Date, of PricewaterhouseCoopers LLP which meets the requirements of subsection (a) of this Section, except that the specified date referred to in such subsection will be a date not more than three days prior to such Closing Date for the purposes of this subsection. (h) On or prior to the date of this Agreement, the Representatives shall have received lockup letters from each of the executive officers and directors of the Company and all other security holders of the Company. The Company will furnish the Representatives with such conformed copies of such opinions, certificates, letters and documents as the Representatives reasonably request. CSFBC may in its sole discretion waive on behalf of the Underwriters compliance with any conditions to the obligations of the Underwriters hereunder, whether in respect of an Optional Closing Date or otherwise. 7. Indemnification and Contribution. (a) The Company will indemnify and hold harmless each Underwriter, its partners, directors and officers and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Act, against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in subsection (b) below; and provided, further, that with respect to any untrue statement or alleged untrue statement in or omission or alleged omission from any preliminary prospectus the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Underwriter from whom the person asserting any such losses, claims, damages or liabilities purchased the Offered Securities concerned, to the extent that a prospectus relating to such Offered Securities was required to be delivered by such Underwriter under the Act in connection with such purchase and any such loss, claim, damage or liability of such Underwriter results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Offered Securities to such person, a copy of the Prospectus if the Company had previously furnished copies thereof to such Underwriter. The Company agrees to indemnify and hold harmless the Designated Underwriter and each person, if any, who controls the Designated Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (the "DESIGNATED ENTITIES"), from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (i) caused by any untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to Participants in connection with the Directed Share Program or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) caused by the failure of any Participant to pay for and accept delivery of Directed Shares that the Participant agreed to purchase; or (iii) related to, arising out of, or in connection with the Directed Share Program, other than losses, claims, damages or liabilities (or expenses relating thereto) that 13 14 are finally judicially determined to have resulted from the bad faith or gross negligence of the Designated Entities. (b) Each Underwriter will severally and not jointly indemnify and hold harmless the Company, its directors and officers and each person, if any who controls the Company within the meaning of Section 15 of the Act, against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter: the concession and reallowance figures appearing in the fourth paragraph under the caption "Underwriting" and the information contained in the sixth paragraph under the caption "Underwriting." (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. Notwithstanding anything contained herein to the contrary, if indemnity may be sought pursuant to the last paragraph in Section 7 (a) hereof in respect of such action or proceeding, then in addition to such separate firm for the indemnified parties, the indemnifying party shall be liable for the reasonable fees and expenses of not more than one separate firm (in addition to any local counsel) for the Designated Underwriter for the defense of any losses, claims, damages and liabilities arising out of the Directed Share Program, and all persons, if any, who control the Designated Underwriter within the meaning of either Section 15 of the Act of Section 20 of the Exchange Act. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act by or on behalf of an indemnified party. (d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault 14 15 of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) The obligations of the Company under this Section shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each director of the Company, to each officer of the Company who has signed a Registration Statement and to each person, if any, who controls the Company within the meaning of the Act. 8. Default of Underwriters. If any Underwriter or Underwriters default in their obligations to purchase Offered Securities hereunder on either the First or any Optional Closing Date and the aggregate number of shares of Offered Securities that such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on such Closing Date, CSFBC may make arrangements satisfactory to the Company for the purchase of such Offered Securities by other persons, including any of the Underwriters, but if no such arrangements are made by such Closing Date, the non-defaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Offered Securities that such defaulting Underwriters agreed but failed to purchase on such Closing Date. If any Underwriter or Underwriters so default and the aggregate number of shares of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on such Closing Date and arrangements satisfactory to CSFBC and the Company for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company, except as provided in Section 9 (provided that if such default occurs with respect to Optional Securities after the First Closing Date, this Agreement will not terminate as to the Firm Securities or any Optional Securities purchased prior to such termination). As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default. 9. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties and other statements of the Company or its officers and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery 15 16 of and payment for the Offered Securities. If this Agreement is terminated pursuant to Section 8 or if for any reason the purchase of the Offered Securities by the Underwriters is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 5 and the respective obligations of the Company and the Underwriters pursuant to Section 7 shall remain in effect, and if any Offered Securities have been purchased hereunder the representations and warranties in Section 2 and all obligations under Section 5 shall also remain in effect. If the purchase of the Offered Securities by the Underwriters is not consummated for any reason other than solely because of the termination of this Agreement pursuant to Section 8 or the occurrence of any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company will reimburse the Underwriters for all out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities. 10. Notices. All communications hereunder will be in writing and, if sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed to the Representatives, c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking Department--Transactions Advisory Group, or, if sent to the Company, will be mailed, delivered or telegraphed and confirmed to it at 189 Bernardo Avenue, Mountain View, CA 94304, Attention: Chief Financial Officer; provided, however, that any notice to an Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to such Underwriter. 11. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder. 12. Representation of Underwriters. The Representatives will act for the several Underwriters in connection with this financing, and any action under this Agreement taken by the Representatives jointly or by CSFBC will be binding upon all the Underwriters. 13. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. 14. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of laws. The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. 16 17 If the foregoing is in accordance with the Representatives' understanding of our agreement, kindly sign and return to the Company one of the counterparts hereof, whereupon it will become a binding agreement between the Company and the several Underwriters in accordance with its terms. Very truly yours, HANDSPRING, INC. By ---------------------------- Bernard J. Whitney Chief Financial Officer 17 18 The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. By CREDIT SUISSE FIRST BOSTON CORPORATION MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION U.S. BANCORP PIPER JAFFRAY INC. Acting on behalf of themselves and as the Representatives of the several Underwriters. By CREDIT SUISSE FIRST BOSTON CORPORATION By -------------------------------- Name: Title: 18 19 SCHEDULE A
NUMBER OF UNDERWRITER FIRM SECURITIES - ----------- --------------- Credit Suisse First Boston Corporation ......................... $ Merrill Lynch, Pierce, Fenner & Smith Incorporated ............. Donaldson, Lufkin & Jenrette Securities Corporation ............ U.S. Bancorp Piper Jaffray Inc. ................................ Total .......................................................... $ -------------- ==============
19 EX-3.2 3 EXHIBIT 3.2 1 EXHIBIT 3.2 FIRST AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF HANDSPRING, INC. (DELAWARE) Handspring, Inc. (Delaware), a Delaware corporation (the "Corporation"), which was originally incorporated on March 27, 2000, hereby certifies that the First Amended and Restated Certificate of Incorporation of the Corporation attached hereto as Exhibit A, which is incorporated herein by this reference, has been duly adopted by the Board of Directors and stockholders of the Corporation in accordance with Sections 242 and 245 of the Delaware General Corporation Law, with the approval of the stockholders having been given by written consent without a meeting in accordance with Section 228 of the Delaware General Corporation Law. IN WITNESS WHEREOF, said Corporation has caused this First Amended and Restated Certificate of Incorporation to be signed by its duly authorized officer. Dated: May 16, 2000 HANDSPRING, INC. (DELAWARE) /s/ DONNA L. DUBINSKY ---------------------------------------- Donna L. Dubinsky, President and Chief Executive Officer 2 EXHIBIT A FIRST AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF HANDSPRING, INC. ARTICLE I The name of the corporation is Handspring, Inc. ARTICLE II The address of the registered office of the corporation in the State of Delaware is 15 East North Street, City of Dover, County of Kent. The name of its registered agent at that address is Incorporating Services, Ltd. ARTICLE III The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE IV The total number of shares of all classes of capital stock which the corporation has authority to issue is 114,300,000 shares, consisting of two classes: (i) 105,000,000 shares of Common Stock, par value $0.001 per share and (ii) 9,300,000 shares of Preferred Stock, par value $0.001 per share. Of the 9,300,000 shares of Preferred Stock authorized to be issued by the corporation, (i) 8,300,000 shares are hereby designated "Series A Preferred Stock" and (ii) 1,000,000 shares are hereby designated "Series B Preferred Stock." The rights, preferences, privileges and restrictions granted to and imposed upon the Series A Preferred Stock, the Series B Preferred Stock, and the Common Stock are set forth below. 1. DEFINITIONS. For purposes of this Article IV, the following definitions apply: 1.1 "BOARD" shall mean the Board of Directors of the Company. 1.2 "COMPANY" shall mean this corporation. 1.3 "COMMON STOCK" shall mean the Common Stock, $0.001 par value, of the Company. 1 3 1.4 "COMMON STOCK DIVIDEND" shall mean a stock dividend declared and paid on the Common Stock that is payable in shares of Common Stock. 1.5 "DIVIDEND RATE" shall mean $0.0892 per share per annum for the Series A Preferred Stock (as adjusted for any stock splits, stock dividends, recapitalizations or the like, with respect to the Series A Preferred Stock) and $0.4308 per share per annum for the Series B Preferred Stock (as adjusted for any stock splits, stock dividends, recapitalizations or the like, with respect to the Series B Preferred Stock). 1.6 "ORIGINAL ISSUE DATE" shall mean the date on which the first share of Series B Preferred Stock was issued by the Company's predecessor, Handspring, Inc., a California corporation. 1.7 "ORIGINAL ISSUE PRICE" shall mean $2.23 per share for the Series A Preferred Stock (as adjusted for any stock splits, stock dividends, recapitalizations or the like, with respect to the Series A Preferred Stock) and $10.77 per share for the Series B Preferred Stock (as adjusted for any stock splits, stock dividends, recapitalizations or the like, with respect to the Series B Preferred Stock). 1.8 "PERMITTED REPURCHASES" shall mean the repurchase by the Company of shares of Common Stock held by employees, officers, directors, consultants, independent contractors, advisors, or other persons performing services for the Company or a subsidiary (if in transactions that are primarily for non-financing purposes) that are subject to restricted stock purchase agreements or stock option exercise agreements under which the Company has the option to repurchase such shares: (i) at cost, upon the occurrence of certain events, such as the termination of employment or services; or (ii) at any price pursuant to the Company's exercise of a right of first refusal to repurchase such shares. 1.9 "PREFERRED STOCK" shall mean the Series A Preferred Stock and the Series B Preferred Stock. 1.10 "SERIES A PREFERRED STOCK" shall mean the Series A Preferred Stock, $0.001 par value, of the Company. 1.11 "SERIES B PREFERRED STOCK" shall mean the Series B Preferred Stock, $0.001 par value, of the Company. 1.12 "SUBSIDIARY" shall mean any corporation of which at least fifty percent (50%) of the outstanding voting stock is at the time owned directly or indirectly by the Company or by one or more of such subsidiary corporations. 2 4 2. DIVIDEND RIGHTS. 2.1 Dividend Preference. In each calendar year, the holders of the then outstanding Series A Preferred Stock and Series B Preferred Stock shall be entitled to receive, when, as and if declared by the Board, out of any funds and assets of the Company legally available therefor, noncumulative dividends at the annual Dividend Rate for each series of Preferred Stock, prior and in preference to the payment of any dividends on the Common Stock in such calendar year (other than a Common Stock Dividend). No dividends (other than a Common Stock Dividend) shall be paid with respect to the Common Stock during any calendar year unless dividends in the total amount of the annual Dividend Rate for the Series A Preferred Stock and Series B Preferred Stock, respectively, shall have first been paid or declared and set apart for payment to the holders of the Series A Preferred Stock and Series B Preferred Stock, respectively, during that calendar year; provided, however, that this restriction shall not apply to Permitted Repurchases. Payments of any dividends to the holders of Series A Preferred Stock and Series B Preferred Stock shall be paid pro rata, on an equal priority, pari passu basis according to their respective Dividend Rate as set forth herein. Dividends on the Preferred Stock shall not be mandatory or cumulative, and no rights or interest shall accrue to the holders of the Preferred Stock by reason of the fact that the Company shall fail to declare or pay dividends on the Series A Preferred Stock or Series B Preferred Stock, respectively, in the amount of the annual Dividend Rate for the Series A Preferred Stock or Series B Preferred Stock, respectively, or in any other amount in any calendar year or any fiscal year of the Company, whether or not the earnings of the Company in any calendar year or fiscal year were sufficient to pay such dividends in whole or in part. 2.2 Participation Rights. If, after dividends in the full preferential amount specified in this Section 2 for the Preferred Stock have been paid or declared and set apart in any calendar year of the Company, the Board shall declare additional dividends out of funds legally available therefor in that calendar year, then such additional dividends shall be declared pro rata on the Common Stock and the Preferred Stock on a pari passu basis according to the number of shares of Common Stock held by such holders, where each holder of shares of Preferred Stock is to be treated for this purpose as holding the greatest whole number of shares of Common Stock then issuable upon conversion of all shares of Preferred Stock held by such holder pursuant to Section 5. 2.3 Non-Cash Dividends. Whenever a dividend provided for in this Section 2 shall be payable in property other than cash, the value of such dividend shall be deemed to be the fair market value of such property as determined in good faith by the Board. 3. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the funds and assets that may be legally distributed to the Company's stockholders (the "AVAILABLE FUNDS AND ASSETS") shall be distributed to stockholders in the following manner: 3.1 Liquidation Preferences. The holders of each share of Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, and prior and in preference to any payment or distribution (or any setting apart of any payment or distribution) of any Available Funds and Assets on any shares of Common Stock, an amount per share equal 3 5 to the Original Issue Price for each series of Preferred Stock plus all declared but unpaid dividends thereon. If upon any liquidation, dissolution or winding up of the Company, the Available Funds and Assets shall be insufficient to permit the payment to holders of the Preferred Stock of their full preferential amount described in this subsection, then the entire Available Funds and Assets shall be distributed among the holders of the then outstanding Preferred Stock pro rata, on an equal priority, pari passu basis, according to their respective liquidation preferences as set forth herein. 3.2 Remaining Assets. If there are any Available Funds and Assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Preferred Stock of their full preferential amounts described above in this Section 3, then all such remaining Available Funds and Assets shall be distributed among the holders of the then outstanding Common Stock pro rata according to the number of shares of Common Stock held by each holder thereof. 3.3 Merger or Sale of Assets. A (i) reorganization, consolidation or merger (or similar transaction or series of transactions) of the Company with or into any other corporation or corporations in which the holders of the Company's outstanding shares immediately before such transaction or series of transactions do not, immediately after such transaction or series of transactions, retain stock representing a majority of the voting power of the surviving corporation (or its parent corporation if the surviving corporation is wholly owned by the parent corporation) of such transaction or series of transactions; or (ii) a sale of all or substantially all of the assets of the Company, shall each be deemed to be a liquidation, dissolution or winding up of the Company as those terms are used in this Section 3. 3.4 Non-Cash Consideration. If any assets of the Company distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Company are other than cash, then the value of such assets shall be their fair market value as determined by the Board, except that any securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Company shall be valued as follows: (a) The method of valuation of securities not subject to investment letter or other similar restrictions on free marketability shall be as follows: (i) if the securities are then traded on a national securities exchange or the Nasdaq National Market (or a similar national quotation system), then the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the 30-day period ending three (3) days prior to the distribution; and (ii) if actively traded over-the-counter, then the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three (3) days prior to the distribution; and (iii) if there is no active public market, then the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Company. 4 6 (b) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined as above in subparagraphs (a)(i), (ii) or (iii) of this subsection to reflect the approximate fair market value thereof, as determined in good faith by the Board. 3.5 Notice and Waiver. The Company shall give each holder of record of Preferred Stock written notice of an impending liquidation, dissolution or winding up of the Company not later than ten (10) days prior to the stockholders' meeting, if any, called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier. The notice shall describe the nature of the impending transaction. The transaction shall in no event take place sooner than twenty (20) days after the Company has given the notice provided for herein. Notwithstanding the foregoing provisions of this subsection 3.5, the periods and provisions specified herein may be shortened or waived upon the written consent of the holders of Preferred Stock that are entitled to such notice rights and that represent at least a majority of the voting power of all then outstanding shares of Preferred Stock. 4. VOTING RIGHTS. 4.1 Common Stock. Each holder of shares of Common Stock shall be entitled to one (1) vote for each share thereof held. 4.2 Preferred Stock. Each holder of shares of Preferred Stock shall be entitled to the number of votes equal to the number of whole shares of Common Stock into which such shares of Preferred Stock could be converted pursuant to the provisions of Section 5 below at the record date for the determination of the stockholders entitled to vote on such matters or, if no such record date is established, the date such vote is taken or any written consent of stockholders is solicited. 4.3 General. Subject to the foregoing provisions of this Section 4, each holder of Preferred Stock shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled to notice of any stockholders' meeting in accordance with the bylaws of the Company (as in effect at the time in question) and applicable law, and shall be entitled to vote, together with the holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote, except as may be otherwise provided by applicable law. Except as otherwise expressly provided herein or as required by law, the holders of Preferred Stock and the holders of Common Stock shall vote together and not as separate classes. 4.4 Board Size. The authorized number of directors of the Company's Board shall be seven (7). The Company shall not alter the authorized number of directors in its Certificate of Incorporation, Bylaws or otherwise, without first obtaining the written consent, or affirmative vote at a meeting, of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, consenting or voting (as the case may be) separately as a class. 4.5 Board of Directors Election and Removal. (a) Election. So long as at least 2,000,000 shares of Series A Preferred Stock are outstanding (such number of shares being subject to proportional adjustment to reflect 5 7 combinations or subdivisions of such Series A Preferred Stock or dividends declared in shares of such stock), (i) the holders of the Preferred Stock, voting together as a separate class, shall be entitled to elect two (2) directors of the Company; (ii) the holders of the Common Stock, voting as a separate class, shall be entitled to elect two (2) directors of the Company; and (iii) the holders of the Series A Preferred Stock, the Series B Preferred Stock and the Common Stock, voting together as a single class shall be entitled to elect the remaining directors of the Company. (b) Quorum; Required Vote. (i) Quorum. At any meeting held for the purpose of electing directors, the presence in person or by proxy (A) of the holders of a majority of the shares of the Preferred Stock or Common Stock then outstanding, respectively, shall constitute a quorum of the Preferred Stock or Common Stock, as the case may be, for the election of directors to be elected solely by the holders of the Preferred Stock or Common Stock, respectively, and (B) of holders of Preferred Stock and Common Stock representing a majority of each of the voting power of all the then-outstanding shares (1) of Preferred Stock and (2) of Common Stock shall constitute a quorum for the election of the directors to be elected jointly by the holders of the Preferred Stock and the Common Stock. (ii) Required Vote. With respect to the election of any director or directors by the holders of the outstanding shares of a specified series, class or classes of stock given the right to elect such director or directors pursuant to subsection 4.5(a) above ("SPECIFIED STOCK"), that candidate or those candidates (as applicable) shall be elected who either: (i) in the case of any such vote conducted at a meeting of the holders of such Specified Stock, receive the highest number of affirmative votes of the outstanding shares of such Specified Stock, up to the number of directors to be elected by such Specified Stock; or (ii) in the case of any such vote taken by written consent without a meeting, are elected by the written consent of the holders of a majority of the outstanding shares of such Specified Stock entitled to vote. (c) Vacancy. If there shall be any vacancy in the office of a director elected by the holders of any Specified Stock pursuant to subsection 4.5(a), then a successor to hold office for the unexpired term of such director may be elected by either: (i) the remaining director or directors (if any) in office that were so elected by the holders of such Specified Stock, by the affirmative vote of a majority of such directors (or by the sole remaining director elected by the holders of such Specified Stock if there be but one), or if such vacancy is not filled by such directors (ii) the required vote of holders of the shares of such Specified Stock specified in subsection 4.5(b)(ii) above that are entitled to elect such director under subsection 4.5(a). (d) Removal. Subject to Section 141(k) of the Delaware General Corporation Law, any director who shall have been elected to the Board by the holders of any Specified Stock pursuant to subsection 4.5(a) or by any director or directors elected by holders of any Specified Stock as provided in subsection 4.5(c), may be removed during his or her term of office, either with or without cause, by, and only by, the affirmative vote of shares representing a majority of the voting power of all the outstanding shares of such Specified Stock entitled to vote, given either at a meeting of such stockholders duly called for that purpose or pursuant to a 6 8 written consent of stockholders without a meeting, and any vacancy created by such removal may be filled only in the manner provided in subsection 4.5(c). (e) Procedures. Any meeting of the holders of any Specified Stock, and any action taken by the holders of any Specified Stock by written consent without a meeting, in order to elect or remove a director under this subsection 4.5, shall be held in accordance with the procedures and provisions of the Company's Bylaws, the Delaware General Corporation law and applicable law regarding stockholder meetings and stockholder actions by written consent, as such are then in effect (including but not limited to procedures and provisions for determining the record date for shares entitled to vote). (f) Termination. Notwithstanding anything in this subsection 4.5 to the contrary, the provisions of this subsection 4.5 shall cease to be of any further force or effect upon the earlier to occur of: (i) the first date on which the total number of outstanding shares of Series A Preferred Stock is less than 2,000,000 shares (such number of shares being subject to proportional adjustment to reflect combination or subdivisions of such Series A Preferred Stock or dividends declared in shares of such stock); or (ii) upon the merger or consolidation of the Company with or into any other corporation or corporations if such consolidation or merger is approved by the stockholders of the Company in compliance with applicable law and the Certificate of Incorporation and Bylaws of the Company in which the holders of the Company's outstanding shares immediately before such consolidation or merger do not, immediately after such consolidation or merger, retain stock representing a majority of the voting power of the surviving corporation (or its parent corporation if the surviving corporation is wholly owned by the parent corporation); or (iii) a sale of all or substantially all of the Company's assets. 5. CONVERSION RIGHTS. The outstanding shares of Preferred Stock shall be convertible into Common Stock as follows: 5.1 Optional Conversion. (a) At the option of the holder thereof, each share of Preferred Stock shall be convertible, at any time or from time to time prior to the close of business on the business day before any date fixed for redemption of such share, into fully paid and nonassessable shares of Common Stock as provided herein. (b) Each holder of Preferred Stock who elects to convert the same into shares of Common Stock shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or any transfer agent for the Preferred Stock or Common Stock, and shall give written notice to the Company at such office that such holder elects to convert the same and shall state therein the number of shares of Preferred Stock being converted. Thereupon the Company shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled upon such conversion. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates representing the shares of Preferred Stock to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date. If a conversion election under this 7 9 subsection 5.1 is made in connection with an underwritten offering of the Company's securities pursuant to the Securities Act of 1933, as amended, (which underwritten offering does not cause an automatic conversion pursuant to subsection 5.2 to take place) the conversion may, at the option of the holder tendering shares of Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of the Company's securities pursuant to such offering, in which event the holders making such elections who are entitled to receive Common Stock upon conversion of their Preferred Stock shall not be deemed to have converted such shares of Preferred Stock until immediately prior to the closing of such sale of the Company's securities in the offering. 5.2 Automatic Conversion. (a) Each share of Preferred Stock shall automatically be converted into fully paid and nonassessable shares of Common Stock, as provided herein: (i) immediately prior to the closing of a firm commitment underwritten public offering pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Company in which the aggregate public offering price (before deduction of underwriters' discounts and commissions) equals or exceeds $20,000,000 and the public offering price per share of which equals or exceeds $10.77 per share before deduction of underwriters' discounts and commissions (such price per share of Common Stock to be appropriately adjusted to reflect Common Stock Events (as defined in Section 5.4)); or (ii) upon the Company's receipt of the written consent of the holders of not less than a majority of the then outstanding shares of Preferred Stock to the conversion of all then outstanding Preferred Stock under this Section 5. (b) Upon the occurrence of any event specified in subparagraph 5.2(a) (i) or (ii) above, the outstanding shares of Preferred Stock shall be converted into Common Stock automatically without the need for any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Preferred Stock are either delivered to the Company or its transfer agent as provided below, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Preferred Stock, the holders of Preferred Stock shall surrender the certificates representing such shares at the office of the Company or any transfer agent for the Preferred Stock or Common Stock. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred. 5.3 Conversion Price. Each share of Preferred Stock shall be convertible in accordance with subsection 5.1 or subsection 5.2 above into the number of shares of Common Stock which results from dividing the Original Issue Price for such series of Preferred Stock by the conversion price for such series of Preferred Stock that is in effect at the time of conversion 8 10 (the "CONVERSION PRICE"). The initial Conversion Price for the Series A Preferred Stock shall be the Original Issue Price for the Series A Preferred Stock and the initial Conversion Price for the Series B Preferred Stock shall be the Original Issue Price for the Series B Preferred Stock. The Conversion Price of each series of Preferred Stock shall be subject to adjustment from time to time as provided below. 5.4 Adjustment Upon Common Stock Event. Upon the happening of a Common Stock Event (as hereinafter defined) at any time after the Original Issue Date, the Conversion Price of the Series A Preferred Stock and the Conversion Price of the Series B Preferred Stock shall, simultaneously with the happening of such Common Stock Event, be adjusted by multiplying the Conversion Price of such series of Preferred Stock in effect immediately prior to such Common Stock Event by a fraction, (i) the numerator of which shall be the number of shares of Common Stock issued and outstanding immediately prior to such Common Stock Event, and (ii) the denominator of which shall be the number of shares of Common Stock issued and outstanding immediately after such Common Stock Event, and the product so obtained shall thereafter be the Conversion Price for such series of Preferred Stock. The Conversion Price for a series of Preferred Stock shall be readjusted in the same manner upon the happening of each subsequent Common Stock Event. As used herein, the term "COMMON STOCK EVENT" shall mean, at any time or from time to time after the Original Issue Date, (i) the issue by the Company of additional shares of Common Stock as a dividend or other distribution on outstanding Common Stock, (ii) a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock, or (iii) a combination of the outstanding shares of Common Stock into a smaller number of shares of Common Stock. 5.5 Adjustments for Other Dividends and Distributions. If at any time or from time to time after the Original Issue Date the Company pays a dividend or makes another distribution to the holders of the Common Stock payable in securities of the Company other than shares of Common Stock, then in each such event provision shall be made so that the holders of the Series A Preferred Stock and Series B Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable upon conversion thereof, the amount of securities of the Company which they would have received had their Preferred Stock been converted into Common Stock on the date of such event (or such record date, as applicable) and had they thereafter, during the period from the date of such event (or such record date, as applicable) to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 5 with respect to the rights of the holders of the Preferred Stock or with respect to such other securities by their terms. 5.6 Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Original Issue Date the Common Stock issuable upon the conversion of the Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than by a Common Stock Event or a stock dividend, reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 5), then in any such event each holder of Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the number of shares of Common Stock into which such shares of Preferred 9 11 Stock could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. 5.7 Reorganizations, Mergers and Consolidations. If at any time or from time to time after the Original Issue Date there is a capital reorganization of the Company (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 5) or a merger or consolidation of the Company with or into another corporation (except an event which is governed under subsection 3.3), then, as a part of such reorganization, merger or consolidation, provision shall be made so that the holders of the Preferred Stock thereafter shall be entitled to receive, upon conversion of the Preferred Stock, the number of shares of stock or other securities or property of the Company, or of such successor corporation resulting from such reorganization, merger or consolidation, to which a holder of Common Stock deliverable upon conversion would have been entitled on such reorganization, merger or consolidation. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5 with respect to the rights of the holders of the Preferred Stock after the reorganization, merger or consolidation to the end that the provisions of this Section 5 (including adjustment of the Conversion Price then in effect and number of shares issuable upon conversion of each series of Preferred Stock) shall be applicable after that event and be as nearly equivalent to the provisions hereof as may be practicable. This subsection 5.7 shall similarly apply to successive reorganizations, mergers and consolidations. 5.8 Sale of Shares Below Conversion Price. (a) Adjustment Formula. If at any time or from time to time after the Original Issue Date the Company issues or sells, or is deemed by the provisions of this subsection 5.8 to have issued or sold, Additional Shares of Common Stock (as hereinafter defined), otherwise than in connection with a Common Stock Event as provided in subsection 5.4, a dividend or distribution as provided in subsection 5.5 or a recapitalization, reclassification or other change as provided in subsection 5.6, or a reorganization, merger or consolidation as provided in subsection 5.7, for an Effective Price (as hereinafter defined) that is less than the Conversion Price for the Series A Preferred Stock or Series B Preferred Stock, as the case may be, in effect immediately prior to such issue or sale (or deemed issue or sale), then, and in each such case, the Conversion Price for such series of Preferred Stock shall be reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Conversion Price by a fraction: (i) The numerator of which shall be the sum of (A) the number of Common Stock Equivalents Outstanding (as hereinafter defined) immediately prior to such issue or sale of Additional Shares of Common Stock plus (B) the quotient obtained by dividing the Aggregate Consideration Received (as hereinafter defined) by the Company for the total number of Additional Shares of Common Stock so issued or sold (or deemed so issued and sold) by the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue or sale; and (ii) The denominator of which shall be the sum of (A) the number of Common Stock Equivalents Outstanding immediately prior to such issue or sale plus 10 12 (B) the number of Additional Shares of Common Stock so issued or sold (or deemed so issued and sold). (b) Certain Definitions. For the purpose of making any adjustment required under this subsection 5.8: (i) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common Stock issued by the Company, whether or not subsequently reacquired or retired by the Company, other than: (A) shares of Common Stock issued or issuable upon conversion of Preferred Stock; (B) shares of Common Stock (or options, warrants or other rights therefor) issued or issuable to employees, officers, or directors of, or contractors, consultants or advisers to, the Company or any Subsidiary (if in transactions with primarily non-financing purposes) pursuant to stock purchase or stock option plans, stock bonuses or awards, warrants, contracts or other arrangements that are approved by the Board; and (C) shares of Common Stock or Preferred Stock (or options, warrants or other rights therefor) issued or issuable to parties providing the Company with equipment leases, real property leases, loans, credit lines, guaranties of indebtedness, cash price reductions or similar transactions (provided such issuances are pursuant to transactions with primarily non-equity financing purposes), including, without limitation, shares of Series A Preferred Stock (and shares of Common Stock issued or issuable upon conversion thereof) issued or issuable to Comdisco, Inc. pursuant to that certain Subordinated Loan and Security Agreement; and (D) up to 50,000 shares of Common Stock issued or issuable to charitable organizations pursuant to stock issuance agreements or other arrangements approved by the Board. (ii) The "AGGREGATE CONSIDERATION RECEIVED" by the Company for any issue or sale (or deemed issue or sale) of securities shall (A) to the extent it consists of cash, be computed at the gross amount of cash received by the Company before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale and without deduction of any expenses payable by the Company; (B) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board; and (C) if Additional Shares of Common Stock, Convertible Securities or Rights or Options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board to be allocable to such Additional Shares of Common Stock, Convertible Securities or Rights or Options. (iii) "COMMON STOCK EQUIVALENTS OUTSTANDING" shall mean the number of shares of Common Stock that is equal to the sum of (A) all shares of Common Stock of the Company that are outstanding at the time in question, plus (B) all shares of Common Stock of the Company issuable upon conversion of all shares of Preferred Stock or other Convertible Securities that are outstanding at the time in question, plus (C) all shares of Common Stock of the Company that are issuable upon the exercise of Rights or Options (excluding any shares of Common Stock excluded from the definition of "Additional Shares of Common Stock" pursuant to subsection 5.8(b)(i)(B), after the Original Issue Date) that are outstanding at the time in question assuming the full conversion or exchange into Common Stock of all such Rights or Options that are Rights or Options to purchase or acquire Convertible Securities into or for Common Stock. 11 13 (iv) "CONVERTIBLE SECURITIES" shall mean stock or other securities convertible into or exchangeable for shares of Common Stock. (v) The "EFFECTIVE PRICE" of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold, by the Company under this subsection 5.8, into the Aggregate Consideration Received, or deemed to have been received, by the Company under this subsection 5.8, for the issue of such Additional Shares of Common Stock; and (vi) "RIGHTS OR OPTIONS" shall mean warrants, options or other rights to purchase or acquire shares of Common Stock or Convertible Securities. (c) Deemed Issuances. For the purpose of making any adjustment to the Conversion Price of the Series A Preferred Stock or Series B Preferred Stock required under this subsection 5.8, if the Company issues or sells any Rights or Options or Convertible Securities and if the Effective Price of the shares of Common Stock issuable upon exercise of such Rights or Options and/or the conversion or exchange of Convertible Securities (computed without reference to any additional or similar protective or antidilution clauses) is less than the Conversion Price then in effect for a series of Preferred Stock, then the Company shall be deemed to have issued, at the time of the issuance of such Rights, Options or Convertible Securities, that number of Additional Shares of Common Stock (as defined above) that is equal to the maximum number of shares of Common Stock issuable upon exercise or conversion of such Rights, Options or Convertible Securities upon their issuance and to have received, as the Aggregate Consideration Received for the issuance of such shares, an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such Rights or Options or Convertible Securities, plus, in the case of such Rights or Options, the minimum amounts of consideration, if any, payable to the Company upon the exercise in full of such Rights or Options, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion or exchange thereof; provided that: (i) if the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, then the Company shall be deemed to have received the minimum amounts of consideration without reference to such clauses; (ii) if the minimum amount of consideration payable to the Company upon the exercise of Rights or Options or the conversion or exchange of Convertible Securities is reduced over time or upon the occurrence or non-occurrence of specified events other than by reason of antidilution or similar protective adjustments, then the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; and (iii) if the minimum amount of consideration payable to the Company upon the exercise of such Rights or Options or the conversion or exchange of Convertible Securities is subsequently increased, then the Effective Price shall again be 12 14 recalculated using the increased minimum amount of consideration payable to the Company upon the exercise of such Rights or Options or the conversion or exchange of such Convertible Securities. No further adjustment of the Conversion Price, adjusted upon the issuance of such Rights or Options or Convertible Securities, shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such Rights or Options or the conversion or exchange of any such Convertible Securities. If any such Rights or Options or the conversion rights represented by any such Convertible Securities shall expire without having been fully exercised, then the Conversion Price as adjusted upon the issuance of such Rights or Options or Convertible Securities shall be readjusted to the Conversion Price which would have been in effect had an adjustment been made on the basis that the only shares of Common Stock so issued were the shares of Common Stock, if any, that were actually issued or sold on the exercise of such Rights or Options or rights of conversion or exchange of such Convertible Securities, and such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such Rights or Options, whether or not exercised, plus the consideration received for issuing or selling all such Convertible Securities actually converted or exchanged, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion or exchange of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of Preferred Stock. 5.9 Certificate of Adjustment. In each case of an adjustment or readjustment of the Conversion Price for a series of Preferred Stock, the Company, at its expense, shall cause its Chief Financial Officer to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of the Preferred Stock at the holder's address as shown in the Company's books. 5.10 Fractional Shares. No fractional shares of Common Stock shall be issued upon any conversion of Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the Company shall pay the holder cash equal to the product of such fraction multiplied by the Common Stock's fair market value as determined in good faith by the Board as of the date of conversion. 5.11 Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. 13 15 5.12 Notices. Any notice required by the provisions of this Section 5 to be given to the holders of shares of the Preferred Stock shall be deemed given upon the earlier of actual receipt or deposit in the United States mail, by certified or registered mail, return receipt requested, postage prepaid, addressed to each holder of record at the address of such holder appearing on the books of the Company. 5.13 No Impairment. The Company shall not avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Preferred Stock against impairment. 6. RESTRICTIONS AND LIMITATIONS. 6.1 Class Protective Provisions. So long as any shares of Preferred Stock remain outstanding, the Company shall not, without the approval, by vote or written consent, of the holders of a majority of the Preferred Stock then outstanding, voting as a single class: (1) amend its Certificate of Incorporation or Bylaws in any manner that would alter, change or affect any of the rights, preferences, privileges or restrictions of the Preferred Stock; (2) authorize any other equity security, including any other security convertible into or exercisable for any equity security having rights or preferences senior to or on a parity with the Preferred Stock as to dividend rights, liquidation preferences, redemption or voting; (3) merge or consolidate with or into any corporation or effect any transaction or series of related transactions if such merger, consolidation or transaction or series of transactions would result in the stockholders of the Company immediately prior to such merger, consolidation or transaction or series of transactions holding less than a majority of the voting power of the stock of the surviving corporation (or its parent corporation if the surviving corporation is wholly owned by the parent corporation) immediately after such merger, consolidation or transaction or series of transactions; (4) sell all or substantially all the Company's assets in a single transaction or series of related transactions; (5) liquidate or dissolve; or (6) declare or pay any dividends (other than dividends payable solely in shares of its own Common Stock) on or declare or make any other distribution, purchase, redemption or acquisition (other than Permitted Repurchases), directly or indirectly, on account of any shares of Preferred Stock or Common Stock now or hereafter outstanding. 6.2 Series Protective Provisions. So long as any shares of Series A Preferred Stock or Series B Preferred Stock remain outstanding, as the case may be, the Company shall not, without the approval, by vote or written consent, of the holders of a majority of the Series A 14 16 Preferred Stock then outstanding and/or the Series B Preferred Stock then outstanding, as applicable, each voting as a separate class, take any of the following actions to the extent it effects such series of Preferred Stock: (1) with respect to the holders of Series A Preferred Stock, authorize additional shares of Series A Preferred Stock, and with respect to the holders of Series B Preferred Stock, authorize additional shares of Series B Preferred Stock; (2) reclassify any outstanding shares of securities of the Company into shares having rights, preferences or privileges senior to or on a parity with such series of Preferred Stock; (3) authorize any other equity security, including any other security convertible into or exercisable for any equity security having rights or preferences senior to such series of Preferred Stock as to dividend rights or liquidation preferences. 7. MISCELLANEOUS 7.1 No Reissuance of Preferred Stock. No share or shares of Preferred Stock acquired by the Company by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the Company shall be authorized to issue. 7.2 Consent to Certain Transactions. Each holder of shares of Preferred Stock shall, by virtue of its acceptance of a stock certificate evidencing Preferred Stock, be deemed to have consented, for purposes of Sections 502, 503 and 506 of the California Corporations Code, to all Permitted Repurchases. ARTICLE V In furtherance of and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, amend or repeal the Bylaws of this corporation, subject to the right of the stockholders entitled to vote with respect thereto, in accordance with the provisions of such Bylaws, to alter and repeal the Bylaws adopted or amended by the Board of Directors. Notwithstanding any other provisions of law, this First Amended and Restated Certificate of Incorporation or the Bylaws, each as amended, and notwithstanding the fact that a lesser percentage may be specified by law, this First Amended and Restated Certificate of Incorporation or the Bylaws, the affirmative vote of the holders of at least sixty six and two-thirds percent (66 2/3%) of the outstanding voting stock then entitled to vote at an election of directors, voting together as a single class, shall be required to alter, change, amend, repeal or adopt any provision inconsistent with this Article V. ARTICLE VI To the fullest extent permitted by law, no director of the corporation shall be personally liable to the corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability. Without limiting the effect of the preceding sentence, if the Delaware General Corporation Law is 15 17 hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. No amendment to or repeal of this provision, nor the adoption of any provision of this First Amended and Restated Certificate of Incorporation inconsistent with this Article VI, shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. 16 EX-3.5 4 EXHIBIT 3.5 1 EXHIBIT 3.5 RESTATED BYLAWS OF HANDSPRING, INC. May 16, 2000 2 TABLE OF CONTENTS
PAGE ARTICLE I - STOCKHOLDERS Section 1.1: Annual Meetings....................................................... 1 Section 1.2: Special Meetings...................................................... 1 Section 1.3: Notice of Meetings.................................................... 1 Section 1.4: Adjournments.......................................................... 1 Section 1.5: Quorum................................................................ 2 Section 1.6: Organization.......................................................... 2 Section 1.7: Voting; Proxies....................................................... 2 Section 1.8: Fixing Date for Determination of Stockholders of Record............... 3 Section 1.9: List of Stockholders Entitled to Vote................................. 3 Section 1.10: Inspectors of Elections............................................... 3 Section 1.11: Notice of Stockholder Business; Nominations........................... 4 ARTICLE II - BOARD OF DIRECTORS Section 2.1: Number; Qualifications................................................ 6 Section 2.2: Election; Resignation; Removal; Vacancies............................. 6 Section 2.3: Regular Meetings...................................................... 8 Section 2.4: Special Meetings...................................................... 8 Section 2.5: Telephonic Meetings Permitted......................................... 8 Section 2.6: Quorum; Vote Required for Action...................................... 8
i 3 RESTATED BYLAWS OF HANDSPRING, INC. TABLE OF CONTENTS (CONTINUED)
PAGE Section 2.7: Organization......................................................... 8 Section 2.8: Written Action by Directors.......................................... 8 Section 2.9: Powers............................................................... 8 Section 2.10: Compensation of Directors............................................ 8 ARTICLE III - COMMITTEES Section 3.1: Committees........................................................... 9 Section 3.2: Committee Rules...................................................... 9 ARTICLE IV - OFFICERS Section 4.1: Generally............................................................ 9 Section 4.2: Chief Executive Officer.............................................. 9 Section 4.3: Chairperson of the Board............................................. 10 Section 4.4: President............................................................ 10 Section 4.5: Vice President....................................................... 10 Section 4.6: Chief Financial Officer.............................................. 10 Section 4.7: Treasurer............................................................ 11 Section 4.8: Secretary............................................................ 11 Section 4.9: Delegation of Authority.............................................. 11 Section 4.10: Removal.............................................................. 11
ii 4 RESTATED BYLAWS OF HANDSPRING, INC. TABLE OF CONTENTS (CONTINUED)
PAGE ARTICLE V - STOCK Section 5.l: Certificates......................................................... 11 Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificate.......................................... 11 Section 5.3: Other Regulations.................................................... 11 ARTICLE VI - INDEMNIFICATION Section 6.1: Indemnification of Officers and Directors............................ 12 Section 6.2: Advance of Expenses.................................................. 12 Section 6.3: Non-Exclusivity of Rights............................................ 12 Section 6.4: Indemnification Contracts............................................ 13 Section 6.5: Effect of Amendment.................................................. 13 ARTICLE VII - NOTICES Section 7.l: Notice............................................................... 13 Section 7.2: Waiver of Notice..................................................... 13 ARTICLE VIII - INTERESTED DIRECTORS Section 8.1: Interested Directors; Quorum......................................... 13 ARTICLE IX - MISCELLANEOUS Section 9.1: Fiscal Year.......................................................... 14 Section 9.2: Seal................................................................. 14 Section 9.3: Form of Records...................................................... 14
iii 5 RESTATED BYLAWS OF HANDSPRING, INC. TABLE OF CONTENTS (CONTINUED)
PAGE Section 9.4: Reliance Upon Books and Records...................................... 14 Section 9.5: Certificate of Incorporation Governs................................. 14 Section 9.6: Severability......................................................... 15 ARTICLE X - AMENDMENT Section 10.1: Amendments........................................................... 15
iv 6 RESTATED BYLAWS OF HANDSPRING, INC. ARTICLE I STOCKHOLDERS Section 1.1: Annual Meetings. An annual meeting of stockholders shall be held for the election of directors at such date, time and place, either within or without the State of Delaware, as the Board of Directors shall each year fix. Any other proper business may be transacted at the annual meeting. Section 1.2: Special Meetings. Special meetings of stockholders for any purpose or purposes may be called at any time by the Chairperson of the Board of Directors, the Chief Executive Officer, or if there is no Chief Executive Officer, the President, by a majority of the members of the Board of Directors or by holders of at least a majority of the outstanding voting stock then entitled to vote at an election of directors. Special meetings may not be called by any other person or persons. If a special meeting of stockholders is called at the request of any person or persons other than by a majority of the members of the Board of Directors, then such person or persons shall request such meeting by delivering a written request to call such meeting to each member of the Board of Directors, and the Board of Directors shall then determine the time, date and place of such special meeting, which shall be held not more than one hundred twenty (120) nor less than thirty-five (35) days after the written request to call such special meeting was delivered to each member of the Board of Directors. Section 1.3: Notice of Meetings. Written notice of all meetings of stockholders shall be given stating the place, date and time of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by applicable law or the Certificate of Incorporation of the Corporation, such notice shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting. Such notice shall be given by the Secretary of the Corporation or by an officer of the Corporation designated by the Board of Directors, or in the case of a special meeting of stockholders, by the officer or persons calling such meeting. The business to be transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Section 1.4: Adjournments. Any meeting of stockholders may adjourn from time to time to reconvene at the same or another place, and notice need not be given of any such adjourned meeting if the time, date and place thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, then a 1 7 notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. Section 1.5: Quorum. At each meeting of stockholders the holders of a majority of the shares of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business, except if otherwise required by applicable law or the Certificate of Incorporation. If a quorum shall fail to attend any meeting, the chairperson of the meeting or the holders of a majority of the shares entitled to vote who are present, in person or by proxy, at the meeting may adjourn the meeting. The shares of the capital stock of the Corporation belonging to the Corporation, or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation are held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation or any other corporation to vote any shares of the capital stock of the Corporation held by it in a fiduciary capacity. Section 1.6: Organization. The meetings of stockholders shall be presided over by such person as the Board of Directors may designate, or, in the absence of such a person, the Chairperson of the Board of Directors, or, in the absence of such person, the President of the Corporation, or, in the absence of such person, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or represented by proxy, at the meeting. Such person shall be chairperson of the meeting and, subject to Section 1.11 hereof, shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seems to him or her to be in order. The Secretary of the Corporation shall act as secretary of the meeting, but in such person's absence the chairperson of the meeting may appoint any person to act as secretary of the meeting. Section 1.7: Voting; Proxies. Unless otherwise provided by law or the Certificate of Incorporation, and subject to the provisions of Section 1.8 of these Bylaws, each stockholder shall be entitled to one (1) vote for each share of stock held by such stockholder. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy. Such a proxy may be prepared, transmitted and delivered in any manner permitted by applicable law. The voting at meetings of stockholders need not be by written ballot unless such is demanded at the meeting before voting begins by a stockholder or stockholders holding shares, either directly or represented by proxy, representing at least one percent (1%) of the votes entitled to vote at such meeting; provided, however, that an election of directors shall be by written ballot if demand is so made by any stockholder at the meeting before voting begins. If a vote is to be taken by written ballot, then each such ballot shall state the name of the stockholder or proxy voting and such other information as the chairperson of the meeting deems appropriate. The directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Unless otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, every matter other than the election of directors shall be decided by the affirmative vote of the holders of a majority of the shares of stock entitled to vote thereon that are present in person or represented by proxy at the meeting and are voted for or against the matter. 2 8 Section 1.8: Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If no record date is fixed by the Board of Directors, then the record date shall be as provided by applicable law. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 1.9: List of Stockholders Entitled to Vote. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present at the meeting. Section 1.10: Inspectors of Elections. (a) Applicability. Unless otherwise provided in the Certificate of Incorporation or required by the Delaware General Corporation Law, the following provisions of this Section 1.10 shall apply only if and when the Corporation has a class of voting stock that is: (i) listed on a national securities exchange; (ii) authorized for quotation on an automated interdealer quotation system of a registered national securities association; or (iii) held of record by more than two thousand stockholders. In all other cases, observance of the provisions of this Section 1.10 shall be optional and at the discretion of the Corporation. (b) Appointment. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. (c) Inspector's Oath. Each inspector of election, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector's ability. (d) Duties of Inspectors. At a meeting of stockholders, the inspectors of election shall (i) ascertain the number of shares outstanding and the voting power of each share, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes 3 9 and ballots, (iv) determine and retain for a reasonable period of time a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. (e) Opening and Closing of Polls. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced by the chairperson of the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise. (f) Determinations. In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in connection with proxies in accordance with Section 212(c)(2) of the Delaware General Corporation Law, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification of their determinations pursuant to this Section 1.10 shall specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors' belief that such information is accurate and reliable. Section 1.11: Notice of Stockholder Business; Nominations. (a) Annual Meeting of Stockholders. (i) Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the stockholders shall be made at an annual meeting of stockholders (A) pursuant to the notice of such meeting, (B) by or at the direction of the Board of Directors or (C) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this Section 1.11, who is entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 1.11. (ii) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (C) of subparagraph (a)(i) of this Section 1.11, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice must be in writing and delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the seventy-fifth (75th) day nor earlier than the close of business on the one hundred and fifth (105th) day prior to the first anniversary of the preceding year's annual meeting, except in the case of the first annual meeting after the adoption of these Bylaws, for which such notice shall be timely if delivered in the same time period as if such meeting were a special meeting governed by subparagraph (b) of this 4 10 Section 1.11; provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred and fifth (105th) day prior to such annual meeting and not later than the close of business on the later of the seventy-fifth (75th) day prior to such annual meeting or the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation. Such stockholder's notice shall set forth: (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected, as well as such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (1) the name and address of such stockholder, as they appear on the books of the Corporation, and of such beneficial owner, and (2) the class and number of shares of the Corporation that are owned beneficially and held of record by such stockholder and such beneficial owner. (iii) Notwithstanding anything in the second sentence of subparagraph (a)(ii) of this Section 1.11 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least seventy-five (75) days prior to the first anniversary of the preceding year's annual meeting (or, if the annual meeting is held more than thirty (30) days before or sixty (60) days after such anniversary date, at least seventy-five (75) days prior to such annual meeting), a stockholder's notice required by this Section 1.11 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary of the Corporation at the principal executive office of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation. (b) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the notice of such meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the notice of such meeting (i) by or at the direction of the Board of Directors or (ii) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice of the special meeting, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 1.11. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons, as the case may be, for 5 11 election to such positions as specified in the notice of meeting, if the stockholder's notice required by subparagraph (a)(ii) of this Section 1.11 shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not earlier than the one hundred fifth (105th) day prior to such special meeting and not later than the close of business on the later of the seventy-fifth (75th) day prior to such special meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. (c) General. (i) Only such persons who are nominated in accordance with the procedures set forth in this Section 1.11 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.11. Except as otherwise provided by law or these Bylaws, the chairperson of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 1.11 and, if any proposed nomination or business is not in compliance herewith, to declare that such defective proposal or nomination shall be disregarded. (ii) For purposes of this Section 1.11, the term "PUBLIC ANNOUNCEMENT" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (iii) Notwithstanding the foregoing provisions of this Section 1.11, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein. Nothing in this Section 1.11 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the proxy statement pursuant to Rule 14a-8 under the Exchange Act and any stockholder proposal which complies with Rule 14a-8 of the proxy rules, or any successor provision, promulgated under the Securities Exchange Act of 1934, as amended, and is to be included in the proxy statement of this Corporation for an annual meeting of stockholders shall be deemed to comply with the requirements of this Section 1.11. ARTICLE II BOARD OF DIRECTORS Section 2.1: Number; Qualifications. Unless otherwise provided in the Certificate of Incorporation, the Board of Directors shall consist of one or more members and shall be fixed from time to time by resolution of the Board of Directors, but in no event shall the number of directors be less than three. No decrease in the authorized number of directors constituting the Board of Directors shall shorten the term of any incumbent director. The directors need not be stockholders of the Corporation. Section 2.2: Election; Resignation; Removal; Vacancies. The Board of Directors shall initially consist of the person or persons elected by the incorporator or named in the initial Certificate of Incorporation. Subject to the rights of the holders of any series of Preferred Stock 6 12 to elect additional directors under specified circumstances, following the closing of the initial public offering of the Corporation pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of common stock to the public (the "INITIAL PUBLIC OFFERING"), the directors shall be divided, with respect to the time for which they severally hold office, into three classes designated as Class I, Class II and Class III, respectively. The directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors, with the number of directors in each class to be divided as equally as reasonably possible. No one class shall have more than one director more than any other class. The term of office of the Class I directors shall expire at the first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class II directors shall expire at the second annual meeting of stockholders following the closing of the Initial Public Offering, and the term of office of the Class III directors shall expire at the third annual meeting of stockholders following the closing of the Initial Public Offering. At each annual meeting of stockholders commencing with the first annual meeting of stockholders following the closing of the Initial Public Offering, directors elected to succeed those directors of the class whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. Prior to the closing of the Initial Public Offering, or in the event the Corporation is prohibited from dividing its Board of Directors in the manner described above through the operation of Section 2115 of the California General Corporation Law following the record date of the first annual meeting of stockholders following the closing of the Initial Public Offering, each director shall hold office until the next annual meeting of stockholders and until such director's successor is elected and qualified, or until such director's earlier death, resignation or removal. Any director may resign at any time upon written notice to the Corporation. Subject to the rights of the holders of any series of Preferred Stock, any director or the entire Board of Directors may be removed by the holders of at least sixty six and two-thirds percent (66 2/3%) of the shares then entitled to vote at an election of directors. Subject to the rights of the holders of any series of Preferred Stock, any vacancy occurring in the Board of Directors for any cause, and any newly created directorship resulting from any increase in the authorized number of directors, shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorship shall be filled by the stockholders, be filled only by the affirmative vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and not by the stockholders. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office, and a director chosen to fill a position resulting from an increase in the number of directors shall hold office until the next election of the class for which such director shall have been chosen, subject to the election and qualification of his successor and to his earlier death, resignation or removal. In the event of any increase or decrease in the authorized number of directors, (i) each director then serving as such shall nevertheless continue as a director of the class of which he is a member and (ii) the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to ensure that no one class has more than one director more than any other class. To the extent possible, consistent with the foregoing rule, any newly created directorships shall be added to those classes whose terms of office are to expire at the latest dates following such allocation, and any newly eliminated directorships shall be subtracted from those classes whose terms of office are to expire at the earliest dates following such allocation, unless otherwise provided from time to time by resolution adopted by the Board of Directors. 7 13 Section 2.3: Regular Meetings. The regular meetings of the Board of Directors may be held at such places, within or without the State of Delaware, and at such times as the Board of Directors may from time to time determine. The notice of regular meetings need not be given if the date, times and places thereof are fixed by resolution of the Board of Directors. Section 2.4: Special Meetings. Special meetings of the Board of Directors may be called by the Chairperson of the Board of Directors, the President or a majority of the members of the Board of Directors then in office and may be held at any time, date or place, within or without the State of Delaware, as the person or persons calling the meeting shall fix. Notice of the time, date and place of such meeting shall be given, orally or in writing, by the person or persons calling the meeting to all directors at least four (4) days before the meeting if the notice is mailed, or at least twenty-four (24) hours before the meeting if such notice is given by telephone, hand delivery, telegram, telex, mailgram, facsimile or similar communication method. Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting. Section 2.5: Telephonic Meetings Permitted. Members of the Board of Directors, or any committee of the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to conference telephone or similar communications equipment shall constitute presence in person at such meeting. Section 2.6: Quorum; Vote Required for Action. At all meetings of the Board of Directors, a majority of the total number of authorized directors shall constitute a quorum for the transaction of business. Except as otherwise provided herein or in the Certificate of Incorporation, or required by applicable law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 2.7: Organization. The meetings of the Board of Directors shall be presided over by the Chairperson of the Board of Directors, or in such person's absence by the President, or in such person's absence by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in such person's absence the chairperson of the meeting may appoint any person to act as secretary of the meeting. Section 2.8: Written Action by Directors. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee, respectively. Section 2.9: Powers. The Board of Directors may, except as otherwise required by law or the Certificate of Incorporation, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. Section 2.10: Compensation of Directors. Directors, as such, may receive, pursuant to a resolution of the Board of Directors, fees and other compensation for their services as directors, including without limitation their services as members of committees of the Board of Directors. 8 14 ARTICLE III COMMITTEES Section 3.1: Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting of such committee who are not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in a resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers that may require it. No such committee, however, shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the Delaware General Corporation Law to be submitted to stockholders for approval or (ii) adopting, amending or repealing any bylaw of the Corporation. Section 3.2: Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these Bylaws. ARTICLE IV OFFICERS Section 4.1: Generally. The officers of the Corporation shall consist of a Chief Executive Officer and/or a President, one or more Vice Presidents, a Secretary, a Treasurer and such other officers, including a Chairperson of the Board of Directors and/or Chief Financial Officer, as may from time to time be appointed by the Board of Directors. All officers shall be elected by the Board of Directors; provided, however, that the Board of Directors may empower the Chief Executive Officer of the Corporation to appoint officers other than the Chairperson of the Board, the Chief Executive Officer, the President, the Chief Financial Officer or the Treasurer. Each officer shall hold office until such person's successor is elected and qualified or until such person's earlier resignation or removal. Any number of offices may be held by the same person. Any officer may resign at any time upon written notice to the Corporation. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board of Directors. Section 4.2: Chief Executive Officer. Subject to the control of the Board of Directors and such supervisory powers, if any, as may be given by the Board of Directors, the powers and duties of the Chief Executive Officer of the Corporation are: (a) to act as the general manager and, subject to the control of the Board of Directors, to have general supervision, direction and 9 15 control of the business and affairs of the Corporation; (b) to preside at all meetings of the stockholders; (c) to call meetings of the stockholders to be held at such times and, subject to the limitations prescribed by law or by these Bylaws, at such places as he or she shall deem proper; and (d) to affix the signature of the Corporation to all deeds, conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board of Directors or which, in the judgment of the Chief Executive Officer, should be executed on behalf of the Corporation; to sign certificates for shares of stock of the Corporation; and, subject to the direction of the Board of Directors, to have general charge of the property of the Corporation and to supervise and control all officers, agents and employees of the Corporation. The President shall be the Chief Executive Officer of the Corporation unless the Board of Directors shall designate another officer to be the Chief Executive Officer. If there is no President, and the Board of Directors has not designated any other officer to be the Chief Executive Officer, then the Chairperson of the Board of Directors shall be the Chief Executive Officer. Section 4.3: Chairperson of the Board. The Chairperson of the Board of Directors shall have the power to preside at all meetings of the Board of Directors and shall have such other powers and duties as provided in these Bylaws and as the Board of Directors may from time to time prescribe. Section 4.4: President. The President shall be the Chief Executive Officer of the Corporation unless the Board of Directors shall have designated another officer as the Chief Executive Officer of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, and subject to the supervisory powers of the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President, and subject to such supervisory powers and authority as may be given by the Board of Directors to the Chairperson of the Board of Directors, and/or to any other officer, the President shall have the responsibility for the general management the control of the business and affairs of the Corporation and the general supervision and direction of all of the officers, employees and agents of the Corporation, other than the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President, and shall perform all duties and have all powers that are commonly incident to the office of President or that are delegated to the President by the Board of Directors. Section 4.5: Vice President. Each Vice President shall have all such powers and duties as are commonly incident to the office of Vice President, or that are delegated to him or her by the Board of Directors or the Chief Executive Officer. A Vice President may be designated by the Board of Directors to perform the duties and exercise the powers of the Chief Executive Officer in the event of the absence or disability of the Chief Executive Officer. Section 4.6: Chief Financial Officer. The Chief Financial Officer shall be the Treasurer of the Corporation unless the Board of Directors shall have designated another officer as the Treasurer of the Corporation. Subject to the direction of the Board of Directors and the Chief Executive Officer, the Chief Financial Officer shall perform all duties and have all powers that are commonly incident to the office of Chief Financial Officer. 10 16 Section 4.7: Treasurer. The Treasurer shall have custody of all monies and securities of the Corporation. The Treasurer shall be the Chief Financial Officer of the Corporation unless the Board of Directors shall have designated another officer as Chief Financial Officer of the Corporation. The Treasurer shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions. The Treasurer shall also perform such other duties and have such other powers as are commonly incident to the office of Treasurer, or as the Board of Directors or the Chief Executive Officer may from time to time prescribe. Section 4.8: Secretary. The Secretary shall issue or cause to be issued all authorized notices for, and shall keep, or cause to be kept, minutes of all meetings of the stockholders and the Board of Directors. The Secretary shall have charge of the corporate minute books and similar records and shall perform such other duties and have such other powers as are commonly incident to the office of Secretary, or as the Board of Directors or the Chief Executive Officer may from time to time prescribe. Section 4.9: Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof. Section 4.10: Removal. Any officer of the Corporation shall serve at the pleasure of the Board of Directors and may be removed at any time, with or without cause, by the Board of Directors. Such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. ARTICLE V STOCK Section 5.1: Certificates. Every holder of stock shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairperson or Vice-Chairperson of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, certifying the number of shares owned by such stockholder in the Corporation. Any or all of the signatures on the certificate may be a facsimile. Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation may issue a new certificate of stock in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner's legal representative, to agree to indemnify the Corporation and/or to give the Corporation a bond sufficient to indemnify it, against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 5.3: Other Regulations. The issue, transfer, conversion and registration of stock certificates shall be governed by such other regulations as the Board of Directors may establish. 11 17 ARTICLE VI INDEMNIFICATION Section 6.1 Indemnification of Officers and Directors. Each person who was or is made a party to, or is threatened to be made a party to, or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "PROCEEDING"), by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a director or officer of the Corporation or a Reincorporated Predecessor, as defined below, or is or was serving at the request of the Corporation or a Reincorporated Predecessor, as defined below, as a director or officer of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the Delaware General Corporation Law, against all expenses, liability and loss, including attorneys' fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement, reasonably incurred or suffered by such person in connection therewith, provided such person acted in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful. Such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of such person's heirs, executors and administrators. Notwithstanding the foregoing, the Corporation shall indemnify any such person seeking indemnity in connection with a Proceeding, or part thereof, initiated by such person only if such Proceeding or part thereof was authorized by the Board of Directors of the Corporation. As used herein, the term "REINCORPORATED PREDECESSOR" means a corporation that is merged with and into the Corporation in a statutory merger where (a) the Corporation is the surviving corporation of such merger and (b) the primary purpose of such merger is to change the corporate domicile of the Reincorporated Predecessor to Delaware. Section 6.2: Advance of Expenses. The Corporation shall pay all expenses, including attorneys' fees, incurred by such a director or officer in defending any such Proceeding as they are incurred in advance of its final disposition; provided, however, that if the Delaware General Corporation Law then so requires, the payment of such expenses incurred by such a director or officer in advance of the final disposition of such Proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under this Article VI or otherwise; and provided, further, that the Corporation shall not be required to advance any expenses to a person against whom the Corporation directly brings a claim, in a Proceeding, alleging that such person has breached such person's duty of loyalty to the Corporation, committed an act or omission not in good faith or that involves intentional misconduct or a knowing violation of law, or derived an improper personal benefit from a transaction. Section 6.3: Non-Exclusivity of Rights. The rights conferred on any person in this Article VI shall not be exclusive of any other right that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders or disinterested directors, or otherwise. Additionally, nothing in this 12 18 Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to this Article VI. Section 6.4: Indemnification Contracts. The Board of Directors is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification rights to such person. Such rights may be greater than those provided in this Article VI. Section 6.5: Effect of Amendment. Any amendment, repeal or modification of any provision of this Article VI shall be prospective only, and shall not adversely affect any right or protection conferred on a person pursuant to this Article VI and existing at the time of such amendment, repeal or modification. ARTICLE VII NOTICES Section 7.1: Notice. Except as otherwise specifically provided herein or required by law, all notices required to be given pursuant to these Bylaws shall be in writing and may in every instance be effectively given by hand delivery, including use of a delivery service, by depositing such notice in the mail, postage prepaid, or by sending such notice by prepaid telegram, telex, overnight express courier, mailgram or facsimile. Any such notice shall be addressed to the person to whom notice is to be given at such person's address as it appears on the records of the Corporation. The notice shall be deemed given (i) in the case of hand delivery, when received by the person to whom notice is to be given or by any person accepting such notice on behalf of such person, (ii) in the case of delivery by mail, upon deposit in the mail, (iii) in the case of delivery by overnight express courier, when dispatched, and (iv) in the case of delivery via telegram, telex, mailgram or facsimile, when dispatched. Section 7.2: Waiver of Notice. Whenever notice is required to be given under any provision of these Bylaws, a written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice. ARTICLE VIII INTERESTED DIRECTORS Section 8.1: Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any 13 19 other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof that authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (i) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (ii) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the stockholders. Interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IX MISCELLANEOUS Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the Board of Directors. Section 9.2: Seal. The Board of Directors may provide for a corporate seal, which shall have the name of the Corporation inscribed thereon and shall otherwise be in such form as may be approved from time to time by the Board of Directors. Section 9.3: Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, magnetic tape, diskettes, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. Section 9.4: Reliance Upon Books and Records. A member of the Board of Directors, or a member of any committee designated by the Board of Directors shall, in the performance of such person's duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the officers or employees of the Corporation , or committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. Section 9.5: Certificate of Incorporation Governs. In the event of any conflict between the provisions of the Certificate of Incorporation and Bylaws of the Corporation, the provisions of the Certificate of Incorporation shall govern. 14 20 Section 9.6: Severability. If any provision of these Bylaws shall be held to be invalid, illegal, unenforceable or in conflict with the provisions of the Certificate of Incorporation of the Corporation, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining provisions of these Bylaws, including without limitation, all portions of any section of these Bylaws containing any such provision held to be invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation, that are not themselves invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation, shall remain in full force and effect. ARTICLE X AMENDMENT Section 10.1: Amendments. Following the closing of the Initial Public Offering and notwithstanding any other provision of law, the Certificate of Incorporation or these Bylaws, each as amended, and notwithstanding the fact that a lesser percentage may be specified by applicable law, the Certificate of Incorporation or the Bylaws, the affirmative vote of the holders of at least sixty six and two-thirds percent (66 2/3%) of the outstanding voting stock then entitled to vote at an election of directors, voting together as a single class, shall be required to alter, amend, or repeal any provision of these Bylaws or to adopt new Bylaws. Prior to the closing of the Initial Public Offering, the affirmative vote of the holders of at least a majority of the outstanding voting stock then entitled to vote at an election of directors shall be required to alter, amend, or repeal any provision of these Bylaws or to adopt new Bylaws. To the extent provided in the Certificate of Incorporation, the Board of Directors of the Corporation shall also have the power to adopt, amend, or repeal these Bylaws or to adopt new Bylaws. 15 EX-4.1 5 EXHIBIT 4.1 1 EXHIBIT 4.1 NUMBER SHARES COMMON STOCK COMMON STOCK [HANDSPRING LOGO] INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE THIS CERTIFICATE IS TRANSFERABLE IN BOSTON, MA AND NEW YORK, NY CUSIP 410293 10 4 THIS CERTIFIES THAT SEE REVERSE FOR CERTAIN DEFINITIONS IS THE RECORD HOLDER OF FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE, $.001 PER SHARE OF HANDSPRING, INC. transferable on the books of the Corporation by the holder hereof in person or by a duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated [corporate seal] /s/ Bernard J. Whitney /s/ Donna L. Dubinsky CHIEF FINANCIAL OFFICER AND SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER COUNTERSIGNED AND REGISTERED: EQUISERVE TRUST COMPANY, N.A. TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE 2 HANDSPRING, INC. The Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such requests shall be made to the Corporation's Secretary at the principal office of the Corporation. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as through they were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ______________ Custodian _____________ TEN ENT -- as tenants by the entireties (Cust) (Minor) JT TEN -- as joint tenants with right under Uniform Gifts to Minors of survivorship and not as Act __________________________________ tenants in common (State) UNIF TRF MIN ACT -- _________ Custodian (until age _______ (Cust) ______________ under Uniform Transfers (Minor) to Minors and ________________________ (State)
Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, _________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - ----------------------------------------- - ----------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shares - -------------------------------------------------------------------------- of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney - -------------------------------------------------------------------- - -------------------------------------------------------------------------------- to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated ----------------------- X ----------------------------------- X ----------------------------------- NOTICE: THE SIGNATURE(S) TO ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed - ----------------------------------------------------------------------------- By THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-4.2 6 EXHIBIT 4.2 1 EXHIBIT 4.2 AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT This Amended and Restated Investors' Rights Agreement (this "AGREEMENT") is made and entered into as of July 7, 1999 by and among Handspring, Inc., a California corporation (the "COMPANY"), and the persons and entities listed on Exhibit A attached hereto (the "INVESTORS"). A. Certain of the Investors (the "PRIOR INVESTORS") are holders of outstanding shares of the Company's Series A Preferred Stock ("SERIES A STOCK") issued by the Company to such Prior Investors pursuant to a Series A Preferred Stock Purchase Agreement by and among the Company and the Prior Investors dated October 22, 1998, and have also been granted certain information and registration rights and rights of first refusal under an Investors' Rights Agreement by and among the Company and the Prior Investors dated October 22, 1998 (the "PRIOR RIGHTS AGREEMENT"). B. Certain Investors (the "SERIES B INVESTORS") have agreed to purchase from the Company, and the Company has agreed to sell to the Series B Investors, shares of the Company's Series B Preferred Stock ("SERIES B STOCK") on the terms and conditions set forth in that certain Series B Preferred Stock Purchase Agreement, dated of even date herewith by and among the Company and the Series B Investors, as amended from time to time (the "SERIES B AGREEMENT"). C. The Company and the undersigned parties hereto desire to enter into this Agreement in order to amend, restate and replace their rights and obligations under the Prior Rights Agreement with the rights and obligations set forth in this Agreement. Section 4.2 of the Prior Rights Agreement provides that the Prior Rights Agreement may be amended by the written consent of the holders of a majority of the "Investors' Shares" (as defined in Section 4.2 of the Prior Rights Agreement) and the undersigned parties to this Agreement hold a majority of the Investors' Shares, as defined in the Prior Rights Agreement. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. INFORMATION RIGHTS. 1.1 Financial Information. The Company covenants and agrees that, commencing on the date of this Agreement, for so long as any Investor holds at least 500,000 shares of Series A Stock issued under the Series A Agreement or Series B Stock issued under the Series B Agreement and/or the equivalent number (on an as-converted basis) of shares of Common Stock of the Company ("COMMON STOCK") issued upon the conversion of such shares of Series A Stock or Series B Stock ("CONVERSION STOCK"), subject to adjustment of such fixed share amounts for any stock splits, stock dividends, combinations, recapitalizations or the like, or some combination thereof, the Company will: (a) Annual Reports. Furnish to such Investor, as soon as practicable and in any event within 90 days after the end of each fiscal year of the Company, a 2 consolidated Balance Sheet as of the end of such fiscal year, a consolidated Statement of Income and a consolidated Statement of Cash Flows of the Company and its subsidiaries for such year, setting forth in each case in comparative form the figures from the Company's previous fiscal year (if any), all prepared in accordance with generally accepted accounting principles and practices and audited by nationally recognized independent certified public accountants; and (b) Quarterly Reports. Furnish to such Investor as soon as practicable, and in any case within forty-five (45) days after the end of each fiscal quarter of the Company (except the last quarter of the Company's fiscal year), quarterly unaudited financial statements, including an unaudited Balance Sheet, Statement of Income and Statement of Cash Flows. (c) Certification. With respect to the financial statements called for in subsections (a) and (b) of this Section 1.1, an instrument executed by the Chief Financial Officer or President of the Company certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustment. (d) Other Information. Such other information relating to the financial condition, business, prospects or corporate affairs of the Company as the Investor or any assignee of the Investor may from time to time request; provided, however, that (i) such requested information must be reasonably related to the Investor's investment in the Company and (ii) the Company shall not be obligated under this subsection (d) or any other subsection of Section 1.1 to provide information that it deems in good faith to be a trade secret or similar confidential information or subject to attorney-client privilege. Each Investor agrees to hold all information received pursuant to this Section in confidence, and not to use or disclose any of such information to any third party, except to the extent such information may be made publicly available by the Company and subject to disclosure as required by applicable law or regulation or as permitted in writing by the Company. Notwithstanding the foregoing, Investors may provide such information to their tax, legal, investment and other advisors, who shall hold such information in confidence. 1.2 Inspection. The Company shall permit each Investor that holds at least 500,000 shares of Series A Preferred Stock or Series B Preferred Stock (and/or Common Stock issued upon conversion thereof), subject to adjustment of such fixed share amounts for any stock splits, stock dividends, combinations, recapitalizations or the like, or some combination thereof, at such Investor's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Investor; provided, however, that (i) such inspection must be reasonably related to the Investor's investment in the Company and (ii) the -2- 3 Company shall not be obligated under this Section 1.2 to provide information that it in good faith considers to be a trade secret or similar confidential information. 1.3 Termination of Certain Rights. The Company's obligations under Sections 1.1 and 1.2 above will terminate upon the closing of (i) the Company's firm commitment, underwritten initial public offering of Common Stock pursuant to an effective registration statement filed under the U.S. Securities Act of 1933, as amended (the "SECURITIES ACT") or (ii) a consolidation or merger of the Company with or into any other entity that has a class of securities that is traded on a national market or exchange in which the holders of the Company's outstanding shares immediately before such consolidation or merger do not, immediately after such consolidation or merger, retain stock representing a majority of the voting power of the surviving corporation (or its parent corporation if the surviving corporation is wholly owned by the parent corporation) of such consolidation or merger. 2. REGISTRATION RIGHTS. 2.1 Definitions. For purposes of this Section 2: (a) Registration. The terms "REGISTER," "REGISTRATION" and "REGISTERED" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement. (b) Registrable Securities. The term "REGISTRABLE SECURITIES" means: (1) all the shares of Common Stock of the Company issued or issuable upon the conversion of any shares of Series A Stock issued under the Series A Agreement; (2) all the shares of Common Stock of the Company issued or issuable upon the conversion of any shares of Series B Stock issued under the Series B Agreement and (3) any shares of Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, all such shares of Common Stock described in clauses (1) and (2) of this subsection (b); excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which rights under this Section 2 are not assigned in accordance with this Agreement or any Registrable Securities sold to the public or sold pursuant to Rule 144 promulgated under the Securities Act. (c) Registrable Securities Then Outstanding. The number of shares of "REGISTRABLE SECURITIES THEN OUTSTANDING" shall mean the number of shares of Common Stock which are Registrable Securities and (1) are then issued and outstanding or (2) are then issuable pursuant to the exercise or conversion of then outstanding and then exercisable options, warrants or convertible securities. (d) Holder. For purposes of this Section 2 and Sections 3 and 4 hereof, the term "HOLDER" means any person owning of record Registrable Securities that have not been sold to the public or pursuant to Rule 144 promulgated under the Securities Act or any assignee of record of such Registrable Securities to whom rights under such Sections have been duly assigned in accordance with this Agreement; provided, however, that for purposes of this -3- 4 Agreement, a record holder of shares of Series A Stock or Series B Stock convertible into such Registrable Securities shall be deemed to be the Holder of such Registrable Securities; and provided, further, that the Company shall in no event be obligated to register shares of Series A Stock or Series B Stock, and that Holders of Registrable Securities will not be required to convert their shares of Series A Stock or Series B Stock into Common Stock in order to exercise the registration rights granted hereunder, until immediately before the closing of the offering to which the registration relates. (e) Form S-3. The term "FORM S-3" means such form under the Securities Act as is in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. (f) SEC. The term "SEC" or "COMMISSION" means the U.S. Securities and Exchange Commission. 2.2 Demand Registration. (a) Request by Holders. If the Company shall receive at any time after the earlier of September 30, 2002, or six (6) months after the effective date of the Company's initial public offering of its securities pursuant to a registration filed under the Securities Act, a written request from the Holders of at least a majority of the Registrable Securities then outstanding that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities pursuant to this Section 2.2, then the Company shall, within twenty (20) days after the receipt of such written request, give written notice of such request ("REQUEST NOTICE") to all Holders, and effect, as soon as practicable, the registration under the Securities Act of all Registrable Securities which Holders request to be registered and included in such registration by written notice given by such Holders to the Company within twenty (20) days after receipt of the Request Notice, subject only to the limitations of this Section 2; provided that the Registrable Securities requested by all Holders to be registered pursuant to such request must have an anticipated aggregate public offering price (before any underwriting discounts and commissions) of not less than $20,000,000. (b) Underwriting. If the Holders initiating the registration request under this Section 2.2 ("INITIATING HOLDERS") intend to distribute the Registrable Securities covered by their request by means of an underwriting, then they shall so advise the Company as a part of their request made pursuant to this Section 2.2 and the Company shall include such information in the written notice referred to in subsection 2.2(a). In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of this Section 2.2, if the underwriter(s) -4- 5 advise(s) the Company in writing that marketing factors require a limitation of the number of securities to be underwritten then the Company shall so advise all Holders of Registrable Securities that would otherwise be registered and underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be reduced as required by the underwriter(s) and allocated among the Holders of Registrable Securities on a pro rata basis according to the number of Registrable Securities then outstanding held by each Holder requesting registration (including the Initiating Holders); provided, however, that the number of shares of Registrable Securities to be included in such underwriting and registration shall not be reduced unless all other securities of the Company and all other selling shareholders other than the Holders (if any) are first entirely excluded from the underwriting and registration. Any Registrable Securities excluded and withdrawn from such underwriting shall be withdrawn from the registration. (c) Maximum Number of Demand Registrations. The Company is obligated to effect only two (2) such registrations pursuant to this Section 2.2. (d) Deferral. Notwithstanding the foregoing, if the Company shall furnish to Holders requesting the filing of a registration statement pursuant to this Section 2.2, a certificate signed by the President or Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be detrimental to the Company and its shareholders for such registration statement to be filed and it therefore wishes to defer the filing of such registration statement, then the Company shall have the right to defer such filing for a period of not more than 180 days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve (12) month period. (e) Expenses. All expenses incurred in connection with a registration pursuant to this Section 2.2, including without limitation all registration and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company, (but excluding underwriters' discounts and commissions and fees and disbursements of any counsel for the selling Holders), shall be borne by the Company. Each Holder participating in a registration pursuant to this Section 2.2 shall bear such Holder's proportionate share (based on the total number of shares sold on behalf of the Holders in such registration other than for the account of the Company) of all discounts, commissions or other amounts payable to underwriters or brokers in connection with such offering and the fees and disbursements of any counsel for the participating Holders. Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to this Section 2.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered, unless the Holders of a majority of the Registrable Securities then outstanding agree to forfeit their right to one (1) demand registration pursuant to this Section 2.2 (in which case such right shall be forfeited by all Holders of Registrable Securities); provided, further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company not known to the Holders at the time of their request for such registration and have withdrawn their request for registration with reasonable promptness after learning of such material adverse -5- 6 change, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to this Section 2.2. 2.3 Piggyback Registrations. The Company shall notify all Holders of Registrable Securities in writing at least twenty (20) days prior to filing any registration statement under the Securities Act for purposes of effecting a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to any registration under Section 2.2 or Section 2.4 of this Agreement or to any employee benefit plan or a corporate reorganization or other transaction under Rule 145 of the Securities Act) and will afford each such Holder an opportunity to include in such registration statement all or any part of the Registrable Securities then held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by such Holder shall, within twenty (20) days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Securities such Holder wishes to include in such registration statement. The Company shall, subject to Section 2.3(a), use reasonable efforts to cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered pursuant to this Section 2.3. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. (a) Underwriting. If a registration statement under which the Company gives notice under this Section 2.3 is for an underwritten offering, then the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder's Registrable Securities to be included in a registration pursuant to this Section 2.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Agreement, if the managing underwriter determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the managing underwriter(s) may exclude shares (including Registrable Securities) from the registration and the underwriting, and the number of shares that may be included in the registration and the underwriting shall be allocated, first, to the Company and second, to each of the Holders requesting inclusion of their Registrable Securities in such registration statement on a pro rata basis based on the total number of Registrable Securities then held by each such Holder; provided however, that the right of the underwriters to exclude shares (including Registrable Securities) from the registration and underwriting as described above shall be restricted so that all shares that are not Registrable Securities and are held by persons who are employees of the Company (or any subsidiary of the Company) shall first be excluded from such registration and underwriting before any Registrable Securities are so excluded and so that the number of Registrable Securities included in any such registration is not -6- 7 reduced below 25% of the shares included in the registration, except for a registration relating to the Company's initial public offering from which all Registrable Securities may be excluded. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least fifteen (15) days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder that is a partnership or corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "Holder," and any pro rata reduction with respect to such "Holder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "Holder," as defined in this sentence. (b) Expenses. All expenses incurred in connection with a registration pursuant to this Section 2.3 (excluding underwriters' and brokers' discounts and commissions and fees and disbursements of any counsel for the selling Holders), including, without limitation all federal and "blue sky" registration and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company shall be borne by the Company. 2.4 Form S-3 Registration. In case the Company shall receive from any Holder or Holders of Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, then the Company will: (a) Notice. Promptly give written notice of the proposed registration and the Holder's or Holders' request therefor, and any related qualification or compliance, to all other Holders of Registrable Securities; and (b) Registration. As soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within twenty (20) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.4: (1) if Form S-3 is not available for such offering; (2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than $2,000,000; -7- 8 (3) if the Company shall furnish to the Holders a certificate signed by the President or Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be detrimental to the Company and its shareholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement no more than once during any twelve month period for a period of not more than 180 days after receipt of the request of the Holder or Holders under this Section 2.4; (4) if the Company has, within the twelve (12) month period preceding the date of such request, already effected one (1) registration on Form S-3 for the Holders pursuant to this Section 2.4; or (5) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Expenses. Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities so requested to be registered pursuant to this Section 2.4 as soon as practicable after receipt of the request or requests of the Holders for such registration. The Company shall pay all expenses incurred in connection with the first registration requested pursuant to this Section 2.4, (excluding underwriters' or brokers' discounts and commissions and fees of any counsel for the selling Holders), including without limitation all filing, registration and qualification, printers' and accounting fees and the reasonable fees and disbursements of counsel for the Company. All expenses incurred in connection with any subsequent registration requested pursuant to this Section 2.4 shall be borne by the Holders who participate in such registration on a pro rata basis according to the number of Registrable Securities owned by the Holders that are included in such registration at the time it goes effective. (d) Not Demand Registration. Form S-3 registrations shall not be deemed to be demand registrations as described in Section 2.2 above. 2.5 Obligations of the Company. Whenever required to effect the registration of any Registrable Securities under this Agreement, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use reasonable, diligent efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to one hundred twenty (120) days. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such -8- 9 registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of the Registrable Securities owned by them that are included in such registration. (d) Use reasonable, diligent efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Furnish, at the request of any Holder requesting registration of Registrable Securities, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (1) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (2) a "comfort" letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. -9- 10 2.6 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or 2.4 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them, and the intended method of disposition of such securities as shall be required to timely effect the registration of their Registrable Securities. 2.7 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2. 2.8 Indemnification. In the event any Registrable Securities are included in a registration statement under Sections 2.2, 2.3 or 2.4: (a) By the Company. To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers, directors and shareholders of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended, (the "1934 ACT"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the l934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, "VIOLATIONS" and, individually, a "VIOLATION"): (1) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (2) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (3) any violation or alleged violation by the Company of the Securities Act, the 1934 Act, any federal or state securities law or any rule or regulation promulgated under the Securities Act, the 1934 Act or any federal or state securities law in connection with the offering covered by such registration statement; and the Company will reimburse each such Holder, partner, officer or director, shareholder, underwriter or controlling person for any legal or other expenses reasonably incurred by them, as incurred, in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this subsection 2.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for -10- 11 use in connection with such registration by such Holder, partner, officer, director, shareholder, underwriter or controlling person of such Holder. (b) By Selling Holders. To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any person who controls such Holder within the meaning of the Securities Act or the 1934 Act, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, partner or director, officer or controlling person of such other Holder may become subject under the Securities Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 2.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further, that the total amounts payable in indemnity by a Holder under this Section 2.8(b) in respect of any Violation shall not exceed the net proceeds received by such Holder in the registered offering out of which such Violation arises. (c) Notice. Promptly after receipt by an indemnified party under this Section 2.8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential conflict of interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.8, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.8. -11- 12 (d) Defect Eliminated in Final Prospectus. The foregoing indemnity agreements of the Company and Holders are subject to the condition that, insofar as they relate to any Violation made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement in question becomes effective or the amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "FINAL PROSPECTUS"), such indemnity agreement shall not inure to the benefit of any person if a copy of the Final Prospectus was furnished to the indemnified party and was not furnished by or on behalf of such indemnified person, if required by law so to have been delivered, to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act. (e) Contribution. In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (1) any Holder exercising rights under this Agreement, or any controlling person of any such Holder, makes a claim for indemnification pursuant to this Section 2.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 2.8 provides for indemnification in such case, or (2) contribution under the Securities Act may be required on the part of any such selling Holder or any such controlling person in circumstances for which indemnification is provided under this Section 2.8; then, and in each such case, the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such Holder is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by and sold under the registration statement bears to the public offering price of all securities offered by and sold under such registration statement, and the Company and other selling Holders are responsible for the remaining portion; provided, however, that, in any such case, (A) no such Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. (f) Survival. The obligations of the Company and Holders under this Section 2.8 shall survive the completion of any offering of Registrable Securities in a registration statement, and otherwise. 2.9 "Market Stand-Off" Agreement. Each Holder hereby agrees that it shall not, to the extent requested by the Company or an underwriter of securities of the Company, sell or otherwise transfer or dispose of any Registrable Securities or other shares of stock of the Company then owned by such Holder (other than to donees or partners of the Holder who agree to be similarly bound) for up to one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that: -12- 13 (a) such agreement shall be applicable only to the first such registration statement of the Company which covers securities to be sold on its behalf to the public in an underwritten offering but not to Registrable Securities sold pursuant to such registration statement; and (b) all officers, directors and one percent (1%) shareholders of the Company enter into similar agreements. In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the shares subject to this Section and to impose stop transfer instructions with respect to the Registrable Securities and such other shares of stock of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. 2.10 Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Registrable Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; (b) Use reasonable, diligent efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the 1934 Act (at any time after it has become subject to such reporting requirements); and (c) So long as a Holder owns any Registrable Securities, to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the 1934 Act (at any time after it has become subject to the reporting requirements of the 1934 Act), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration (at any time after the Company has become subject to the reporting requirements of the 1934 Act). 2.11 Termination of the Company's Obligations. The Company shall have no obligations pursuant to Sections 2.2 through 2.4 with respect to: (a) any request or requests for registration made by any Holder on a date more than five (5) years after the closing date of the Company's initial public offering in which the aggregate public offering price (before deduction of underwriters' discounts and commissions) equals or exceeds $20,000,000 and the public -13- 14 offering price per share of which equals or exceeds $10.77 per share before deduction of underwriters' discounts and commissions (such price per share of Common Stock to be appropriately adjusted to reflect subdivisions, combinations, stock dividends and similar transactions affecting the number of outstanding shares of Common Stock); or (b) any Registrable Securities proposed to be sold by a Holder in a registration pursuant to Section 2.2, 2.3 or 2.4 if, in the opinion of counsel to the Company, all such Registrable Securities proposed to be sold by a Holder may be sold in a three-month period without registration under the Securities Act pursuant to Rule 144 under the Securities Act. 3. RIGHT OF FIRST REFUSAL. 3.1 General. Each Holder (as defined in Section 2.1(d)) (each such Holder or assignee being hereinafter referred to as a "RIGHTS HOLDER") has the right of first refusal to purchase such Rights Holder's Pro Rata Share (as defined below), of all (or any part) of any "New Securities" (as defined in Section 3.2) that the Company may from time to time issue after the date of this Agreement. A Rights Holder's "PRO RATA SHARE" for purposes of this right of first refusal is the ratio of (a) the number of Registrable Securities as to which such Rights Holder is the Holder (and/or is deemed to be the Holder under Section 2.1(d)), to (b) a number of shares of Common Stock of the Company equal to the sum of (1) the total number of shares of Common Stock of the Company then outstanding plus (2) the total number of shares of Common Stock of the Company into which all then outstanding shares of Preferred Stock of the Company are then convertible plus (3) the number of shares of Common Stock of the Company reserved for issuance under stock purchase and stock option plans of the Company and outstanding warrants. 3.2 New Securities. "NEW SECURITIES" shall mean any Common Stock or Preferred Stock of the Company, whether now authorized or not, and rights, options or warrants to purchase such Common Stock or Preferred Stock, and securities of any type whatsoever that are, or may become, convertible or exchangeable into such Common Stock or Preferred Stock; provided, however, that the term "New Securities" does not include: (a) any shares of the Company's Common Stock (and/or options or warrants therefor) issued (if in transactions that are primarily for non-financing purposes) to employees, officers, directors, contractors, advisors or consultants of the Company pursuant to incentive agreements or plans approved by the Board of Directors of the Company; (b) any shares of Series A Preferred Stock issued under the Series A Agreement, as of the date hereof; (c) any shares of Series A Preferred Stock issued or issuable to Comdisco, Inc. pursuant to a Subordinated Loan and Security Agreement; (d) any shares of Series B Preferred Stock issued under the Series B Agreement, as such agreement may be amended; -14- 15 (e) any securities issuable upon conversion of or with respect to any then outstanding shares of Series A Stock or Series B Stock of the Company or Common Stock or other securities issuable upon conversion thereof; (f) any securities issuable upon exercise of any options, warrants or rights to purchase any securities of the Company outstanding on the date of this Agreement ("WARRANT SECURITIES") and any securities issuable upon the conversion of any Warrant Securities or upon the exercise or conversion of any securities, if such securities were first offered to the Rights Holders hereunder; (g) shares of the Company's Common Stock or Preferred Stock issued in connection with any stock split or stock dividend; (h) securities offered by the Company to the public pursuant to a registration statement filed under the Securities Act; (i) any shares of the Company's Common Stock or Preferred Stock (and/or options or warrants therefor) issued or issuable to parties providing the Company with equipment leases, real property leases, loans, credit lines, guaranties of indebtedness, cash price reductions or similar transactions, provided such issuances are pursuant to transactions with primarily non-equity financing purposes; or (j) securities issued pursuant to the bona fide acquisition of another corporation or entity by the Company by consolidation, merger, purchase of all or substantially all of the assets, or other reorganization in which the Company acquires, in a single transaction or series of related transactions, all or substantially all of the assets of such other corporation or entity or fifty percent (50%) or more of the voting power of such other corporation or entity or fifty percent (50%) or more of the equity ownership of such other entity. 3.3 Procedures. In the event that the Company proposes to undertake an issuance of New Securities, it shall give to each Rights Holder written notice of its intention to issue New Securities (the "NOTICE"), describing the type of New Securities and the price and the general terms upon which the Company proposes to issue such New Securities. Each Rights Holder shall have ten (10) days from the date of mailing of any such Notice to agree in writing to purchase up to such Rights Holder's Pro Rata Share of such New Securities for the price and upon the general terms specified in the Notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased (not to exceed such Rights Holder's Pro Rata Share). If any Rights Holder fails to so agree in writing within such ten (10) day period to purchase such Rights Holder's full Pro Rata Share of an offering of New Securities (a "NONPURCHASING HOLDER"), then such Nonpurchasing Holder shall forfeit the right hereunder to purchase that part of his Pro Rata Share of such New Securities that he did not so agree to purchase and the Company shall promptly give each Rights Holder who has timely agreed to purchase his full Pro Rata Share of such offering of New Securities (a "PURCHASING HOLDER") written notice of the failure of any Nonpurchasing Holder to purchase such Nonpurchasing Holder's full Pro Rata Share of such offering of New Securities (the "OVERALLOTMENT NOTICE"). -15- 16 Each Purchasing Holder shall have a right of overallotment such that such Purchasing Holder may agree to purchase a portion of the Nonpurchasing Holders' unpurchased Pro Rata Shares of such offering on a pro rata basis according to the relative Pro Rata Shares of the Purchasing Rights Holders, at any time within five (5) days after receiving the Overallotment Notice. 3.4 Failure to Exercise. In the event that the Rights Holders fail to exercise in full the right of first refusal within such ten (10) plus five (5) day period, then the Company shall have 120 days thereafter to sell the New Securities with respect to which the Rights Holders' rights of first refusal hereunder were not exercised, at a price and upon general terms no more favorable to the purchasers thereof than specified in the Company's Notice to the Rights Holders. In the event that the Company has not issued and sold the New Securities within such 120 day period, then the Company shall not thereafter issue or sell any New Securities without again first offering such New Securities to the Rights Holders pursuant to this Section 3. 3.5 Termination. This right of first refusal shall terminate (a) immediately before the closing of the first underwritten sale of Common Stock of the Company to the public pursuant to a registration statement filed with, and declared effective by, the SEC under the Securities Act, covering the offer and sale of Common Stock to the public in which the aggregate public offering price (before deduction of underwriters' discounts and commissions) equals or exceeds $20,000,000 and the public offering price per share of which equals or exceeds $10.77 per share before deduction of underwriters' discounts and commissions (such price per share of Common Stock to be appropriately adjusted to reflect subdivisions, combinations, stock dividends and similar transactions affecting the number of outstanding shares of Common Stock) or (b) upon (1) the acquisition of all or substantially all the assets of the Company or (2) an acquisition of the Company by another corporation or entity by consolidation, merger or other reorganization in which the holders of the Company's outstanding voting stock immediately prior to such transaction own, immediately after such transaction, securities representing less than fifty percent (50%) or more of the voting power of the corporation or other entity (including parent corporation) surviving such transaction. 4. ASSIGNMENT AND AMENDMENT. 4.1 Assignment. Notwithstanding anything herein to the contrary: (a) Information Rights. The rights of an Investor under Section 1.1 hereof may be assigned only to a party who acquires from an Investor (or an Investor's permitted assigns) at least that number of shares of Series A Stock or Series B Stock and/or an equivalent number (on an as-converted basis) of shares of Conversion Stock described in Section 1.1 hereof. (b) Registration Rights. The registration rights of a Holder under Section 2 hereof may be assigned only to a party who (i) acquires at least 500,000 shares of Series A Stock issued under the Series A Agreement or at least 500,000 shares of Series B Stock issued under the Series B Agreement and/or an equivalent number (on an as-converted basis) of Registrable Securities issued upon conversion thereof, (ii) is a subsidiary, parent, partner, limited partner, retired partner or shareholder of a Holder or (iii) is a Holder's family member or trust for the benefit of an individual Holder; provided, however that no party may be assigned any of the -16- 17 foregoing rights unless the Company is given written notice by the assigning party at the time of such assignment stating the name and address of the assignee and identifying the securities of the Company as to which the rights in question are being assigned; and provided further that any such assignee shall receive such assigned rights subject to all the terms and conditions of this Agreement, including without limitation the provisions of this Section 4. 4.2 Amendment of Rights. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investors (and/or any of their permitted successors or assigns) holding shares of Series A Stock, Series B Stock and/or Conversion Stock representing and/or convertible into a majority of all the Investors' Shares (as defined below); provided, that any amendment or waiver that treats any Investor in a materially adverse manner that is different than any other Investor will require the separate approval of such Investor. As used herein, the term "INVESTORS' SHARES" shall mean the shares of Common Stock then issuable upon conversion of (i) all then outstanding shares of Series A Stock issued under the Series A Agreement and (ii) all then outstanding shares of Series B Stock issued under the Series B Agreement, plus all then outstanding shares of Conversion Stock. Any amendment or waiver effected in accordance with this Section 4.2 shall be binding upon each Investor, each Holder, each permitted successor or assignee of such Investor or Holder and the Company. 4.3 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders holding shares of Series A Stock, Series B Stock and/or Conversion Stock representing and/or convertible into a majority of all the Investors' Shares, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (a) to include such securities in any registration statement filed under Section 2.3 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the amount of the Registrable Securities of the Holders that are included or (b) to demand registration of their securities. 5. GENERAL PROVISIONS. 5.1 Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if (1) sent via facsimile and (2) personally delivered or if deposited in the U.S. mail by registered or certified mail, return receipt requested, postage prepaid, as follows: (a) if to an Investor, at such Investor's respective address and facsimile number as set forth on Exhibit A hereto. (b) if to the Company, at 299 California Avenue, Suite 300, Palo Alto, California 94306 and facsimile (650) 566-2222. -17- 18 Any party hereto (and such party's permitted assigns) may by notice so given change its address for future notices hereunder. Notice shall conclusively be deemed to have been given when personally delivered or when deposited in the mail in the manner set forth above. 5.2 Entire Agreement. This Agreement, together with all the Exhibits hereto, constitutes and contains the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence, agreements, understandings, duties or obligations between the parties respecting the subject matter hereof. 5.3 Governing Law. This Agreement shall be governed by and construed exclusively in accordance with the internal laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California, excluding that body of law relating to conflict of laws and choice of law. 5.4 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, then such provision(s) shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms. 5.5 Third Parties. Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the parties hereto and their successors and assigns, any rights or remedies under or by reason of this Agreement. 5.6 Successors And Assigns. Subject to the provisions of Section 4.1, the provisions of this Agreement shall inure to the benefit of, and shall be binding upon, the successors and permitted assigns of the parties hereto. 5.7 Captions. The captions to sections of this Agreement have been inserted for identification and reference purposes only and shall not be used to construe or interpret this Agreement. 5.8 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 5.9 Costs And Attorneys' Fees. In the event that any action, suit or other proceeding is instituted concerning or arising out of this Agreement or any transaction contemplated hereunder, the prevailing party shall recover all of such party's costs and reasonable attorneys' fees incurred in each such action, suit or other proceeding, including any and all appeals or petitions therefrom. 5.10 Adjustments for Stock Splits, Etc. Wherever in this Agreement there is a reference to a specific number of shares of Common Stock or Preferred Stock of the Company of any class or series, then, upon the occurrence of any subdivision, combination or stock dividend of such class or series of stock, the specific number of shares so referenced in this Agreement -18- 19 shall automatically be proportionally adjusted to reflect the affect on the outstanding shares of such class or series of stock by such subdivision, combination or stock dividend. 5.11 Aggregation of Stock. All shares held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 5.12 Prior Agreement Superseded. Pursuant to Section 4.2 of the Prior Rights Agreement, the undersigned parties who are parties to such Prior Rights Agreement hereby restate the Prior Rights Agreement to read in its entirety as set forth in this Agreement, such that the Prior Rights Agreement is hereby terminated and entirely replaced and superseded by this Agreement. -19- 20 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first written above. HANDSPRING, INC: Name: /s/ DONNA L. DUBINSKY -------------------------------------- Donna L. Dubinsky President SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT -20- 21 THE INVESTORS: KLEINER PERKINS CAUFIELD & BYERS VIII, L.P. By: KPCB VIII Associates, L.P., its General Partner By: /s/ L. JOHN DOERR ------------------------------------------- a General Partner KPCB VIII FOUNDERS FUND, L.P. By: KPCB VIII Associates, L.P., its General Partner By: /s/ L. JOHN DOERR ------------------------------------------- a General Partner KPCB INFORMATION SCIENCES ZAIBATSU FUND II, L.P. By: KPCB VII Associates, L.P., its General Partner By: /s/ L. JOHN DOERR ------------------------------------------- a General Partner BENCHMARK CAPITAL PARTNERS II, L.P. as nominee for Benchmark Capital Partners, II, L.P. Benchmark Founders' Fund II, L.P. Benchmark Founders' Fund II-A, L.P. and Benchmark Members' Fund II, L.P. By: Benchmark Capital Management Co. II, L.L.C., General Partner By: /s/ BRUCE DUNLEVIE ------------------------------------------- Managing Member SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT -21- 22 QUALCOMM INCORPORATED By: /s/ ANTHONY S. THORNLEY ------------------------------------------- Name: Anthony S. Thornley ----------------------------------------- Title: Executive VP, CFO ---------------------------------------- SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT -22- 23 EXHIBIT A LIST OF INVESTORS
SHARES OF SERIES A SHARES OF SERIES B INVESTOR STOCK PURCHASED STOCK PURCHASED - -------- ----------------- ------------------ KLEINER PERKINS CAUFIELD & BYERS VIII, L.P. 3,721,847 128,357 2750 Sand Hill Road Menlo Park, CA 94025 Fax: (650) 233-0300 KPCB VIII FOUNDERS FUND, L.P. 215,654 7,437 2750 Sand Hill Road Menlo Park, CA 94025 Fax: (650) 233-0300 KPCB INFORMATION SCIENCES 100,961 3,482 ZAIBATSU FUND II, L.P. 2750 Sand Hill Road Menlo Park, CA 94025 Fax: (650) 233-0300 BENCHMARK CAPITAL PARTNERS II, L.P. 4,038,462 139,276 as nominee for Benchmark Capital Partners, II, L.P. Benchmark Founders' Fund II, L.P. Benchmark Founders' Fund II-A, L.P. and Benchmark Members' Fund II, L.P. 2480 Sand Hill Road Menlo Park, CA 94025 Fax: (650) 854-8183 QUALCOMM INCORPORATED 0 649,954 Attn: Chief Financial Officer 5775 Morehouse Avenue San Diego, CA 92121-1714 Fax: (858) 658-2501
EX-5.1 7 EXHIBIT 5.1 1 EXHIBIT 5.01 May 16, 2000 Handspring, Inc. 189 Bernardo Avenue Mountain View, CA 94043 Gentlemen/Ladies: At your request, we have examined the Registration Statement on Form S-1 (File Number 333-33666) (the "REGISTRATION STATEMENT") filed by Handspring, Inc., a Delaware corporation (the "COMPANY"), with the Securities and Exchange Commission (the "COMMISSION") on March 31, 2000, Amendment No. 1 thereto filed on April 24, 2000, and Amendment No. 2 to be filed on or about the date hereof, in connection with the registration under the Securities Act of 1933, as amended, of an aggregate of 11,500,000 shares of the Company's Common Stock (the "STOCK"). In rendering this opinion, we have examined the following. (1) the Company's First Amended and Restated Certificate of Incorporation, certified by the Delaware Secretary of State on May 16, 2000. (2) the Company's Restated Bylaws, certified by the Company's Secretary on May 16, 2000. (3) the Registration Statement, together with the Exhibits filed as a part thereof or incorporated therein by reference. (4) the Prospectus prepared in connection with the Registration Statement. (5) the minutes of meetings and actions by written consent of the stockholders and Board of Directors that are contained in the Company's minute books and the minute books of your predecessor, Handspring, Inc., a California corporation ("HANDSPRING CALIFORNIA"), that are in our possession. (6) the stock records for both the Company and Handspring California that the Company has provided to us (consisting of a list of stockholders and a list of option holders respecting the Company's capital and of any rights to purchase capital stock that was prepared by the Company and dated May 16, 2000 verifying the number of such issued and outstanding securities). (7) a Management Certificate addressed to us and dated of even date herewith executed by the Company containing certain factual and other representations. 2 May 16, 2000 Page 2 In our examination of documents for purposes of this opinion, we have assumed, and express no opinion as to, the genuineness of all signatures on original documents, the authenticity and completeness of all documents submitted to us as originals, the conformity to originals and completeness of all documents submitted to us as copies, the legal capacity of all persons or entities executing the same, the lack of any undisclosed termination, modification, waiver or amendment to any document reviewed by us and the due authorization, execution and delivery of all documents where due authorization, execution and delivery are prerequisites to the effectiveness thereof. We have also assumed that the certificates representing the Stock have been, or will be when issued, properly signed by authorized officers of the Company or their agents. As to matters of fact relevant to this opinion, we have relied solely upon our examination of the documents referred to above and have assumed the current accuracy and completeness of the information obtained from public officials, records and documents referred to above. We have made no independent investigation or other attempt to verify the accuracy of any of such information or to determine the existence or non-existence of any other factual matters; however, we are not aware of any facts that would cause us to believe that the opinion expressed herein is not accurate. We are admitted to practice law in the State of California, and we render this opinion only with respect to, and express no opinion herein concerning the application or effect of the laws of any jurisdiction other than, the existing laws of the United States of America, of the State of California and, with respect to the validity of corporate action and the requirements for the issuance of stock, of the State of Delaware. In connection with our opinion expressed below, we have assumed that, at or prior to the time of the delivery of any shares of Stock, the Registration Statement will have been declared effective under the Securities Act of 1933, as amended, that the registration will apply to such shares of Stock and will not have been modified or rescinded and that there will not have occurred any change in law affecting the validity or enforceability of such shares of Stock. Based upon the foregoing, it is our opinion that the up to 11,500,000 shares of Stock to be issued and sold by the Company, when issued, sold and delivered in the manner and for the consideration stated in the Registration Statement and the Prospectus, will be validly issued, fully paid and nonassessable. 3 May 16, 2000 Page 3 We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to all references to us, if any, in the Registration Statement, the Prospectus constituting a part thereof and any amendments thereto. This opinion speaks only as of its date and we assume no obligation to update this opinion should circumstances change after the date hereof. This opinion is intended solely for use in connection with the issuance and sale of shares subject to the Registration Statement and is not to be relied upon for any other purpose. Very truly yours, FENWICK & WEST LLP By: /s/ Dennis R. DeBroeck -------------------------------- Dennis R. DeBroeck EX-10.1 8 EXHIBIT 10.1 1 EXHIBIT 10.1 INDEMNITY AGREEMENT This Indemnity Agreement (this "AGREEMENT"), dated as of _________, ____, is made by and between Handspring, Inc., a Delaware corporation (the "COMPANY"), and _________________________, a director and/or officer of the Company (the "INDEMNITEE"). RECITALS A. The Company is aware that competent and experienced persons are increasingly reluctant to serve as directors or officers of corporations unless they are protected by comprehensive liability insurance and/or indemnification, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no reasonable relationship to the compensation of such directors and officers; B. Based on their experience as business managers, the Board of Directors of the Company (the "BOARD OF DIRECTORS") has concluded that, to retain and attract talented and experienced individuals to serve as officers and directors of the Company, and to encourage such individuals to take the business risks necessary for the success of the Company, it is necessary for the Company contractually to indemnify officers and directors and to assume for itself maximum liability for expenses and damages in connection with claims against such officers and directors in connection with their service to the Company; C. Section 145 of the General Corporation Law of Delaware, under which the Company is organized (the "DELAWARE LAW"), empowers the Company to indemnify by agreement its officers, directors, employees, agents and persons who serve, at the request of the Company, as directors, officers, employees or agents of other corporations or enterprises, and expressly provides that the indemnification provided by the Law is not exclusive; and D. The Company desires and has requested the Indemnitee to serve or continue to serve as a director or officer of the Company free from undue concern for claims for damages arising out of or related to such services to the Company. NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: 1. DEFINITIONS. 1.1 Agent. For the purposes of this Agreement, "AGENT" of the Company means any person who (a) is or was a director or officer of the Company or a subsidiary of the Company, (b) is or was serving at the request of, for the convenience of, or to represent the interest of the Company or a subsidiary of the Company as a director or officer of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise or an affiliate of the Company; or (c) was a director or officer of a foreign or domestic corporation which was a predecessor corporation of the Company, including, without limitation, Handspring, Inc., a California corporation, or was a director or officer of another enterprise or affiliate of the Company at the request of, for the convenience of, or to represent the interests of such 1 2 predecessor corporation. The term "ENTERPRISE" includes any employee benefit plan of the Company, its subsidiaries, affiliates and predecessor corporations. 1.2 Expenses. For purposes of this Agreement, "EXPENSES" includes all direct and indirect costs of any type or nature whatsoever, including, without limitation, all attorneys' fees and related disbursements and other out-of-pocket costs actually and reasonably incurred by the Indemnitee in connection with the investigation, defense or appeal of a proceeding or establishing or enforcing a right to indemnification or advancement of expenses under this Agreement, Section 145 or otherwise; provided, however, that expenses shall not include any judgments, fines, ERISA excise taxes or penalties or amounts paid in settlement of a proceeding. 1.3 Proceeding. For the purposes of this Agreement, "PROCEEDING" means any threatened, pending or completed action, suit or other proceeding, whether civil, criminal, administrative, investigative or any other type whatsoever arising on or after the date of this Agreement, regardless of when the act of Indemnities or failure to act occurred. 1.4 Subsidiary. For purposes of this Agreement, "SUBSIDIARY" means any corporation of which more than fifty percent (50%) of the outstanding voting securities is owned directly or indirectly by the Company, by the Company and one or more of its subsidiaries or by one or more subsidiaries of the Company. 2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue to serve as an agent of the Company, at the will of the Company, or under separate agreement, if such agreement exists, in the capacity the Indemnitee currently serves as an agent of the Company, faithfully and to the best of his ability, so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the charter documents of the Company or any subsidiary of the Company; provided, however, that the Indemnitee may at any time and for any reason resign from such position, subject to any contractual obligation that the Indemnitee may have assumed apart from this Agreement, and the Company or any subsidiary shall have no obligation under this Agreement to continue the Indemnitee in any such position. 3. DIRECTORS' AND OFFICERS' INSURANCE. The Company shall, to the extent that the Board of Directors determines it to be economically reasonable, maintain a policy of directors' and officers' liability insurance ("DIRECTOR AND OFFICER INSURANCE"), on such terms and conditions as may be approved by the Board of Directors, BUT IN NO EVENT LESS THAN $[ ]. 4. MANDATORY INDEMNIFICATION. Subject to Section 9 below, the Company shall indemnify the Indemnitee as provided in this Agreement, and to the fullest extent permitted by law. 4.1 Third Party Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding other than an action by or in the right of the Company, by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, the Company shall indemnify Indemnitee against any and all expenses and liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) actually and reasonably incurred by him in connection with the investigation, defense, settlement or appeal of such proceeding if he acted in good faith and in a manner he reasonably believed to 2 3 be in, or not opposed to, the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Notwithstanding the preceding, it is the intention of the parties hereto that Indemnitee shall be indemnified to the full extent authorized or permitted by Delaware Law and, therefore, to the extent Delaware Law shall permit broader contractual indemnification, this contract shall be deemed amended to incorporate such broader indemnification. 4.2 Derivative Actions. If the Indemnitee is a person who was or is a party or is threatened to be made a party to any proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was an agent of the Company, or by reason of anything done or not done by him in any such capacity, the Company shall indemnify the Indemnitee against any amounts paid in settlement of any such proceeding and all expenses actually and reasonably incurred by him in connection with the investigation, defense, settlement or appeal of such proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company; provided, however, that no indemnification under this subsection shall be made in respect of any claim, issue or matter as to which such person shall have been finally adjudged to be liable to the Company by a court of competent jurisdiction due to willful misconduct of a culpable nature in the performance of his duty to the Company, unless and only to the extent that the Court of Chancery or the court in which such proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such amounts which the Court of Chancery or such other court shall deem proper. Notwithstanding the preceding, it is the intention of the parties hereto that Indemnitee shall be indemnified to the full extent authorized or permitted by Delaware Law and, therefore, to the extent Delaware Law shall permit broader contractual indemnification, this contract shall be deemed amended to incorporate such broader indemnification. 4.3 Exception for Amounts Covered by Insurance. Notwithstanding the foregoing, the Company shall not be obligated to indemnify the Indemnitee for expenses or liabilities of any type whatsoever, including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement, to the extent such have been paid directly to the Indemnitee by Director and Officer Insurance. 5. PARTIAL INDEMNIFICATION AND CONTRIBUTION. 5.1 Partial Indemnification. If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) incurred by him in the investigation, defense, settlement or appeal of a proceeding but is not entitled, however, to indemnification for all of the total amount thereof, then the Company shall nevertheless indemnify the Indemnitee for such total amount except as to the portion thereof to which the Indemnitee is not entitled to indemnification. 5.2 Contribution. If the Indemnitee is not entitled to the indemnification provided in Section 4 for any reason other than the statutory limitations set forth in the Delaware Law, then in respect of any threatened, pending or completed proceeding in which the Company 3 4 is jointly liable with the Indemnitee, or would be if joined in such proceeding, the Company shall contribute to the amount of expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by the Indemnitee in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and the Indemnitee on the other hand from the transaction from which such proceeding arose and (ii) the relative fault of the Company on the one hand and of the Indemnitee on the other hand in connection with the events which resulted in such expenses, judgments, fines or settlement amounts, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the Indemnitee on the other hand shall be determined by reference to, among other things, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such expenses, judgments, fines or settlement amounts. The Company agrees that it would not be just and equitable if contribution pursuant to this Section 5 were determined by pro rata allocation or any other method of allocation which does not take account of the foregoing equitable considerations. 6. MANDATORY ADVANCEMENT OF EXPENSES. 6.1 Advancement. Subject to Section 9 below, the Company shall advance all expenses incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of any proceeding to which the Indemnitee is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an agent of the Company or by reason of anything done or not done by him in any such capacity. The Indemnitee hereby undertakes to promptly repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Company under the provisions of this Agreement, the Certificate of Incorporation or Bylaws of the Company, the Delaware Law or otherwise. The advances to be made hereunder shall be paid by the Company to the Indemnitee within thirty (30) days following delivery of a written request therefor by the Indemnitee to the Company. 6.2 Exception. Notwithstanding the foregoing provisions of this Section 6, the Company shall not be obligated to advance any expenses to the Indemnitee arising from a lawsuit filed directly by the Company against the Indemnitee if an absolute majority of the members of the Board reasonably determines in good faith, within thirty (30) days of the Indemnitee's request to be advanced expenses, that the facts known to them at the time such determination is made demonstrate clearly and convincingly that the Indemnitee acted in bad faith. If such a determination is made, the Indemnitee may have such decision reviewed by another forum, in the manner set forth in Sections 8.3, 8.4 and 8.5 hereof, with all references therein to "indemnification" being deemed to refer to "advancement of expenses," and the burden of proof shall be on the Company to demonstrate clearly and convincingly that, based on the facts known at the time, the Indemnitee acted in bad faith. The Company may not avail itself of this Section 6.2 as to a given lawsuit if, at any time after the occurrence of the activities or omissions that are the primary focus of the lawsuit, the Company has undergone a change in control. For this purpose, a change in control shall mean a given person or group of affiliated persons or groups increasing their beneficial ownership interest in the Company by at least twenty (20) percentage points without advance approval by the Board of Directors. 4 5 7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES. 7.1 Promptly after receipt by the Indemnitee of notice of the commencement of or the threat of commencement of any proceeding, the Indemnitee shall, if the Indemnitee believes that indemnification with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement thereof. 7.2 If, at the time of the receipt of a notice of the commencement of a proceeding pursuant to Section 7.1 hereof, the Company has Director and Officer Insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such D&O Insurance policies. 7.3 In the event the Company shall be obligated to advance the expenses for any proceeding against the Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by the Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to the Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by the Indemnitee and the retention of such counsel by the Company, the Company will not be liable to the Indemnitee under this Agreement for any fees of counsel subsequently incurred by the Indemnitee with respect to the same proceeding, provided, however, that: (a) the Indemnitee shall have the right to employ his own counsel in any such proceeding at the Indemnitee's expense; (b) the Indemnitee shall have the right to employ his own counsel in connection with any such proceeding, at the expense of the Company, if such counsel serves in a review, observer, advice and counseling capacity and does not otherwise materially control or participate in the defense of such proceeding; and (c) if (i) the employment of counsel by the Indemnitee has been previously authorized by the Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of any such defense or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of the Indemnitee's counsel shall be at the expense of the Company. 8. DETERMINATION OF RIGHT TO INDEMNIFICATION. 8.1 To the extent the Indemnitee has been successful on the merits or otherwise in defense of any proceeding referred to in Section 4.1 or 4.2 of this Agreement or in the defense of any claim, issue or matter described therein, the Company shall indemnify the Indemnitee against expenses actually and reasonably incurred by him in connection with the investigation, defense or appeal of such proceeding, or such claim, issue or matter, as the case may be. 8.2 In the event that Section 8.1 is inapplicable, or does not apply to the entire proceeding, the Company shall nonetheless indemnify the Indemnitee unless the Company shall prove by clear and convincing evidence to a forum listed in Section 8.3 below that the Indemnitee has not met the applicable standard of conduct required to entitle the Indemnitee to such indemnification. 5 6 8.3 The Indemnitee shall be entitled to select the forum in which the validity of the claim under Section 8.2 hereof that the Indemnitee is not entitled to indemnification will be heard from among the following, provided, however, that the Indemnitee can select a forum consisting of the stockholders of the Company only with the approval of the Company: (a) a quorum of the Board of Directors consisting of directors who are not parties to the proceeding for which indemnification is being sought; (b) the stockholders of the Company; (c) independent legal counsel mutually agreed upon by the Indemnitee and the Board of Directors, which counsel shall make such determination in a written opinion; (d) a panel of three arbitrators, one of whom is selected by the Company, another of whom is selected by the Indemnitee and the last of whom is selected by the first two arbitrators so selected; or (e) the Court of Chancery of Delaware or other court having jurisdiction of subject matter and the parties. 8.4 As soon as practicable, and in no event later than thirty (30) days after the forum has been selected pursuant to Section 8.3 above, the Company shall, at its own expense, submit to the selected forum its claim that the Indemnitee is not entitled to indemnification, and the Company shall act in the utmost good faith to assure the Indemnitee a complete opportunity to defend against such claim. 8.5 If the forum selected in accordance with Section 8.3 hereof is not a court, then after the final decision of such forum is rendered, the Company or the Indemnitee shall have the right to apply to the Court of Chancery of Delaware, the court in which the proceeding giving rise to the claim for indemnification by the Indemnitee is or was pending or any other court of competent jurisdiction, for the purpose of appealing the decision of such forum, provided, however, that such right is executed within sixty (60) days after the final decision of such forum is rendered. If the forum selected in accordance with Section 8.3 hereof is a court, then the rights of the Company or the Indemnitee to appeal any decision of such court shall be governed by the applicable laws and rules governing appeals of the decision of such court. 8.6 Notwithstanding any other provision in this Agreement to the contrary, the Company shall indemnify the Indemnitee against all expenses incurred by the Indemnitee in connection with any hearing or proceeding under this Section 8 involving the Indemnitee and against all expenses incurred by the Indemnitee in connection with any other proceeding between the Company and the Indemnitee involving the interpretation or enforcement of the rights of the Indemnitee under this Agreement, unless a court of competent jurisdiction finds that each of the material claims and/or defenses of the Indemnitee in any such proceeding was frivolous or not made in good faith. 9. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: 9.1 Claims Initiated by Indemnitee. To indemnify or advance expenses to the Indemnitee with respect to proceedings or claims initiated or brought voluntarily by the Indemnitee and not by way of defense, other than with respect to proceedings specifically authorized by the Board of Directors or brought to establish or enforce a right to indemnification and/or advancement of expenses arising under this Agreement, the charter documents of the Company or any subsidiary or any statute or law or otherwise, but such indemnification or 6 7 advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate; or 9.2 Unauthorized Settlements. To indemnify the Indemnitee hereunder for any amounts paid in settlement of a proceeding unless the Company consents in advance in writing to such settlement, which consent shall not be unreasonably withheld; or 9.3 Securities Law Actions. To indemnify the Indemnitee on account of any suit in which judgment is rendered against the Indemnitee for an accounting of profits made from the purchase or sale by the Indemnitee of securities of the Company pursuant to the provisions of Section l6(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; or 9.4 Unlawful Indemnification. To indemnify the Indemnitee if a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful. In this respect, the Company and the Indemnitee have been advised that the Securities and Exchange Commission takes the position that indemnification for liabilities arising under the federal securities laws is against public policy and, therefore, is unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication. 10. NON-EXCLUSIVITY. The provisions for indemnification and advancement of expenses set forth in this Agreement shall not be deemed exclusive of any other rights which the Indemnitee may have under any provision of law, the Certificate of Incorporation or Bylaws of the Company, the vote of the stockholders or disinterested directors of the Company, other agreements or otherwise, both as to action in the official capacity of the Indemnitee and to action in another capacity while occupying his position as an agent of the Company, and the rights of the Indemnitee hereunder shall continue after the Indemnitee has ceased acting as an agent of the Company and shall inure to the benefit of the heirs, executors and administrators of the Indemnitee. 11. GENERAL PROVISIONS. 11.1 Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification and advancement of expenses to the Indemnitee to the fullest extent now or hereafter permitted by law, except as expressly limited herein. 11.2 Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, then: (a) the validity, legality and enforceability of the remaining provisions of this Agreement, including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable that are not themselves invalid, illegal or unenforceable, shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement, including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable that are not themselves invalid, illegal or unenforceable, shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 11.1 hereof. 7 8 11.3 Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof, whether or not similar, nor shall such waiver constitute a continuing waiver. 11.4 Subrogation. In the event of full payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all documents required and shall do all acts that may be necessary or desirable to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 11.5 Counterparts. This Agreement may be executed in one or more counterparts, which shall together constitute one agreement. 11.6 Successors and Assigns. The terms of this Agreement shall bind, and shall inure to the benefit of, the successors and assigns of the parties hereto. 11.7 Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (a) if delivered by hand and signed for by the party addressee or (b) if mailed by certified or registered mail, with postage prepaid, on the third business day after the mailing date. The addresses for notice to either party are as shown on the signature page of this Agreement or as subsequently modified by written notice. 11.8 Governing Law. This Agreement shall be governed exclusively by and construed according to the laws of the State of California, as applied to contracts between California residents entered into and to be performed entirely within California. 11.9 Consent to Jurisdiction. The Company and the Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement. 11.10 Attorneys' Fees. In the event Indemnitee is required to bring any action to enforce rights under this Agreement, including, without limitation, the expenses of any proceeding described in Section 3, the Indemnitee shall be entitled to all reasonable fees and expenses in bringing and pursuing such action, unless a court of competent jurisdiction finds each of the material claims of the Indemnitee in any such action was frivolous and not made in good faith. 8 9 IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity Agreement effective as of the date first written above.
HANDSPRING, INC. INDEMNITEE: By: -------------------------------------------- -------------------------------------------- Name: Donna L. Dubinsky Title: President and Chief Executive Officer Address: 189 Bernardo Avenue Address: --------------------------------------- ------------------------------------ Mountain View, California 94043 - ----------------------------------------------- --------------------------------------------
9 EX-10.2 9 EXHIBIT 10.2 1 EXHIBIT 10.2 HANDSPRING, INC. 1998 EQUITY INCENTIVE PLAN AS ADOPTED ON OCTOBER 8, 1998 AND AMENDED ON AUGUST 4, 1999 AND MARCH 28, 2000 1. PURPOSE. The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the Company's future performance through awards of Options and Restricted Stock. Capitalized terms not defined in the text are defined in Section 22 hereof. This Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 promulgated under the Securities Act. 2. SHARES SUBJECT TO THE PLAN. 2.1 Number of Shares Available. Subject to Sections 2.2 and 17 hereof, the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be 28,707,693(1) Shares or such lesser number of Shares as permitted under Section 260.140.45 of Title 10 of the California Code of Regulations. Subject to Sections 2.2 and 17 hereof, Shares previously granted will again be available for grant and issuance in connection with future Awards under this Plan that: (i) are subject to issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option or (ii) are subject to a Restricted Stock Award that otherwise terminates without Shares being issued. At all times the Company will reserve and keep available a sufficient number of Shares as will be required to satisfy the requirements of all Awards granted and outstanding under this Plan. 2.2 Adjustment of Shares. In the event that the number of outstanding shares of the Company's Common Stock is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (i) the number of Shares reserved for issuance under this Plan, (ii) the Exercise Prices of and number of Shares subject to outstanding Options and (iii) the Purchase Prices of and number of Shares subject to other outstanding Awards will be proportionately adjusted, subject to any required action by the Board or the shareholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share will not be issued but will either be paid in cash at the Fair Market Value of such fraction of a Share or will be rounded down to the nearest whole Share, as determined by the Committee. 3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in Section 5 hereof) and Restricted Stock Awards may be granted to employees, officers, directors and consultants of the Company or any Parent or Subsidiary of the Company; provided such consultants render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. A person may be granted more than one Award under this Plan. (1) This 28,707,693 figure reflects the 3-for-1 stock split which became effective on March 23, 2000, the 1,600,000 (post-split) share increase to the total pool effective on March 28, 2000, and the 3-for-2 stock split which became effective in May 2000. 1 2 4. ADMINISTRATION. 4.1 Committee Authority. This Plan will be administered by the Committee or the Board if no Committee is created by the Board. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to: (a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan; (b) prescribe, amend and rescind rules and regulations relating to this Plan; (c) approve persons to receive Awards; (d) determine the form and terms of Awards; (e) determine the number of Shares or other consideration subject to Awards; (f) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or awards under any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company; (g) grant waivers of any conditions of this Plan or any Award; (h) determine the terms of vesting, exercisability and payment of Awards; (i) correct any defect, supply any omission, or reconcile any inconsistency in this Plan, any Award, any Award Agreement, any Exercise Agreement or any Restricted Stock Purchase Agreement; (j) determine whether an Award has been earned; and (k) make all other determinations necessary or advisable for the administration of this Plan. 4.2 Committee Discretion. Unless in contravention of any express terms of this Plan or Award, any determination made by the Committee with respect to any Award will be made in its sole discretion either (i) at the time of grant of the Award, or (ii) subject to Section 5.9 hereof, at any later time. Any such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan, provided such officer or officers are members of the Board. 5. OPTIONS. The Committee may grant Options to eligible persons described in Section 3 hereof and will determine whether such Options will be Incentive Stock Options within the meaning of the Code ("ISOS") or Nonqualified Stock Options ("NQSOS"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: 2 3 5.1 Form of Option Grant. Each Option granted under this Plan will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan. 5.2 Date of Grant. The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless a later date is otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option. 5.3 Exercise Period. Options may be exercisable immediately but subject to repurchase pursuant to Section 11 hereof or may be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines. Subject to earlier termination of the Option as provided herein, each Participant who is not an officer, director or consultant of the Company or of a Parent or Subsidiary of the Company shall have the right to exercise an Option granted hereunder at the rate of no less than twenty percent (20%) per year over five (5) years from the date such Option is granted. 5.4 Exercise Price. The Exercise Price of an Option will be determined by the Committee when the Option is granted and may not be less than eighty-five percent (85%) of the Fair Market Value of the Shares on the date of grant; provided that (i) the Exercise Price of an ISO will not be less than one hundred percent (100%) of the Fair Market Value of the Shares on the date of grant and (ii) the Exercise Price of any Option granted to a Ten Percent Shareholder will not be less than one hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased must be made in accordance with Section 7 hereof. 5.5 Method of Exercise. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the "EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the same for each Participant). The Exercise Agreement will state (i) the number of Shares being purchased, (ii) the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and (iii) such representations and agreements regarding Participant's investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws. Participant shall execute and deliver to the Company the Exercise Agreement together with payment in full of the Exercise Price, and any applicable taxes, for the number of Shares being purchased. 3 4 5.6 Termination. Subject to earlier termination pursuant to Sections 17 and 18 hereof and notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following: (a) If the Participant is Terminated for any reason other than death, Disability or for Cause, then the Participant may exercise such Participant's Options only to the extent that such Options are exercisable upon the Termination Date. Such Options must be exercised by the Participant, if at all, as to all or some of the Vested Shares calculated as of the Termination Date, within three (3) months after the Termination Date (or within such shorter time period, not less than thirty (30) days, or within such longer time period, not exceeding five (5) years, after the Termination Date as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO) but in any event, no later than the expiration date of the Options. (b) If the Participant is Terminated because of Participant's death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause), then Participant's Options may be exercised only to the extent that such Options are exercisable by Participant on the Termination Date. Such options must be exercised by Participant (or Participant's legal representative or authorized assignee), if at all, as to all or some of the Vested Shares calculated as of the Termination Date, within twelve (12) months after the Termination Date (or within such shorter time period, not less than six (6) months, or within such longer time period, not exceeding five (5) years, after the Termination Date as may be determined by the Committee, with any exercise beyond (i) three (3) months after the Termination Date when the Termination is for any reason other than the Participant's death or disability, within the meaning of Section 22(e)(3) of the Code, or (ii) twelve (12) months after the Termination Date when the Termination is for Participant's disability, within the meaning of Section 22(e)(3) of the Code, deemed to be an NQSO) but in any event no later than the expiration date of the Options. (c) If the Participant is terminated for Cause, then Participant's Options shall expire on such Participant's Termination Date, or at such later time and on such conditions as are determined by the Committee. 5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable. 5.8 Limitations on ISOs. The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company or any Parent or Subsidiary of the Company) will not exceed One Hundred Thousand Dollars ($100,000). If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year 4 5 exceeds One Hundred Thousand Dollars ($100,000), then the Options for the first One Hundred Thousand Dollars ($100,000) worth of Shares to become exercisable in such calendar year will be ISOs and the Options for the amount in excess of One Hundred Thousand Dollars ($100,000) that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date (as defined in Section 18 hereof) to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, then such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment. 5.9 Modification, Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant's rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. Subject to Section 5.10 hereof, the Committee may reduce the Exercise Price of outstanding Options without the consent of Participants by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 hereof for Options granted on the date the action is taken to reduce the Exercise Price. 5.10 No Disqualification. Notwithstanding any other provision in this Plan, no term of this Plan relating to ISOs will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant, to disqualify any Participant's ISO under Section 422 of the Code. 6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to certain specified restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the Purchase Price, the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following: 6.1 Form of Restricted Stock Award. All purchases under a Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. The Restricted Stock Award will be accepted by the Participant's execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within such thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee. 6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be determined by the Committee and will be at least eighty-five percent (85%) of the Fair Market Value of the Shares on the date the Restricted Stock Award is granted or at the time the purchase is consummated, except in the case of a sale to a Ten Percent Shareholder, in which case the Purchase Price will be one hundred percent (100%) of the Fair Market Value on 5 6 the date the Restricted Stock Award is granted or at the time the purchase is consummated. Payment of the Purchase Price must be made in accordance with Section 7 hereof. 6.3 Restrictions. Restricted Stock Awards may be subject to the restrictions set forth in Section 11 hereof or such other restrictions not inconsistent with Section 25102(o) of the California Corporations Code. 7. PAYMENT FOR SHARE PURCHASES. 7.1 Payment. Payment for Shares purchased pursuant to this Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation of indebtedness of the Company owed to the Participant; (b) by surrender of shares that: (i) either (A) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (B) were obtained by Participant in the public market and (ii) are clear of all liens, claims, encumbrances or security interests; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; (d) by waiver of compensation due or accrued to the Participant from the Company for services rendered; (e) with respect only to purchases upon exercise of an Option, and provided that a public market for the Company's stock exists: (i) through a "same day sale" commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD DEALER") whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased sufficient to pay the total Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; or (ii) through a "margin" commitment from the Participant and an NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the total Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of 6 7 such Shares to forward the total Exercise Price directly to the Company; or (f) by any combination of the foregoing. 7.2 Loan Guarantees. The Committee may, in its sole discretion, elect to assist the Participant in paying for Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. 8. WITHHOLDING TAXES. 8.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Awards are to be made in cash by the Company, such payment will be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. 8.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose will be made in accordance with the requirements established by the Committee for such elections and be in writing in a form acceptable to the Committee. 9. PRIVILEGES OF STOCK OWNERSHIP. 9.1 Voting and Dividends. No Participant will have any of the rights of a shareholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a shareholder and have all the rights of a shareholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock. The Participant will have no right to retain such stock dividends or stock distributions with respect to Unvested Shares that are repurchased pursuant to Section 11 hereof. The Company will comply with Section 260.140.1 of Title 10 of the California Code of Regulations with respect to the voting rights of Common Stock. 9.2 Financial Statements. The Company will provide financial statements to each Participant annually during the period such Participant has Awards outstanding, or as otherwise required under Section 260.140.46 of Title 10 of the California Code of Regulations. Notwithstanding the foregoing, the Company will not be required to provide such financial statements to Participants when issuance is limited to key employees whose services in connection with the Company assure them access to equivalent information. 7 8 10. TRANSFERABILITY. Awards granted under this Plan, and any interest therein, will not be transferable or assignable by Participant, other than by will or by the laws of descent and distribution, and may not be made subject to execution, attachment or similar process. During the lifetime of the Participant an Award will be exercisable only by the Participant or Participant's legal representative and any elections with respect to an Award may be made only by the Participant or Participant's legal representative. 11. RESTRICTIONS ON SHARES. 11.1 Right of First Refusal. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right of first refusal to purchase all Shares that a Participant (or a subsequent transferee) may propose to transfer to a third party, unless otherwise not permitted by Section 25102(o) of the California Corporations Code, provided that such right of first refusal terminates upon the Company's initial public offering of Common Stock pursuant to an effective registration statement filed under the Securities Act. 11.2 Right of Repurchase. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right to repurchase Unvested Shares held by a Participant for cash and/or cancellation of purchase money indebtedness owed to the Company by the Participant following such Participant's Termination at any time within the later of ninety (90) days after the Participant's Termination Date and the date the Participant purchases Shares under the Plan at the Participant's Exercise Price or Purchase Price, as the case may be, provided that, unless the Participant is an officer, director or consultant of the Company or of a Parent or Subsidiary of the Company, such right of repurchase lapses at the rate of no less than twenty percent (20%) per year over five (5) years from: (a) the date of grant of the Option or (b) in the case of Restricted Stock, the date the Participant purchases the Shares. 12. CERTIFICATES. All certificates for Shares or other securities delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted. 13. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Participant's Shares set forth in Section 11 hereof, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated. The Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant's obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant's Shares or other collateral. In connection with any pledge of the Shares, Participant will be 8 9 required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. 14. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, shares of Common Stock of the Company (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree. 15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. This Plan is intended to comply with Section 25102(o) of the California Corporations Code. Any provision of this Plan which is inconsistent with Section 25102(o) shall, without further act or amendment by the Company or the Board, be reformed to comply with the requirements of Section 25102(o). An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to (i) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (ii) compliance with any exemption, completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the exemption, registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so. 16. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant's employment or other relationship at any time, with or without Cause. 17. CORPORATE TRANSACTIONS. 17.1 Assumption or Replacement of Awards by Successor or Acquiring Corporation. In the event of (i) a dissolution or liquidation of the Company, (ii) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the shareholders of the Company or their relative stock holdings and the Awards granted under this Plan are assumed, converted or replaced by the successor or acquiring corporation, which assumption, conversion or replacement will be binding on all Participants), (iii) a merger in which the Company is the surviving corporation but after which the shareholders of the Company immediately prior to such merger (other than any shareholder which merges with the Company in such merger, or which 9 10 owns or controls another corporation which merges with the Company in such merger) cease to own their shares or other equity interests in the Company, or (iv) the sale of all or substantially all of the assets of the Company, any or all outstanding Awards may be assumed, converted or replaced by the successor or acquiring corporation (if any), which assumption, conversion or replacement will be binding on all Participants. In the alternative, the successor or acquiring corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to shareholders (after taking into account the existing provisions of the Awards). The successor or acquiring corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions and other provisions no less favorable to the Participant than those which applied to such outstanding Shares immediately prior to such transaction described in this Section 17.1. In the event such successor or acquiring corporation (if any) does not assume or substitute Awards, as provided above, pursuant to a transaction described in this Section 17.1, then notwithstanding any other provision in this Plan to the contrary, the vesting of such Awards will accelerate and the Options will become exercisable in full prior to the consummation of such event at such times and on such conditions as the Committee determines, and if such Options are not exercised prior to the consummation of the corporate transaction, they shall terminate in accordance with the provisions of this Plan. 17.2 Other Treatment of Awards. Subject to any greater rights granted to Participants under the foregoing provisions of this Section 17, in the event of the occurrence of any transaction described in Section 17.1 hereof, any outstanding Awards will be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation or sale of assets. 17.3 Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (i) granting an Award under this Plan in substitution of such other company's award or (ii) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. 18. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become effective on the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Plan will be approved by the shareholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve (12) months before or after the Effective Date. Upon the Effective Date, the Board may grant Awards pursuant to this Plan; provided, however, that: (i) no Option may be exercised prior to initial shareholder approval of this Plan; (ii) no Option granted pursuant to an increase in the number of Shares approved by the Board shall be exercised prior to the time such increase has been approved by the shareholders of the Company; 10 11 (iii) in the event that initial shareholder approval is not obtained within the time period provided herein, all Awards granted hereunder shall be canceled, any Shares issued pursuant to any Award shall be canceled and any purchase of Shares issued hereunder shall be rescinded; and (iv) Awards granted pursuant to an increase in the number of Shares approved by the Board which increase is not timely approved by shareholders shall be canceled, any Shares issued pursuant to any such Awards shall be canceled, and any purchase of Shares subject to any such Award shall be rescinded. 19. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided herein, this Plan will terminate ten (10) years from the Effective Date or, if earlier, the date of shareholder approval. This Plan and all agreements hereunder shall be governed by and construed in accordance with the laws of the State of California. 20. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9 hereof, the Board may at any time terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan; provided, however, that the Board will not, without the approval of the shareholders of the Company, amend this Plan in any manner that requires such shareholder approval pursuant to Section 25102(o) of the California Corporations Code or the Code or the regulations promulgated thereunder as such provisions apply to ISO plans. 21. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the Board, the submission of this Plan to the shareholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and other equity awards otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 22. DEFINITIONS. As used in this Plan, the following terms will have the following meanings: "AWARD" means any award under this Plan, including any Option or Restricted Stock Award. "AWARD AGREEMENT" means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award, including the Stock Option Agreement and Restricted Stock Agreement. "BOARD" means the Board of Directors of the Company. "CAUSE" means Termination because of (i) any willful, material violation by the Participant of any law or regulation applicable to the business of the Company or a Parent or Subsidiary of the Company, the Participant's conviction for, or guilty plea to, a felony or a crime involving moral turpitude, or any willful perpetration by the Participant of a common law fraud, (ii) the Participant's commission of an act of personal dishonesty which involves personal profit in connection with the Company or any other entity having a business relationship with the Company, (iii) any material breach by the Participant of any provision of any agreement or understanding between the Company or any Parent or Subsidiary of the Company and the Participant regarding the terms of the Participant's service as an employee, officer, director or consultant to the Company or a Parent or Subsidiary of the Company, including without 11 12 limitation, the willful and continued failure or refusal of the Participant to perform the material duties required of such Participant as an employee, officer, director or consultant of the Company or a Parent or Subsidiary of the Company, other than as a result of having a Disability, or a breach of any applicable invention assignment and confidentiality agreement or similar agreement between the Company or a Parent or Subsidiary of the Company and the Participant, (iv) Participant's disregard of the policies of the Company or any Parent or Subsidiary of the Company so as to cause loss, damage or injury to the property, reputation or employees of the Company or a Parent or Subsidiary of the Company, or (v) any other misconduct by the Participant which is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company or a Parent or Subsidiary of the Company. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITTEE" means the committee created and appointed by the Board to administer this Plan, or if no committee is created and appointed, the Board. "COMPANY" means Handspring, Inc. or any successor corporation. "DISABILITY" means a disability, whether temporary or permanent, partial or total, as determined by the Committee. "EXERCISE PRICE" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option. "FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall Street Journal; (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported by The Wall Street Journal (or, if not so reported, as otherwise reported by any newspaper or other source as the Board may determine); or (d) if none of the foregoing is applicable, by the Committee in good faith. "OPTION" means an award of an option to purchase Shares pursuant to Section 5 hereof. "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company 12 13 owns stock representing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "PARTICIPANT" means a person who receives an Award under this Plan. "PLAN" means this Handspring, Inc. 1998 Equity Incentive Plan, as amended from time to time. "PURCHASE PRICE" means the price at which a Participant may purchase Restricted Stock. "RESTRICTED STOCK" means Shares purchased pursuant to a Restricted Stock Award. "RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section 6 hereof. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARES" means shares of the Company's Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 17 hereof, and any successor security. "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock representing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "TERMINATION" or "TERMINATED" means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director or consultant to the Company or a Parent or Subsidiary of the Company. A Participant will not be deemed to have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Committee, provided that such leave is for a period of not more than ninety (90) days (a) unless reinstatement (or, in the case of an employee with an ISO, reemployment) upon the expiration of such leave is guaranteed by contract or statute, or (b) unless provided otherwise pursuant to formal policy adopted from time to time by the Company's Board and issued and promulgated in writing. In the case of any Participant on (i) sick leave, (ii) military leave or (iii) an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the Company or a Parent or Subsidiary of the Company as it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Stock Option Agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "TERMINATION DATE"). "UNVESTED SHARES" means "Unvested Shares" as defined in the Award Agreement. "VESTED SHARES" means "Vested Shares" as defined in the Award Agreement. 13 EX-10.3 10 EXHIBIT 10.3 1 EXHIBIT 10.3 HANDSPRING, INC. 1999 EXECUTIVE EQUITY INCENTIVE PLAN AS ADOPTED ON AUGUST 4, 1999 AND AMENDED ON JANUARY 3, 2000 AND MARCH 28, 2000 1. PURPOSE. The purpose of this Executive Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the Company's future performance through awards of Options and Restricted Stock. Capitalized terms not defined in the text are defined in Section 22 hereof. 2. SHARES SUBJECT TO THE EXECUTIVE PLAN. 2.1 Number of Shares Available. Subject to Sections 2.2 and 17 hereof, the total number of Shares reserved and available for grant and issuance pursuant to this Executive Plan will be 10,350,000(1) Shares or such lesser number of Shares as permitted under Section 260.140.45 of Title 10 of the California Code of Regulations. Subject to Sections 2.2 and 17 hereof, Shares previously granted will again be available for grant and issuance in connection with future Awards under this Executive Plan that: (i) are subject to issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option or (ii) are subject to a Restricted Stock Award that otherwise terminates without Shares being issued. At all times the Company will reserve and keep available a sufficient number of Shares as will be required to satisfy the requirements of all Awards granted and outstanding under this Executive Plan. 2.2 Adjustment of Shares. In the event that the number of outstanding shares of the Company's Common Stock is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (i) the number of Shares reserved for issuance under this Executive Plan, (ii) the Exercise Prices of and number of Shares subject to outstanding Options and (iii) the Purchase Prices of and number of Shares subject to other outstanding Awards will be proportionately adjusted, subject to any required action by the Board or the shareholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share will not be issued but will either be paid in cash at the Fair Market Value of such fraction of a Share or will be rounded down to the nearest whole Share, as determined by the Committee. 3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be granted only to employees (including officers and directors who are also employees and certain other employees who may be selected for grants in the discretion of the Committee or the Board) of the Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in Section 5 hereof) and Restricted Stock Awards may be granted to officers, directors and, in the discretion of the Committee or the Board, selected employees and selected consultants of the Company or any Parent or Subsidiary of the Company; provided such consultants render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. A person may be granted more than one Award under this Executive Plan. (1) This 10,350,000 figure reflects the 3-for-1 stock split which became effective on March 23, 2000, the 900,000 (post-split) share increase to the total pool effective on March 28, 2000 and the 3-for-2 stock split which became effective in May 2000. 1 2 4. ADMINISTRATION. 4.1 Committee Authority. This Executive Plan will be administered by the Committee or the Board if no Committee is created by the Board. Subject to the general purposes, terms and conditions of this Executive Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Executive Plan. Without limitation, the Committee will have the authority to: (a) construe and interpret this Executive Plan, any Award Agreement and any other agreement or document executed pursuant to this Executive Plan; (b) prescribe, amend and rescind rules and regulations relating to this Executive Plan; (c) approve persons to receive Awards; (d) determine the form and terms of Awards; (e) determine the number of Shares or other consideration subject to Awards; (f) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Executive Plan or awards under any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company; (g) grant waivers of any conditions of this Executive Plan or any Award; (h) determine the terms of vesting, exercisability and payment of Awards; (i) correct any defect, supply any omission, or reconcile any inconsistency in this Executive Plan, any Award, any Award Agreement, any Exercise Agreement or any Restricted Stock Purchase Agreement; (j) determine whether an Award has been earned; and (k) make all other determinations necessary or advisable for the administration of this Executive Plan. 4.2 Committee Discretion. Unless in contravention of any express terms of this Executive Plan or Award, any determination made by the Committee with respect to any Award will be made in its sole discretion either (i) at the time of grant of the Award, or (ii) subject to Section 5.9 hereof, at any later time. Any such determination will be final and binding on the Company and on all persons having an interest in any Award under this Executive Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under this Executive Plan, provided such officer or officers are members of the Board. 5. OPTIONS. The Committee may grant Options to eligible persons described in Section 3 hereof and will determine whether such Options will be Incentive Stock Options within the meaning of the Code ("ISOS") or Nonqualified Stock Options ("NQSOS"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: 2 3 5.1 Form of Option Grant. Each Option granted under this Executive Plan will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Executive Plan. 5.2 Date of Grant. The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless a later date is otherwise specified by the Committee. The Stock Option Agreement and a copy of this Executive Plan will be delivered to the Participant within a reasonable time after the granting of the Option. 5.3 Exercise Period. Options may be exercisable immediately but subject to repurchase pursuant to Section 11 hereof or may be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines. Subject to earlier termination of the Option as provided herein, each Participant who is not an officer, director or consultant of the Company or of a Parent or Subsidiary of the Company shall have the right to exercise an Option granted hereunder at the rate of no less than twenty percent (20%) per year over five (5) years from the date such Option is granted. 5.4 Exercise Price. The Exercise Price of an Option will be determined by the Committee when the Option is granted and may not be less than eighty-five percent (85%) of the Fair Market Value of the Shares on the date of grant; provided that (i) the Exercise Price of an ISO will not be less than one hundred percent (100%) of the Fair Market Value of the Shares on the date of grant and (ii) the Exercise Price of any Option granted to a Ten Percent Shareholder will not be less than one hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased must be made in accordance with Section 7 hereof. 5.5 Method of Exercise. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the "EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the same for each Participant). The Exercise Agreement will state (i) the number of Shares being purchased, (ii) the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and (iii) such representations and agreements regarding Participant's investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws. Participant shall execute and deliver to the Company the Exercise Agreement together with payment in full of the Exercise Price, and any applicable taxes, for the number of Shares being purchased. 3 4 5.6 Termination. Subject to earlier termination pursuant to Sections 17 and 18 hereof and notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following: (a) If the Participant is Terminated for any reason other than death, Disability or for Cause, then the Participant may exercise such Participant's Options only to the extent that such Options are exercisable upon the Termination Date. Such Options must be exercised by the Participant, if at all, as to all or some of the Vested Shares calculated as of the Termination Date, within three (3) months after the Termination Date (or within such shorter time period, not less than thirty (30) days, or within such longer time period, not exceeding five (5) years, after the Termination Date as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO) but in any event, no later than the expiration date of the Options. (b) If the Participant is Terminated because of Participant's death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause), then Participant's Options may be exercised only to the extent that such Options are exercisable by Participant on the Termination Date. Such options must be exercised by Participant (or Participant's legal representative or authorized assignee), if at all, as to all or some of the Vested Shares calculated as of the Termination Date, within twelve (12) months after the Termination Date (or within such shorter time period, not less than six (6) months, or within such longer time period, not exceeding five (5) years, after the Termination Date as may be determined by the Committee, with any exercise beyond (i) three (3) months after the Termination Date when the Termination is for any reason other than the Participant's death or disability, within the meaning of Section 22(e)(3) of the Code, or (ii) twelve (12) months after the Termination Date when the Termination is for Participant's disability, within the meaning of Section 22(e)(3) of the Code, deemed to be an NQSO) but in any event no later than the expiration date of the Options. (c) If the Participant is terminated for Cause, then Participant's Options shall expire on such Participant's Termination Date, or at such later time and on such conditions as are determined by the Committee. 5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable. 5.8 Limitations on ISOs. The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under this Executive Plan or under any other incentive stock option plan of the Company or any Parent or Subsidiary of the Company) will not exceed One Hundred Thousand Dollars ($100,000). If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any 4 5 calendar year exceeds One Hundred Thousand Dollars ($100,000), then the Options for the first One Hundred Thousand Dollars ($100,000) worth of Shares to become exercisable in such calendar year will be ISOs and the Options for the amount in excess of One Hundred Thousand Dollars ($100,000) that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date (as defined in Section 18 hereof) to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, then such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment. 5.9 Modification, Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant's rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. Subject to Section 5.10 hereof, the Committee may reduce the Exercise Price of outstanding Options without the consent of Participants by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 hereof for Options granted on the date the action is taken to reduce the Exercise Price. 5.10 No Disqualification. Notwithstanding any other provision in this Executive Plan, no term of this Executive Plan relating to ISOs will be interpreted, amended or altered, nor will any discretion or authority granted under this Executive Plan be exercised, so as to disqualify this Executive Plan under Section 422 of the Code or, without the consent of the Participant, to disqualify any Participant's ISO under Section 422 of the Code. 6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to certain specified restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the Purchase Price, the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following: 6.1 Form of Restricted Stock Award. All purchases under a Restricted Stock Award made pursuant to this Executive Plan will be evidenced by an Award Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Executive Plan. The Restricted Stock Award will be accepted by the Participant's execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within such thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee. 6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be determined by the Committee and will be at least eighty-five percent (85%) of the Fair Market Value of the Shares on the date the Restricted Stock Award is granted or at the time the purchase is consummated, except in the case of a sale to a Ten Percent Shareholder, in which case the Purchase Price will be one hundred percent (100%) of the Fair Market Value on 5 6 the date the Restricted Stock Award is granted or at the time the purchase is consummated. Payment of the Purchase Price must be made in accordance with Section 7 hereof. 6.3 Restrictions. Restricted Stock Awards may be subject to the restrictions set forth in Section 11 hereof or such other restrictions not inconsistent with Section 25102(f) of the California Corporations Code. 7. PAYMENT FOR SHARE PURCHASES. 7.1 Payment. Payment for Shares purchased pursuant to this Executive Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation of indebtedness of the Company owed to the Participant; (b) by surrender of shares that: (i) either (A) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (B) were obtained by Participant in the public market and (ii) are clear of all liens, claims, encumbrances or security interests; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; (d) by waiver of compensation due or accrued to the Participant from the Company for services rendered; (e) with respect only to purchases upon exercise of an Option, and provided that a public market for the Company's stock exists: (i) through a "same day sale" commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD DEALER") whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased sufficient to pay the total Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; or (ii) through a "margin" commitment from the Participant and an NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the total Exercise Price, and 6 7 whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; or (f) by any combination of the foregoing. 7.2 Loan Guarantees. The Committee may, in its sole discretion, elect to assist the Participant in paying for Shares purchased under this Executive Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. 8. WITHHOLDING TAXES. 8.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under this Executive Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Executive Plan, payments in satisfaction of Awards are to be made in cash by the Company, such payment will be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. 8.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose will be made in accordance with the requirements established by the Committee for such elections and be in writing in a form acceptable to the Committee. 9. PRIVILEGES OF STOCK OWNERSHIP. 9.1 Voting and Dividends. No Participant will have any of the rights of a shareholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a shareholder and have all the rights of a shareholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock. The Participant will have no right to retain such stock dividends or stock distributions with respect to Unvested Shares that are repurchased pursuant to Section 11 hereof. The Company will comply with Section 260.140.1 of Title 10 of the California Code of Regulations with respect to the voting rights of Common Stock. 9.2 Financial Statements. The Company will provide financial statements to each Participant annually during the period such Participant has Awards outstanding, or as otherwise required under Section 260.140.46 of Title 10 of the California Code of Regulations. Notwithstanding the foregoing, the Company will not be required to provide such financial 7 8 statements to Participants when issuance is limited to key employees whose services in connection with the Company assure them access to equivalent information. 10. TRANSFERABILITY. Awards granted under this Executive Plan, and any interest therein, will not be transferable or assignable by Participant, other than by will or by the laws of descent and distribution, and may not be made subject to execution, attachment or similar process. During the lifetime of the Participant an Award will be exercisable only by the Participant or Participant's legal representative and any elections with respect to an Award may be made only by the Participant or Participant's legal representative. 11. RESTRICTIONS ON SHARES. 11.1 Right of First Refusal. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right of first refusal to purchase all Shares that a Participant (or a subsequent transferee) may propose to transfer to a third party, unless otherwise not permitted by Section 25102(f) of the California Corporations Code, provided that such right of first refusal terminates upon the Company's initial public offering of Common Stock pursuant to an effective registration statement filed under the Securities Act. 11.2 Right of Repurchase. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right to repurchase Unvested Shares held by a Participant for cash and/or cancellation of purchase money indebtedness owed to the Company by the Participant following such Participant's Termination at any time within the later of ninety (90) days after the Participant's Termination Date and the date the Participant purchases Shares under the Executive Plan at the Participant's Exercise Price or Purchase Price, as the case may be, provided that, unless the Participant is an officer, director or consultant of the Company or of a Parent or Subsidiary of the Company, such right of repurchase lapses at the rate of no less than twenty percent (20%) per year over five (5) years from: (a) the date of grant of the Option or (b) in the case of Restricted Stock, the date the Participant purchases the Shares. 12. CERTIFICATES. All certificates for Shares or other securities delivered under this Executive Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted. 13. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Participant's Shares set forth in Section 11 hereof, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated. The Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Executive Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant's obligation to the Company under the promissory note; 8 9 provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant's Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. 14. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, shares of Common Stock of the Company (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree. 15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Executive Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Executive Plan prior to (i) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (ii) compliance with any exemption, completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the exemption, registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so. 16. NO OBLIGATION TO EMPLOY. Nothing in this Executive Plan or any Award granted under this Executive Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant's employment or other relationship at any time, with or without Cause. 17. CORPORATE TRANSACTIONS. 17.1 Assumption or Replacement of Awards by Successor or Acquiring Corporation. In the event of (i) a dissolution or liquidation of the Company, (ii) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the shareholders of the Company or their relative stock holdings and the Awards granted under this Executive Plan are assumed, converted or replaced by the successor or acquiring corporation, which assumption, conversion or replacement will be binding on all Participants), (iii) a merger in which the Company is the surviving corporation but after which the shareholders of the Company 9 10 immediately prior to such merger (other than any shareholder which merges with the Company in such merger, or which owns or controls another corporation which merges with the Company in such merger) cease to own their shares or other equity interests in the Company, or (iv) the sale of all or substantially all of the assets of the Company, any or all outstanding Awards may be assumed, converted or replaced by the successor or acquiring corporation (if any), which assumption, conversion or replacement will be binding on all Participants. In the alternative, the successor or acquiring corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to shareholders (after taking into account the existing provisions of the Awards). The successor or acquiring corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions and other provisions no less favorable to the Participant than those which applied to such outstanding Shares immediately prior to such transaction described in this Section 17.1. In the event such successor or acquiring corporation (if any) does not assume or substitute Awards, as provided above, pursuant to a transaction described in this Section 17.1, then notwithstanding any other provision in this Executive Plan to the contrary, the vesting of such Awards will accelerate and the Options will become exercisable in full prior to the consummation of such event at such times and on such conditions as the Committee determines, and if such Options are not exercised prior to the consummation of the corporate transaction, they shall terminate in accordance with the provisions of this Executive Plan. 17.2 Other Treatment of Awards. Subject to any greater rights granted to Participants under the foregoing provisions of this Section 17, in the event of the occurrence of any transaction described in Section 17.1 hereof, any outstanding Awards will be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation or sale of assets. 17.3 Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (i) granting an Award under this Executive Plan in substitution of such other company's award or (ii) assuming such award as if it had been granted under this Executive Plan if the terms of such assumed award could be applied to an Award granted under this Executive Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Executive Plan if the other company had applied the rules of this Executive Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. 18. ADOPTION AND SHAREHOLDER APPROVAL. This Executive Plan will become effective on the date that it is adopted by the Board (the "EFFECTIVE DATE"). This Executive Plan will be approved by the shareholders of the Company (excluding Shares issued pursuant to this Executive Plan), consistent with applicable laws, within twelve (12) months before or after the Effective Date. Upon the Effective Date, the Board may grant Awards pursuant to this Executive Plan; provided, however, that: (i) no Option may be exercised prior to 10 11 initial shareholder approval of this Executive Plan; (ii) no Option granted pursuant to an increase in the number of Shares approved by the Board shall be exercised prior to the time such increase has been approved by the shareholders of the Company; (iii) in the event that initial shareholder approval is not obtained within the time period provided herein, all Awards granted hereunder shall be canceled, any Shares issued pursuant to any Award shall be canceled and any purchase of Shares issued hereunder shall be rescinded; and (iv) Awards granted pursuant to an increase in the number of Shares approved by the Board which increase is not timely approved by shareholders shall be canceled, any Shares issued pursuant to any such Awards shall be canceled, and any purchase of Shares subject to any such Award shall be rescinded. 19. TERM OF EXECUTIVE PLAN/GOVERNING LAW. Unless earlier terminated as provided herein, this Executive Plan will terminate ten (10) years from the Effective Date or, if earlier, the date of shareholder approval. This Executive Plan and all agreements hereunder shall be governed by and construed in accordance with the laws of the State of California. 20. AMENDMENT OR TERMINATION OF EXECUTIVE PLAN. Subject to Section 5.9 hereof, the Board may at any time terminate or amend this Executive Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Executive Plan; provided, however, that the Board will not, without the approval of the shareholders of the Company, amend this Executive Plan in any manner that requires such shareholder approval pursuant to the California Corporations Code or the Code or the regulations promulgated thereunder as such provisions apply to ISO plans. 21. NONEXCLUSIVITY OF THE EXECUTIVE PLAN. Neither the adoption of this Executive Plan by the Board, the submission of this Executive Plan to the shareholders of the Company for approval, nor any provision of this Executive Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and other equity awards otherwise than under this Executive Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 22. DEFINITIONS. As used in this Executive Plan, the following terms will have the following meanings: "AWARD" means any award under this Executive Plan, including any Option or Restricted Stock Award. "AWARD AGREEMENT" means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award, including the Stock Option Agreement and Restricted Stock Agreement. "BOARD" means the Board of Directors of the Company. "CAUSE" means Termination because of (i) any willful, material violation by the Participant of any law or regulation applicable to the business of the Company or a Parent or Subsidiary of the Company, the Participant's conviction for, or guilty plea to, a felony or a crime involving moral turpitude, or any willful perpetration by the Participant of a common law fraud, (ii) the Participant's commission of an act of personal dishonesty which involves personal profit in connection with the Company or any other entity having a business relationship with the 11 12 Company, (iii) any material breach by the Participant of any provision of any agreement or understanding between the Company or any Parent or Subsidiary of the Company and the Participant regarding the terms of the Participant's service as an employee, officer, director or consultant to the Company or a Parent or Subsidiary of the Company, including without limitation, the willful and continued failure or refusal of the Participant to perform the material duties required of such Participant as an employee, officer, director or consultant of the Company or a Parent or Subsidiary of the Company, other than as a result of having a Disability, or a breach of any applicable invention assignment and confidentiality agreement or similar agreement between the Company or a Parent or Subsidiary of the Company and the Participant, (iv) Participant's disregard of the policies of the Company or any Parent or Subsidiary of the Company so as to cause loss, damage or injury to the property, reputation or employees of the Company or a Parent or Subsidiary of the Company, or (v) any other misconduct by the Participant which is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company or a Parent or Subsidiary of the Company. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITTEE" means the committee created and appointed by the Board to administer this Executive Plan, or if no committee is created and appointed, the Board. "COMPANY" means Handspring, Inc. or any successor corporation. "DISABILITY" means a disability, whether temporary or permanent, partial or total, as determined by the Committee. "EXECUTIVE PLAN" means this Handspring, Inc. 1999 Executive Equity Incentive Plan, as amended from time to time. "EXERCISE PRICE" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option. "FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall Street Journal; (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported by The Wall Street Journal (or, if not so reported, as otherwise reported by any newspaper or other source as the Board may determine); or (d) if none of the foregoing is applicable, by the Committee in good faith. 12 13 "OPTION" means an award of an option to purchase Shares pursuant to Section 5 hereof. "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock representing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "PARTICIPANT" means a person who receives an Award under this Executive Plan. "PURCHASE PRICE" means the price at which a Participant may purchase Restricted Stock. "RESTRICTED STOCK" means Shares purchased pursuant to a Restricted Stock Award. "RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section 6 hereof. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARES" means shares of the Company's Common Stock reserved for issuance under this Executive Plan, as adjusted pursuant to Sections 2 and 17 hereof, and any successor security. "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock representing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "TERMINATION" or "TERMINATED" means, for purposes of this Executive Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director or consultant to the Company or a Parent or Subsidiary of the Company. A Participant will not be deemed to have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Committee, provided that such leave is for a period of not more than ninety (90) days (a) unless reinstatement (or, in the case of an employee with an ISO, reemployment) upon the expiration of such leave is guaranteed by contract or statute, or (b) unless provided otherwise pursuant to formal policy adopted from time to time by the Company's Board and issued and promulgated in writing. In the case of any Participant on (i) sick leave, (ii) military leave or (iii) an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the Company or a Parent or Subsidiary of the Company as it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Stock Option Agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "TERMINATION DATE"). "UNVESTED SHARES" means "Unvested Shares" as defined in the Award Agreement. "VESTED SHARES" means "Vested Shares" as defined in the Award Agreement. 13 EX-10.4 11 EXHIBIT 10.4 1 EXHIBIT 10.4 HANDSPRING, INC. 2000 EQUITY INCENTIVE PLAN As Adopted April 26, 2000 1. PURPOSE. The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the Company's future performance through awards of Options, Restricted Stock and Stock Bonuses. Capitalized terms not defined in the text are defined in Section 23. 2. SHARES SUBJECT TO THE PLAN. 2.1 Number of Shares Available. Subject to Sections 2.2 and 18, the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be 15,000,000(1) Shares plus Shares that are subject to: (a) issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option; (b) an Award granted hereunder but are forfeited or are repurchased by the Company at the original issue price; and (c) an Award that otherwise terminates without Shares being issued. In addition, any authorized shares not issued or subject to outstanding grants under the Company's 1998 Equity Incentive Plan and 1999 Executive Equity Incentive Plan (the "PRIOR PLANS") on the Effective Date (as defined below) and any shares issued under the Prior Plans that are forfeited or repurchased by the Company or that are issuable upon exercise of options granted pursuant to the Prior Plans that expire or become unexercisable for any reason without having been exercised in full, will no longer be available for grant and issuance under the Prior Plans, but will be available for grant and issuance under this Plan. In addition, on each January 1, the aggregate number of Shares reserved and available for grant and issuance pursuant to this Plan will be increased automatically by a number of Shares equal to 5% of the total outstanding shares of the Company as of the immediately preceding December 31; provided, that the Board may in its sole discretion reduce the amount of the increase in any particular year; and, provided further, provided that no more than 30,000,000 shares shall be issued as ISOs (as defined in Section 5 below). At all times the Company shall reserve and keep available a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding Options granted under this Plan and all other outstanding but unvested Awards granted under this Plan. 2.2 Adjustment of Shares. In the event that the number of outstanding shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under this Plan, (b) the number of Shares that may be granted pursuant to Sections 3 and 9 below, (c) the Exercise Prices of and number of Shares subject to outstanding Options, and (d) the number of Shares subject to other outstanding Awards may, upon approval of the Board in its discretion, be proportionately adjusted in compliance with applicable securities laws; provided, however, that fractions of a Share will not be issued but will either be replaced by a cash payment equal to the Fair Market Value of such fraction of a Share or will be rounded up to the nearest whole Share, as determined by the Committee. 3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. All other Awards may be granted to employees, officers, directors, consultants, independent contractors and advisors of the Company or any Parent or Subsidiary of the Company; provided such consultants, contractors and advisors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. No person will be eligible to receive more than 3,000,000 Shares in any calendar year under this Plan pursuant to the grant of Awards hereunder, other than new employees of the Company or of a Parent or Subsidiary of the Company (including new employees who are also officers and directors of the Company or any Parent or Subsidiary of the Company), who are eligible to receive up to a maximum of 4,500,000 Shares in the calendar year in which they commence their employment. A person may be granted more than one Award under this Plan. (1) Pursuant to the resolutions under which the Plan was adopted, this number reflects the 3-for-2 stock split which became effective in May 2000. 2 Handspring, Inc. 2000 Equity Incentive Plan 4. ADMINISTRATION. 4.1 Committee Authority. This Plan will be administered by the Committee or by the Board acting as the Committee. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, and subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, the Committee will have the authority to: (a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan; (b) prescribe, amend and rescind rules and regulations relating to this Plan or any Award; (c) select persons to receive Awards; (d) determine the form and terms of Awards; (e) determine the number of Shares or other consideration subject to Awards; (f) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company; (g) grant waivers of Plan or Award conditions; (h) determine the vesting, exercisability and payment of Awards; (i) correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement; (j) determine whether an Award has been earned; and (k) make all other determinations necessary or advisable for the administration of this Plan. 4.2 Committee Discretion. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, any determination made by the Committee with respect to any Award will be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of this Plan or Award, at any later time, and such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan to Participants who are not Insiders of the Company. 5. OPTIONS. The Committee may grant Options to eligible persons and will determine whether such Options will be Incentive Stock Options within the meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: 5.1 Form of Option Grant. Each Option granted under this Plan will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and, except as otherwise required by the terms of Section 9 hereof, will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan. 2 3 Handspring, Inc. 2000 Equity Incentive Plan 5.2 Date of Grant. The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option. 5.3 Exercise Period. Options may be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines. 5.4 Exercise Price. The Exercise Price of an Option will be determined by the Committee when the Option is granted and may be not less than 85% of the Fair Market Value of the Shares on the date of grant; provided that: (i) the Exercise Price of an ISO will be not less than 100% of the Fair Market Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO granted to a Ten Percent Stockholder will not be less than 110% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 8 of this Plan. 5.5 Method of Exercise. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the "EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and such representations and agreements regarding Participant's investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased. 5.6 Termination. Notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following: (a) If the Participant is Terminated for any reason except death or Disability, then the Participant may exercise such Participant's Options only to the extent that such Options would have been exercisable upon the Termination Date no later than three (3) months after the Termination Date (or such shorter or longer time period not exceeding five (5) years as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO), but in any event, no later than the expiration date of the Options. (b) If the Participant is Terminated because of Participant's death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause or because of Participant's Disability), then Participant's Options may be exercised only to the extent that such Options would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant's legal representative or authorized assignee) no later than twelve (12) months after the Termination Date (or such shorter or longer time period not exceeding five (5) years as may be determined by the Committee, with any such exercise beyond (a) three (3) months after the Termination Date when the Termination is for any reason other than the Participant's death or Disability, or (b) twelve (12) months after the Termination Date when the Termination is for Participant's death or Disability, deemed to be an NQSO), but in any event no later than the expiration date of the Options. 3 4 Handspring, Inc. 2000 Equity Incentive Plan (c) If a Participant is terminated for Cause, then the Participant may exercise such Participant's Options only to the extent that such Options would have been exercisable upon the Termination Date no later than three (3) months after the Termination Date (or such shorter or longer time period as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO), but in any event, no later than the expiration date of the Options. 5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable. 5.8 Limitations on ISO. The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISO are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company, Parent or Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value of Shares on the date of grant with respect to which ISO are exercisable for the first time by a Participant during any calendar year exceeds $100,000, then the Options for the first $100,000 worth of Shares to become exercisable in such calendar year will be ISO and the Options for the amount in excess of $100,000 that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date of this Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISO, such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment. 5.9 Modification, Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant's rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code. The Committee may reduce the Exercise Price of outstanding Options without the consent of Participants affected by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 of this Plan for Options granted on the date the action is taken to reduce the Exercise Price. 5.10 No Disqualification. Notwithstanding any other provision in this Plan, no term of this Plan relating to ISO will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code. 6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the price to be paid (the "PURCHASE PRICE"), the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following: 6.1 Form of Restricted Stock Award. All purchases under a Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. The offer of Restricted Stock will be accepted by the Participant's execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee. 4 5 Handspring, Inc. 2000 Equity Incentive Plan 6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be determined by the Committee on the date the Restricted Stock Award is granted, except in the case of a sale to a Ten Percent Stockholder, in which case the Purchase Price will be 100% of the Fair Market Value. Payment of the Purchase Price may be made in accordance with Section 8 of this Plan. 6.3 Terms of Restricted Stock Awards. Restricted Stock Awards shall be subject to such restrictions as the Committee may impose. These restrictions may be based upon completion of a specified number of years of service with the Company or upon completion of the performance goals as set out in advance in the Participant's individual Restricted Stock Purchase Agreement. Restricted Stock Awards may vary from Participant to Participant and between groups of Participants. Prior to the grant of a Restricted Stock Award, the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Restricted Stock Award; (b) select from among the Performance Factors to be used to measure performance goals, if any; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the payment of any Restricted Stock Award, the Committee shall determine the extent to which such Restricted Stock Award has been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Restricted Stock Awards that are subject to different Performance Periods and having different performance goals and other criteria. 6.4 Termination During Performance Period. If a Participant is Terminated during a Performance Period for any reason, then such Participant will be entitled to payment (whether in Shares, cash or otherwise) with respect to the Restricted Stock Award only to the extent earned as of the date of Termination in accordance with the Restricted Stock Purchase Agreement, unless the Committee will determine otherwise. 7. STOCK BONUSES. 7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares (which may consist of Restricted Stock) for services rendered to the Company or any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past services already rendered to the Company, or any Parent or Subsidiary of the Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. A Stock Bonus may be awarded upon satisfaction of such performance goals as are set out in advance in the Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS AGREEMENT") that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. Stock Bonuses may vary from Participant to Participant and between groups of Participants, and may be based upon the achievement of the Company, Parent or Subsidiary and/or individual performance factors or upon such other criteria as the Committee may determine. 7.2 Terms of Stock Bonuses. The Committee will determine the number of Shares to be awarded to the Participant. If the Stock Bonus is being earned upon the satisfaction of performance goals pursuant to a Performance Stock Bonus Agreement, then the Committee will: (a) determine the nature, length and starting date of any Performance Period for each Stock Bonus; (b) select from among the Performance Factors to be used to measure the performance, if any; and (c) determine the number of Shares that may be awarded to the Participant. Prior to the payment of any Stock Bonus, the Committee shall determine the extent to which such Stock Bonuses have been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Stock Bonuses that are subject to different Performance Periods and different performance goals and other criteria. The number of Shares may be fixed or may vary in accordance with such performance goals and criteria as may be determined by the Committee. The Committee may adjust the performance goals applicable to the Stock Bonuses to take into account changes in law and accounting or tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships. 7.3 Form of Payment. The earned portion of a Stock Bonus may be paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee may determine. Payment may be 5 6 Handspring, Inc. 2000 Equity Incentive Plan made in the form of cash or whole Shares or a combination thereof, either in a lump sum payment or in installments, all as the Committee will determine. 8. PAYMENT FOR SHARE PURCHASES. 8.1 Payment. Payment for Shares purchased pursuant to this Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation of indebtedness of the Company to the Participant; (b) by surrender of shares that either: (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares); or (2) were obtained by Participant in the public market; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; (d) by waiver of compensation due or accrued to the Participant for services rendered; (e) with respect only to purchases upon exercise of an Option, and provided that a public market for the Company's stock exists: (1) through a "same day sale" commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD DEALER") whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (2) through a "margin" commitment from the Participant and a NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (f) by any combination of the foregoing. 8.2 Loan Guarantees. The Committee may help the Participant pay for Shares purchased under this Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. 9. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS. 9.1 Types of Options and Shares. Options granted under this Plan and subject to this Section 9 shall be NQSOs. 9.2 Eligibility. Options subject to this Section 9 shall be granted only to Outside Directors. 6 7 Handspring, Inc. 2000 Equity Incentive Plan 9.3 Initial Grant. Each Outside Director who first becomes a member of the Board on or after the Effective Date will automatically be granted an Option for 37,500 Shares (an "INITIAL GRANT") on the date such Outside Director first becomes a member of the Board. Each Outside Director who became a member of the Board prior to the Effective Date and (a) who did not receive a prior Option grant or (b) who is not a representative of a venture capital fund will receive an Initial Grant immediately following the Effective Date. 9.4 Succeeding Grant. Immediately following each Annual Meeting of stockholders, each Outside Director will automatically be granted an Option for 11,250 Shares (a "SUCCEEDING GRANT"), provided the Outside Director is a member of the Board on such date and has served continuously as a member of the Board for a period of at least one year prior to the date of such Annual Meeting. 9.5 Vesting and Exercisability. The date an Outside Director receives an Initial Grant or a Succeeding Grant is referred to in this Plan as the "START DATE" for such Option. (a) Initial Grant. Each Initial Grant will vest and be exercisable as to 25% of the Shares on the first one year anniversary of the Start Date for such Initial Grant, and thereafter as to 2.08333% of the Shares at the end of each full succeeding month, so long as the Outside Director continuously remains a director or a consultant of the Company. (b) Succeeding Grant. Each Succeeding Grant will vest and be exercisable as to 25% of the Shares on the first one year anniversary of the Start Date for such Succeeding Grant, and thereafter as to 2.08333% of the Shares at the end of each full succeeding month, so long as the Outside Director continuously remains a director or a consultant of the Company. Notwithstanding any provision to the contrary, in the event of a Corporate Transaction described in Section 18.1, the vesting of all options granted to Outside Directors pursuant to this Section 9 will accelerate and such options will become exercisable in full prior to the consummation of such event at such times and on such conditions as the Committee determines, and must be exercised, if at all, within three (3) months of the consummation of said event. Any options not exercised within such three-month period shall expire. 9.6 Exercise Price. The exercise price of an Option pursuant to an Initial Grant and Succeeding Grant shall be the Fair Market Value of the Shares, at the time that the Option is granted. 10. WITHHOLDING TAXES. 10.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Awards are to be made in cash, such payment will be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. 10.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose will be made in accordance with the requirements established by the Committee and be in writing in a form acceptable to the Committee. 7 8 Handspring, Inc. 2000 Equity Incentive Plan 11. TRANSFERABILITY. 11.1 Except as otherwise provided in this Section 11, Awards granted under this Plan, and any interest therein, will not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as determined by the Committee and set forth in the Award Agreement with respect to Awards that are not ISOs. 11.2 All Awards other than NQSO's. All Awards other than NQSO's shall be exercisable: (i) during the Participant's lifetime, only by (A) the Participant, or (B) the Participant's guardian or legal representative; and (ii) after Participant's death, by the legal representative of the Participant's heirs or legatees. 11.3 NQSOs. Unless otherwise restricted by the Committee, an NQSO shall be exercisable: (i) during the Participant's lifetime only by (A) the Participant, (B) the Participant's guardian or legal representative, (C) a Family Member of the Participant who has acquired the NQSO by "permitted transfer;" and (ii) after Participant's death, by the legal representative of the Participant's heirs or legatees. "Permitted transfer" means, as authorized by this Plan and the Committee in an NQSO, any transfer effected by the Participant during the Participant's lifetime of an interest in such NQSO but only such transfers which are by gift or domestic relations order. A permitted transfer does not include any transfer for value and neither of the following are transfers for value: (a) a transfer of under a domestic relations order in settlement of marital property rights or (b) a transfer to an entity in which more than fifty percent of the voting interests are owned by Family Members or the Participant in exchange for an interest in that entity. 12. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES. 12.1 Voting and Dividends. No Participant will have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock; provided, further, that the Participant will have no right to retain such stock dividends or stock distributions with respect to Shares that are repurchased at the Participant's Purchase Price or Exercise Price pursuant to Section 12. 12.2 Financial Statements. The Company will provide financial statements to each Participant prior to such Participant's purchase of Shares under this Plan, and to each Participant annually during the period such Participant has Awards outstanding; provided, however, the Company will not be required to provide such financial statements to Participants whose services in connection with the Company assure them access to equivalent information. 12.3 Restrictions on Shares. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement a right to repurchase a portion of or all Unvested Shares held by a Participant following such Participant's Termination at any time within ninety (90) days after the later of Participant's Termination Date and the date Participant purchases Shares under this Plan, for cash and/or cancellation of purchase money indebtedness, at the Participant's Exercise Price or Purchase Price, as the case may be. 13. CERTIFICATES. All certificates for Shares or other securities delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted. 8 9 Handspring, Inc. 2000 Equity Incentive Plan 14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Participant's Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant's obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant's Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid. 15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree. 16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and/or (b) completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so. 17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant's employment or other relationship at any time, with or without cause. 18. CORPORATE TRANSACTIONS. 18.1 Assumption or Replacement of Awards by Successor. Except for automatic grants to Outside Directors pursuant to Section 9 hereof, in the event of (a) a dissolution or liquidation of the Company, (b) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the Awards granted under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all Participants), (c) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company, (d) the sale of substantially all of the assets of the Company, or (e) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the 9 10 Handspring, Inc. 2000 Equity Incentive Plan Company by tender offer or similar transaction (each, a "CORPORATE TRANSACTION"), any or all outstanding Awards may be assumed, converted or replaced by the successor corporation (if any), which assumption, conversion or replacement will be binding on all Participants. However, in the event a Participant is Terminated by the Company without Cause within one (1) year from the date of the Corporate Transaction, then the vesting of all outstanding Awards for such Participant will accelerate as to an additional 25% of the Shares that are unvested on the date of such Termination. In the alternative, the successor or acquiring corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to shareholders (after taking into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding unvested Shares of the Company held by the Participants, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. In the event such successor corporation (if any) refuses to assume or substitute Awards, as provided above, pursuant to a Corporate Transaction described in this Subsection 18.1, such Awards will expire on such Corporate Transaction at such time and on such conditions as the Committee will determine. Notwithstanding anything in this Plan to the contrary, the Committee may, in its sole discretion, provide that the vesting of any or all Awards granted pursuant to this Plan will accelerate upon a Corporate Transaction described in this Section 18. If the Committee exercises such discretion with respect to Options, such Options will become exercisable in full prior to the consummation of such event at such time and on such conditions as the Committee determines, and if such Options are not exercised prior to the consummation of the Corporate Transaction, they shall terminate at such time as determined by the Committee. 18.2 Other Treatment of Awards. Subject to any greater rights granted to Participants under the foregoing provisions of this Section 18, in the event of the occurrence of any Corporate Transaction described in Section 18.1, any outstanding Awards will be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, or sale of assets. 18.3 Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in substitution of such other company's award; or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. 19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective on the date on which the registration statement filed by the Company with the SEC under the Securities Act registering the initial public offering of the Company's Common Stock is declared effective by the SEC (the "EFFECTIVE DATE"). This Plan shall be approved by the stockholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve (12) months before or after the date this Plan is adopted by the Board. Upon the Effective Date, the Committee may grant Awards pursuant to this Plan; provided, however, that: (a) no Option may be exercised prior to initial stockholder approval of this Plan; (b) no Option granted pursuant to an increase in the number of Shares subject to this Plan approved by the Board will be exercised prior to the time such increase has been approved by the stockholders of the Company; (c) in the event that initial stockholder approval is not obtained within the time period provided herein, all Awards granted hereunder shall be cancelled, any Shares issued pursuant to any Awards shall be cancelled and any purchase of Shares issued hereunder shall be rescinded; and (d) in the event that stockholder approval of such increase is not obtained within the time period provided herein, all Awards granted pursuant to such increase will be cancelled, any Shares issued pursuant to any Award granted pursuant to such increase will be cancelled, and any purchase of Shares pursuant to such increase will be rescinded. 10 11 Handspring, Inc. 2000 Equity Incentive Plan 20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided herein, this Plan will terminate ten (10) years from the date this Plan is adopted by the Board or, if earlier, the date of stockholder approval. This Plan and all agreements thereunder shall be governed by and construed in accordance with the laws of the State of California. 21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan; provided, however, that the Board will not, without the approval of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval. 22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 23. DEFINITIONS. As used in this Plan, the following terms will have the following meanings: "AWARD" means any award under this Plan, including any Option, Restricted Stock or Stock Bonus. "AWARD AGREEMENT" means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award. "BOARD" means the Board of Directors of the Company. "CAUSE" means (i) the commission of an act of theft, embezzlement, fraud, dishonesty, (b) a breach of fiduciary duty to the Company or a Parent or Subsidiary of the Company or (c) a failure to materially perform the customary duties of employee's employment. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITTEE" means the Compensation Committee of the Board. "COMPANY" means Handspring, Inc. or any successor corporation. "DISABILITY" means a disability, whether temporary or permanent, partial or total, as determined by the Committee. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXERCISE PRICE" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option. "FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall Street Journal; (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national 11 12 Handspring, Inc. 2000 Equity Incentive Plan securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal; (d) in the case of an Award made on the Effective Date, the price per share at which shares of the Company's Common Stock are initially offered for sale to the public by the Company's underwriters in the initial public offering of the Company's Common Stock pursuant to a registration statement filed with the SEC under the Securities Act; or (e) if none of the foregoing is applicable, by the Committee in good faith. "FAMILY MEMBER" includes any of the following: (a) child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the Participant, including any such person with such relationship to the Participant by adoption; (b) any person (other than a tenant or employee) sharing the Participant's household; (c) a trust in which the persons in (a) and (b) have more than fifty percent of the beneficial interest; (d) a foundation in which the persons in (a) and (b) or the Participant control the management of assets; or (e) any other entity in which the persons in (a) and (b) or the Participant own more than fifty percent of the voting interest. "INSIDER" means an officer or director of the Company or any other person whose transactions in the Company's Common Stock are subject to Section 16 of the Exchange Act. "OPTION" means an award of an option to purchase Shares pursuant to Section 5. "OUTSIDE DIRECTOR" means a member of the Board who is not an employee of the Company or any Parent or Subsidiary. "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "PARTICIPANT" means a person who receives an Award under this Plan. "PERFORMANCE FACTORS" means the factors selected by the Committee from among the following measures to determine whether the performance goals established by the Committee and applicable to Awards have been satisfied: (a) Net revenue and/or net revenue growth; 12 13 Handspring, Inc. 2000 Equity Incentive Plan (b) Earnings before income taxes and amortization and/or earnings before income taxes and amortization growth; (c) Operating income and/or operating income growth; (d) Net income and/or net income growth; (e) Earnings per share and/or earnings per share growth; (f) Total stockholder return and/or total stockholder return growth; (g) Return on equity; (h) Operating cash flow return on income; (i) Adjusted operating cash flow return on income; (j) Economic value added; and (k) Individual confidential business objectives. "PERFORMANCE PERIOD" means the period of service determined by the Committee, not to exceed five years, during which years of service or performance is to be measured for Restricted Stock Awards or Stock Bonuses. "PLAN" means this Handspring, Inc. 2000 Equity Incentive Plan, as amended from time to time. "RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section 6. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARES" means shares of the Company's Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any successor security. "STOCK BONUS" means an award of Shares, or cash in lieu of Shares, pursuant to Section 7. "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "TERMINATION" or "TERMINATED" means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director, consultant, independent contractor, or advisor to the Company or a Parent or Subsidiary of the Company. An employee will not be deemed to have ceased to provide services in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Committee, provided, that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute or unless provided otherwise pursuant to formal policy adopted from time to time by the Company and issued and promulgated to employees in writing. In the case of any employee on an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the employ of the Company or a Subsidiary as it may deem appropriate, except that in no event may an Option be exercised after the expiration of 13 14 Handspring, Inc. 2000 Equity Incentive Plan the term set forth in the Option agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "TERMINATION DATE"). "UNVESTED SHARES" means "Unvested Shares" as defined in the Award Agreement. "VESTED SHARES" means "Vested Shares" as defined in the Award Agreement. 14 EX-10.5 12 EXHIBIT 10.5 1 EXHIBIT 10.5 HANDSPRING, INC. 2000 EMPLOYEE STOCK PURCHASE PLAN As Adopted April 26, 2000 1. ESTABLISHMENT OF PLAN. Handspring, Inc. (the "COMPANY") proposes to grant options for purchase of the Company's Common Stock to eligible employees of the Company and its Participating Subsidiaries (as hereinafter defined) pursuant to this Employee Stock Purchase Plan (this "PLAN"). For purposes of this Plan, "PARENT CORPORATION" and "SUBSIDIARY" shall have the same meanings as "parent corporation" and "subsidiary corporation" in Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the "CODE"). "PARTICIPATING SUBSIDIARIES" are Parent Corporations or Subsidiaries that the Board of Directors of the Company (the "BOARD") designates from time to time as corporations that shall participate in this Plan. The Company intends this Plan to qualify as an "employee stock purchase plan" under Section 423 of the Code (including any amendments to or replacements of such Section), and this Plan shall be so construed. Any term not expressly defined in this Plan but defined for purposes of Section 423 of the Code shall have the same definition herein. A total of 750,000(1) shares of the Company's Common Stock is reserved for issuance under this Plan. In addition, on each January 1, the aggregate number of shares of the Company's Common Stock reserved for issuance under the Plan shall be increased automatically by a number of shares equal to 1% of the total number of outstanding shares of the Company Common Stock on the immediately preceding December 31; provided, that the Board or the Committee may in its sole discretion reduce the amount of the increase in any particular year; and, provided further, that the aggregate number of shares issued over the term of this Plan shall not exceed 22,500,000 shares. Such number shall be subject to adjustments effected in accordance with Section 14 of this Plan. 2. PURPOSE. The purpose of this Plan is to provide eligible employees of the Company and Participating Subsidiaries with a convenient means of acquiring an equity interest in the Company through payroll deductions, to enhance such employees' sense of participation in the affairs of the Company and Participating Subsidiaries, and to provide an incentive for continued employment. 3. ADMINISTRATION. This Plan shall be administered by the Compensation Committee of the Board (the "COMMITTEE"). Subject to the provisions of this Plan and the limitations of Section 423 of the Code or any successor provision in the Code, all questions of interpretation or application of this Plan shall be determined by the Committee and its decisions shall be final and binding upon all participants. Members of the Committee shall receive no compensation for their services in connection with the administration of this Plan, other than standard fees as established from time to time by the Board for services rendered by Board members serving on Board committees. All expenses incurred in connection with the administration of this Plan shall be paid by the Company. 4. ELIGIBILITY. Any employee of the Company or the Participating Subsidiaries is eligible to participate in an Offering Period (as hereinafter defined) under this Plan except the following: (a) employees who are not employed by the Company or a Participating Subsidiary prior to the beginning of such Offering Period or prior to such other time period as specified by the Committee, except that employees who are employed on the Effective Date of the Registration Statement filed by the Company with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT") registering the initial public offering of the Company's Common Stock shall be eligible to participate in the first Offering Period under the Plan; (b) employees who are customarily employed for twenty (20) hours or less per week; (c) employees who are customarily employed for five (5) months or less in a calendar year; (1) Pursuant to the resolutions under which the Plan was adopted, this number reflects the 3-for-2 stock split which became effective in May 2000. 2 Handspring, Inc. 2000 Employee Stock Purchase Plan (d) employees who, together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries or who, as a result of being granted an option under this Plan with respect to such Offering Period, would own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries; and (e) individuals who provide services to the Company or any of its Participating Subsidiaries as independent contractors who are reclassified as common law employees for any reason except for federal income and employment tax purposes. 5. OFFERING DATES. The offering periods of this Plan (each, an "OFFERING PERIOD") shall be of twenty-four (24) months duration commencing on February 1 and August 1 of each year and ending on January 31 and July 31 of each year; provided, however, that notwithstanding the foregoing, the first such Offering Period shall commence on the first business day on which price quotations for the Company's Common Stock are available on the Nasdaq National Market (the "FIRST OFFERING DATE") and shall end on July 31, 2002. Except for the first Offering Period, each Offering Period shall consist of four (4) six month purchase periods (individually, a "PURCHASE PERIOD") during which payroll deductions of the participants are accumulated under this Plan. The first Offering Period shall consist of no more than five and no fewer than three Purchase Periods, any of which may be greater or less than six months as determined by the Committee. The first business day of each Offering Period is referred to as the "OFFERING DATE". The last business day of each Purchase Period is referred to as the "PURCHASE DATE". The Committee shall have the power to change the Offering Dates, the Purchase Dates and the duration of Offering Periods or Purchase Periods without stockholder approval if such change is announced prior to the relevant Offering Period, or prior to such other time period as specified by the Committee. 6. PARTICIPATION IN THIS PLAN. Eligible employees may become participants in an Offering Period under this Plan on the first Offering Date after satisfying the eligibility requirements by delivering a subscription agreement to the Company prior to such Offering Date, or such other time period as specified by the Committee. Notwithstanding the foregoing, the Committee may set a later time for filing the subscription agreement authorizing payroll deductions for all eligible employees with respect to a given Offering Period. An eligible employee who does not deliver a subscription agreement to the Company by such date after becoming eligible to participate in such Offering Period shall not participate in that Offering Period or any subsequent Offering Period unless such employee enrolls in this Plan by filing a subscription agreement with the Company prior to such Offering Date, or such other time period as specified by the Committee. Once an employee becomes a participant in an Offering Period, such employee will automatically participate in the Offering Period commencing immediately following the last day of the prior Offering Period unless the employee withdraws or is deemed to withdraw from this Plan or terminates further participation in the Offering Period as set forth in Section 11 below. Such participant is not required to file any additional subscription agreement in order to continue participation in this Plan. 7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in this Plan with respect to an Offering Period will constitute the grant (as of the Offering Date) by the Company to such employee of an option to purchase on the Purchase Date up to that number of shares of Common Stock of the Company determined by dividing (a) the amount accumulated in such employee's payroll deduction account during such Purchase Period by (b) the lower of (i) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Offering Date (but in no event less than the par value of a share of the Company's Common Stock), or (ii) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Purchase Date (but in no event less than the par value of a share of the Company's Common Stock), provided, however, that the number of shares of the Company's Common Stock subject to any option granted pursuant to this Plan shall not exceed the lesser of (x) the maximum number of shares set by the Committee pursuant to Section 10(c) below with respect to the applicable Purchase Date, or (y) the maximum number of shares which may be purchased pursuant to Section 10(b) below with respect to the applicable Purchase Date. The fair market value of a share of the Company's Common Stock shall be determined as provided in Section 8 below. 2 3 Handspring, Inc. 2000 Employee Stock Purchase Plan 8. PURCHASE PRICE. The purchase price per share at which a share of Common Stock will be sold in any Offering Period shall be eighty-five percent (85%) of the lesser of: (a) The fair market value on the Offering Date; or (b) The fair market value on the Purchase Date. For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its closing price on the Nasdaq National Market on the date of determination as reported in The Wall Street Journal; (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal; (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal; or (d) if none of the foregoing is applicable, by the Board in good faith, which in the case of the First Offering Date will be the price per share at which shares of the Company's Common Stock are initially offered for sale to the public by the Company's underwriters in the initial public offering of the Company's Common Stock pursuant to a registration statement filed with the SEC under the Securities Act. 9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF SHARES. (a) The purchase price of the shares is accumulated by regular payroll deductions made during each Offering Period. The deductions are made as a percentage of the participant's compensation in one percent (1%) increments not less than one percent (1%), nor greater than ten percent (10%) or such lower or higher limit set by the Committee but not to exceed fifteen percent (15%). Compensation shall mean all W-2 cash compensation, including, but not limited to, base salary, wages, commissions, overtime, shift premiums and bonuses, plus draws against commissions, provided, however, that for purposes of determining a participant's compensation, any election by such participant to reduce his or her regular cash remuneration under Sections 125 or 401(k) of the Code shall be treated as if the participant did not make such election. Payroll deductions shall commence on the first payday of the Offering Period and shall continue to the end of the Offering Period unless sooner altered or terminated as provided in this Plan. (b) A participant may increase or decrease the rate of payroll deductions during an Offering Period by filing with the Company a new authorization for payroll deductions, in which case the new rate shall become effective for the next payroll period commencing after the Company's receipt of the authorization and shall continue for the remainder of the Offering Period unless changed as described below. Such change in the rate of payroll deductions may be made at any time during an Offering Period, but not more than one (1) change may be made effective during any Purchase Period. A participant may increase or decrease the rate of payroll deductions for any subsequent Offering Period by filing with the Company a new authorization for payroll deductions prior to the beginning of such Offering Period, or prior to such other time period as specified by the Committee. (c) A participant may reduce his or her payroll deduction percentage to zero during an Offering Period by filing with the Company a request for cessation of payroll deductions. Such reduction shall be effective beginning with the next payroll period after the Company's receipt of the request and no further payroll deductions will be made for the duration of the Offering Period. Payroll deductions credited to the participant's account prior to the effective date of the request shall be used to purchase shares of Common Stock of the Company in accordance with Section (e) below. A participant may not resume making payroll deductions during the Offering Period in which he or she reduced his or her payroll deductions to zero. 3 4 Handspring, Inc. 2000 Employee Stock Purchase Plan (d) All payroll deductions made for a participant are credited to his or her account under this Plan and are deposited with the general funds of the Company. No interest accrues on the payroll deductions. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. (e) On each Purchase Date, so long as this Plan remains in effect and provided that the participant has not submitted a signed and completed withdrawal form before that date which notifies the Company that the participant wishes to withdraw from that Offering Period under this Plan and have all payroll deductions accumulated in the account maintained on behalf of the participant as of that date returned to the participant, the Company shall apply the funds then in the participant's account to the purchase of whole shares of Common Stock reserved under the option granted to such participant with respect to the Offering Period to the extent that such option is exercisable on the Purchase Date. The purchase price per share shall be as specified in Section 8 of this Plan. Any cash remaining in a participant's account after such purchase of shares shall be refunded to such participant in cash, without interest; provided, however that any amount remaining in such participant's account on a Purchase Date which is less than the amount necessary to purchase a full share of Common Stock of the Company shall be carried forward, without interest, into the next Purchase Period or Offering Period, as the case may be. In the event that this Plan has been oversubscribed, all funds not used to purchase shares on the Purchase Date shall be returned to the participant, without interest. No Common Stock shall be purchased on a Purchase Date on behalf of any employee whose participation in this Plan has terminated prior to such Purchase Date. (f) As promptly as practicable after the Purchase Date, the Company shall issue shares for the participant's benefit representing the shares purchased upon exercise of his or her option. (g) During a participant's lifetime, his or her option to purchase shares hereunder is exercisable only by him or her. The participant will have no interest or voting right in shares covered by his or her option until such option has been exercised. 10. LIMITATIONS ON SHARES TO BE PURCHASED. (a) No participant shall be entitled to purchase stock under this Plan at a rate which, when aggregated with his or her rights to purchase stock under all other employee stock purchase plans of the Company or any Subsidiary, exceeds $25,000 in fair market value, determined as of the Offering Date (or such other limit as may be imposed by the Code) for each calendar year in which the employee participates in this Plan. The Company shall automatically suspend the payroll deductions of any participant as necessary to enforce such limit provided that when the Company automatically resumes such payroll deductions, the Company must apply the rate in effect immediately prior to such suspension. (b) No more than two hundred percent (200%) of the number of shares determined by using eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Offering Date as the denominator may be purchased by a participant on any single Purchase Date. (c) No participant shall be entitled to purchase more than the Maximum Share Amount (as defined below) on any single Purchase Date. Prior to the commencement of any Offering Period or prior to such time period as specified by the Committee, the Committee may, in its sole discretion, set a maximum number of shares which may be purchased by any employee at any single Purchase Date (hereinafter the "MAXIMUM SHARE AMOUNT"). Until otherwise determined by the Committee, there shall be no Maximum Share Amount. In no event shall the Maximum Share Amount exceed the amounts permitted under Section 10(b) above. If a new Maximum Share Amount is set, then all participants must be notified of such Maximum Share Amount prior to the commencement of the next Offering Period. The Maximum Share Amount shall continue to apply with respect to all succeeding Purchase Dates and Offering Periods unless revised by the Committee as set forth above. (d) If the number of shares to be purchased on a Purchase Date by all employees participating in this Plan exceeds the number of shares then available for issuance under this Plan, then the Company will make a 4 5 Handspring, Inc. 2000 Employee Stock Purchase Plan pro rata allocation of the remaining shares in as uniform a manner as shall be reasonably practicable and as the Committee shall determine to be equitable. In such event, the Company shall give written notice of such reduction of the number of shares to be purchased under a participant's option to each participant affected. (e) Any payroll deductions accumulated in a participant's account which are not used to purchase stock due to the limitations in this Section 10 shall be returned to the participant as soon as practicable after the end of the applicable Purchase Period, without interest. 11. WITHDRAWAL. (a) Each participant may withdraw from an Offering Period under this Plan by signing and delivering to the Company a written notice to that effect on a form provided for such purpose. Such withdrawal may be elected at any time prior to the end of an Offering Period, or such other time period as specified by the Committee. (b) Upon withdrawal from this Plan, the accumulated payroll deductions shall be returned to the withdrawn participant, without interest, and his or her interest in this Plan shall terminate. In the event a participant voluntarily elects to withdraw from this Plan, he or she may not resume his or her participation in this Plan during the same Offering Period, but he or she may participate in any Offering Period under this Plan which commences on a date subsequent to such withdrawal by filing a new authorization for payroll deductions in the same manner as set forth in Section 6 above for initial participation in this Plan. (c) If the Fair Market Value on the first day of the current Offering Period in which a participant is enrolled is higher than the Fair Market Value on the first day of any subsequent Offering Period, the Company will automatically enroll such participant in the subsequent Offering Period. Any funds accumulated in a participant's account prior to the first day of such subsequent Offering Period will be applied to the purchase of shares on the Purchase Date immediately prior to the first day of such subsequent Offering Period, if any. 12. TERMINATION OF EMPLOYMENT. Termination of a participant's employment for any reason, including retirement, death or the failure of a participant to remain an eligible employee of the Company or of a Participating Subsidiary, immediately terminates his or her participation in this Plan. In such event, the payroll deductions credited to the participant's account will be returned to him or her or, in the case of his or her death, to his or her legal representative, without interest. For purposes of this Section 12, an employee will not be deemed to have terminated employment or failed to remain in the continuous employ of the Company or of a Participating Subsidiary in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided that such leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by contract or statute. 13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest in this Plan is terminated by withdrawal, termination of employment or otherwise, or in the event this Plan is terminated by the Board, the Company shall deliver to the participant all payroll deductions credited to such participant's account. No interest shall accrue on the payroll deductions of a participant in this Plan. 14. CAPITAL CHANGES. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each option under this Plan which has not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under this Plan but have not yet been placed under option (collectively, the "RESERVES"), as well as the price per share of Common Stock covered by each option under this Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Common Stock of the Company resulting from a stock split or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of issued and outstanding shares of Common Stock effected without receipt of any consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Committee, whose determination shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no 5 6 Handspring, Inc. 2000 Employee Stock Purchase Plan adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. In the event of the proposed dissolution or liquidation of the Company, the Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Committee. The Committee may, in the exercise of its sole discretion in such instances, declare that this Plan shall terminate as of a date fixed by the Committee and give each participant the right to purchase shares under this Plan prior to such termination. In the event of (i) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the options under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all participants), (ii) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company, (iii) the sale of all or substantially all of the assets of the Company or (iv) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction, the Plan will continue with regard to Offering Periods that commenced prior to the closing of the proposed transaction and shares will be purchased based on the Fair Market Value of the surviving corporation's stock on each Purchase Date, unless otherwise provided by the Committee consistent with pooling of interests accounting treatment. The Committee may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, or in the event of the Company being consolidated with or merged into any other corporation. 15. NONASSIGNABILITY. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under this Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 22 below) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be void and without effect. 16. REPORTS. Individual accounts will be maintained for each participant in this Plan. Each participant shall receive promptly after the end of each Purchase Period a report of his or her account setting forth the total payroll deductions accumulated, the number of shares purchased, the per share price thereof and the remaining cash balance, if any, carried forward to the next Purchase Period or Offering Period, as the case may be. 17. NOTICE OF DISPOSITION. Each participant shall notify the Company in writing if the participant disposes of any of the shares purchased in any Offering Period pursuant to this Plan if such disposition occurs within two (2) years from the Offering Date or within one (1) year from the Purchase Date on which such shares were purchased (the "NOTICE PERIOD"). The Company may, at any time during the Notice Period, place a legend or legends on any certificate representing shares acquired pursuant to this Plan requesting the Company's transfer agent to notify the Company of any transfer of the shares. The obligation of the participant to provide such notice shall continue notwithstanding the placement of any such legend on the certificates. 18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of any option hereunder shall confer any right on any employee to remain in the employ of the Company or any Participating Subsidiary, or restrict the right of the Company or any Participating Subsidiary to terminate such employee's employment. 19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have equal rights and privileges with respect to this Plan so that this Plan qualifies as an "employee stock purchase plan" within the meaning of Section 423 or any successor provision of the Code and the related regulations. Any provision of this Plan which is inconsistent with Section 423 or any successor provision of the Code shall, without further act or amendment by the 6 7 Handspring, Inc. 2000 Employee Stock Purchase Plan Company, the Committee or the Board, be reformed to comply with the requirements of Section 423. This Section 19 shall take precedence over all other provisions in this Plan. 20. NOTICES. All notices or other communications by a participant to the Company under or in connection with this Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the Board, this Plan will become effective on the First Offering Date (as defined above). This Plan shall be approved by the stockholders of the Company, in any manner permitted by applicable corporate law, within twelve (12) months before or after the date this Plan is adopted by the Board. No purchase of shares pursuant to this Plan shall occur prior to such stockholder approval. This Plan shall continue until the earlier to occur of (a) termination of this Plan by the Board (which termination may be effected by the Board at any time), (b) issuance of all of the shares of Common Stock reserved for issuance under this Plan, or (c) ten (10) years from the adoption of this Plan by the Board. 22. DESIGNATION OF BENEFICIARY. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under this Plan in the event of such participant's death subsequent to the end of an Purchase Period but prior to delivery to him of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under this Plan in the event of such participant's death prior to a Purchase Date. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under this Plan who is living at the time of such participant's death, the Company shall deliver such shares or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or automated quotation system upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. 24. APPLICABLE LAW. The Plan shall be governed by the substantive laws (excluding the conflict of laws rules) of the State of California. 25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time amend, terminate or extend the term of this Plan, except that any such termination cannot affect options previously granted under this Plan, nor may any amendment make any change in an option previously granted which would adversely affect the right of any participant, nor may any amendment be made without approval of the stockholders of the Company obtained in accordance with Section 21 above within twelve (12) months of the adoption of such amendment (or earlier if required by Section 21) if such amendment would: (a) increase the number of shares that may be issued under this Plan; or (b) change the designation of the employees (or class of employees) eligible for participation in this Plan. Notwithstanding the foregoing, the Board may make such amendments to the Plan as the Board determines to be advisable, if the continuation of the Plan or any Offering Period would result in financial 7 8 Handspring, Inc. 2000 Employee Stock Purchase Plan accounting treatment for the Plan that is different from the financial accounting treatment in effect on the date this Plan is adopted by the Board. 8 EX-10.14 13 EXHIBIT 10.14 1 EXHIBIT 10.14 BASIC LEASE INFORMATION INDUSTRIAL NET LEASE DATE: May 8, 2000 (same as date in first paragraph of Lease) TENANT: Handspring, Inc. a Delaware corporation TENANT'S NOTICE ADDRESS: 380 North Bernardo Avenue, Mountain View, CA TENANT'S BILLING ADDRESS: 380 North Bernardo Avenue, Mountain View, CA TENANT CONTACT: Seth Henderson PHONE NUMBER: (650) 230-5000 FAX NUMBER: (650) 230-2100 LANDLORD: Spieker Properties, L.P., a California limited partnership LANDLORD'S NOTICE ADDRESS: 2180 Sand Hill Road, Suite 100, Menlo Park, CA 94025 LANDLORD'S REMITTANCE ADDRESS: Spieker Properties P.O. Box 45587 Dept. 10792 San Francisco, CA 94145-0587 PROJECT DESCRIPTION: That one (1) building commonly known as 380 North Bernardo Avenue in Mountain View, California. BUILDING DESCRIPTION: Approximately 28,069 rentable square feet at 380 North Bernardo Avenue in Mountain View, CA 94043. PREMISES: Approximately 28,069 rentable square feet at 380 North Bernardo in Mountain View, CA 94043. The Premises is outlined in red on Exhibit B PERMITTED USE: General office use, light research and development, storage and shipping of small volumes of product and legal related uses in compliance with all applicable laws and ordinances of the City of Mountain View. PARKING DENSITY: 3.3 spaces per 1,000 rentable square feet of the Premises SCHEDULED TERM COMMENCEMENT DATE: July 1, 2000 SCHEDULED LENGTH OF TERM: Ninety-six (96) months SCHEDULED TERM EXPIRATION DATE: June 30, 2008 RENT: BASE RENT: $140,345.00 per month (subject to adjustment as provided in Paragraph 39.A. hereof) ESTIMATED FIRST YEAR OPERATING EXPENSES: $10,063.20 per month SECURITY DEPOSIT: $2,526,210.00 ($421,035.00 to be held in cash and $2,105,175.00 to be held in the form of a Letter of Credit-see Paragraphs 19 and 39.B) TENANT'S NAICS CODE: 5112 TENANT'S PROPORTIONATE SHARE: OF BUILDING: 100% OF PROJECT: 100%
The foregoing Basic Lease Information is incorporated into and made a part of this Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information above and shall be construed to incorporate all of the terms provided under the particular Lease paragraph pertaining to such information. In the event of any conflict between the Basic Lease Information and the Lease, the latter shall control. 1 2 LANDLORD TENANT Spieker Properties, L.P., Handspring, Inc. a California limited partnership a Delaware corporation By: Spieker Properties, Inc., a Maryland corporation, By: /s/ BERNARD J. WHITNEY its general partner ------------------------------- Bernard J. Whitney Its: Chief Financial Officer By: /s/ ERIC T. LUHRS -------------------------- Eric T. Luhrs Its: Vice President 2 3 TABLE OF CONTENTS
PAGE Basic Lease Information..................................................................1 Table of Contents........................................................................2 1. Premises.................................................................................4 2. Possession and Lease Commencement........................................................4 3. Term.....................................................................................4 4. Use......................................................................................4 5. Rules and Regulations....................................................................5 6. Rent.....................................................................................5 7. Operating Expenses.......................................................................5 8. Insurance and Indemnification............................................................7 9. Waiver of Subrogation....................................................................8 10. Landlord's Repairs and Maintenance.......................................................8 11. Tenant's Repairs and Maintenance.........................................................8 12. Alterations..............................................................................9 13. Signs....................................................................................9 14. Inspection/Posting Notices..............................................................10 15. Services and Utilities..................................................................10 16. Subordination...........................................................................10 17. Financial Statements....................................................................11 18. Estoppel Certificate....................................................................11 19. Security Deposit........................................................................11 20. Limitation of Tenant's Remedies.........................................................11 21. Assignment and Subletting...............................................................11 22. Authority of Tenant.....................................................................13 23. Condemnation............................................................................13 24. Casualty Damage.........................................................................13 25. Holding Over............................................................................14 26. Default.................................................................................14 27. Liens...................................................................................15 28. Substitution............................................................................16 29. Transfers by Landlord...................................................................16 30. Right of Landlord to Perform Tenant's Covenants.........................................16 31. Waiver..................................................................................16 32. Notices.................................................................................16 33. Attorney's Fees.........................................................................16 34. Successors and Assigns..................................................................16 35. Force Majeure...........................................................................16 36. Surrender of Premises...................................................................17 37. Hazardous Materials ....................................................................17 38. Miscellaneous...........................................................................17 39. Additional Provisions...................................................................18 40. Jury Trial Waiver.......................................................................20 Signatures..............................................................................21 Exhibits: Exhibit A............................................................Rules and Regulations Exhibit B........................................................................Site Plan Exhibit C......................................................Lease Improvement Agreement Exhibit D................................................Hazardous Materials Questionnaire
Additional Exhibits as Required 3 4 LEASE THIS LEASE is made as of the 24th day of April, 2000, by and between Spieker Properties, L.P., a California limited partnership (hereinafter called "LANDLORD"), and Handspring, Inc., a Delaware corporation (hereinafter called "TENANT"). 1. PREMISES Landlord leases to Tenant and Tenant leases from Landlord, upon the terms and conditions hereinafter set forth, those premises (the "PREMISES") outlined in red on EXHIBIT B and described in the Basic Lease Information. The Premises shall be all or part of a building (the "BUILDING") and of a project (the "PROJECT"), which may consist of more than one building and additional facilities, as described in the Basic Lease Information. The Building and Project are outlined in blue and green respectively on EXHIBIT B. Landlord and Tenant acknowledge that physical changes may occur from time to time in the Premises, Building or Project, and that the number of buildings and additional facilities which constitute the Project may change from time to time, which may result in an adjustment in Tenant's Proportionate Share, as defined in the Basic Lease Information, as provided in Paragraph 7.A. 2. POSSESSION AND LEASE COMMENCEMENT A. EXISTING IMPROVEMENTS. If this Lease pertains to a Premises in which the interior improvements have already been constructed ("EXISTING IMPROVEMENTS"), the provisions of this Paragraph 2.A. shall apply and the term commencement date ("TERM COMMENCEMENT DATE") shall be the earlier of the date on which : (1) Tenant takes possession of some or all of the Premises; or (2) Landlord notifies Tenant that Tenant may occupy the Premises. If for any reason Landlord cannot deliver possession of the Premises to Tenant on the scheduled Term Commencement Date, Landlord shall not be subject to any liability therefor, nor shall Landlord be in default hereunder nor shall such failure affect the validity of this Lease, and Tenant agrees to accept possession of the Premises at such time as Landlord is able to deliver the same , which date shall then be deemed the Term Commencement Date. Tenant shall not be liable for any Rent (defined below) for any period prior to the Term Commencement Date. Tenant acknowledges that Tenant has inspected and accepts the Premises in their present condition, broom clean, "as is," and as suitable for, the Permitted Use (as defined below), and for Tenant's intended operations in the Premises. Tenant agrees that the Premises and other improvements are in good and satisfactory condition as of when possession was taken. Tenant further acknowledges that no representations as to the condition or repair of the Premises nor promises to alter, remodel or improve the Premises have been made by Landlord or any agents of Landlord unless such are expressly set forth in this Lease. Upon Landlord's request, Tenant shall promptly execute and return to Landlord a "Start-Up Letter" in which Tenant shall agree, among other things, to acceptance of the Premises and to the determination of the Term Commencement Date, in accordance with the terms of this Lease, but Tenant's failure or refusal to do so shall not negate Tenant's acceptance of the Premises or affect determination of the Term Commencement Date. B. [INTENTIONALLY DELETED] 3. TERM The term of this Lease (the "TERM") shall commence on the Term Commencement Date and continue in full force and effect for the number of months specified as the Length of Term in the Basic Lease Information or until this Lease is terminated as otherwise provided herein. If the Term Commencement Date is a date other than the first day of the calendar month, the Term shall be the number of months of the Length of Term in addition to the remainder of the calendar month following the Term Commencement Date. 4. USE A. GENERAL. Tenant shall use the Premises for the permitted use specified in the Basic Lease Information ("PERMITTED USE") and for no other use or purpose. Tenant shall control Tenant's employees, agents, customers, visitors, invitees, licensees, contractors, assignees and subtenants (collectively, "TENANT'S PARTIES") in such a manner that Tenant and Tenant's Parties cumulatively do not exceed the parking density specified in the Basic Lease Information (the "PARKING DENSITY") at any time. So long as Tenant is occupying the Premises, Tenant and Tenant's Parties shall have the nonexclusive right to use, in common with other parties occupying the Building or Project, the parking areas, driveways and other common areas of the Building and Project, subject to the terms of this Lease and such rules and regulations as Landlord may from time to time prescribe. Landlord reserves the right, without notice or liability to Tenant, and without the same constituting an actual or constructive eviction, to alter or modify the common areas from time to time, including the location and configuration thereof, and the amenities and facilities which Landlord may determine to provide from time to time; provided, however, that in such event Landlord shall use commercially reasonable efforts to minimize any interference with the ongoing operations of Tenant. B. LIMITATIONS. Tenant shall not permit any odors, smoke, dust, gas, substances, noise or vibrations to emanate from the Premises or from any portion of the common areas as a result of Tenant's or any Tenant's Party's use thereof, nor take any action which would constitute a nuisance or would disturb, obstruct or endanger any other tenants or occupants of the Building or Project or elsewhere, or interfere with their use of their respective premises or common areas. Storage outside the Premises of materials, vehicles or any other items is prohibited. Tenant shall not use or allow the Premises to be used for any immoral, improper or unlawful purpose, nor shall Tenant cause or maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer the commission of any waste in, on or about the Premises. Tenant shall not allow any sale by auction upon the Premises, or place any loads upon the floors, walls or ceilings which could endanger the structure, or place any harmful substances in the drainage system of the Building or Project. No waste, materials or refuse shall be dumped upon or permitted to remain outside the Premises except in trash containers placed inside exterior enclosures designated for that purpose by Landlord. Landlord shall not be responsible to Tenant for the non-compliance by any other tenant or occupant of the Building or Project with any of the above-referenced rules or any other terms or provisions of such tenant's or occupant's lease or other contract. C. COMPLIANCE WITH REGULATIONS. By entering the Premises, Tenant accepts the Premises in the condition existing as of the date of such entry. Tenant shall at its sole cost and expense strictly comply with all existing or future applicable municipal, state and federal and other governmental statutes, rules, requirements, regulations, laws and ordinances, including zoning ordinances and regulations, and covenants, easements and restrictions of record governing and relating to the use, occupancy or possession of the Premises, to Tenant's use of the common areas, or to the use, storage, generation or disposal of Hazardous Materials (hereinafter defined) (collectively "REGULATIONS"). Tenant shall at its sole cost and expense obtain any and all licenses or permits necessary for Tenant's use of the Premises. Tenant shall at its sole cost and expense promptly comply with the requirements of any board of fire underwriters or other similar body now or hereafter constituted. Tenant shall not do or permit anything to be done in, on, under or about the Project or bring or keep anything which will in any way increase the rate of any insurance upon the Premises, Building or Project or upon any contents therein or 4 5 cause a cancellation of said insurance or otherwise affect said insurance in any manner. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord harmless from and against any loss, cost, expense, damage, attorneys' fees or liability arising out of the failure of Tenant to comply with any Regulation. Tenant's obligations pursuant to the foregoing indemnity shall survive the expiration or earlier termination of this Lease. 5. RULES AND REGULATIONS Tenant shall faithfully observe and comply with the building rules and regulations attached hereto as EXHIBIT A and any other rules and regulations and any reasonable modifications or additions thereto which Landlord may from time to time prescribe in writing for the purpose of maintaining the proper care, cleanliness, safety, traffic flow and general order of the Premises or the Building or Project. Tenant shall cause Tenant's Parties to comply with such rules and regulations. Landlord shall not be responsible to Tenant for the non-compliance by any other tenant or occupant of the Building or Project with any of such rules and regulations, any other tenant's or occupant's lease or any Regulations. 6. RENT A. BASE RENT. Tenant shall pay to Landlord and Landlord shall receive, without notice or demand throughout the Term, Base Rent as specified in the Basic Lease Information, payable in monthly installments in advance on or before the first day of each calendar month, in lawful money of the United States, without deduction or offset whatsoever, at the Remittance Address specified in the Basic Lease Information or to such other place as Landlord may from time to time designate in writing. Base Rent for the first full month of the Term shall be paid by Tenant upon Tenant's execution of this Lease. If the obligation for payment of Base Rent commences on a day other than the first day of a month, then Base Rent shall be prorated and the prorated installment shall be paid on the first day of the calendar month next succeeding the Term Commencement Date. The Base Rent payable by Tenant hereunder is subject to adjustment as provided elsewhere in this Lease, as applicable. As used herein, the term "Base Rent" shall mean the Base Rent specified in the Basic Lease Information as it may be so adjusted from time to time. B. ADDITIONAL RENT. All monies other than Base Rent required to be paid by Tenant hereunder, including, but not limited to, Tenant's Proportionate Share of Operating Expenses, as specified in Paragraph 7 of this Lease, charges to be paid by Tenant under Paragraph 15, the interest and late charge described in Paragraphs 26.D. and E., and any monies spent by Landlord pursuant to Paragraph 30, shall be considered additional rent ("ADDITIONAL RENT"). "RENT" shall mean Base Rent and Additional Rent. 7. OPERATING EXPENSES A. OPERATING EXPENSES. In addition to the Base Rent required to be paid hereunder, Tenant shall pay as Additional Rent, Tenant's Proportionate Share of the Building and/or Project (as applicable), as defined in the Basic Lease Information, of Operating Expenses (defined below) in the manner set forth below. Tenant shall pay the applicable Tenant's Proportionate Share of each such Operating Expenses. Landlord and Tenant acknowledge that if the number of buildings which constitute the Project increases or decreases, or if physical changes are made to the Premises, Building or Project or the configuration of any thereof, Landlord may at its discretion reasonably adjust Tenant's Proportionate Share of the Building or Project to reflect the change. Landlord's determination of Tenant's Proportionate Share of the Building and of the Project shall be conclusive so long as it is reasonably and consistently applied. "OPERATING EXPENSES" shall mean all expenses and costs of every kind and nature which Landlord shall pay or become obligated to pay, because of or in connection with the ownership, management, maintenance, repair, preservation, replacement and operation of the Building or Project and its supporting facilities and such additional facilities now and in subsequent years as may be determined by Landlord to be necessary or desirable to the Building and/or Project (as determined in a reasonable manner) other than those expenses and costs which are specifically attributable to Tenant or which are expressly made the financial responsibility of Landlord or specific tenants of the Building or Project pursuant to this Lease. Except as expressly set forth herein, Operating Expenses shall include, but are not limited to, the following: (1) TAXES. All real property taxes and assessments, possessory interest taxes, sales taxes, personal property taxes, business or license taxes or fees, gross receipts taxes, service payments in lieu of such taxes or fees, annual or periodic license or use fees, excises, transit charges, and other impositions, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind (including fees "in-lieu" of any such tax or assessment) which are now or hereafter assessed, levied, charged, confirmed, or imposed by any public authority upon the Building or Project, its operations or the Rent (or any portion or component thereof), or any tax, assessment or fee imposed in substitution, partially or totally, of any of the above. Operating Expenses shall also include any taxes, assessments, reassessments, or other fees or impositions with respect to the development, leasing, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, Building or Project or any portion thereof, including, without limitation, by or for Tenant, and all increases therein or reassessments thereof whether the increases or reassessments result from increased rate and/or valuation (whether upon a transfer of the Building or Project or any portion thereof or any interest therein or for any other reason). Operating Expenses shall not include inheritance or estate taxes imposed upon or assessed against the interest of any person in the Project, or taxes computed upon the basis of the net income of any owners of any interest in the Project. If it shall not be lawful for Tenant to reimburse Landlord for all or any part of such taxes, the monthly rental payable to Landlord under this Lease shall be revised to net Landlord the same net rental after imposition of any such taxes by Landlord as would have been payable to Landlord prior to the payment of any such taxes. (2) INSURANCE. All insurance premiums and costs, including, but not limited to, any deductible amounts, premiums and other costs of insurance incurred by Landlord, including for the insurance coverage set forth in Paragraph 8.A. herein. (3) COMMON AREA MAINTENANCE. (a) Except as expressly set forth herein, repairs, replacements, and general maintenance of and for the Building and Project and public and common areas and facilities of and comprising the Building and Project, including, but not limited to, the roof and roof membrane, elevators, mechanical rooms, alarm systems, pest extermination, landscaped areas, parking and service areas, driveways, sidewalks, truck staging areas, rail spur areas, fire sprinkler systems, sanitary and storm sewer lines, utility services, heating/ventilation/air conditioning systems, electrical, mechanical or other systems, telephone equipment and wiring servicing, plumbing, lighting, and any other items or areas which affect the operation or appearance of the Building or Project, which determination shall be at Landlord's discretion, except for: those items to the extent paid for by the proceeds of insurance; and those items attributable solely or jointly to specific tenants of the Building or Project. (b) Repairs, replacements, and general maintenance shall include the cost of any improvements made to or assets acquired for the Project or Building that in Landlord's reasonably exercised discretion may reduce any other Operating Expenses, including present or future repair work, are reasonably necessary for the health and safety of the occupants of the Building or Project, or for the operation of the Building systems, services and equipment, or are required to comply with any Regulation, such costs or allocable portions thereof to be amortized over such reasonable period as Landlord shall determine, together with interest on the unamortized balance at the publicly announced "prime rate" charged by Wells Fargo Bank, N.A. (San Francisco) or its successor at the time such improvements or capital assets 5 6 are constructed or acquired, plus two (2) percentage points, or in the absence of such prime rate, then at the U.S. Treasury six-month market note (or bond, if so designated) rate as published by any national financial publication selected by Landlord, plus four (4) percentage points, but in no event more than the maximum rate permitted by law, plus reasonable financing charges. Notwithstanding anything to the contrary herein, should Tenant be responsible for costs of a capital nature occasioned by Paragraph 4.C and such costs are not triggered by Tenants use or occupancy of the Premises, then those costs shall be amortized in accordance with the provisions of this Paragraph 7.A.3(b). (c) Payment under or for any easement, license, permit, operating agreement, declaration, restrictive covenant or instrument relating to the Building or Project. (d) All expenses and rental related to services and costs of supplies, materials and equipment used in operating, managing and maintaining the Premises, Building and Project, the equipment therein and the adjacent sidewalks, driveways, parking and service areas, including, without limitation, expenses related to service agreements regarding security, fire and other alarm systems, janitorial services to the extent not addressed in Paragraph 11 hereof, window cleaning, elevator maintenance, Building exterior maintenance, landscaping and expenses related to the administration, management and operation of the Project, including without limitation salaries, wages and benefits and management office rent. (e) The cost of supplying any services and utilities which benefit all or a portion of the Premises, Building or Project to the extent not addressed in Paragraph 15 hereof. (f) Legal expenses and the cost of audits by certified public accountants; provided, however, that legal expenses chargeable as Operating Expenses shall not include the cost of negotiating leases, collecting rents, evicting tenants nor shall it include costs incurred in legal proceedings with or against any tenant or to enforce the provisions of any lease. (g) A management and accounting cost recovery fee equal to two and one-half percent (2.5%) of Base Rent and Operating Expenses. If the rentable area of the Building and/or Project is not fully occupied during any fiscal year of the Term as determined by Landlord, an adjustment shall be made in Landlord's discretion in computing the Operating Expenses for such year so that Tenant pays an equitable portion of all variable items (e.g., utilities, janitorial services and other component expenses that are affected by variations in occupancy levels) of Operating Expenses, as reasonably determined by Landlord; provided, however, that in no event shall Landlord be entitled to collect in excess of one hundred percent (100%) of the total Operating Expenses from all of the tenants in the Building or Project, as the case may be. Notwithstanding anything in the definition of Operating Expenses in this Lease to the contrary, Operating Expenses shall not include, nor shall Tenant be responsible in any manner for paying for: (i) the cost of providing tenant improvements or other specific costs incurred for the account of, separately billed to and paid by specific tenants of the Building or Project, the initial construction cost of the Building, or debt service on any mortgage or deed of trust recorded with respect to the Project other than pursuant to Paragraph 7.A.(3)(b) above; (ii) Costs incurred by Landlord due to the violation by Landlord of the terms and conditions of any lease of space in the Building or the Project; (iii) costs occasioned by casualty or exercise of eminent domain; (iv) costs to correct any construction defects in the Premises or Project; (v) costs incurred in connection with the presence of Hazardous Materials in, on or under the Premises or Project except to the extent specifically set forth in Paragraph 37; (vi) Costs, including permit, license and inspection costs, incurred with respect to the installation of tenant or other occupant improvements made for tenants or other occupants in the Building or the Project or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for or the premises of other tenants or other occupants of the Building; and (vii) capital expenditures except on the basis set forth in Paragraph 7.A.(3)(b). The above enumeration of services and facilities shall not be deemed to impose an obligation on Landlord to make available or provide such services or facilities except to the extent if any that Landlord has specifically agreed elsewhere in this Lease to make the same available or provide the same. Without limiting the generality of the foregoing, Tenant acknowledges and agrees that it shall be responsible for providing adequate security for its use of the Premises, the Building and the Project and that Landlord shall have no obligation or liability with respect thereto, except to the extent if any that Landlord has specifically agreed elsewhere in this Lease to provide the same. B. PAYMENT OF ESTIMATED OPERATING EXPENSES. "ESTIMATED OPERATING EXPENSES" for any particular year shall mean Landlord's estimate of the Operating Expenses for such fiscal year made with respect to such fiscal year as hereinafter provided. Landlord shall have the right from time to time to revise its fiscal year and interim accounting periods so long as the periods as so revised are reconciled with prior periods in a reasonable manner. During the last month of each fiscal year during the Term, or as soon thereafter as practicable, Landlord shall give Tenant written notice of the Estimated Operating Expenses for the ensuing fiscal year. Tenant shall pay Tenant's Proportionate Share of the Estimated Operating Expenses with installments of Base Rent for the fiscal year to which the Estimated Operating Expenses applies in monthly installments on the first day of each calendar month during such year, in advance. Such payment shall be construed to be Additional Rent for all purposes hereunder. If at any time during the course of the fiscal year, Landlord determines that Operating Expenses are projected to vary from the then Estimated Operating Expenses by more than five percent (5%), Landlord may, by written notice to Tenant, revise the Estimated Operating Expenses for the balance of such fiscal year, and Tenant's monthly installments for the remainder of such year shall be adjusted so that by the end of such fiscal year Tenant has paid to Landlord Tenant's Proportionate Share of the revised Estimated Operating Expenses for such year, such revised installment amounts to be Additional Rent for all purposes hereunder. C. COMPUTATION OF OPERATING EXPENSE ADJUSTMENT. "OPERATING EXPENSE ADJUSTMENT" shall mean the difference between Estimated Operating Expenses and actual Operating Expenses for any fiscal year determined as hereinafter provided. Within one hundred twenty (120) days after the end of each fiscal year, or as soon thereafter as practicable, Landlord shall deliver to Tenant a statement of actual Operating Expenses for the fiscal year just ended, accompanied by a computation of Operating Expense Adjustment. If such statement shows that Tenant's payment based upon Estimated Operating Expenses is less than Tenant's Proportionate Share of Operating Expenses, then Tenant shall pay to Landlord the difference within twenty (20) days after receipt of such statement, such payment to constitute Additional Rent for all purposes hereunder. If such statement shows that Tenant's payments of Estimated Operating Expenses exceed Tenant's Proportionate Share of Operating Expenses, then (provided that Tenant is not in default under this Lease) Landlord shall pay to Tenant the difference within twenty (20) days after delivery of such statement to Tenant. If this Lease has been terminated or the Term hereof has expired prior to the date of such statement, then the Operating Expense Adjustment shall be paid by the appropriate party within twenty (20) days after the date of delivery of the statement. Should this Lease commence or terminate at any time other than the first day of the fiscal year, Tenant's Proportionate Share of the Operating Expense Adjustment shall be prorated based on a month of 30 days and the number of calendar months during such fiscal year that this Lease is in effect. Notwithstanding anything to the contrary contained in Paragraph 7.A or 7.B, Landlord's failure to provide any notices or statements within the time periods specified in those paragraphs shall in no way excuse Tenant from its obligation to pay Tenant's Proportionate Share of Operating Expenses. Notwithstanding the foregoing, or anything to the contrary in this Lease, Tenant shall not be responsible for the payment of any Operating 6 7 Expense Adjustment, except for Taxes that shall have no time limit for adjustment, to the extent Tenant has not received an invoice therefor within twelve (12) months following the earlier of the Scheduled Term Expiration Date or earlier termination of this Lease. D. NET LEASE. This shall be a triple net Lease and Base Rent shall be paid to Landlord absolutely net of all costs and expenses, except as specifically provided to the contrary in this Lease. The provisions for payment of Operating Expenses and the Operating Expense Adjustment are intended to pass on to Tenant and reimburse Landlord for all costs and expenses of the nature described in Paragraph 7.A. incurred in connection with the ownership, management, maintenance, repair, preservation, replacement and operation of the Building and/or Project and its supporting facilities and such additional facilities now and in subsequent years as may be determined by Landlord to be reasonably necessary or desirable to the Building and/or Project in accordance with the terms of this Lease. E. TENANT AUDIT. If Tenant shall dispute the amount set forth in any statement provided by Landlord under Paragraph 7.B. or 7.C. above, Tenant shall have the right, not later than thirty (30) days following receipt of such statement and upon the condition that Tenant shall first deposit with Landlord the full amount in dispute, to cause Landlord's books and records with respect to Operating Expenses for such fiscal year to be audited by certified public accountants selected by Tenant and subject to Landlord's reasonable right of approval. The Operating Expense Adjustment shall be appropriately adjusted on the basis of such audit. If such audit discloses a liability for a refund in excess of ten percent (10%) of Tenant's Proportionate Share of the Operating Expenses previously reported, the cost of such audit shall be borne by Landlord; otherwise the cost of such audit shall be paid by Tenant. If Tenant shall not request an audit in accordance with the provisions of this Paragraph 7.E. within thirty (30) days after receipt of Landlord's statement provided pursuant to Paragraph 7.B. or 7.C., such statement shall be final and binding for all purposes hereof. Tenant acknowledges and agrees that any information revealed in the above described audit may contain proprietary and sensitive information and that significant damage could result to Landlord if such information were disclosed to any party other than Tenant's auditors. Tenant shall not in any manner disclose, provide or make available any information revealed by the audit to any person or entity without Landlord's prior written consent, which consent may be withheld by Landlord in its sole and absolute discretion. The information disclosed by the audit will be used by Tenant solely for the purpose of evaluating Landlord's books and records in connection with this Paragraph 7.E. 8. INSURANCE AND INDEMNIFICATION A. LANDLORD'S INSURANCE. All insurance maintained by Landlord shall be for the sole benefit of Landlord and under Landlord's sole control. (1) PROPERTY INSURANCE. Landlord agrees to maintain property insurance insuring the Building against damage or destruction due to risk including fire, vandalism, and malicious mischief in an amount not less than the replacement cost thereof, in the form and with deductibles and endorsements as selected by Landlord. At its election, Landlord may instead (but shall have no obligation to) obtain "All Risk" coverage, and may also obtain earthquake, pollution, and/or flood insurance in amounts selected by Landlord. (2) OPTIONAL INSURANCE. Landlord, at Landlord's option, may also (but shall have no obligation to) carry (i) insurance against loss of rent, in an amount equal to the amount of Base Rent and Additional Rent that Landlord could be required to abate to all Building tenants in the event of condemnation or casualty damage for a period of twelve (12) months; and (ii) liability insurance and such other insurance as Landlord may deem prudent or advisable, including, without limitation, liability insurance in such amounts and on such terms as Landlord shall determine. Landlord shall not be obligated to insure, and shall have no responsibility whatsoever for any damage to, any furniture, machinery, goods, inventory or supplies, or other personal property or fixtures which Tenant may keep or maintain in the Premises, or any leasehold improvements, additions or alterations within the Premises. B. TENANT'S INSURANCE. Tenant shall procure at Tenant's sole cost and expense and keep in effect from the date of this Lease and at all times until the end of the Term the following: (1) PROPERTY INSURANCE. Insurance on all personal property and fixtures of Tenant and all improvements, additions or alterations made by or for Tenant to the Premises on an "All Risk" basis, insuring such property for the full replacement value of such property. (2) LIABILITY INSURANCE. Commercial General Liability insurance covering bodily injury and property damage liability occurring in or about the Premises or arising out of the use and occupancy of the Premises and the Project, and any part of either, and any areas adjacent thereto, and the business operated by Tenant or by any other occupant of the Premises. Such insurance shall include contractual liability coverage insuring all of Tenant's indemnity obligations under this Lease. Such coverage shall have a minimum combined single limit of liability of at least Two Million Dollars ($2,000,000.00), and a minimum general aggregate limit of Three Million Dollars ($3,000,000.00), with an "Additional Insured - Managers or Lessors of Premises Endorsement" and the "Amendment of the Pollution Exclusion Endorsement." All such policies shall be written to apply to all bodily injury (including death), property damage or loss, personal and advertising injury and other covered loss, however occasioned, occurring during the policy term, shall be endorsed to add Landlord and any party holding an interest to which this Lease may be subordinated as an additional insured, and shall provide that such coverage shall be "PRIMARY" and non-contributing with any insurance maintained by Landlord, which shall be excess insurance only. Such coverage shall also contain endorsements including employees as additional insureds if not covered by Tenant's Commercial General Liability Insurance. All such insurance shall provide for the severability of interests of insureds; and shall be written on an "OCCURRENCE" basis, which shall afford coverage for all claims based on acts, omissions, injury and damage, which occurred or arose (or the onset of which occurred or arose) in whole or in part during the policy period. (3) WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY INSURANCE. Workers' Compensation Insurance as required by any Regulation, and Employers' Liability Insurance in amounts not less than One Million Dollars ($1,000,000) each accident for bodily injury by accident; One Million Dollars ($1,000,000) policy limit for bodily injury by disease; and One Million Dollars ($1,000,000) each employee for bodily injury by disease. (4) COMMERCIAL AUTO LIABILITY INSURANCE. Commercial auto liability insurance with a combined limit of not less than One Million Dollars ($1,000,000) for bodily injury and property damage for each accident. Such insurance shall cover liability relating to any auto (including owned, hired and non-owned autos). (5) ALTERATIONS REQUIREMENTS. In the event Tenant shall desire to perform any Alterations, Tenant shall deliver to Landlord, prior to commencing such Alterations (i) evidence satisfactory to Landlord that Tenant carries "Builder's Risk" insurance covering construction of such Alterations in an amount and form approved by Landlord, (ii) such other insurance as Landlord shall nondiscriminatorily require, and (iii) a lien and completion bond or other security in form and amount satisfactory to Landlord. 7 8 (6) GENERAL INSURANCE REQUIREMENTS. All coverages described in this Paragraph 8.B shall be endorsed to (i) provide Landlord with thirty (30) days' notice of cancellation or change in terms; and (ii) waive all rights of subrogation by the insurance carrier against Landlord. If at any time during the Term the amount or coverage of insurance which Tenant is required to carry under this Paragraph 8.B is, in Landlord's reasonable judgment, materially less than the amount or type of insurance coverage typically carried by owners or tenants of properties located in the general area in which the Premises are located which are similar to and operated for similar purposes as the Premises or if Tenant's use of the Premises should change with or without Landlord's consent, Landlord shall have the right to require Tenant to increase the amount or change the types of insurance coverage required under this Paragraph 8.B. All insurance policies required to be carried by Tenant under this Lease shall be written by companies rated A X or better in "Best's Insurance Guide" and authorized to do business in the State of California. In any event deductible amounts under all insurance policies required to be carried by Tenant under this Lease shall not exceed Five Thousand Dollars ($5,000.00) per occurrence. Tenant shall deliver to Landlord on or before the Term Commencement Date, and thereafter at least thirty (30) days before the expiration dates of the expired policies, certified copies of Tenant's insurance policies, or a certificate evidencing the same issued by the insurer thereunder; and, if Tenant shall fail to procure such insurance, or to deliver such policies or certificates, Landlord may, at Landlord's option and in addition to Landlord's other remedies in the event of a default by Tenant hereunder, procure the same for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Rent. C. INDEMNIFICATION. Tenant shall indemnify, defend by counsel reasonably acceptable to Landlord, protect and hold Landlord, Spieker Properties, Inc., and each of their respective directors, shareholders, partners, lenders, members, managers, contractors, affiliates, and employees (collectively, "LANDLORD INDEMNITIES") harmless from and against any and all claims, liabilities, losses, costs, loss of rents, liens, damages, injuries or expenses, including reasonable attorneys' and consultants' fees and court costs, demands, causes of action, or judgments, directly or indirectly arising out of or related to: (1) claims of injury to or death of persons or damage to property or business loss occurring or resulting directly or indirectly from the use or occupancy of the Premises, Building or Project by Tenant or Tenant's Parties, or from activities or failures to act of Tenant or Tenant's Parties; (2) claims arising from work or labor performed, or for materials or supplies furnished to or at the request of Tenant in connection with performance of any work done for the account of Tenant within the Premises or Project; (3) claims arising from any breach or default on the part of Tenant in the performance of any covenant contained in this Lease; and (4) claims arising from the negligence or intentional acts or omissions of Tenant or Tenant's Parties. The foregoing indemnity by Tenant shall not be applicable to claims to the extent arising from the gross negligence or willful misconduct of Landlord or its agents, contractors, employees or representatives. Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury to or death of or damage to any person or property or business loss in or about the Premises, Building or Project by or from any cause whatsoever (other than Landlord's gross negligence or willful misconduct) and, without limiting the generality of the foregoing, whether caused by water leakage of any character from the roof, walls, basement or other portion of the Premises, Building or Project, or caused by gas, fire, oil or electricity in, on or about the Premises, Building or Project, acts of God or of third parties, or any matter outside of the reasonable control of Landlord. The provisions of this Paragraph shall survive the expiration or earlier termination of this Lease. D. Landlord shall indemnify, defend by counsel reasonably acceptable to Tenant, protect and hold Tenant harmless from and against any and all claims, liabilities, losses, costs, damages, injuries or expenses, including reasonable attorneys' and consultants' fees and court costs, demands, causes of action, or judgments arising out of or relating to the gross negligence or willful misconduct of Landlord or Landlord's agents, employees or invitees. Notwithstanding the foregoing or anything to the contrary contained in this Lease, Landlord shall in no event be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury or damage to any person or property in or about the Premises, Building or Project, including without limitation the common areas, whether caused by theft, fire, rain or water leakage of any character from the roof, walls, plumbing, sprinklers, pipes, basement or any other portion of the Premises, Building or Project, or caused by gas, fire, oil or electricity in, on or about the Premises, Building or Project, or from any other systems except in each case to the extent caused by the gross negligence or willful misconduct of Landlord, or by acts of God (including without limitation flood or earthquake), acts of a public enemy, riot, strike, insurrection, war, court order, requisition or order of governmental body or authority or from any other cause whatsoever, or for any damage or inconvenience which may arise through repair, subject to and except as expressly otherwise provided in Paragraph 9 or 10 of this Lease. In addition, Landlord shall in no event be liable for (i) injury to Tenant's business or any loss of income or profit therefrom or from consequential damages, or (ii) sums up to the amount of insurance proceeds received by Tenant. The foregoing indemnity by Landlord shall not be applicable to claims to the extent arising from the negligence or willful misconduct of Tenant or Tenant's Parties. The foregoing indemnity by Landlord shall survive the expiration or earlier termination of this Lease. 9. WAIVER OF SUBROGATION Landlord and Tenant each waives any claim, loss or cost it might have against the other for any injury to or death of any person or persons, or damage to or theft, destruction, loss, or loss of use of any property (a "LOSS"), to the extent the same is insured against (or is required to be insured against under the terms hereof) under any property damage insurance policy covering the Building, the Premises, Landlord's or Tenant's fixtures, personal property, leasehold improvements, or business, regardless of whether the negligence of the other party caused such Loss. 10. LANDLORD'S REPAIRS AND MAINTENANCE Landlord shall maintain in good repair, reasonable wear and tear excepted, at its sole cost and expense, the structural soundness of the roof, foundations, and exterior walls of the Building. The term "exterior walls" as used herein shall not include windows, glass or plate glass, doors, dock bumpers or dock plates, special storefronts or office entries. Subject to Article 9 hereof, any damage caused by or repairs necessitated by any negligence or act of Tenant or Tenant's Parties may be repaired by Landlord at Landlord's option and Tenant's expense. Tenant shall immediately give Landlord written notice of any defect or need of repairs in such components of the Building for which Landlord is responsible, after which Landlord shall have a reasonable opportunity and the right to enter the Premises at all reasonable times to repair same. Landlord's liability with respect to any defects, repairs, or maintenance for which Landlord is responsible under any of the provisions of this Lease shall be limited to the cost of such repairs or maintenance, and there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of repairs, alterations or improvements in or to any portion of the Premises, the Building or the Project or to fixtures, appurtenances or equipment in the Building, except as provided in Paragraph 24.By taking possession of the Premises, Tenant accepts them "as is," as being in good order, condition and repair and the condition in which Landlord is obligated to deliver them and suitable for the Permitted Use and Tenant's intended operations in the Premises, whether or not any notice of acceptance is given. 11. TENANT'S REPAIRS AND MAINTENANCE Tenant shall at all times during the Term at Tenant's expense maintain all parts of the Premises and such portions of the Building as are within the exclusive control of Tenant in a first-class, good, clean and secure condition and promptly make all necessary repairs and replacements, as determined by Landlord, including but not limited to, all windows, glass, doors, walls, including demising walls, and wall finishes, floors and floor covering, heating, ventilating and air conditioning systems, ceiling insulation, truck doors, hardware, dock 8 9 bumpers, dock plates and levelers, plumbing work and fixtures, downspouts, entries, skylights, smoke hatches, roof vents, electrical and lighting systems, and fire sprinklers, with materials and workmanship of the same character, kind and quality as the original. Tenant shall at Tenant's expense also perform regular removal of trash and debris. If Tenant uses rail and if required by the railroad company, Tenant agrees to sign a joint maintenance agreement governing the use of the rail spur, if any. Tenant shall, at Tenant's own expense, enter into a regularly scheduled preventative maintenance/service contract with a maintenance contractor for servicing all hot water, heating and air conditioning systems and equipment within or serving the Premises. The maintenance contractor and the contract must be approved by Landlord. The service contract must include all services suggested by the equipment manufacturer within the operation/maintenance manual and must become effective and a copy thereof delivered to Landlord within thirty (30) days after the Term Commencement Date. Landlord may, upon notice to Tenant, if Tenant fails to enter into a service contract as required hereunder, enter into such a service contract on behalf of Tenant or perform the work and in either case charge Tenant the cost thereof along with a reasonable amount for Landlord's overhead. Notwithstanding anything to the contrary contained herein, but subject to Article 9, Tenant shall, at its expense, promptly repair any damage to the Premises or the Building or Project resulting from or caused by any negligence or act of Tenant or Tenant's Parties. Nothing herein shall expressly or by implication render Tenant Landlord's agent or contractor to effect any repairs or maintenance required of Tenant under this Paragraph 11, as to all of which Tenant shall be solely responsible. To the extent that such repairs, maintenance or improvements is required to be performed pursuant to this Lease, Landlord shall perform and construct, and Tenant shall have no responsibility to perform or construct any repair, maintenance or improvements to the Premises (not including any repairs, maintenance or improvements to any personal property of Tenant) (a) occasioned by fire, acts of God or other casualty described in Paragraph 24 hereof or by the exercise of eminent domain, or (b) which could be treated as a capital expenditure in accordance with Paragraph 7(3)(b) hereof. Tenant shall, however, pay for its share of the repairs described in (b) of the proceeding sentence to the extent that such costs are expressly included in the definition of Operating Expenses. Notwithstanding anything to the contrary in this Paragraph 11, should Tenant be required to make repairs to the heating, ventilating and air conditioning systems, Landlord shall reimburse Tenant for such repairs, if any, up to a maximum amount of seven thousand dollars ($7,000). Said repairs, if any, shall be completed prior to July 31, 2000. Tenant shall deliver to Landlord copies of any invoices along with a written request for reimbursement and Landlord shall reimburse Tenant within thirty (30) days of Tenants written request. 12. ALTERATIONS A. Tenant shall not make, or allow to be made, any alterations, physical additions, improvements or partitions, including without limitation the attachment of any fixtures or equipment, in, about or to the Premises ("ALTERATIONS") costing in excess of Fifteen Thousand Dollars ($15,000) in any given Lease year (excluding any Alteration affecting the structure of the Premises which shall always require consent), without obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld with respect to proposed Alterations which: (a) comply with all applicable Regulations; (b) are, in Landlord's reasonable opinion, compatible with the Building or the Project and its mechanical, plumbing, electrical, heating/ventilation/air conditioning systems, and will not cause the Building or Project or such systems to be required to be modified to comply with any Regulations (including, without limitation, the Americans With Disabilities Act); and (c) will not interfere with the use and occupancy of any other portion of the Building or Project by any other tenant or its invitees. Specifically, but without limiting the generality of the foregoing, Landlord shall have the right of written consent for all plans and specifications for the proposed Alterations, construction means and methods, all appropriate permits and licenses, any contractor or subcontractor to be employed on the work of Alterations, and the time for performance of such work, and may impose rules and regulations for contractors and subcontractors performing such work. Tenant shall also supply to Landlord any documents and information reasonably requested by Landlord in connection with Landlord's consideration of a request for approval hereunder. Tenant shall cause all Alterations to be accomplished in a first-class, good and workmanlike manner, and to comply with all applicable Regulations and Paragraph 27 hereof. Tenant shall at Tenant's sole expense, perform any additional work required under applicable Regulations due to the Alterations hereunder. No review or consent by Landlord of or to any proposed Alteration or additional work shall constitute a waiver of Tenant's obligations under this Paragraph 12. Tenant shall reimburse Landlord for all costs which Landlord may incur in connection with granting approval to Tenant for any such Alterations, including any costs or expenses which Landlord may incur in electing to have outside architects and engineers review said plans and specifications. All such Alterations shall remain the property of Tenant until the expiration or earlier termination of this Lease, at which time they shall be and become the property of Landlord; provided, however, that Landlord may, at Landlord's option, require that Tenant, at Tenant's expense, remove any or all Alterations made by Tenant and restore the Premises by the expiration or earlier termination of this Lease, to their condition existing prior to the construction of any such Alterations. All such removals and restoration shall be accomplished in a first-class and good and workmanlike manner so as not to cause any damage to the Premises or Project whatsoever. If Tenant fails to remove such Alterations or Tenant's trade fixtures or furniture or other personal property, Landlord may keep and use them or remove any of them and cause them to be stored or sold in accordance with applicable law, at Tenant's sole expense. In addition to and wholly apart from Tenant's obligation to pay Tenant's Proportionate Share of Operating Expenses, Tenant shall be responsible for and shall pay prior to delinquency any taxes or governmental service fees, possessory interest taxes, fees or charges in lieu of any such taxes, capital levies, or other charges imposed upon, levied with respect to or assessed against its fixtures or personal property, on the value of Alterations within the Premises, and on Tenant's interest pursuant to this Lease, or any increase in any of the foregoing based on such Alterations. To the extent that any such taxes are not separately assessed or billed to Tenant, Tenant shall pay the amount thereof as invoiced to Tenant by Landlord. B. In compliance with Paragraph 27 hereof, at least ten (10) business days before beginning construction of any Alteration, Tenant shall give Landlord written notice of the expected commencement date of that construction to permit Landlord to post and record a notice of non-responsibility. Upon substantial completion of construction, if the law so provides, Tenant shall cause a timely notice of completion to be recorded in the office of the recorder of the county in which the Building is located. 13. SIGNS Tenant shall not place, install, affix, paint or maintain any signs, notices, graphics or banners whatsoever or any window decor which is visible in or from public view or corridors, the common areas or the exterior of the Premises or the Building, in or on any exterior window or window fronting upon any common areas or service area or upon any truck doors or man doors without Landlord's prior written approval which Landlord shall have the right to withhold in its absolute and sole discretion; provided that Tenant's name shall be included in any Building-standard door and directory signage, if any, in accordance with Landlord's Building signage program, including without limitation, payment by Tenant of any fee charged by Landlord for maintaining such signage, which fee shall constitute Additional Rent hereunder. Any installation of signs, notices, graphics or banners on or about the Premises or Project approved by Landlord shall be subject to any Regulations and to any other reasonable requirements imposed by Landlord. Tenant shall remove all such signs or graphics by the expiration or any earlier termination of this Lease. Such installations and removals shall be made in such manner as to avoid injury to or defacement of the Premises, Building or Project and any other improvements contained therein, and Tenant shall repair any injury or defacement including without limitation discoloration caused by such installation or removal. 9 10 14. INSPECTION/POSTING NOTICES After reasonable notice, except in emergencies where no such notice shall be required, Landlord and Landlord's agents and representatives, shall have the right to enter the Premises to inspect the same, to clean, to perform such work as may be permitted or required hereunder, to make repairs, improvements or alterations to the Premises, Building or Project or to other tenant spaces therein, to deal with emergencies, to post such notices as may be permitted or required by law to prevent the perfection of liens against Landlord's interest in the Project or to exhibit the Premises to prospective tenants, purchasers, encumbrancers or to others, or for any other purpose as Landlord may deem necessary or desirable; provided, however, that Landlord shall use reasonable efforts not to unreasonably interfere with Tenant's business operations. So long as Landlord uses commercially reasonable efforts not to unreasonably interfere with Tenant's business operations, Tenant shall not be entitled to any abatement of Rent by reason of the exercise of any such right of entry and Tenant waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. Landlord shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Premises, excluding Tenant's vaults and safes or special security areas (designated in advance), and Landlord shall have the right to use any and all means which Landlord may deem necessary or proper to open said doors in an emergency, in order to obtain entry to any portion of the Premises, and any entry to the Premises or portions thereof obtained by Landlord by any of said means, or otherwise, shall not be construed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises or any portions thereof. At any time within six (6) months prior to the expiration of the Term or following any earlier termination of this Lease or agreement to terminate this Lease, Landlord shall have the right to erect on the Premises, Building and/or Project a suitable sign indicating that the Premises are available for lease. 15. SERVICES AND UTILITIES A. Tenant shall (where practicable) contract for and pay directly when due, for all water, gas, heat, air conditioning, light, power, telephone, sewer, sprinkler charges, cleaning, waste disposal and other utilities and services used on or from the Premises, together with any taxes, penalties, surcharges or the like pertaining thereto, and maintenance charges for utilities and shall furnish all electric light bulbs, ballasts and tubes. If any such services are not separately billed or metered to Tenant, Tenant shall pay an equitable proportion, as determined in good faith by Landlord, of all charges billed or metered with other premises. All sums payable under this Paragraph 15 shall constitute Additional Rent hereunder. B. Tenant acknowledges that Tenant has inspected and accepts the water, electricity, heat and air conditioning and other utilities and services being supplied or furnished to the Premises as of the date Tenant takes possession of the Premises, if any, as being sufficient in their present condition, "as is," for the Permitted Use, and for Tenant's intended operations in the Premises. Landlord shall have no obligation to provide additional or after-hours electricity, heating or air conditioning, but if Landlord elects to provide such services at Tenant's request, Tenant shall pay upon demand to Landlord a reasonable charge for such services as determined by Landlord. Tenant agrees to keep and cause to be kept closed all window covering when necessary because of the sun's position, and Tenant also agrees at all times to cooperate fully with Landlord and to abide by all of the regulations and requirements which Landlord may prescribe for the proper functioning and protection of electrical, heating, ventilating and air conditioning systems. Wherever heat-generating machines, excess lighting or equipment are used in the Premises which affect the temperature otherwise maintained by the air conditioning system, Landlord reserves the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. C. Tenant shall not without written consent of Landlord use any apparatus, equipment or device in the Premises, including without limitation, computers, electronic data processing machines, copying machines, and other machines, using excess lighting or using electric current, water, or any other resource in excess of or which will in any way increase the amount of electricity, water, or any other resource being furnished or supplied for the use of the Premises for reasonable and normal office use, in each case as of the date Tenant takes possession of the Premises and as reasonably determined by Landlord, or which will require additions or alterations to or interfere with the Building power distribution systems; nor connect with electric current, except through existing electrical outlets in the Premises or water pipes, any apparatus, equipment or device for the purpose of using electrical current, water, or any other resource. If Tenant shall require water or electric current or any other resource in excess of that being furnished or supplied for the use of the Premises as of the date Tenant takes possession of the Premises, if any, as determined by Landlord, Tenant shall first procure the written consent of Landlord which Landlord may refuse, to the use thereof, and Landlord may cause a special meter to be installed in the Premises so as to measure the amount of water, electric current or other resource consumed for any such other use. Tenant shall pay directly to Landlord upon demand as an addition to and separate from payment of Operating Expenses the cost of all such additional resources, energy, utility service and meters (and of installation, maintenance and repair thereof and of any additional circuits or other equipment necessary to furnish such additional resources, energy, utility or service). Landlord shall in no case be liable for any damages directly or indirectly resulting from nor shall the Rent or any monies owed Landlord under this Lease herein reserved be abated by reason of: (a) the installation, use or interruption of use of any equipment used in connection with the furnishing of any such utilities or services, or any change in the character or means of supplying or providing any such utilities or services or any supplier thereof; (b) the failure to furnish or delay in furnishing any such utilities or services when such failure or delay is caused by acts of God or the elements, labor disturbances of any character, or otherwise, or because of any interruption of service due to Tenant's use of water, electric current or other resource in excess of that being supplied or furnished for the use of the Premises as of the date Tenant takes possession of the Premises; or (c) the inadequacy, limitation, curtailment, rationing or restriction on use of water, electricity, gas or any other form of energy or any other service or utility whatsoever serving the Premises or Project otherwise; or (d) the partial or total unavailability of any such utilities or services to the Premises or the Building or the diminution in the quality or quantity thereof, whether by Regulation or otherwise; or (e) any interruption in Tenant's business operations as a result of any such occurrence; nor shall any such occurrence constitute an actual or constructive eviction of Tenant or a breach of an implied warranty by Landlord. Landlord shall further have no obligation to protect or preserve any apparatus, equipment or device installed by Tenant in the Premises, including without limitation by providing additional or after-hours heating or air conditioning. Landlord shall be entitled to cooperate voluntarily and in a reasonable manner with the efforts of national, state or local governmental agencies or utility suppliers in reducing energy or other resource consumption. The obligation to make services available hereunder shall be subject to the limitations of any such voluntary, reasonable program. In addition, Landlord reserves the right to change the supplier or provider of any such utility or service from time to time. Landlord may, but shall not be obligated to, upon notice to Tenant, contract with or otherwise obtain any electrical or other such service for or with respect to the Premises or Tenant's operations therein from any supplier or provider of any such service. Tenant shall cooperate with Landlord and any supplier or provider of such services designated by Landlord from time to time to facilitate the delivery of such services to Tenant at the Premises and to the Building and Project, including without limitation allowing Landlord and Landlord's suppliers or providers, and their respective agents and contractors, reasonable access to the Premises for the purpose of installing, maintaining, repairing, replacing or upgrading such service or any equipment or machinery associated therewith. 16. SUBORDINATION Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, this Lease shall be and is hereby declared to be subject and subordinate at all times to: (a) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Premises and/or the land upon which the Premises and Project are situated, or both; and (b) any 10 11 mortgage or deed of trust which may now exist or be placed upon the Building, the Project and/or the land upon which the Premises or the Project are situated, or said ground leases or underlying leases, or Landlord's interest or estate in any of said items which is specified as security. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. If any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord provided that Tenant shall not be disturbed in its possession under this Lease by such successor in interest so long as Tenant is not in default under this Lease. Within ten (10) days after request by Landlord, Tenant shall execute and deliver any reasonable additional documents evidencing Tenant's attornment or the subordination of this Lease with respect to any such ground leases or underlying leases or any such mortgage or deed of trust, in the form requested by Landlord or by any ground landlord, mortgagee, or beneficiary under a deed of trust, subject to such nondisturbance requirement. If requested in writing by Tenant, Landlord shall use commercially reasonable efforts to obtain a subordination, nondisturbance and attornment agreement for the benefit of Tenant reflecting the foregoing from any ground landlord, mortgagee or beneficiary, at Tenant's expense, subject to such other terms and conditions as the ground landlord, mortgagee or beneficiary may require. 17. FINANCIAL STATEMENTS At the request of Landlord from time to time, Tenant shall provide to Landlord Tenant's and any guarantor's current financial statements or other information discussing financial worth of Tenant and any guarantor, which Landlord shall use solely for purposes of this Lease and in connection with the ownership, management, financing and disposition of the Project. 18. ESTOPPEL CERTIFICATE Tenant agrees from time to time, within ten (10) days after request of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel certificate stating that this Lease is in full force and effect, that this Lease has not been modified (or stating all modifications, written or oral, to this Lease), the date to which Rent has been paid, the unexpired portion of this Lease, that there are no current defaults by Landlord or Tenant under this Lease (or specifying any such defaults), that the leasehold estate granted by this Lease is the sole interest of Tenant in the Premises and/or the land at which the Premises are situated, and such other matters pertaining to this Lease as may be reasonably requested by Landlord or any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or Project or any interest therein. Failure by Tenant to execute and deliver such certificate shall constitute an acceptance of the Premises and acknowledgment by Tenant that the statements included are true and correct without exception. Tenant agrees that if Tenant fails to execute and deliver such certificate within such ten- (10) day period, Landlord may execute and deliver such certificate on Tenant's behalf and that such certificate shall be binding on Tenant. Landlord and Tenant intend that any statement delivered pursuant to this Paragraph may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or Project or any interest therein. The parties agree that Tenant's obligation to furnish such estoppel certificates in a timely fashion is a material inducement for Landlord's execution of this Lease, and shall be an event of default (without any cure period that might be provided under Paragraph 26.A(3) of this Lease) if Tenant fails to fully comply or makes any material misstatement in any such certificate. 19. SECURITY DEPOSIT Tenant agrees to deposit with Landlord upon execution of this Lease, a security deposit as stated in the Basic Lease Information (the "SECURITY DEPOSIT"), which sum shall be held and owned by Landlord, without obligation to pay interest, as security for the performance of Tenant's covenants and obligations under this Lease. Landlord is hereby granted a security interest in the Security Deposit in accordance with applicable provisions of the California Commercial Code The Security Deposit is not an advance rental deposit or a measure of damages incurred by Landlord in case of Tenant's default. Upon the occurrence of any event of default by Tenant, Landlord may from time to time, without prejudice to any other remedy provided herein or by law, use such fund as a credit to the extent necessary to credit against any arrears of Rent or other payments due to Landlord hereunder, and any other damage, injury, expense or liability caused by such event of default, and Tenant shall pay to Landlord, on demand, the amount so applied in order to restore the Security Deposit to its original amount. Any remaining balance of such deposit shall be returned by Landlord to Tenant at such time after termination of this Lease that all of Tenant's obligations under this Lease have been fulfilled, reduced by such amounts as may be required by Landlord to remedy defaults on the part of Tenant in the payment of Rent or other obligations of Tenant under this Lease, to repair damage to the Premises, Building or Project caused by Tenant or any Tenant's Parties and to clean the Premises. Landlord may use and commingle the Security Deposit with other funds of Landlord. Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code, and all other provisions of any Regulations, now or hereinafter in force, which restricts the amount or types of claim that a landlord may make upon a security deposit or imposes upon a landlord (or its successors) any obligation with respect to the handling or return of security deposits. 20. LIMITATION OF TENANT'S REMEDIES The obligations and liability of Landlord to Tenant for any default by Landlord under the terms of this Lease are not personal obligations of Landlord or of the individual or other partners of Landlord or its or their partners, directors, officers, or shareholders, and Tenant agrees to look solely to Landlord's interest in the Project for the recovery of any amount from Landlord, and shall not look to other assets of Landlord nor seek recourse against the assets of the individual or other partners of Landlord or its or their partners, directors, officers or shareholders. Any lien obtained to enforce any such judgment and any levy of execution thereon shall be subject and subordinate to any lien, mortgage or deed of trust on the Project. Under no circumstances shall Tenant have the right to offset against or recoup Rent or other payments due and to become due to Landlord hereunder except as expressly provided in this Lease, which Rent and other payments shall be absolutely due and payable hereunder in accordance with the terms hereof. In no case shall Landlord be liable to Tenant for any lost profits, damage to business, or any form of special, indirect or consequential damage on account of any breach of this Lease or otherwise, notwithstanding anything to the contrary contained in this Lease. 21. ASSIGNMENT AND SUBLETTING A. (1) GENERAL. This Lease has been negotiated to be and is granted as an accommodation to Tenant. Accordingly, this Lease is personal to Tenant, and Tenant's rights granted hereunder do not include the right to assign this Lease or sublease the Premises, or to receive any excess, either in installments or lump sum, over the Rent which is expressly reserved by Landlord as hereinafter provided, except as otherwise expressly hereinafter provided. Tenant shall not assign or pledge this Lease or sublet the Premises or any part thereof, whether voluntarily or by operation of law, or permit the use or occupancy of the Premises or any part thereof by anyone other than Tenant, or suffer or permit any such assignment, pledge, subleasing or occupancy, without Landlord's prior written consent which shall not be unreasonably withheld or delayed on the terms and conditions provided herein. If Tenant desires to assign this Lease or sublet any or all of the Premises, Tenant shall give Landlord written notice (the "TRANSFER NOTICE") at least forty-five (45) days prior to the anticipated effective date of the proposed assignment or sublease, which shall contain all of the information reasonably requested by Landlord to address Landlord's decision criteria specified hereinafter. Landlord shall then have a period of fifteen (15) days following receipt of the Transfer Notice to notify Tenant in writing that Landlord elects either: (i) to terminate this Lease as to the space so affected as of the date so requested by Tenant; or (ii) to consent to the proposed assignment or sublease, subject, however, to Landlord's prior written consent of the proposed 11 12 assignee or subtenant and of any related documents or agreements associated with the assignment or sublease. If Landlord should fail to notify Tenant in writing of such election within said period, Landlord shall be deemed to have waived option (i) above, but written consent by Landlord of the proposed assignee or subtenant shall still be required. If Landlord does not exercise option (i) above, Landlord's consent to a proposed assignment or sublease shall not be unreasonably withheld. With respect to a proposed sublease, in the event Landlord fails to respond to Tenant's written request for consent within the above described fifteen (15) day period, Tenant may provide to Landlord a second written request for consent with resect to the same proposed sublease ("Tenant's Second Consent Request"). If Landlord fails to respond to Tenant's Second Consent Request within fifteen (15) business days following landlord's receipt thereof, and the proposed sublease is for less than 50% of the Premises, then Landlord's failure to respond shall be deemed to be Landlord's consent to such subtenant. If Landlord fails to respond to Tenant's Second Consent Request within fifteen (15) business days following landlord's receipt thereof, and the proposed sublease is for greater than 50% of the Premises, then Landlord's failure to respond shall be deemed to be Landlord's disapproval to such subtenant Consent to any assignment or subletting shall not constitute consent to any subsequent transaction to which this Paragraph 21 applies. (2) CONDITIONS OF LANDLORD'S CONSENT. Without limiting the other instances in which it may be reasonable for Landlord to withhold Landlord's consent to an assignment or subletting, Landlord and Tenant acknowledge that it shall be reasonable for Landlord to withhold Landlord's consent in the following instances: if the proposed assignee does not agree to be bound by and assume the obligations of Tenant under this Lease in form and substance satisfactory to Landlord in the reasonable exercise of Landlord's discretion; the use of the Premises by such proposed assignee or subtenant would not be a Permitted Use or would violate any exclusivity or other arrangement which Landlord has with any other tenant or occupant or any Regulation or would increase the Occupancy Density or Parking Density of the Building or Project, or would otherwise result in an undesirable tenant mix for the Project as reasonably determined by Landlord; the proposed assignee or subtenant is not of sound financial condition as determined by Landlord in Landlord's reasonable discretion; the proposed assignee or subtenant is a governmental agency; the proposed assignee or subtenant does not have a good reputation as a tenant of property or a good business reputation; the proposed assignee or subtenant is a person with whom Landlord is negotiating to lease space in the Project; the assignment or subletting would entail any Alterations which would lessen the value of the leasehold improvements in the Premises or use of any Hazardous Materials or other noxious use or use which may disturb other tenants of the Project; or Tenant is in default of any obligation of Tenant under this Lease beyond any applicable cure period, or Tenant has defaulted under this Lease on three (3) or more occasions during any twelve (12) months preceding the date that Tenant shall request consent. Failure by or refusal of Landlord to consent to a proposed assignee or subtenant shall not cause a termination of this Lease. Upon a termination under Paragraph 21.A.(1)(i), Landlord may lease the Premises to any party, including parties with whom Tenant has negotiated an assignment or sublease, without incurring any liability to Tenant. At the option of Landlord, a surrender and termination of this Lease shall operate as an assignment to Landlord of some or all subleases or subtenancies. Landlord shall exercise this option by giving notice of that assignment to such subtenants on or before the effective date of the surrender and termination. In connection with each request for assignment or subletting, Tenant shall pay to Landlord Landlord's standard fee for approving such requests, as well as all reasonable out-of-pocket costs incurred by Landlord or any mortgagee or ground lessor in approving each such request and effecting any such transfer, including, without limitation, reasonable attorneys' fees BONUS RENT. Subject to Paragraph 21.A(1) above, any Rent or other consideration realized by Tenant under any such sublease or assignment in excess of the Rent payable hereunder (excluding consideration for the use of Tenant's telephone system, furniture or other services or equipment provided by Tenant to the proposed sublessee during the term of the proposed sublease, provided that such exclusions are made in good faith and are not above the market value for such equipment and/or services, as such market value is reasonably determined by Landlord and excluding any consideration paid for purchase of Tenant or Tenant's assets exclusive of that portion of the consideration paid which is attributable to the value of Tenant's interest in the Lease, as reasonably determined by Landlord and Tenant), after amortization of a reasonable brokerage commission, reasonable attorneys' fees and the actual cost of tenant improvements made solely in connection with such assignment or sublease in the portion of the Premises with respect thereto, each as incurred by Tenant, shall be divided and paid twenty-five percent (25%) to Tenant, seventy-five percent (75%) to Landlord. In any subletting or assignment undertaken by Tenant, Tenant shall diligently seek to obtain the maximum rental amount available in the marketplace for comparable space available for primary leasing. B. CORPORATION. If Tenant is a corporation, a transfer of corporate shares by sale, assignment, bequest, inheritance, operation of law or other disposition (including such a transfer to or by a receiver or trustee in federal or state bankruptcy, insolvency or other proceedings) resulting in a change in the present control of such corporation or any of its parent corporations by the person or persons owning a majority of said corporate shares, shall constitute an assignment for purposes of this Lease. C. UNINCORPORATED ENTITY. If Tenant is a partnership, joint venture, unincorporated limited liability company or other unincorporated business form, a transfer of the interest of persons, firms or entities responsible for managerial control of Tenant by sale, assignment, bequest, inheritance, operation of law or other disposition, so as to result in a change in the present control of said entity and/or of the underlying beneficial interests of said entity and/or a change in the identity of the persons responsible for the general credit obligations of said entity shall constitute an assignment for all purposes of this Lease. D. LIABILITY. No assignment or subletting by Tenant, permitted or otherwise, shall relieve Tenant of any obligation under this Lease or any guarantor of this Lease of any liability under its guaranty or alter the primary liability of the Tenant named herein for the payment of Rent or for the performance of any other obligations to be performed by Tenant, including obligations contained in Paragraph 25 with respect to any assignee or subtenant. Landlord may collect rent or other amounts or any portion thereof from any assignee, subtenant, or other occupant of the Premises, permitted or otherwise, and apply the net rent collected to the Rent payable hereunder, but no such collection shall be deemed to be a waiver of this Paragraph 21, or the acceptance of the assignee, subtenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of the obligations of Tenant under this Lease or any guarantor of this Lease of any liability under its guaranty. Any assignment or subletting which conflicts with the provisions hereof shall be void. E. PERMITTED TRANSFERS. An "Affiliate" means any entity that (i) controls, is controlled by, or is under common control with Tenant, (ii) results from the transfer of all or substantially all of Tenant's assets or stock, or (iii) results from the merger or consolidation of Tenant with another entity. "Control" means the direct or indirect ownership of more than fifty percent (50%) of the voting securities of an entity or possession of the right to vote more than fifty percent (50%) of the voting interest in the ordinary direction of the entity's affairs. Notwithstanding anything to the contrary contained in this Lease, Landlord's consent is not required for and Landlord's recapture rights shall not apply to any assignment of this Lease or sublease of all or a portion of the Premises to an Affiliate so long as the following conditions are met: (a) at least ten (10) business days before any such assignment or sublease, Landlord receives written notice of such assignment or sublease (as well as any documents or information reasonably requested by Landlord regarding the proposed intended transfer and the transferee); (b) Tenant is not then and has not been in default under this Lease; (c) if the transfer is an assignment or any other transfer to an Affiliate other than a sublease, the intended assignee assumes in writing all of Tenant's obligations under this Lease relating to the Premises in form satisfactory to Landlord or, if the transfer is a sublease, the intended sublessee accepts the sublease in form satisfactory to Landlord; (d) the intended transferee has a tangible net worth, as evidenced by financial statements delivered to Landlord and certified by an independent certified public accountant in accordance with generally accepted accounting principles that are 12 13 consistently applied, at least equal to Two Hundred Fifty Million Dollars ($250,000,000); (e) the Premises shall continue to be operated solely for the use specified in the Basic Lease Information; and (f) Tenant shall pay to Landlord all costs reasonably incurred by Landlord or any mortgagee or ground lessor for such assignment or subletting, including, without limitation, reasonable attorneys' fees. No transfer to an Affiliate in accordance with this subparagraph shall relieve Tenant named herein of any obligation under this Lease or alter the primary liability of Tenant named herein for the payment of Rent or for the performance of any other obligation to be performed by Tenant, including the obligations contained in Paragraph 25 with respect to any Affiliate. 22. AUTHORITY Landlord represents and warrants that it has full right and authority to enter into this Lease and to perform all of Landlord's obligations hereunder and that all persons signing this Lease on its behalf are authorized to do. Tenant and the person or persons, if any, signing on behalf of Tenant, jointly and severally represent and warrant that Tenant has full right and authority to enter into this Lease, and to perform all of Tenant's obligations hereunder, and that all persons signing this Lease on its behalf are authorized to do so. 23. CONDEMNATION A. CONDEMNATION RESULTING IN TERMINATION. If the whole or any substantial part of the Premises should be taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, and the taking would prevent or materially interfere with the Permitted Use of the Premises, either party shall have the right to terminate this Lease at its option. If any material portion of the Building or Project is taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, Landlord may terminate this Lease at its option. In either of such events, the Rent shall be abated during the unexpired portion of this Lease, effective when the physical taking of said Premises shall have occurred. B. CONDEMNATION NOT RESULTING IN TERMINATION. If a portion of the Project of which the Premises are a part should be taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, and the taking prevents or materially interferes with the Permitted Use of the Premises, and this Lease is not terminated as provided in Paragraph 23.A. above, the Rent payable hereunder during the unexpired portion of this Lease shall be reduced, beginning on the date when the physical taking shall have occurred, to such amount as may be fair and reasonable under all of the circumstances, but only after giving Landlord credit for all sums received or to be received by Tenant by the condemning authority. Notwithstanding anything to the contrary contained in this Paragraph, if the temporary use or occupancy of any part of the Premises shall be taken or appropriated under power of eminent domain during the Term, this Lease shall be and remain unaffected by such taking or appropriation and Tenant shall continue to pay in full all Rent payable hereunder by Tenant during the Term; in the event of any such temporary appropriation or taking, Tenant shall be entitled to receive that portion of any award which represents compensation for the use of or occupancy of the Premises during the Term. C. AWARD. Landlord shall be entitled to (and Tenant shall assign to Landlord) any and all payment, income, rent, award or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance and Tenant shall have no claim against Landlord or otherwise for any sums paid by virtue of such proceedings, whether or not attributable to the value of any unexpired portion of this Lease, except as expressly provided in this Lease. Notwithstanding the foregoing, any compensation specifically and separately awarded Tenant for Tenant's personal property and moving costs, shall be and remain the property of Tenant. D. WAIVER OF CCPSECTION 1265.130. Each party waives the provisions of California Civil Code Procedure Section 1265.130 allowing either party to petition the superior court to terminate this Lease as a result of a partial taking. 24. CASUALTY DAMAGE A. GENERAL. If the Premises or Building should be damaged or destroyed by fire, tornado, or other casualty (collectively, "CASUALTY"), Tenant shall give immediate written notice thereof to Landlord. Within thirty (30) days after Landlord's receipt of such notice, Landlord shall notify Tenant the amount of time, in Landlord's reasonable estimation, it will take to materially restore the Premises ("Landlord's Casualty Notice"). Landlord's reasonable determination shall be binding on Tenant. B. WITHIN 180 DAYS. If the Premises or Building should be damaged by Casualty to such extent that material restoration can in Landlord's reasonable estimation be reasonably completed within one hundred eighty (180) days after the date of such notice and receipt of required permits for such restoration, this Lease shall not terminate except as set forth in subsection D below. Provided that insurance proceeds are received by Landlord to fully repair the damage, Landlord shall proceed to rebuild and repair the Premises diligently and in the manner determined by Landlord, except that Landlord shall not be required to rebuild, repair or replace any part of any Alterations which may have been placed on or about the Premises or paid for by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be abated proportionately, but only to the extent of rental abatement insurance proceeds received by Landlord during the time and to the extent the Premises are unfit for occupancy. C. GREATER THAN 180 DAYS. If the Premises or Building should be damaged by Casualty to such extent that rebuilding or repairs cannot in Landlord's estimation be reasonably completed within one hundred eighty (180) days after the date of such notice and receipt of required permits for such rebuilding or repair, then Landlord shall have the option of either: (1) terminating this Lease effective upon the date of the occurrence of such damage, in which event the Rent shall be abated during the unexpired portion of this Lease; or (2) electing to rebuild or repair the Premises diligently and in the manner determined by Landlord. Landlord shall notify Tenant of its election within thirty (30) days after Landlord's receipt of notice of the damage or destruction. Notwithstanding the above, Landlord shall not be required to rebuild, repair or replace any part of any Alterations which may have been placed, on or about the Premises or paid for by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be abated proportionately, but only to the extent of rental abatement insurance proceeds received by Landlord during the time and to the extent the Premises are unfit for occupancy. D. GREATER THAN 270 DAYS. If the Premises or Building should be damaged by Casualty to such extent that rebuilding or repairs cannot in Landlord's estimation be reasonably completed within two hundred seventy (270) days after receipt by Tenant of Landlord's Casualty Notice, then either party shall have the right to cancel this Lease by giving the other party written notice within ten (10) days from the date of Landlord's Casualty Notice or notice that Landlord has elected not to rebuild or repair the Premises. Said cancellation shall be effective thirty (30) days from the first day that either party gives its notice to cancel. If neither party elects to so cancel this Lease, Landlord shall proceed to rebuild and repair the Premises diligently and in the manner determined by Landlord, except that Landlord shall not be required to rebuild, repair or replace any part of any Alterations which may have been placed on or about the Premises by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be abated proportionately, but only to the extent of rental abatement proceeds received by Landlord during the time and to the extent the Premises are unfit for occupancy. E. TENANT'S FAULT. Notwithstanding anything herein to the contrary, if the Premises or any other portion of the Building are damaged by Casualty resulting from the fault, negligence, or breach of this Lease by Tenant or any of Tenant's Parties, Base Rent and 13 14 Additional Rent shall not be diminished during the repair of such damage and Tenant shall be liable to Landlord for the cost and expense of the repair and restoration of the Building caused thereby to the extent such cost and expense is not covered by insurance proceeds. F. INSURANCE PROCEEDS. Notwithstanding anything herein to the contrary, if the Premises or Building are damaged or destroyed and are not fully covered by the insurance proceeds received by Landlord (excluding any applicable deductible) or if the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises requires that the insurance proceeds be applied to such indebtedness, then in either case Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within thirty (30) days after the date of notice to Landlord that said damage or destruction is not fully covered by insurance or such requirement is made by any such holder, as the case may be, whereupon this Lease shall terminate. G. WAIVER. This Paragraph 24 shall be Tenant's sole and exclusive remedy in the event of damage or destruction to the Premises or the Building. As a material inducement to Landlord entering into this Lease, Tenant hereby waives any rights it may have under Sections 1932, 1933(4), 1941 or 1942 of the Civil Code of California with respect to any destruction of the Premises, Landlord's obligation for tenantability of the Premises and Tenant's right to make repairs and deduct the expenses of such repairs, or under any similar law, statute or ordinance now or hereafter in effect. H. TENANT'S PERSONAL PROPERTY. In the event of any damage or destruction of the Premises or the Building, under no circumstances shall Landlord be required to repair any injury or damage to, or make any repairs to or replacements of, Tenant's personal property. 25. HOLDING OVER Unless Landlord expressly consents in writing to Tenant's holding over, Tenant shall be unlawfully and illegally in possession of the Premises, whether or not Landlord accepts any rent from Tenant or any other person while Tenant remains in possession of the Premises without Landlord's written consent. If Tenant shall retain possession of the Premises or any portion thereof without Landlord's consent following the expiration of this Lease or sooner termination for any reason, then Tenant shall pay to Landlord for each day of such retention the greater of one hundred and fifty percent (150%) of the amount of daily rental as of the last month prior to the date of expiration or earlier termination or 150.0% of the then current market rent for similar space in Mountain View, whichever is greater. Tenant shall also indemnify, defend, protect and hold Landlord harmless from any loss, liability or cost, including consequential and incidental damages and reasonable attorneys' fees, incurred by Landlord resulting from delay by Tenant in surrendering the Premises, including, without limitation, any claims made by the succeeding tenant founded on such delay. Acceptance of Rent by Landlord following expiration or earlier termination of this Lease, or following demand by Landlord for possession of the Premises, shall not constitute a renewal of this Lease, and nothing contained in this Paragraph 25 shall waive Landlord's right of reentry or any other right. Additionally, if upon expiration or earlier termination of this Lease, or following demand by Landlord for possession of the Premises, Tenant has not fulfilled its obligation with respect to repairs and cleanup of the Premises or any other Tenant obligations as set forth in this Lease, then Landlord shall have the right to perform any such obligations as it deems necessary at Tenant's sole cost and expense, and any time required by Landlord to complete such obligations shall be considered a period of holding over and the terms of this Paragraph 25 shall apply. The provisions of this Paragraph 25 shall survive any expiration or earlier termination of this Lease. 26. DEFAULT A. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an event of default on the part of Tenant: (1) ABANDONMENT. Abandonment of the Premises for a continuous period in excess of five (5) days. Tenant waives any right to notice Tenant may have under Section 1951.3 of the Civil Code of the State of California, the terms of this Paragraph 26.A. being deemed such notice to Tenant as required by said Section 1951.3. (2) NONPAYMENT OF RENT. Failure to pay any installment of Rent or any other amount due and payable hereunder upon the date when said payment is due, as to which time is of the essence. (3) OTHER OBLIGATIONS. Failure to perform any obligation, agreement or covenant under this Lease other than those matters specified in subparagraphs (1) and (2) of this Paragraph 26.A., and in Paragraphs 8, 16, 18 and 25, such failure continuing for fifteen (15) days after written notice of such failure, as to which time is of the essence;provided, however, that if it would reasonably take more than fifteen (15) days to cure such default, Tenant shall not be in default hereunder if Tenant commences a cure within such fifteen (15) day period and diligently prosecutes such cure to completion within a forty five day period. Notwithstanding anything to the contrary contained in this Lease, the following shall constitute an event of default under this Paragraph 26.A(3) without any such notice or lapse of time: (i) failure to provide an estoppel certificate when and as required under Paragraph 18 hereof; (ii) failure to maintain insurance required under Paragraph 8 hereof; (iii) failure to vacate the Premises upon the expiration or earlier termination of this Lease; (iv) failure to comply with any obligation under this Lease pertaining to Hazardous Materials; (v) any other matter provided for in another subparagraph of this Paragraph 26.A or for which another time limit is provided elsewhere in this Lease. (4) GENERAL ASSIGNMENT. A general assignment by Tenant for the benefit of creditors. (5) BANKRUPTCY. The filing of any voluntary petition in bankruptcy by Tenant, or the filing of an involuntary petition by Tenant's creditors, which involuntary petition remains undischarged for a period of thirty (30) days. If under applicable law, the trustee in bankruptcy or Tenant has the right to affirm this Lease and continue to perform the obligations of Tenant hereunder, such trustee or Tenant shall, in such time period as may be permitted by the bankruptcy court having jurisdiction, cure all defaults of Tenant hereunder outstanding as of the date of the affirmance of this Lease and provide to Landlord such adequate assurances as may be necessary to ensure Landlord of the continued performance of Tenant's obligations under this Lease. (6) RECEIVERSHIP. The employment of a receiver to take possession of substantially all of Tenant's assets or the Premises, if such appointment remains undismissed or undischarged for a period of fifteen (15) days after the order therefor. (7) ATTACHMENT. The attachment, execution or other judicial seizure of all or substantially all of Tenant's assets or Tenant's leasehold of the Premises, if such attachment or other seizure remains undismissed or undischarged for a period of fifteen (15) days after the levy thereof. (8) INSOLVENCY. The admission by Tenant in writing of its inability to pay its debts as they become due. B. REMEDIES UPON DEFAULT. (1) TERMINATION. In the event of the occurrence of any event of default, Landlord shall have the right to give a written termination notice to Tenant, and on the date specified in such notice, Tenant's right to possession shall terminate, and this Lease 14 15 shall terminate unless on or before such date all Rent in arrears and all costs and expenses incurred by or on behalf of Landlord hereunder shall have been paid by Tenant and all other events of default of this Lease by Tenant at the time existing shall have been fully remedied to the satisfaction of Landlord. At any time after such termination, Landlord may recover possession of the Premises or any part thereof and expel and remove therefrom Tenant and any other person occupying the same, including any subtenant or subtenants notwithstanding Landlord's consent to any sublease, by any lawful means, and again repossess and enjoy the Premises without prejudice to any of the remedies that Landlord may have under this Lease, or at law or equity by any reason of Tenant's default or of such termination. Landlord hereby reserves the right, but shall not have the obligation, to recognize the continued possession of any subtenant. The delivery or surrender to Landlord by or on behalf of Tenant of keys, entry codes, or other means to bypass security at the Premises shall not terminate this Lease. (2) CONTINUATION AFTER DEFAULT. Even though an event of default may have occurred, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession under Paragraph 26.B.(1) hereof. Landlord shall have the remedy described in California Civil Code Section 1951.4 ("Landlord may continue this Lease in effect after Tenant's breach and abandonment and recover Rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitations"), or any successor code section. Accordingly, if Landlord does not elect to terminate this Lease on account of any event of default by Tenant, Landlord may enforce all of Landlord's rights and remedies under this Lease, including the right to recover Rent as it becomes due. Acts of maintenance, preservation or efforts to lease the Premises or the appointment of a receiver under application of Landlord to protect Landlord's interest under this Lease or other entry by Landlord upon the Premises shall not constitute an election to terminate Tenant's right to possession. (3) INCREASED SECURITY DEPOSIT. If Tenant is in default under Paragraph 26.A.(2) hereof and such default remains uncured for ten (10) days after such occurrence or such default occurs more than three times in any twelve (12) month period, Landlord may require that Tenant increase the Security Deposit to the amount of three times the current month's Rent at the time of the most recent default. C. DAMAGES AFTER DEFAULT. Should Landlord terminate this Lease pursuant to the provisions of Paragraph 26.B.(1) hereof, Landlord shall have the rights and remedies of a Landlord provided by Section 1951.2 of the Civil Code of the State of California, or any successor code sections. Upon such termination, in addition to any other rights and remedies to which Landlord may be entitled under applicable law or at equity, Landlord shall be entitled to recover from Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts which had been earned at the time of termination, (2) the worth at the time of award of the amount by which the unpaid Rent and other amounts that would have been earned after the date of termination until the time of award exceeds the amount of such Rent loss that Tenant proves could have been reasonably avoided; (3) the worth at the time of award of the amount by which the unpaid Rent and other amounts for the balance of the Term after the time of award exceeds the amount of such Rent loss that the Tenant proves could be reasonably avoided; and (4) any other amount and court costs necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease or which, in the ordinary course of things, would be likely to result therefrom. The "worth at the time of award" as used in (1) and (2) above shall be computed at the Applicable Interest Rate (defined below). The "worth at the time of award" as used in (3) above shall be computed by discounting such amount at the Federal Discount Rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). If this Lease provides for any periods during the Term during which Tenant is not required to pay Base Rent or if Tenant otherwise receives a Rent concession, then upon the occurrence of an event of default, Tenant shall owe to Landlord the full amount of such Base Rent or value of such Rent concession, plus interest at the Applicable Interest Rate, calculated from the date that such Base Rent or Rent concession would have been payable. D. LATE CHARGE. In addition to its other remedies, Landlord shall have the right without notice or demand to add to the amount of any payment required to be made by Tenant hereunder, and which is not paid and received by Landlord on or before the first day of each calendar month, an amount equal to five percent (5%) of the delinquent amount, or $150.00, whichever amount is greater, for each month or portion thereof that the delinquency remains outstanding to compensate Landlord for the loss of the use of the amount not paid and the administrative costs caused by the delinquency, the parties agreeing that Landlord's damage by virtue of such delinquencies would be extremely difficult and impracticable to compute and the amount stated herein represents a reasonable estimate thereof. Any waiver by Landlord of any late charges or failure to claim the same shall not constitute a waiver of other late charges or any other remedies available to Landlord. E. INTEREST. Interest shall accrue on all sums not paid when due hereunder at the lesser of eighteen percent (18%) per annum or the maximum interest rate allowed by law ("APPLICABLE INTEREST RATE") from the due date until paid. F. REMEDIES CUMULATIVE. All of Landlord's rights, privileges and elections or remedies are cumulative and not alternative, to the extent permitted by law and except as otherwise provided herein. REPLACEMENT OF STATUTORY NOTICE REQUIREMENTS. When this Lease requires service of a notice, that notice shall replace rather than supplement any equivalent or similar statutory notice, including any notice required by California Code of Civil Procedure Section 1161 or any similar or successor statute. When a statute requires service of a notice in a particular manner, service of that notice (or a similar notice required by this Lease) in the manner required by this Paragraph 26 shall replace and satisfy the statutory service-of-notice procedures, including those required by California Code of Civil Procedure Section 1162 or any similar or successor statute. 27. LIENS Tenant shall at all times keep the Premises and the Project free from liens arising out of or related to work or services performed, materials or supplies furnished or obligations incurred by or on behalf of Tenant or in connection with work made, suffered or done by or on behalf of Tenant in or on the Premises or Project. If Tenant shall not, within ten (10) days following the imposition of any such lien, cause the same to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause the same to be released by such means as Landlord shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord on behalf of Tenant and all expenses incurred by Landlord in connection therefor shall be payable to Landlord by Tenant on demand with interest at the Applicable Interest Rate as Additional Rent. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper, for the protection of Landlord, the Premises, the Project and any other party having an interest therein, from mechanics' and materialmen's liens, and Tenant shall give Landlord not less than ten (10) business days prior written notice of the commencement of any work in the Premises or Project which could lawfully give rise to a claim for mechanics' or materialmen's liens to permit Landlord to post and record a timely notice of non-responsibility, as Landlord may elect to proceed or as the law may from time to time provide, for which purpose, if Landlord shall so determine, Landlord may enter the Premises. Tenant shall not remove any such notice posted by Landlord without Landlord's consent, and in any event not before completion of the work which could lawfully give rise to a claim for mechanics' or materialmen's liens. 15 16 28. SUBSTITUTION [INTENTIONALLY DELETED] 29. TRANSFERS BY LANDLORD In the event of a sale or conveyance by Landlord of the Building or a foreclosure by any creditor of Landlord, the same shall operate to release Landlord from any liability upon any of the covenants or conditions, express or implied, herein contained in favor of Tenant, to the extent required to be performed after the passing of title to Landlord's successor-in-interest; provided that Landlord delivers the Security Deposit (including the Letter of Credit) to such creditor or transferee. In such event, Tenant agrees to look solely to the responsibility of the successor-in-interest of Landlord under this Lease with respect to the performance of the covenants and duties of "Landlord" to be performed after the passing of title to Landlord's successor-in-interest. This Lease shall not be affected by any such sale and Tenant agrees to attorn to the purchaser or assignee. Landlord's successor(s)-in-interest shall not have liability to Tenant with respect to the failure to perform any of the obligations of "Landlord," to the extent required to be performed prior to the date such successor(s)-in-interest became the owner of the Building. 30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of Rent. If Tenant shall fail to pay any sum of money, other than Base Rent, required to be paid by Tenant hereunder or shall fail to perform any other act on Tenant's part to be performed hereunder, including Tenant's obligations under Paragraph 11 hereof, and such failure shall continue for fifteen (15) days after notice thereof by Landlord, in addition to the other rights and remedies of Landlord, Landlord may make any such payment and perform any such act on Tenant's part. In the case of an emergency, no prior notification by Landlord shall be required. Landlord may take such actions without any obligation and without releasing Tenant from any of Tenant's obligations. All sums so paid by Landlord and all incidental costs incurred by Landlord and interest thereon at the Applicable Interest Rate, from the date of payment by Landlord, shall be paid to Landlord on demand as Additional Rent. 31. WAIVER If either Landlord or Tenant waives the performance of any term, covenant or condition contained in this Lease, such waiver shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition contained herein, or constitute a course of dealing contrary to the expressed terms of this Lease. The acceptance of Rent by Landlord shall not constitute a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, regardless of Landlord's knowledge of such preceding breach at the time Landlord accepted such Rent. Failure by Landlord to enforce any of the terms, covenants or conditions of this Lease for any length of time shall not be deemed to waive or decrease the right of Landlord to insist thereafter upon strict performance by Tenant. Waiver by Landlord of any term, covenant or condition contained in this Lease may only be made by a written document signed by Landlord, based upon full knowledge of the circumstances. 32. NOTICES Each provision of this Lease or of any applicable governmental laws, ordinances, regulations and other requirements with reference to sending, mailing, or delivery of any notice or the making of any payment by Landlord or Tenant to the other shall be deemed to be complied with when and if the following steps are taken: A. RENT. All Rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord at Landlord's Remittance Address set forth in the Basic Lease Information, or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. Tenant's obligation to pay Rent and any other amounts to Landlord under the terms of this Lease shall not be deemed satisfied until such Rent and other amounts have been actually received by Landlord. B. OTHER. All notices, demands, consents and approvals which may or are required to be given by either party to the other hereunder shall be in writing and either personally delivered, sent by commercial overnight courier, mailed, certified or registered, postage prepaid or sent by facsimile with confirmed receipt (and with an original sent by commercial overnight courier), and in each case addressed to the party to be notified at the Notice Address for such party as specified in the Basic Lease Information or to such other place as the party to be notified may from time to time designate by at least fifteen (15) days notice to the notifying party. Notices shall be deemed served upon receipt or refusal to accept delivery. Tenant appoints as its agent to receive the service of all default notices and notice of commencement of unlawful detainer proceedings the person in charge of or apparently in charge of occupying the Premises at the time, and, if there is no such person, then such service may be made by attaching the same on the main entrance of the Premises. C. REQUIRED NOTICES. Tenant shall immediately notify Landlord in writing of any notice of a violation or a potential or alleged violation of any Regulation that relates to the Premises or the Project, or of any inquiry, investigation, enforcement or other action that is instituted or threatened by any governmental or regulatory agency against Tenant or any other occupant of the Premises, or any claim that is instituted or threatened by any third party that relates to the Premises or the Project. 33. ATTORNEYS' FEES If Landlord places the enforcement of this Lease, or any part thereof, or the collection of any Rent due, or to become due hereunder, or recovery of possession of the Premises in the hands of an attorney, Tenant shall pay to Landlord, upon demand, Landlord's reasonable attorneys' fees and court costs, whether incurred at trial, appeal or review. In any action which Landlord or Tenant brings to enforce its respective rights hereunder, the unsuccessful party shall pay all costs incurred by the prevailing party including reasonable attorneys' fees, to be fixed by the court, and said costs and attorneys' fees shall be a part of the judgment in said action. 34. SUCCESSORS AND ASSIGNS This Lease shall be binding upon and inure to the benefit of Landlord, its successors and assigns, and shall be binding upon and inure to the benefit of Tenant, its successors, and to the extent assignment is approved by Landlord as provided hereunder, Tenant's assigns. 35. FORCE MAJEURE If performance by a party of any portion of this Lease is made impossible by any prevention, delay, or stoppage caused by strikes, lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes for those items, government actions, civil commotions, fire or other casualty, or other causes beyond the reasonable control of the party obligated to perform, performance by that party for a period equal to the period of that prevention, delay, or stoppage is excused. Tenant's obligation to pay Rent, however, is not excused by this Paragraph 35. 16 17 36. SURRENDER OF PREMISES Tenant shall, upon expiration or sooner termination of this Lease, surrender the Premises to Landlord in the same condition as existed on the date Tenant originally took possession thereof, reasonable wear and tear, casualty and condemnation excepted, including, but not limited to, all interior walls cleaned, all holes in walls repaired, all carpets cleaned, all HVAC equipment in operating order and in good repair, and all floors broom clean, and free of any Tenant-introduced marking or painting, all to the reasonable satisfaction of Landlord. Tenant shall remove all of its debris from the Project. At or before the time of surrender, Tenant shall comply with the terms of Paragraph 12.A. hereof with respect to Alterations to the Premises and all other matters addressed in such Paragraph. If the Premises are not so surrendered at the expiration or sooner termination of this Lease, the provisions of Paragraph 25 hereof shall apply. All keys to the Premises or any part thereof shall be surrendered to Landlord upon expiration or sooner termination of the Term. Tenant shall give written notice to Landlord at least thirty (30) days prior to vacating the Premises and shall meet with Landlord for a joint inspection of the Premises at the time of vacating, but nothing contained herein shall be construed as an extension of the Term or as a consent by Landlord to any holding over by Tenant. In the event of Tenant's failure to give such notice or participate in such joint inspection, Landlord's inspection at or after Tenant's vacating the Premises shall conclusively be deemed correct for purposes of determining Tenant's responsibility for repairs and restoration. Any delay caused by Tenant's failure to carry out its obligations under this Paragraph 36 beyond the term hereof, shall constitute unlawful and illegal possession of Premises under Paragraph 25 hereof. 37. HAZARDOUS MATERIALS A. GENERAL RESTRICTIONS. Tenant shall conduct its business and shall cause each Tenant Party to act in such a manner as to (a) not release or permit the release of any Hazardous Material in, under, on or about the Premises or Project, or (b) not use, store, generate, treat, discharge, disperse, handle, manufacture, transport or dispose of (collectively, "Handle") any Hazardous Materials (other than incidental amounts of customary cleaning and office supplies) in or about the Premises or Project without the prior written consent of Landlord, which consent Landlord may withhold in its sole and absolute discretion ("Hazardous Materials Consent Requirements"). "Hazardous Material" means any hazardous, explosive, radioactive or toxic substance, material or waste which is or becomes regulated by any local, state or federal governmental authority or agency, including, without limitation, any material or substance which is (i) defined or listed as a "hazardous waste," "extremely hazardous waste," "restricted hazardous waste," "hazardous substance," "hazardous material," "pollutant" or "contaminant" under any Regulation, (ii) petroleum or petroleum derivative, (iii) a flammable explosive, (iv) a radioactive material or waste, (v) a polychlorinated biphenyl, (vi) asbestos or asbestos containing material, (vii) infectious waste, or (viii) a carcinogen. B. REQUIRED DISCLOSURES. Prior to Tenant (and at least five (5) days prior to any assignee or any subtenant of Tenant) taking possession of any part of the Premises, and on each anniversary of the Term Commencement Date (each such date is hereinafter referred to as a "Disclosure Date"), until and including the first Disclosure Date occurring after the expiration or sooner termination of this Lease, Tenant shall disclose to Landlord in writing the names and amounts of all Hazardous Materials, or any combination thereof, which were Handled on, in, under or about the Premises or Project for the twelve (12) month period prior to such Disclosure Date, or which Tenant intends to Handle on, under or about the Premises during the twelve (12) month period following the Disclosure Date by executing and delivering to Landlord a "Hazardous Materials Questionnaire", in the form attached hereto as EXHIBIT D (as updated and modified by Landlord, from time to time). Tenant's disclosure obligations under this Paragraph 37.B shall include a requirement that, to the extent any information contained in a Hazardous Materials Questionnaire previously delivered by Tenant shall become inaccurate in any material respect, Tenant shall immediately deliver to Landlord a new updated Hazardous Materials Questionnaire. C. ADDITIONAL OBLIGATIONS. If any Hazardous Materials shall be released into the environment comprising or surrounding the Project in connection with the acts, omissions or operations of Tenant or any Tenant Party, Tenant shall at its sole expense promptly prepare a remediation plan therefor consistent with applicable Regulations and recommended industry practices (and approved by Landlord and all governmental agencies having jurisdiction) to fully remediate such release, and thereafter shall prosecute the remediation plan so approved to completion with all reasonable diligence and to the satisfaction of Landlord and applicable governmental agencies. If any Hazardous Materials are Handled in, under, on or about the Premises during the Term, or if Landlord determines in good faith that any release of any Hazardous Material by Tenant or any Tenant Parties or the violation of Hazardous Materials Regulations by Tenant or any Tenant Parties may have occurred in, on, under or about the Premises during the Term, Landlord may require Tenant to at Tenant's sole expense, (i) retain a qualified environmental consultant reasonably satisfactory to Landlord to conduct a reasonable investigation (an "Environmental Assessment") of a nature and scope reasonably approved in writing in advance by Landlord with respect to the existence of any Hazardous Materials in, on, under or about the Premises and providing a review of all Hazardous Materials activities of Tenant and the Tenant Parties, and (ii) provide to Landlord a reasonably detailed, written report, prepared in accordance with the institutional real estate standards, of the Environmental Assessment. D. INDEMNITY. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord harmless from and against any and all claims, liabilities, losses, costs, loss of rents, liens, damages, injuries or expenses (including attorneys' and consultants' fees and court costs), demands, causes of action, or judgments directly or indirectly arising out of or related to the use, generation, storage, release, or disposal of Hazardous Materials by Tenant or any of Tenant's Parties in, on, under or about the Premises, the Building or the Project or surrounding land or environment, which indemnity shall include, without limitation, damages for personal or bodily injury, property damage, damage to the environment or natural resources occurring on or off the Premises, losses attributable to diminution in value or adverse effects on marketability, the cost of any investigation, monitoring, government oversight, repair, removal, remediation, restoration, abatement, and disposal, and the preparation of any closure or other required plans, whether such action is required or necessary prior to or following the expiration or earlier termination of this Lease. Neither the consent by Landlord to the use, generation, storage, release or disposal of Hazardous Materials nor the strict compliance by Tenant with all laws pertaining to Hazardous Materials shall excuse Tenant from Tenant's obligation of indemnification pursuant to this Paragraph 37.D. Tenant's obligations pursuant to the foregoing indemnity shall survive the expiration or earlier termination of this Lease. E. LANDLORD INDEMNITY. Landlord shall indemnify, defend and hold Tenant harmless from and against any and all claims, judgments, damages, penalties, fines, costs, liabilities or losses, including without limitation reasonable attorneys' fees and costs, arising out of any Hazardous Material in, on or about the Project or the Premises which was created, handled, placed, stored, used, transported or disposed of or otherwise exists in, on or about the Premises in violation of applicable Regulations, excluding, however, any Hazardous Material whose presence was caused by Tenant or any Tenant's Parties. Landlord's obligations pursuant to the foregoing indemnity shall survive the expiration or earlier termination of this Lease. 38. MISCELLANEOUS A. GENERAL. The term "Tenant" or any pronoun used in place thereof shall indicate and include the masculine or feminine, the singular or plural number, individuals, firms or corporations, and their respective successors, executors, administrators and permitted assigns, according to the context hereof. B. TIME. Time is of the essence regarding this Lease and all of its provisions. 17 18 C. CHOICE OF LAW. This Lease shall in all respects be governed by the laws of the State of California. D. ENTIRE AGREEMENT. This Lease, together with its Exhibits, addenda and attachments and the Basic Lease Information, contains all the agreements of the parties hereto and supersedes any previous negotiations. There have been no representations made by the Landlord or understandings made between the parties other than those set forth in this Lease and its Exhibits, addenda and attachments and the Basic Lease Information. E. MODIFICATION. This Lease may not be modified except by a written instrument signed by the parties hereto. Tenant accepts the area of the Premises as specified in the Basic Lease Information as the approximate area of the Premises for all purposes under this Lease, and acknowledges and agrees that no other definition of the area (rentable, usable or otherwise) of the Premises shall apply. Tenant shall in no event be entitled to a recalculation of the square footage of the Premises, rentable, usable or otherwise, and no recalculation, if made, irrespective of its purpose, shall reduce Tenant's obligations under this Lease in any manner, including without limitation the amount of Base Rent payable by Tenant or Tenant's Proportionate Share of the Building and of the Project. F. SEVERABILITY. If, for any reason whatsoever, any of the provisions hereof shall be unenforceable or ineffective, all of the other provisions shall be and remain in full force and effect. G. RECORDATION. Tenant shall not record this Lease or a short form memorandum hereof. H. EXAMINATION OF LEASE. Submission of this Lease to Tenant does not constitute an option or offer to lease and this Lease is not effective otherwise until execution and delivery by both Landlord and Tenant. I. ACCORD AND SATISFACTION. No payment by Tenant of a lesser amount than the total Rent due nor any endorsement on any check or letter accompanying any check or payment of Rent shall be deemed an accord and satisfaction of full payment of Rent, and Landlord may accept such payment without prejudice to Landlord's right to recover the balance of such Rent or to pursue other remedies. All offers by or on behalf of Tenant of accord and satisfaction are hereby rejected in advance. J. EASEMENTS. Landlord may grant easements on the Project and dedicate for public use portions of the Project without Tenant's consent; provided that no such grant or dedication shall materially interfere with Tenant's Permitted Use of the Premises. Upon Landlord's request, Tenant shall execute, acknowledge and deliver to Landlord documents, instruments, maps and plats necessary to effectuate Tenant's covenants hereunder. K. DRAFTING AND DETERMINATION PRESUMPTION. The parties acknowledge that this Lease has been agreed to by both the parties, that both Landlord and Tenant have consulted with attorneys with respect to the terms of this Lease and that no presumption shall be created against Landlord because Landlord drafted this Lease.Except as otherwise specifically set forth in this Lease, with respect to any consent, determination or estimation of Landlord required or allowed in this Lease or requested of Landlord, Landlord's consent, determination or estimation shall be given or made solely by Landlord in Landlord's good faith opinion, whether or not objectively reasonable. Except as expressly set forth in this Lease, if Landlord fails to respond to any request for its consent within the time period, if any, specified in this Lease, Landlord shall be deemed to have disapproved such request. L. EXHIBITS. The Basic Lease Information, and the Exhibits, addenda and attachments attached hereto are hereby incorporated herein by this reference and made a part of this Lease as though fully set forth herein. M. NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of light, air or view by any structure which may be erected on lands adjacent to or in the vicinity of the Building shall in no way affect this Lease or impose any liability on Landlord. N. NO THIRD PARTY BENEFIT. This Lease is a contract between Landlord and Tenant and nothing herein is intended to create any third party benefit. O. QUIET ENJOYMENT. Upon payment by Tenant of the Rent, and upon the observance and performance of all of the other covenants, terms and conditions on Tenant's part to be observed and performed, Tenant shall peaceably and quietly hold and enjoy the Premises for the term hereby demised without hindrance or interruption by Landlord or any other person or persons lawfully or equitably claiming by, through or under Landlord, subject, nevertheless, to all of the other terms and conditions of this Lease. Landlord shall not be liable for any hindrance, interruption, interference or disturbance by other tenants or third persons, nor shall Tenant be released from any obligations under this Lease because of such hindrance, interruption, interference or disturbance. P. COUNTERPARTS. This Lease may be executed in any number of counterparts, each of which shall be deemed an original. Q. MULTIPLE PARTIES. If more than one person or entity is named herein as Tenant, such multiple parties shall have joint and several responsibility to comply with the terms of this Lease. R. PRORATIONS. Any Rent or other amounts payable to Landlord by Tenant hereunder for any fractional month shall be prorated based on a month of 30 days. As used herein, the term "fiscal year" shall mean the calendar year or such other fiscal year as Landlord may deem appropriate. 39. ADDITIONAL PROVISIONS A. ADDENDUM 1: PARAGRAPH 6, BASE RENT. Base Rent, net of Estimated Operating Expenses per Paragraph 7 of this Lease, for the Premises at 380 North Bernardo Avenue in Mountain View, California shall be as follows: MONTHS 1-12: Base Rent shall be $140,345.00 per month. In addition to Base Rent, Tenant shall also pay Tenant's proportionate share of Estimated Operating Expenses as set forth in Paragraph 7 of the Lease Agreement. Operating Expenses are initially estimated to be $10,063.20 per month. Operating Expenses are estimated a year in advance and collected on a monthly basis. Any adjustments (up or down) will be made at the end of the calendar year. MONTHS 13-24: Base Rent shall be $145,959.00 per month. In addition to Base Rent, Tenant shall also pay Tenant's proportionate share of Estimated Operating Expenses as set forth in Paragraph 7 of the Lease Agreement. MONTHS 25-36: Base Rent shall be $151,797.00 per month. In addition to Base Rent, Tenant shall also pay Tenant's proportionate share of Estimated Operating Expenses as set forth in Paragraph 7 of the Lease Agreement. 18 19 MONTHS 37-48: Base Rent shall be $157,869.00 per month. In addition to Base Rent, Tenant shall also pay Tenant's proportionate share of Estimated Operating Expenses as set forth in Paragraph 7 of the Lease Agreement. MONTHS 49-60: Base Rent shall be $164,184.00 per month. In addition to Base Rent, Tenant shall also pay Tenant's proportionate share of Estimated Operating Expenses as set forth in Paragraph 7 of the Lease Agreement. MONTHS 61-72: Base Rent shall be $170,751.00 per month. In addition to Base Rent, Tenant shall also pay Tenant's proportionate share of Estimated Operating Expenses as set forth in Paragraph 7 of the Lease Agreement. MONTHS 73-84: Base Rent shall be $177,581.00 per month. In addition to Base Rent, Tenant shall also pay Tenant's proportionate share of Estimated Operating Expenses as set forth in Paragraph 7 of the Lease Agreement. MONTHS 85-96: Base Rent shall be $184,684.00 per month. In addition to Base Rent, Tenant shall also pay Tenant's proportionate share of Estimated Operating Expenses as set forth in Paragraph 7 of the Lease Agreement. B. LETTER OF CREDIT (1) DELIVERY OF LETTER OF CREDIT. Tenant shall, on execution of this Lease, deliver to Landlord and cause to be in effect during the Lease Term an unconditional, irrevocable letter of credit ("LOC") in the amount specified for the Security Deposit in the Basic Lease Information, as it may be increased as provided in this Lease (the "LOC AMOUNT") for an initial term of one (1) year and thereafter shall renew automatically from year to year through 30 days beyond the expiration date of this Lease or any extension thereto. The LOC shall be in a form acceptable to Landlord and shall be (i) issued by an LOC bank selected by Tenant and acceptable to Landlord The text of the LOC shall expressly state that the LOC shall survive the termination of this Lease. An LOC bank is a bank that accepts deposits, maintains accounts, has a local office that will negotiate a letter of credit, and the deposits of which are insured by the Federal Deposit Insurance Corporation. Tenant shall pay all expenses, points, or fees incurred by Tenant in obtaining the LOC. The LOC shall not be mortgaged, assigned or encumbered in any manner whatsoever by Tenant without the prior written consent of Landlord. Tenant acknowledges that Landlord has the right to transfer or mortgage its interest in the Project, the Building and in this Lease and Tenant agrees that in the event of any such transfer or mortgage, Landlord shall have the right to transfer or assign the LOC and/or the LOC Security Deposit (as defined below) to the transferee or mortgagee, and in the event of such transfer, Tenant shall look solely to such transferee or mortgagee for the return of the LOC and/or the LOC Security Deposit. Tenant shall, within ten (10) business days of request by Landlord, execute such further instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm Landlord's transfer or assignment of the LOC Security Deposit and/or the LOC to such transferee or mortgagee. (2) REPLACEMENT OF LETTER OF CREDIT. Tenant may, from time to time, replace any existing LOC with a new LOC if the new LOC (a) becomes effective at least thirty (30) days before expiration of the LOC that it replaces; (b) is in the required LOC amount; (c) is issued by an LOC bank acceptable to Landlord; and (d) otherwise complies with the requirements of this Paragraph 39 B. (3) LANDLORD'S RIGHT TO DRAW ON LETTER OF CREDIT. Landlord shall hold the LOC as security for the performance of Tenant's obligations under this Lease. If, after notice and failure to cure within any applicable period provided in this Lease, Tenant defaults on any provision of this Lease, Landlord may, without prejudice to any other remedy it has, draw on all or any portion of the LOC necessary to (a) pay Rent or other sum in default; (b) pay or reimburse Landlord for any amount that Landlord may spend or become obligated to spend in exercising Landlord's rights under Paragraph 30 (Right of Landlord to Perform Tenant's Covenant); and/or (c) compensate Landlord for any expense, loss, or damage that Landlord may suffer because of Tenant's default. The use, application or retention of the LOC, or any portion thereof, by Landlord shall not prevent Landlord from exercising any other right or remedy provided by this Lease or by law, it being intended that Landlord shall not first be required to proceed against the LOC and shall not operate as a limitation on any recovery to which Landlord may otherwise be entitled. If Tenant fails to renew or replace the LOC at least thirty (30) days before its expiration, Landlord may, without prejudice to any other remedy it has, draw on the entire amount of the LOC. (4) LOC SECURITY DEPOSIT. Any amount of the LOC that is drawn on by Landlord but not applied by Landlord shall be held by Landlord as a security deposit (the "LOC SECURITY DEPOSIT") in accordance with Paragraph 19 of this Lease. (5) RESTORATION OF LETTER OF CREDIT AND LOC SECURITY DEPOSIT. If Landlord draws on all or any portion of the LOC and/or applies all or any portion of such draw, Tenant shall, within five (5) business days after demand by Landlord, either (a) deposit cash with Landlord in an amount that, when added to the amount remaining under the LOC and the amount of any LOC Security Deposit, shall equal the LOC Amount then required under this Paragraph 39 B; or (b) reinstate the LOC to the full LOC Amount. (6) REDUCTION OF LETTER OF CREDIT. The LOC Amount may be reduced at the times and to the corresponding amounts specified in this Paragraph 39(B)(6) if the following conditions are satisfied to Landlord's sole satisfaction in each case: (i) Tenant is not and has not been in material default under the terms of this Lease beyond any applicable cure period, (ii) Tenant provides to Landlord ten (10) days prior written notice of any such reduction; (iii) the LOC provides that the issuing bank shall notify Landlord in writing at least five (5) business days prior to any such reduction, (iv) Tenant requests such reduction in writing and delivers to Landlord Tenant's Financial Information (as defined below) with such written request, and (v) each of the conditions precedent described below is satisfied to Landlord's satisfaction. For purposes of this Subparagraph 39(B)(6), "Tangible Net Worth" shall be determined by Landlord in its sole discretion and shall mean assets less intangible assets and total liabilities, with intangible assets including nonmaterial benefits such as goodwill, patents, copyrights, and trademarks, and "Tenant's Financial Information" shall mean Tenant's financial statements prepared in accordance with generally accepted accounting principles and audited by a nationally recognized public accounting firm acceptable to Landlord, and any other financial information requested by Landlord. If: (i) Tenant has a Tangible Net Worth in excess of Three Hundred Million and No/100 Dollars ($300,000,000.00) which amount shall be determined by Landlord to its satisfaction prior to any reduction in the LOC Amount. Tenant shall deliver to Landlord for review Tenant's Financial Information as provided above; and (ii) Tenant's Financial Information reflects four (4) consecutive calendar quarters of profitability, as determined by Landlord during the time period immediately preceding Tenant's request for reduction in the LOC Amount, then the following reductions in the LOC Amount may be made in accordance with the terms of this Paragraph __._: 19 20 a. At any time after the end of the twenty-fourth (24th) month following the Term Commencement Date, the LOC Amount may be reduced to an amount equal to one million six hundred thousand and No/100 Dollars ($1,600,000.00); b. At any time after the end of the thirty-sixth (36th) month following the Term Commencement Date, the LOC Amount may be reduced to an amount equal to one million two hundred thousand and No/100 Dollars ($1,200,000.00); c. At any time after the end of the forty-eighth (48th) month following the Term Commencement Date, the LOC Amount may be reduced to an amount equal to eight hundred thousand and No/100 Dollars ($800,000.00); d. At any time after the end of the sixtieth (60th) month following the Term Commencement Date, the LOC Amount may be reduced to an amount equal to four hundred thousand and No/100 Dollars ($400,000.00). e. At any time after the end of the seventy-second (72nd) month following the Term Commencement Date, the LOC Amount may be reduced to amount equal to zero Dollars ($0.00). In the event that any of the above described reductions to the LOC is made and, subsequently, Tenant fails to meet the corresponding profitability and Tangible Net Worth condition precedent for a period of thirty (30) days following delivery by Landlord of written notice of any such failure, Tenant shall within forty-eight (48) hours, increase the face amount of the LOC to an amount equal to the original LOC Amount. If Tenant fails to increase the LOC Amount as provided above, such failure shall constitute a default hereunder (which default shall not be subject to any cure rights afforded anywhere in this Lease) and Landlord shall be entitled to draw on the LOC for the full LOC Amount and hold such LOC Amount as a Security Deposit in accordance with the terms of this Lease. 40. JURY TRIAL WAIVER EACH PARTY HERETO (WHICH INCLUDES ANY ASSIGNEE, SUCCESSOR HEIR OR PERSONAL REPRESENTATIVE OF A PARTY) SHALL NOT SEEK A JURY TRIAL, HEREBY WAIVES TRIAL BY JURY, AND HEREBY FURTHER WAIVES ANY OBJECTION TO VENUE IN THE COUNTY IN WHICH THE BUILDING IS LOCATED, AND AGREES AND CONSENTS TO PERSONAL JURISDICTION OF THE COURTS OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IN ANY ACTION OR PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY STATUTE, EMERGENCY OR OTHERWISE, WHETHER ANY OF THE FOREGOING IS BASED ON THIS LEASE OR ON TORT LAW. EACH PARTY REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL CONCERNING THE EFFECT OF THIS PARAGRAPH 40. THE PROVISIONS OF THIS PARAGRAPH 40 SHALL SURVIVE THE EXPIRATION OR EARLIER TERMINATION OF THIS LEASE. 41. BROKER'S FEES Tenant and Landlord each represent to the other that they have dealt with no real estate brokers, finders, agents or salesmen other than BT Commercial Real Estate ("Tenant's Broker"), representing Tenant, in connection with this transaction. Each party agrees to hold the other party harmless from and against all claims for brokerage commissions, finder's fees or other compensation made by any other agent, broker, salesman or finder as a consequence of said party's actions or dealings with such agent, broker, salesman, or finder. Landlord shall pay the brokerage commission due and payable to Tenant's Broker with respect to this transaction pursuant to a separate agreement. 20 21 IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and the year first above written. LANDLORD Spieker Properties, L.P., a California limited partnership By: Spieker Properties, Inc., a Maryland corporation, its general partner By: /s/ ERIC T. LUHRS ------------------------------------- Eric T. Luhrs Its: Vice President Date: 5/10 , 00 -------------- ---- TENANT Handspring, Inc. a Delaware corporation By: /s/ BERNARD J. WHITNEY ------------------------------------- Bernard J. Whitney Its: Chief Financial Officer Date: , -------------- ---- 21 22 EXHIBIT A INDUSTRIAL LEASE RULES AND REGULATIONS 1. Driveways, sidewalks, halls, passages, exits, entrances, elevators, escalators and stairways shall not be obstructed by tenants or used by tenants for any purpose other than for ingress to and egress from their respective premises. The driveways, sidewalks, halls, passages, exits, entrances, elevators and stairways are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence, in the judgment of Landlord, shall be prejudicial to the safety, character, reputation and interests of the Building, the Project and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of such tenant's business unless such persons are engaged in illegal activities. No tenant, and no employees or invitees of any tenant, shall go upon the roof of any Building, except as authorized by Landlord. 2. No sign, placard, banner, picture, name, advertisement or notice, visible from the exterior of the Premises or the Building or the common areas of the Building shall be inscribed, painted, affixed, installed or otherwise displayed by Tenant either on its Premises or any part of the Building or Project without the prior written consent of Landlord in Landlord's sole and absolute discretion. Landlord shall have the right to remove any such sign, placard, banner, picture, name, advertisement, or notice without notice to and at the expense of Tenant, which were installed or displayed in violation of this rule. If Landlord shall have given such consent to Tenant at any time, whether before or after the execution of Tenant's Lease, such consent shall in no way operate as a waiver or release of any of the provisions hereof or of the Lease, and shall be deemed to relate only to the particular sign, placard, banner, picture, name, advertisement or notice so consented to by Landlord and shall not be construed as dispensing with the necessity of obtaining the specific written consent of Landlord with respect to any other such sign, placard, banner, picture, name, advertisement or notice. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person or vendor approved by Landlord and shall be removed by Tenant at the time of vacancy at Tenant's expense. 3. The directory of the Building or Project will be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to charge for the use thereof and to exclude any other names therefrom. 4. No curtains, draperies, blinds, shutters, shades, screens or other coverings, awnings, hangings or decorations shall be attached to, hung or placed in, or used in connection with, any window or door on the Premises without the prior written consent of Landlord. In any event with the prior written consent of Landlord, all such items shall be installed inboard of Landlord's standard window covering and shall in no way be visible from the exterior of the Building. All electrical ceiling fixtures hung in offices or spaces along the perimeter of the Building must be fluorescent or of a quality, type, design, and bulb color approved by Landlord. No articles shall be placed or kept on the windowsills so as to be visible from the exterior of the Building. No articles shall be placed against glass partitions or doors which Landlord considers unsightly from outside Tenant's Premises. 5. Each tenant shall be responsible for all persons for whom it allows to enter the Building or the Project and shall be liable to Landlord for all acts of such persons. Landlord and its agents shall not be liable for damages for any error concerning the admission to, or exclusion from, the Building or the Project of any person. During the continuance of any invasion, mob, riot, public excitement or other circumstance rendering such action advisable in Landlord's opinion, Landlord reserves the right (but shall not be obligated) to prevent access to the Building and the Project during the continuance of that event by any means it considers appropriate for the safety of tenants and protection of the Building, property in the Building and the Project. 6. Tenant shall not alter any lock or access device or install a new or additional lock or access device or bolt on any door of its Premises, without the prior written consent of Landlord. If Landlord shall give its consent, Tenant shall in each case furnish Landlord with a key for any such lock. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys for all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor. 7. The restrooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown into them. The expense of any breakage, stoppage, or damage resulting from violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused the breakage, stoppage, or damage. 8. Tenant shall not use or keep in or on the Premises, the Building or the Project any kerosene, gasoline, or inflammable or combustible fluid or material except in strict accordance with the terms of the Lease. 9. Tenant shall not use, keep or permit to be used or kept in its Premises any foul or noxious gas or substance. Tenant shall not allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors and/or vibrations or interfere in any way with other tenants or those having business therein, nor shall any animals or birds be brought or kept in or about the Premises, the Building, or the Project. 10. Except with the prior written consent of Landlord, Tenant shall not sell, or permit the sale, at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise in or on the Premises, nor shall Tenant carry on, or permit or allow any employee or other person to carry on, the business of stenography, typewriting or any similar business in or from the Premises for the service or accommodation of occupants of any other portion of the Building, or the business of a public barber shop, beauty parlor, nor shall the Premises be used for any illegal, improper, immoral or objectionable purpose, or any business or activity other than that specifically provided for in such Tenant's Lease. Tenant shall not accept hairstyling, barbering, shoeshine, nail, massage or similar services in the Premises or common areas except as authorized by Landlord. 11. If Tenant requires telegraphic, telephonic, telecommunications, data processing, burglar alarm or similar services, it shall first obtain, and comply with, Landlord's instructions in their installation. The cost of purchasing, installation and maintenance of such services shall be borne solely by Tenant. 12. Landlord will direct electricians as to where and how telephone, telegraph and electrical wires are to be introduced or installed. No boring or cutting for wires will be allowed without the prior written consent of Landlord. The location of burglar alarms, telephones, call boxes and other office equipment affixed to the Premises shall be subject to the prior written approval of Landlord. 22 23 13. Tenant shall not install any radio or television antenna, satellite dish, loudspeaker or any other device on the exterior walls or the roof of the Building, without Landlord's consent. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building, the Project or elsewhere. 14. Tenant shall not mark, or drive nails, screws or drill into the partitions, woodwork or drywall or in any way deface the Premises or any part thereof. Tenant shall not lay linoleum, tile, carpet or any other floor covering so that the same shall be affixed to the floor of its Premises in any manner except as approved in writing by Landlord. The expense of repairing any damage resulting from a violation of this rule or the removal of any floor covering shall be borne by the tenant by whom, or by whose contractors, employees or invitees, the damage shall have been caused. 15. Tenant shall not place a load upon any floor of its Premises which exceeds the load per square foot which such floor was designed to carry or which is allowed by law. Business machines and mechanical equipment belonging to Tenant which cause noise or vibration that may be transmitted to the structure of the Building or to any space therein to such a degree as to be objectionable to Landlord or to any tenants in the Building shall be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the Building must be acceptable to Landlord. 16. Each tenant shall store all its trash and garbage within the interior of the Premises or as otherwise directed by Landlord from time to time. Tenant shall not place in the trash boxes or receptacles any personal trash or any material that may not or cannot be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the city, without violation of any law or ordinance governing such disposal. 17. Canvassing, soliciting, distribution of handbills or any other written material and peddling in the Building and the Project are prohibited and each tenant shall cooperate to prevent the same. No tenant shall make room-to-room solicitation of business from other tenants in the Building or the Project, without the written consent of Landlord. 18. Landlord shall have the right, exercisable without notice and without liability to any tenant, to change the name and address of the Building and the Project. 19. Landlord reserves the right to exclude or expel from the Project any person who, in Landlord's judgment, is under the influence of alcohol or drugs or who commits any act in violation of any of these Rules and Regulations. 20. Without the prior written consent of Landlord, Tenant shall not use the name of the Building or the Project or any photograph or other likeness of the Building or the Project in connection with, or in promoting or advertising, Tenant's business except that Tenant may include the Building's or Project's name in Tenant's address. 21. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 22. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 23. Landlord reserves the right to designate the use of the parking spaces on the Project. Tenant or Tenant's guests shall park between designated parking lines only, and shall not occupy two parking spaces with one car. No trucks, truck tractors, trailers or fifth wheel are allowed to be parked anywhere at any time within the Project other than in Tenant's own truck dock well. Vehicles in violation of the above shall be subject to tow-away, at vehicle owner's expense. Vehicles parked on the Project overnight without prior written consent of the Landlord shall be deemed abandoned and shall be subject to tow-away at vehicle owner's expense. No tenant of the Building shall park in visitor or reserved parking areas or loading areas. Any tenant found parking in such designated visitor or reserved parking areas or loading areas or unauthorized areas shall be subject to tow-away at vehicle owner's expense. The parking areas shall not be used to provide car wash, oil changes, detailing, automotive repair or other services unless otherwise approved or furnished by Landlord. Tenant will from time to time, upon the request of Landlord, supply Landlord with a list of license plate numbers of vehicles owned or operated by its employees or agents. 24. No Tenant is allowed to unload, unpack, pack or in any way manipulate any products, materials or goods in the common areas of the Project including the parking and driveway areas of the Project. All products, goods and materials must be manipulated, handled, kept, and stored within the Tenant's Premises and not in any exterior areas, including, but not limited to, exterior dock platforms, against the exterior of the Building, parking areas and driveway areas of the Project. Tenant also agrees to keep the exterior of the Premises clean and free of nails, wood, pallets, packing materials, barrels and any other debris produced from their operation. All products, materials and goods are to enter and exit the Premises by being loaded or unloaded through dock high doors into trucks and or trailers, over dock high loading platforms into trucks and or trailers or loaded or unloaded into trucks and or trailers within the Premises through grade level door access. 25. Tenant shall be responsible for the observance of all of the foregoing Rules and Regulations by Tenant's employees, agents, clients, customers, invitees and guests. 26. These Rules and Regulations are in addition to, and shall not be construed to in any way modify, alter or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of any premises in the Project. 27. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all tenants of the Building. Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for safety and security, for care and cleanliness of the Building and the Project and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations herein stated and any additional rules and regulations which are adopted. 23 24 EXHIBIT B SITE PLAN Diagram of Property 24 25 EXHIBIT C LEASE IMPROVEMENT AGREEMENT NONE 25 26 EXHIBIT D HAZARDOUS MATERIALS QUESTIONNAIRE This questionnaire is designed to solicit information regarding Tenant's proposed use, generation, treatment, storage, transfer or disposal of hazardous or toxic materials, substances or wastes. If this Questionnaire is attached to or provided in connection with a lease, the reference herein to any such items shall include all items defined as "Hazardous Materials," "Hazardous Substances," "Hazardous Wastes," "Toxic Materials," "Toxic Substances, "Toxic Wastes," or such similar definitions contained in the lease. Please complete the questionnaire and return it to Landlord for evaluation. If your use of materials or substances, or generation of wastes is considered to be significant, further information may be requested regarding your plans for hazardous and toxic materials management. Your cooperation in this matter is appreciated. If you have any questions, do not hesitate to call us for assistance. 1. PROPOSED TENANT Name (Corporation, Individual, Corporate or Individual DBA, or Public Agency): Handspring, Inc. ------------------------------------------------------------------- --------------------------------------------------------------------------- Standard Industrial Classification Code (SIC): ----------------------------- Street Address: 189 N. Bernardo Avenue -------------------------------------------------- City, State, Zip Code: Mountain View, CA 94043-5203 -------------------------------------------------- Contact Person & Title: Seth Henderson, Manager of Corporate Facilities -------------------------------------------------- Telephone Number: (650) 230-5177 --- ---------------------- Facsimile Number: (650) 230-5205 --- ---------------------- 2. LOCATION AND ADDRESS OF PROPOSED LEASE Street Address: 380 N. Bernardo Avenue -------------------------------------------------- City, State, Zip Code: (see above) -------------------------------------------------- Bordering Streets: Between Central and Middlefield -------------------------------------------------- Streets to which Premises has Access: Only N. Bernardo ------------------------------------- 3. DESCRIPTION OF PREMISES Floor Area: 28,069 SF -------------------------------------------------- Number of Parking Spaces: 3.3/1000 SF -------------------------------------------------- Date of Original Construction: -------------------------------------------- Past Uses of Premises: Manufacturing, Open Office -------------------------------------------------- Dates and Descriptions of Significant Additions, Alterations or Improvements: -------------------------------------------------------------- --------------------------------------------------------------------------- Proposed Additions, Alterations or Improvements, if any: Typical TI including ceiling tile, flooring -- 06/00 --------------------------------------------------------------------------- D-1 27 4. DESCRIPTION OF PROPOSED PREMISES USE Describe proposed use and operation of Premises including (i) services to be performed, (ii) nature and types of manufacturing or assembly processes, if any, and (iii) the materials or products to be stored at the Premises. Open Other Application --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- Will the operation of your business at the Premises involve the use, generation, treatment, storage, transfer or disposal of hazardous wastes or materials? Do they now? Yes [ ] No [X] If the answer is "yes," or if your SIC code number is between 2000 to 4000, please complete Section V. 5. PERMIT DISCLOSURE Does or will the operation of any facet of your business at the Premises require any permits, licenses or plan approvals from any of the following agencies? U.S. Environmental Protection Agency Yes [ ] No [X] City or County Sanitation District Yes [ ] No [X] State Department of Health Services Yes [ ] No [X] U.S. Nuclear Regulatory Commission Yes [ ] No [X] Air Quality Management District Yes [ ] No [X] Bureau of Alcohol, Firearms and Tobacco Yes [ ] No [X] City or County Fire Department Yes [X] No [ ] Regional Water Quality Control Board Yes [ ] No [X] Other Governmental Agencies (if yes, Yes [X] No [ ] identify: City of MV Building Dept.) --------------------------- If the answer to any of the above is "yes," please indicate permit or license numbers, issuing agency and expiration date or renewal date, if applicable. Permit for Building Tenant Improvements --------------------------------------------------------------------------- Reviewed by City of Mountain View Building --------------------------------------------------------------------------- Department, Fire Department --------------------------------------------------------------------------- If your answer to any of the above is "yes," please complete Sections VI and VII. 6. HAZARDOUS MATERIALS DISCLOSURE Will any hazardous or toxic materials or substances be stored on the Premises? Yes [ ] No [X] If the answer is "yes," please describe the materials or substances to be stored, the quantities thereof and the proposed method of storage of the same (i.e., drums, aboveground or underground storage tanks, cylinders, other), and whether the material is a Solid (S), Liquid (L) or Gas (G): D-2 28
Material/ Quantity to be Amount to be Stored Maximum Period of Substance Stored on Premises Storage Method on a Monthly Basis Premises Storage --------- ------------------ -------------- ------------------ ---------------- --------- ---------------- ------------- ----------------- ----------------- --------- ---------------- ------------- ----------------- ----------------- --------- ---------------- ------------- ----------------- -----------------
Attach additional sheets if necessary. Is any modification of the Premises improvements required or planned to mitigate the release of toxic or hazardous materials substance or wastes into the environment? Yes [ ] No [ ] If the answer is "yes," please describe the proposed Premises modifications: --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- 7. HAZARDOUS WASTE DISCLOSURE Will any hazardous waste, including recyclable waste, be generated by the operation of your business at the Premises? Yes [ ] No [X] If the answer is "yes," please list the hazardous waste which is expected to be generated (or potentially will be generated) at the Premises, its hazard class and volume/frequency of generation on a monthly basis.
Maximum Period of Waste Name Hazard Class Volume/Month Premises Storage ---------- ------------ ------------ ---------------- --------- ---------------- ------------- ----------------- --------- ---------------- ------------- -----------------
Attach additional sheets if necessary. If the answer is "yes," please also indicate if any such wastes are to be stored within the Premises and the proposed method of storage (i.e., drums, aboveground or underground storage tanks, cylinders, other).
Waste Name Storage Method ---------- -------------- ---------------------- -----------------------
Attach additional sheets if necessary. If the answer is "yes," please also describe the method(s) of disposal for each waste. Indicate where disposal will take place including the methods, equipment and companies to be used to transport the waste: --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- Is any treatment or processing of hazardous wastes to be conducted at the Premises? Yes [ ] No [ ] If the answer is "yes," please describe proposed treatment/processing methods: --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- D-3 29 Which agencies are responsible for monitoring and evaluating compliance with respect to the storage and disposal of hazardous materials or wastes at or from the Premises? (Please list all agencies): --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- Have there been any agency enforcement actions regarding Tenant (or any affiliate thereof), or any existing Tenant's (or any affiliate's) facilities, or any past, pending or outstanding administrative orders or consent decrees with respect to Tenant or any affiliate thereof? Yes [ ] No [X] If the answer is "yes," have there been any continuing compliance obligations imposed on Tenant or its affiliates as a result of the decrees or orders? Yes [ ] No [ ] If the answer is "yes," please describe: --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- Has Tenant or any of its affiliates been the recipient of requests for information, notice and demand letters, cleanup and abatement orders, or cease and desist orders or other administrative inquiries? Yes [ ] No [ ] If the answer is "yes," please describe: --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- Are there any pending citizen lawsuits, or have any notices of violations been provided to Tenant or its affiliates or with respect to any existing facilities pursuant to the citizens suit provisions of any statute? Yes [ ] No [ ] If the answer is "yes," please describe: --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- Have there been any previous lawsuits against the company regarding environmental concerns? Yes [ ] No [ ] If the answer is "yes," please describe how these lawsuits were resolved: --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- Has an environmental audit ever been conducted at any of your company's existing facilities? Yes [ ] No [ ] If the answer is "yes," please describe: --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- D-4 30 Does your company carry environmental impairment insurance? Yes [ ] No [X] If the answer is "yes," what is the name of the carrier and what are the effective periods and monetary limits of such coverage? --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- 8. EQUIPMENT LOCATED OR TO BE LOCATED AT THE PREMISES Is (or will there be) any electrical transformer or other equipment containing polychlorinated biphenyls located at the Premises? Yes [ ] No [X] If the answer is "yes," please specify the size, number and location (or proposed location): --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- Is (or will there be) any tank for storage of a petroleum product located at the Premises? Yes [ ] No [X] If the answer is "yes," please specify capacity and contents of tank; permits, licenses and/or approvals received or to be received therefor and any spill prevention control or conformance plan to be taken in connection therewith: --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- 9. ONGOING ACTIVITIES (APPLICABLE TO TENANTS IN POSSESSION) Has any hazardous material, substance or waste spilled, leaked, discharged, leached, escaped or otherwise been released into the environment at the Premises? Yes [ ] No [X] If the answer is "yes," please describe including (i) the date and duration of each such release, (ii) the material, substance or waste released, (iii) the extent of the spread of such release into or onto the air, soil and/or water, (iv) any action to clean up the release, (v) any reports or notifications made of filed with any federal, state, or local agency, or any quasi-governmental agency (please provide copies of such reports or notifications) and (vi) describe any legal, administrative or other action taken by any of the foregoing agencies or by any other person as a result of the release: --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- This Hazardous Materials Questionnaire is certified as being true and accurate and has been completed by the party whose signature appears below on behalf of Tenant as of the date set forth below. DATED: 05-08-00 ----------------------- Signature /s/ SETH W. HENDERSON ------------------------------------ Print Name Seth W. Henderson ----------------------------------- Title Manager of Corporate Facilities ---------------------------------------- D-5 31 EXHIBIT E HAZARDOUS MATERIALS D-6 EX-21.1 14 EXHIBIT 21.1 1 EXHIBIT 21.1 SUBSIDIARIES OF HANDSPRING, INC.
Jurisdiction of Percentage Incorporation Owned by Name or Organization Handspring ---- --------------- ---------- Handspring Singapore Pte Ltd............ Singapore 100% Handspring K.K.......................... Japan 100% Handspring International Ltd. .......... British Virgin Islands 100% Handspring UK Ltd. ..................... UK 100% Handspring B.V. ........................ Netherlands 100% Handspring International Sarl........... Switzerland 100%
EX-23.2 15 EXHIBIT 23.2 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated May 16, 2000 relating to the financial statements and financial statement schedule of Handspring, Inc., which appear in such Registration Statement. We also consent to the references to us under the headings "Experts" and "Selected Consolidated Financial Data" in such Registration Statement. /s/ PricewaterhouseCoopers LLP San Jose, California May 16, 2000 EX-23.3 16 EXHIBIT 23.3 1 EXHIBIT 23.3 [DATAQUEST GARTNER MARKET DYNAMICS LETTERHEAD] May 9, 2000 Credit Suisse First Boston 2400 Hanover Street Palo Alto, CA 94304 Credit Suisse First Boston: You have our approval to use the requested quotes as stated below for inclusion in an S-1 filing. "Widespread deployment of these technologies in wireless networks will increasingly enable the delivery of higher bandwidth applications such as streaming video and audio to handheld communications devices. Dataquest estimates that the number of wireless data subscribers worldwide will grow from approximately 14 million at the end of 1998 to approximately 102 million at the end of 2003." Please note the following text as a point of indemnification agreement: The GartnerGroup information contained therein represents GartnerGroup's estimates and no representation shall be made that GartnerGroup's information represents facts. Furthermore, Client agrees to indemnify and hold harmless GartnerGroup, its officers, employees and agents, from and against any and all claims, suits, actions, causes of action, and all liabilities, judgments, losses, costs, damages and expenses in connection therewith (including, but not limited to, all costs and expenses of investigation and all fees and expenses of counsel), arising, directly or indirectly, out of any breach of the foregoing or any untrue statement or alleged untrue statement of a material fact contained in the Offering Memorandum or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or any violations by Client of any rule or regulation promulgated under the Securities Act of 1933, as amended (or similar statute), as the term may be in effect from time to time relating to any action or inaction required of Client in connection with the Offering Memorandum. 2 With respect to any indemnity sought against Client hereunder, GartnerGroup shall promptly notify Client of the claim in writing, and Client, upon the request of GartnerGroup, shall assume the defense thereof on behalf of GartnerGroup, including the employment of counsel and payment of expenses. GartnerGroup also shall have the right to participate in such defense and to employ its own counsel, but the fees and expenses of such counsel shall be at the expense of GartnerGroup unless (1) Client and GartnerGroup shall mutually agree to the employment of such counsel, or (2) the named parties in any such action (including any impleaded parties) include both GartnerGroup and Client and GartnerGroup shall have been advised by such counsel that there may be one or more legal defenses available to GartnerGroup which are different from or additional to those available to Client (it being understood, however, that Client shall not, in connection with any one such claim to separate but substantially similar or related claims in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys for GartnerGroup, which firms shall be designated in writing). GartnerGroup shall cooperate with reasonable requests of Client in the defense and disposition of any claim for which indemnification applies. Client shall not in any such defense, except with GartnerGroup's written consent, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by claimant or plaintiff of a release of GartnerGroup from all liability. Please acknowledge by e-mail or fax receipt and agreement with the above statement. If there are any questions, please let me know. Sincerely yours, /s/ David Hankin David Hankin Senior VP and Managing Director, Dataquest EX-23.4 17 EXHIBIT 23.4 1 EXHIBIT 23.4 [INTERNATIONAL DATA CORPORATION LETTERHEAD] May 9, 2000 Credit Suisse First Boston 2400 Hanover Street Palo Alto, CA 94304 Credit Suisse First Boston has permission to use the following statistics as stated below. "IDC estimates that worldwide shipments of smart handheld devices will grow from approximately 8.2 million units in 1999 to approximately 35.5 million units in 2003". Source: IDC, analyst Jill House, 2000. Sincerely, /s/ Alexa McCloughan Alexa McCloughan Senior Vice President [ADDRESS] [LOGO] EX-24.2 18 EXHIBIT 24.2 1 EXHIBIT 24.2 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the undersigned hereby constitutes and appoints Donna L. Dubinsky, Jeffrey C. Hawkins and Bernard J. Whitney and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, making such changes in this Registration Statement as such person or persons so acting deems appropriate, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ KIM B. CLARK -------------------------------------- Kim B. Clark EX-24.3 19 EXHIBIT 24.3 1 EXHIBIT 24.3 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the undersigned hereby constitutes and appoints Donna L. Dubinsky, Jeffrey C. Hawkins and Bernard J. Whitney and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, making such changes in this Registration Statement as such person or persons so acting deems appropriate, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ MITCHELL E. KERTZMAN -------------------------------------- Mitchell E. Kertzman EX-27.1 20 EXHIBIT 27.1
5 1,000 OTHER 9-MOS JUN-30-1999 JUN-30-2000 JUL-29-1998 JUL-01-1999 JUN-30-1999 APR-01-2000 7,533 17,407 6,234 0 0 13,736 0 0 0 0 616 1,688 1,104 6,526 70 1,493 15,631 38,651 1,275 26,534 0 0 17,792 27,962 0 0 69 74 (3,685) (15,983) 15,631 38,651 0 50,111 0 50,111 0 34,171 0 34,171 8,835 57,041 0 0 0 0 (8,389) (40,764) 0 0 (8,389) (40,764) 0 0 0 0 0 0 (8,389) (40,764) (0.71) (1.34) (0.71) (1.34)
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