-----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, QOSpvapaRhISEmxkfP/I0MG/arUtH7ROdrpIr6VqKL/wcL6FVmzauoAxpgwASsLd ChzqReBDpSHwAOXirdIs4A== /in/edgar/work/20000607/0000891618-00-003210/0000891618-00-003210.txt : 20000919 0000891618-00-003210.hdr.sgml : 20000919 ACCESSION NUMBER: 0000891618-00-003210 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20000607 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANDSPRING INC CENTRAL INDEX KEY: 0001091822 STANDARD INDUSTRIAL CLASSIFICATION: [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: 650887 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 0001.txt AMENDMENT #4 TO THE FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 2000 REGISTRATION NO. 333-33666 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 4 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. [ ] 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 JUNE 7, 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 $17.00 and $19.00 per share. Our common stock has been approved for listing 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 CONSOLIDATED 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 prior to 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. 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 $185,707 Working capital............................................. 6,297 7,797 174,597 Total assets................................................ 38,651 40,151 206,951 Long-term liabilities....................................... 64 64 64 Redeemable convertible preferred stock...................... 27,962 -- -- Total stockholders' equity (deficit)........................ (15,909) 13,553 180,353
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 $18.00 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 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 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 to our contract manufacturers 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 ability to deliver our products on a timely basis. The cost, 9 11 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 at our suppliers or in the retail channel. We have limited capability to reduce manufacturing capacity within a 90-day period. If we have excess production, we could incur cancellation charges or other liabilities to our manufacturing partners. If demand exceeds our expectations, we will need to rapidly increase production at our third-party manufacturers. Our suppliers will also need to provide additional volumes of components, which 11 13 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 our third-party manufacturers are able to obtain enough components, they 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 devices. 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 results of operations 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 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. 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 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 trade secret, trademark, copyright and patent 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 facilities where our Visor handheld computers are, and will be, manufactured are 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, 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 has 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 $16.56 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 $166.8 million, or approximately $192.0 million if the underwriters exercise their over-allotment option in full, at an assumed initial public offering price of $18.00 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 $18.00 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, 157,500,000 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......................... 96,580 126,001 292,791 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) 13,553 180,353 -------- -------- -------- Total capitalization............................ $ 12,117 $ 13,617 $180,417 ======== ======== ========
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 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 $18.00 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 $180.4 million or $1.44 per share of common stock. This amount represents an immediate increase in pro forma net tangible book value of $1.32 per share to the existing stockholders and an immediate dilution in pro forma net tangible book value of $16.56 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............. $18.00 Pro forma net tangible book value per share as of April 1, 2000................................................... $0.12 Increase per share attributable to new investors.......... 1.32 ----- Pro forma net tangible book value per share after the offering.................................................. $ 1.44 ------ Dilution per share to new investors......................... $16.56 ======
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 $18.00 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 15.1% $ 0.28 New investors.............. 10,000,000 8.0 180,000,000 84.9 18.00 ----------- ----- ------------ ----- Total.................... 125,253,728 100.0% $211,993,833 100.0% =========== ===== ============ =====
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 and an additional 7,651,243 shares were available 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. 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 or any future period.
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. No significant post-delivery obligations exist with respect to revenue recognized during the nine months ended April 1, 2000. Provisions are made at the time the related revenue is recognized for estimated product returns and warranty. Also included in revenue are 24 26 shipping and handling charges billed to our customers. These charges amounted to $1.5 million for the nine months ended April 1, 2000. Total revenue recognized during the nine months ended April 1, 2000 was $50.1 million. Cost of revenue. Cost of revenue consists primarily of materials, labor, royalty expenses, warranty expenses and shipping and handling. Cost of revenue was $34.2 million during the nine months ended April 1, 2000, $1.6 million of which represented shipping and handling costs. 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 year 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 $11.2 million, $28.4 million, $16.2 million, $6.7 million 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. 25 27 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 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. 26 28 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 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 year 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. Net cash provided by financing activities was $18.0 million during the period ended March 31, 1999 and $18.5 million in fiscal year 1999, 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 the United States in March 2000 and in Europe in May 2000. We also plan to expand our available market by entering additional 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 31 33 areas, such as the education and medical device markets. For example, the development of the sensor 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 32 34 Springboard expansion slot. Beginning in October 1999 when we launched our Visor handheld computer, we made tools and documentation widely available for module developers. Since that time more than 2,500 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 - ----------------------------------------------------------------------------------------------------------- IntelliGolf Tracks and analyzes golf performance Karrier Communications - ----------------------------------------------------------------------------------------------------------- InnoPak/2V A 2MB memory expansion with a vibrating Innogear alarm - ----------------------------------------------------------------------------------------------------------- OmniRemote Universal Remote Universal remote control for home Pacific Neo-Tek, Inc. Control - ----------------------------------------------------------------------------------------------------------- Physician's Desk Reference Medical reference guide Franklin Electronic Publishers - ----------------------------------------------------------------------------------------------------------- Star Trek BookPak Seven Star Trek books Peanut Press.com, Inc. - -----------------------------------------------------------------------------------------------------------
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, 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. The components that make up our products are purchased 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 are obtained 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 for order processing. 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 trade secret, trademark, copyright and patent 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. degree in journalism from Boston University. Mr. Hartnett has served as Vice President, 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 to purchase 37,500 shares of our common stock at a price of $13.33 per share 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, if applicable, 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 automatically 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. These options 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, these options 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. Bernard J. Whitney has an annual base salary of $180,000 and David G. Pine has an annual base salary of $200,000. 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 $18.00 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 the remainder vest 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 10/11/08 177,309,300 282,514,835
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 $18.00 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 16,155,000 5,157,693 -- 92,580,589 --
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. 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 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 47 49 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. 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 48 50 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 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 49 51 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 a 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 April 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)..................... 40,927,500 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)................... 110,213,504 90.0 83.2
53 55 - ------------------------- (1) Includes 40,680,000 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 May 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 Our common stock has been approved for listing 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. ............................ Wit SoundView Corporation................................... ---------- 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 of stock options and stock purchase rights pursuant to our stock option and purchase plans and issuances of common stock 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. The shares of common stock have been approved for listing 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 will be made available on the Web sites maintained by one or more of the underwriters or their affiliates 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. Wit SoundView Corporation is a broker/dealer that will receive an allocation of shares of common stock in the offering. 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, 157,500,000 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 these stock splits. Reincorporation -- In May 2000, the Company reincorporated in the State of Delaware. As a result of the reincorporation, the Company is authorized to issue 157,500,000 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 with 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. The Company capitalizes tooling costs to the extent they relate to ongoing and routine costs of tools and molds used to manufacture products that the Company markets. Capitalized tooling is amortized over its estimated useful life of one year. 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). Research and Development -- Research and development costs are expensed as incurred. The Company has not capitalized any costs during the period from inception to April 1, 2000 pursuant to SFAS No. 86, Computer Software to be Sold, Leased or Otherwise Marketed. F-8 73 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. 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. F-9 74 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. No significant post-delivery obligations exist with respect to revenue recognized during the nine months ended April 1, 2000. Provisions are made at the time the related revenue is recognized for estimated product returns and warranty. Shipping and handling fees and costs and royalty expenses -- 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. Cost of revenue also includes royalty expenses (primarily to Palm, Inc.) pursuant to software technology license agreements. In accordance with those agreements, the Company sublicenses the software to its end-users. 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 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 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 effect 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. F-10 75 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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-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. F-11 76 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 === ======
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 which provides for the manufacturer to supply certain levels of handheld computer products according to rolling forecasts and purchase orders provided by Handspring, Inc. The term of this agreement is for one year, and it is cancellable upon 90 days notice by either party. The Company guarantees a minimum production commitment based on this rolling forecast. The Company is liable for the purchase price of products scheduled to be delivered within 30 days of the date of cancellation. In addition, the Company is liable for the actual cost of materials plus a handling fee for orders cancelled within 31-90 days of the date of scheduled delivery. The Company may cancel orders with scheduled delivery more than 90 days from the date of cancellation without liability. The Company has not cancelled any orders pursuant to this purchase agreement since the Company's inception. Had the Company cancelled any such orders, its maximum liability at April 1, 2000 under the cancellation provisions of this purchase agreement would have approximated $7.2 million. 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. The Company's commitments relating to the logistics provider and the provider for repair services are based on individual purchase orders issued to these providers on a regular basis. The Company's liability with respect to such orders issued at April 1, 2000 aggregated $9.7 million, which is included in current liabilities. F-13 78 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 ===== ===== ======= ====== =======
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 into common stock immediately 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 F-14 79 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 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. F-15 80 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Common Stock Reserved for Issuance The Company has 157,500,000 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 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 F-16 81 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. 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 F-17 82 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 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. F-18 83 HANDSPRING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. 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. 12. BUSINESS SEGMENT REPORTING The Company operates in one reportable segment, handheld computing, with sales primarily in the United States. The Company's headquarters and most of its operations are located in the United States. Geographic long-lived assets information based on the physical location of the assets at the end of each period is as follows:
JUNE 30, 1999 APRIL 1, 2000 ------------- ------------- North America............................................... $1,248 $3,706 Rest of the World........................................... -- 2,114 ------ ------ Total............................................. $1,248 $5,820 ====== ======
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, 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 May 31, 2000, we had issued 9,085,328 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 May 31, 2000, there were 17,825,306 shares of common stock issuable upon exercise of outstanding options under our 1998 Equity Incentive Plan, with exercise prices ranging from $0.05 to $16.00 per share. 10. As of May 31, 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 May 31, 2000, there were 6,436,143 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 $16.00 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* 3.6 Certificate of Amendment of First Amended and Restated Certificate of Incorporation as filed May 30, 2000. 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* 10.15 Form of Outside Director Stock Option Agreement* 10.16 Attachments Nos. 5 and 6 to Amendment No. 2 and Amendment No. 5 to the Software License Agreement between Palm Computing, Inc. and Registrant dated September 24, 1998+ 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)*
II-3 88
EXHIBIT NUMBER EXHIBIT TITLE - ------- ------------- 24.2 Power of Attorney for Kim B. Clark* 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 7th day of June, 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 June 7, 2000 - ----------------------------------------------------- Officer and a Director Donna L. Dubinsky PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER: /s/ BERNARD J. WHITNEY Chief Financial Officer June 7, 2000 - ----------------------------------------------------- Bernard J. Whitney ADDITIONAL DIRECTORS: /s/ JEFFREY C. HAWKINS* Director June 7, 2000 - ----------------------------------------------------- Jeffrey C. Hawkins /s/ L. JOHN DOERR* Director June 7, 2000 - ----------------------------------------------------- L. John Doerr /s/ BRUCE W. DUNLEVIE* Director June 7, 2000 - ----------------------------------------------------- Bruce W. Dunlevie /s/ KIM B. CLARK* Director June 7, 2000 - ----------------------------------------------------- Kim B. Clark /s/ MITCHELL E. KERTZMAN* Director June 7, 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 (IN THOUSANDS)
ADDITIONS CHARGED BALANCE AT TO COSTS BALANCE AT JUNE 30, 1999 AND EXPENSES DEDUCTIONS APRIL 1, 2000 ------------- ----------------- ---------- ------------- Allowance for doubtful accounts...................... $ -- $ 131 $ (81) $ 50 Product return reserve.......... $ -- $3,635 $(2,305) $1,330 Accrued product warranty........ $ -- $4,441 $ (493) $3,948
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* 3.6 Certificate of Amendment of First Amended and Restated Certificate of Incorporation filed May 30, 2000 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* 10.15 Form of Outside Director Stock Option Agreement* 10.16 Attachments Nos. 5 and 6 to Amendment No. 2 and Amendment No. 5 to the Software License Agreement between Palm Computing, Inc. and Registrant dated September 24, 1998+ 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-3.6 2 0002.txt EX-3.6 1 EXHIBIT 3.6 CERTIFICATE OF AMENDMENT OF FIRST AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF HANDSPRING, INC. Handspring, Inc., a Delaware corporation (the "Company"), does hereby certify that the following amendment to the Company's First Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law, with the approval of such amendment by the Company's stockholders having been given by written consent without a meeting in accordance with Sections 228(d) and 242 of the Delaware General Corporation Law: The first paragraph of Article IV of the First Amended and Restated Certificate of Incorporation, relating to the capitalization of the Company, is amended to read in its entirety as follows: ARTICLE IV "The total number of shares of all classes of capital stock which the corporation has authority to issue is 166,800,000 shares, consisting of two classes: (i) 157,500,000 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. The Common Stock of the corporation outstanding on the effective date of this amendment is hereby split and converted into three (3) shares for each two (2) shares of Common Stock held. No fractional shares shall be issued in connection with the foregoing stock split; all shares of Common Stock held by a stockholder will be aggregated subsequent to the foregoing split, and each fractional share resulting from such aggregation shall be rounded down to the nearest whole share. In lieu of any fractional share to which such stockholder would otherwise be entitled, the Company shall pay such stockholder 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 effective date of this amendment." 2 IN WITNESS WHEREOF, said Company has caused this Certificate of Amendment to be signed by its duly authorized officer this 30th day of May, 2000 and the foregoing facts stated herein are true and correct. HANDSPRING, INC. By: /s/ BERNARD J. WHITNEY ----------------------- Bernard J. Whitney Chief Financial Officer and Secretary 2 EX-10.7 3 0003.txt EX-10.7 1 CONFIDENTIAL TREATMENT REQUESTED EXHIBIT 10.7 SOFTWARE LICENSE AGREEMENT This Software License Agreement is entered into by and between Palm Computing, Inc., a subsidiary of 3Com Corporation (collectively, "3Com"), a California corporation with a place of business at 1565 Charleston Road, Mountain View, California 94043, and JD Technology, Inc. ("JD"), a California corporation with a place of business at P.O. Box 7066, Menlo Park, California. The effective date of this Agreement shall be the date last executed below ("Effective Date"). RECITALS A. 3Com or its suppliers are the owners of software and other technology related to the 3Com Palm Computing platform. B. JD is a developer, manufacturer and marketer of handheld computing products. C. JD desires to obtain a license to certain 3Com software and technology, as more particularly described in Exhibit A (Palm Software), in order to develop, manufacture and market handheld computing products incorporating such 3Com software and technology. 3Com is willing to grant JD such a license upon the terms and conditions set forth below. AGREEMENT NOW, THEREFORE, the parties agree as follows: 1. DEFINITIONS 1.1 "Confidential Information" means that information of either party ("Disclosing Party") which is disclosed to the other party ("Receiving Party") pursuant to this Agreement, in written form and marked "Confidential," "Proprietary" or similar designation, or if disclosed orally, the Disclosing Party shall indicate that such information is confidential at the time of disclosure and send a written summary of such information to the Receiving Party within thirty (30) days of disclosure and mark such summary "Confidential," "Proprietary" or similar designation. Confidential Information shall include, but not be limited to, trade secrets, know-how, inventions, techniques, processes, algorithms, software programs, schematics, designs, contracts, customer lists, financial information, product plans, sales and marketing plans and business information. References to a Receiving Party or a Disclosing Party shall also include all present and future subsidiary and parent companies of such party, subject to the restrictions contained in this Agreement. 1.2 "JD Products" means any handheld computing products developed by JD, or for JD by a third party, which contain Palm Software, in whole or part, combined with JD's added value. 1 2 1.3 "JD Software" means any software developed or acquired by JD, or for JD by a third party, for the JD Products. 1.4 "Net Revenue" means monies received or receivable by JD in connection with the sale, permitted licensing, distribution or other exploitation of the JD Products, but shall exclude taxes, returns, rebates, and separately stated shipping and handling costs or maintenance, support, and engineering fees. 1.5 [*] 1.6 "Palm Device Applications" means the applications files described in Exhibit A (Palm Software). 1.7 "Palm Device Applications SDK" means 3Com's commercially available software development kit for applications for the Palm Computing platform as described in Exhibit A (Palm Software). 1.8 "Palm Desktop Software" means the 3Com desktop software related to the 3Com Product described in Exhibit A (Palm Software). 1.9 "Palm Development Environment" means the development and debugging tools relating to the Palm OS described in Exhibit A (Palm Software), including a list of certain third-party development tools that are commercially available relating to the Palm OS, provided that JD shall be responsible for obtaining any necessary rights for such third-party development tools. 1.10 "Palm End-User Documentation" means the end-user documentation related to the Palm Software as described in Exhibit A (Palm Software). 1.11 "Palm GUI" means the graphical user interface files for the Palm Computing platform as described in Exhibit A (Palm Software). 1.12 "Palm Installation CD Files" means the artwork, guided tour files, and other files and related elements of the Palm installation CD as described in Exhibit A (Palm Software). 1.13 "Palm Materials" shall mean: (a) the Palm End-User Documentation, Palm Technical Documentation, and any 3Com end user materials provided under Section 7.3 below; and (b) all current and future foreign language versions thereof, to the extent that 3Com has the right to grant JD rights to such versions. 1.14 "Palm OS" means the Palm operating system software files and build tools described in Exhibit A (Palm Software), including: (a) software and documentation provided by 3Com to JD pursuant to Section 6.1; and (b) the Palm OS Drivers. All Palm OS software shall be provided in object code form only, except as may be agreed by the parties pursuant to Section 6.2(b). * 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. 2 3 1.15 "Palm OS Drivers" means the software drivers and sample extensions for the Palm OS as described in Exhibit A (Palm Software). 1.16 "Palm Software" shall mean: (a) the Palm Device Applications, Palm Device Applications SDK, Palm Desktop Software, Palm GUI, Palm Installation CD Files, Palm OS, Palm OS Drivers, and Palm Test Code; and (b) all current and future foreign language versions thereof, to the extent that 3Com has the right to grant JD rights to such versions. 1.17 "Palm Technical Documentation" means the technical documentation, repair manuals, service manual, engineering schematics, and other materials relating to the Palm OS as described in Exhibit A (Palm Software). 1.18 "Palm Test Code" means the software quality assurance and hardware and production test code described in Exhibit A (Palm Software). 2. LICENSES 2.1 Development and Documentation License. (a) 3Com Deliverables. Subject to the terms and conditions of this Agreement, 3Com hereby grants to JD a limited, non-exclusive, non-transferable (except as provided in Section 17.9), fully-paid license to use and reproduce the Palm Development Environment, the Palm Software in object code form, and the Palm Materials solely to develop, manufacture, test and support the JD Products. Such license shall include the right to use any 3Com intellectual property rights associated with or related to use of the Palm Development Environment, Palm Software and/or Palm Materials, in connection with the development, manufacturing, testing or support of such items solely within JD Products. (b) Derivative Works. Subject to the terms and conditions of this Agreement, 3Com hereby grants to JD a limited, non-exclusive, non-transferable (except as provided in Section 17.9), fully-paid license to create derivative works based upon the Palm Materials and, to the extent permitted under Section 6.2 (OS Enhancements), the Palm OS (collectively, "Derivative Works") solely for use within JD Products. 2.2 Distribution License. Subject to the terms and conditions of this Agreement, 3Com hereby grants to JD a limited, non-exclusive, non-transferable (except as provided in Section 17.9), worldwide, royalty-bearing license to use, reproduce, and distribute (directly and through third parties) solely for use within JD Products: (i) the Palm Software in object code form only; (ii) the Palm Materials (subject to Section 13); and (iii) Derivative Works. Such license shall include the right to use any 3Com intellectual property rights associated with or related to use of the Palm Development Environment, Palm Software and/or Palm Materials, in connection with the distribution of such items within JD Products. Such license shall also include the right to grant end user sublicenses subject to the provisions of Section 10.4 below. 3 4 2.3 Compatibility and Trademark License. (a) Compatibility Testing. 3Com will finalize and provide to JD compatibility test criteria for ensuring interoperability of third party add-on software for the Palm OS and the JD Products ("Test Criteria") within ninety (90) days of the Effective Date. JD and 3Com will agree on a reasonable time period for compatibility testing of the JD Products by any of 3Com's independent testing labs ("Test Period") which shall be incorporated into the Test Criteria. When finalized, such Test Criteria shall be attached as Exhibit B (Test Criteria) to this Agreement. 3Com shall use its reasonable discretion in determining the contents of the Test Criteria; provided that, in the event JD does not approve of the Test Criteria, as its sole and exclusive remedy JD may terminate this Agreement immediately without liability within thirty (30) days of its first receipt of the Test Criteria from 3Com. Prior to the release of any and all JD Products, or any upgrade or new version thereof, JD shall submit the JD Products at its expense to any of 3Com's approved independent compatibility testing labs ("Approved Testing Lab") for compatibility testing in accordance with the Test Criteria. If the Approved Testing Lab rejects the JD Products because of a nonconformance with the Test Criteria, then such testing lab will provide JD and 3Com a detailed written statement of the reasons for such rejection. ("Statement of Errors"). Upon receipt of the Statement of Errors, JD shall use reasonable efforts to modify the JD Products to conform to the Test Criteria. The parties acknowledge that the contents of the Test Criteria may need to be changed from time to time if major new functionality is added to the Palm Software. 3Com shall use its reasonable discretion in determining new Test Criteria for such Palm Software with such new functionality and will apply such new Test Criteria to its internal customers and to JD and its other licensees. (b) Compatibility Certification Requirement. JD agrees that it shall not release or distribute any JD Products which have not received compatibility certification from an Approved Testing Lab in accordance with the Test Criteria. Each version of a JD Product shall be required to pass the Test Criteria only once, regardless of 3Com's subsequent modifications to the Palm Software. However, in order to obtain compatibility certification for Palm Software with new functionality and new Test Criteria as described in the last paragraph of Section 2.3(a), JD may submit JD Products for compatibility testing against such new Test Criteria in accordance with Section 2.3(a). JD may indicate compatibility certification for JD Products only with respect to the version(s) of the Test Criteria which the JD Products have passed. (c) Trademark License. Subject to subsections (a) and (b) above and the other terms and conditions of this Agreement, 3Com hereby grants to JD a limited, non-exclusive, nontransferable (except as provided in Section 17.9), fully-paid license to use, subject to the guidelines set forth in 3Com's Trademark Policy Guidelines attached hereto as Exhibit C, the "Palm Computing Platform Compatible" trademark and such other 3Com trademarks and the respective stylistic marks as may be mutually agreeable and the artwork for which has been provided by 3Com to JD (collectively, the "3Com Trademarks") in connection with the marketing and sale of JD Products that have received compatibility certification in accordance with subsection (a) above. JD shall use such trademarks in conjunction with the distribution, promotion, and marketing of any JD Products that have received compatibility certification, consistent with the guidelines set forth in Exhibit C. 3Com shall have the right to receive free 4 5 samples of all advertising and promotional materials and reasonable numbers of sample production units of the JD Products and related JD documentation on which such trademarks are used to ensure that 3Com's quality standards are maintained. The foregoing license shall be limited to use of the 3Com Trademarks for the purposes of Section 8.3. JD shall have the right to permit its [*] for the JD Products to use the 3Com Trademarks as set forth herein, provided that JD contractually obligates such [*] to comply with the terms of Section 7.3 and this Section 2.3, and provided further that 3Com reserves the right to enforce and protect its trademark rights directly in the event of any failure to comply with such terms. 2.4 Right to Sublicense. (a) [*] Within thirty (30) days of the execution of each [*], JD shall notify 3Com in writing of such execution and the identity of the [*]. Each such [*] will contain provisions that protect 3Com's proprietary rights to no less of an extent than such rights are protected by Sections 2.3 (Compatibility and Trademark License), 2.5 (No Reverse Engineering), 2.6 (Inspection Rights), 8.3 (Branding), 10 (Proprietary Rights), 13 (Confidentiality), and 15 (Export Regulations) of this Agreement. In the event of any failure by any [*] to comply with the foregoing terms of their [*], JD shall use its reasonable efforts to enforce and protect 3Com's intellectual property rights against such [*], provided that 3Com reserves the right to enforce and protect its intellectual property rights directly against such [*] with the cooperation of JD. (b) Subject to the requirements of Sections 2.5 and 13, JD shall have the right to sublicense its rights under Section 2.1 to consultants and contractors solely for the purpose of developing, manufacturing, testing, and supporting JD Products for JD. (c) Except as specified in this Section 2.4, JD shall not have the right to sublicense any of its rights under this Agreement. 2.5 No Reverse Engineering. JD shall not reverse engineer, reverse compile or disassemble any Palm Software, or otherwise attempt to derive the source code to any Palm Software. The foregoing shall not apply to such activities conducted in the ordinary course of technical support of JD Products such as may occur through the use of debugging tools. 2.6 Inspection Rights. 3Com shall have the right, upon reasonable advance notice, to inspect JD's records and facilities, and its [*], with respect to the manufacture of the JD Products hereunder and to receive sample units thereof in order to verify that such manufacturing is within the scope of this Agreement, and that there are appropriate security procedures to protect 3Com's Confidential Information. JD shall have similar rights with respect to its contract manufacturers sublicensed under Section 2.4(b). 2.7 No Other Licenses. The licenses granted under this Agreement are specifically set forth herein, and no licenses are granted by 3Com to JD by implication or estoppel. * 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. 5 6 2.8 Limitations on Scope of Agreement. Notwithstanding the other terms and conditions of this Agreement, the rights granted to JD under this Agreement do not, and will not, include: (a) [*] (b) [*] (c) any right or license to sublicense any of the foregoing rights to any OEMs, consultants, contractors, or other third parties. 3. DELIVERY AND SOURCING 3.1 Delivery of Licensed Materials. Within forty-five (45) days following the Effective Date, 3Com will deliver to JD a complete and current set of the Palm Software, Palm Development Environment and Palm Materials. 3.2 Third Party Sourcing. Exhibit D contains a list of custom components ("Components") that JD may wish to purchase from 3Com's third party component suppliers and/or manufacturers ("Sources") for incorporation in JD Products. 3Com hereby grants JD the right to use such suppliers and procure such Components during the term of this Agreement, and will notify such Sources of the same. In the event that such Sources are unable to promptly fill all Component orders from 3Com due to market demand, manufacturing delays, or other factors, JD acknowledges and agrees that such Sources shall fulfill all orders from 3Com before fulfilling orders from JD or JD's [*]. 4 ROYALTIES, FEES, AND REPORTS 4.1 Royalties. JD shall pay to 3Com royalties on its Net Revenues ("Royalties") as specified in Exhibit E (Royalties and Fees). Such royalties shall be due and payable to 3Com regardless of whether JD collects payments for the JD Products from JD's customers. 4.2 Maintenance and Support Fees. JD shall pay to 3Com fees as specified in Exhibit E (Royalties and Fees) for maintenance, support, updates, and upgrades provided by 3Com to JD pursuant to Sections 6.1 and 7. Such fees shall be due and payable to 3Com in advance beginning one year after the Effective Date, regardless of whether JD collects payments for the JD Products or their maintenance and support from JD's customers. 4.3 Reports. JD shall keep adequate records to verify all reports and payments to be made to 3Com pursuant to this Agreement for a period of two (2) years following the date of * 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. 6 7 such reports and payments. 3Com shall have the right to select an independent certified public accountant mutually agreeable to the parties to inspect no more frequently than annually the records of JD on reasonable notice and during regular business hours to verify the reports and payments required hereunder. If such inspection should disclose any underreporting, JD shall pay 3Com such amount within thirty (30) days of the conclusion of such inspection. The entire cost of such inspection shall be borne by 3Com; provided, however, that if JD is determined by such inspection to have underpaid royalties by five percent (5%) or more, then the cost of such audit shall be borne by JD. 5. PAYMENT TERMS 5.1 Payment. Royalties shall accrue upon shipment to a customer of JD Products by JD and shall be payable within [*] after the end of each calendar [*]. Each Royalty payment shall be accompanied by a statement setting forth in sufficient detail the basis upon which royalties were calculated. Payments and statements shall be sent to 3Com at the address set forth at the beginning of this Agreement or such other address as 3Com may designate in writing. 5.2 Royalty-Free Units of JD Products. JD shall have the right to manufacture and distribute a commercially reasonable number of JD Products, provided that it does not receive any revenue therefrom, for the following purposes without incurring a Royalty obligation to 3Com: units for testing, units with limited functionality for reseller point of purchase and demonstration, units provided to 3Com, Palm, or other Palm licensees, units used internally by employees or contractors of JD, and units given to press and analysts. 5.3 [*]. [*] Such option will be JD's sole and exclusive remedy for 3Com's breach of this Section 5.3. The parties acknowledge that 3Com's current license agreements with [*] and [*] are exempt from the requirements of this provision. 5.4 Taxes. In addition to any other payments due under this Agreement, JD agrees to reimburse and hold 3Com harmless from any sales, use, excise, import or export, value added or similar tax or duty, any other tax not based on 3Com's net income, and any governmental permit and license fees, customs fees and similar fees levied upon delivery of the deliverables and/or services hereunder which 3Com may incur in respect of this Agreement. 6. UPDATE RESPONSIBILITIES AND OS ENHANCEMENTS 6.1 Updates and Additions to Palm Software and Palm Materials. During the term of this Agreement and subject to Section 9.4 (3Com Update and Support Obligations), 3Com shall * 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. 7 8 deliver to JD all upgrades, bug fixes, modifications, enhancements and new versions of the Palm Software and Palm Materials within ten (10) business days after 3Com's internal beta releases or production releases. Upon such delivery, the licenses granted to JD pursuant to Section 2 above shall be deemed to include the items delivered pursuant to this Section 6.1. JD acknowledges that during the term of this Agreement, in addition to delivering to JD the upgrades, bug fixes, modifications, enhancements and new versions referred to above, 3Com. expects to release separate modules and components for the Palm Computing platform for which 3Com may elect to require that licensees pay separate consideration and enter into separate agreements or amendments in order to have any rights to such modules or components. 6.2 OS Enhancements. (a) Approved OS Enhancements. In the event that JD requests in writing that 3Com add new functionality to the Palm OS requiring enhancements to the Palm OS source code, 3Com will consider such request in good faith and will respond to JD in writing within thirty (30) days of its receipt of such request (or within such longer time period as may be reasonably agreed by the parties) with whether 3Com intends to implement such request and, if so, with a proposed schedule for implementation. In the event 3Com approves such request under a proposed schedule reasonably acceptable to JD ("Approved OS Enhancements"), 3Com will use its reasonable commercial efforts to implement such enhancements within the proposed schedule, whereupon such Approved OS Enhancements will be deemed additional Palm OS software for all purposes of this Agreement. Upon delivery to JD, the licenses granted to JD pursuant to Section 2 above shall be deemed to include such Approved OS Enhancements. JD shall execute all assignments and other documents as may be requested by 3Com to evidence and perfect 3Com's ownership of the Approved OS Enhancements and the intellectual property rights therein. (b) Implementation by JD. To the extent that 3Com rejects JD's request for Palm OS enhancements, or if 3Com's proposed schedule is not reasonably acceptable to JD, then JD may notify 3Com in writing that JD wishes to implement such enhancements itself, whereupon the parties will negotiate in good faith the terms under which JD will develop the enhancements, including: (i) which Palm OS source code and tools JD will require; (ii) the limitations that will be placed on JD's (and any contractors') use of such source code and tools; (iii) the parties respective intellectual property rights in such enhancements; (iv) 3Com's responsibility, if any, for support and maintenance of such enhancement; and (v) JD's responsibility for any costs and expenses that 3Com may incur in connection with such implementation, support, and maintenance. 7. SUPPORT Subject to Section 9.4 (3Com Update and Support Obligation), 3Com shall provide JD with the following support during the term of this Agreement in accordance with the 3Com Support terms set forth in Exhibit F (3Com Support Services). 8 9 7.1 Development Support. 3Com will provide JD with a reasonable level of support by telephone, e-mail, fax or, if requested by JD, in person at 3Com's Mountain View and/or Santa Clara, California site, during 3Com's normal business hours (8:00 am - 5:00 pm California time, excluding holidays) in connection with JD's use of the Palm Software to develop and support the JD Products, including the use of reasonable commercial efforts: (i) to answer JD's questions regarding the proper utilization and optimization of the Palm Software; and (ii) to provide solutions, workarounds and/or patches to correct any reproducible error in the Palm Software. JD shall designate up to two qualified individuals per Designated Site to act as primary technical liaisons for communications with 3Com's technical support staff. 3Com shall designate two qualified individuals to act as primary and secondary technical liaisons for communications with JD's technical support staff. 7.2 Customer Support Training. During the term of this Agreement, 3Com shall, at its expense, provide JD with one (1) course per version of the Palm Software of basic and advanced training as it relates to customer support for up to six (6) JD employees engaged in the technical support of the JD Product. 3Com shall further provide to JD, at 3Com's expense, similar training for modifications or other revisions to the Palm Software, as it relates to customer support. Training will be conducted at 3Com's facilities in Mountain View and/or Santa Clara, California or such other mutually agreeable facility. Each training course shall commence on a mutually agreed upon date. Such training shall cover in detail, the installation, configuration, operation, trouble-shooting, adjustment, test and maintenance of the Palm Software, as it relates to customer support. JD shall provide a reasonable quantity of appropriate JD Product units as training aids. 3Com shall provide copies of the student training guides, and all other necessary materials to each trainee and to JD. All other training requested by JD and provided by 3Com shall be billed at 3Com's standard rates. 7.3 Customer Support. JD shall be solely responsible for First Level Support and Second Level Support of the JD Products. The parties agree to work together to develop and facilitate the call handling processes to provide seamless customer support and technical service to resellers and end users of the JD Product. In addition, 3Com will provide JD with Third Level Support during the term of this Agreement. The definitions of First, Second And Third Level Support shall be as set forth in Section 7.4 below. During the term of this Agreement, 3Com shall permit JD to create hyperlinks to the 3Com Web site and to display certain 3Com end user materials on JD's Web site for customer support purposes, subject to 3Com's prior approval of each proposed use. During the term of this Agreement, JD shall permit 3Com to create hyperlinks to the JD Web site and to display certain JD end-user materials on 3Com's Web site for customer support purposes, subject to JD's prior approval of each proposed use. 7.4 Technical Support. (a) Technical Support Levels. For the purposes of Section 7.3 above, "Level" means a certain class of service provided for the JD Products. Definitions are as follows: 9 10 (i) "First Level Support" means first call support on all customer calls; technical support staff answers technical inquiries regarding JD Products, performs JD Product configuration support, if applicable, and provides broad troubleshooting expertise. (ii) "Second Level Support" means specialist level technical support; technical support/escalation staff performs problem isolation and replication, and implements a solution for a problem that is not the result of a Palm Software program error. In the case of a Palm Software program error, the technical staff is able to identify the source of the error, create a reproducible test case, and document the details of the error for escalation to 3Com. (iii) "Third Level Support" means backup technical support to two representatives of JD's Second Level Support team (the "Authorized Callers"). 3Com will identify to JD its technical support personnel for the Palm Software (the "Designated Support Personnel"). The Authorized Callers and Designated Support Personnel will be the primary contacts between 3Com's and JD's technical support and/or escalation centers. JD will provide a list of Authorized Callers including names, address, phone numbers, and Internet e-mail address. 3Com will provide a similar list of Designated Support Personnel. These lists will be reviewed quarterly and updated as required. (b) Support Timing. 3Com shall make Third Level Support available via telephone, FAX or E-Mail solely to JD's Authorized Callers during 3Com's normal business hours (8:00 am -- 5:00 pm California time, excluding holidays). 3Com. shall use reasonable commercial efforts to answer support questions within the timeframes specified in Exhibit F (3Com Support Services). So long as 3Com is using reasonable commercial efforts to answer such questions, 3Com's inability to resolve answer such question shall not be deemed a material breach of the Agreement. (c) Direct Customer Support. 3Com will not be obligated to provide direct support of any kind to JD's customers or end users pursuant to this Agreement. JD will provide sufficient information and/or training regarding the JD Products to 3Com's Designated Support Personnel to enable 3Com to properly assist JD in resolving problems. 8. MARKETING AND PUBLICITY 8.1 Marketing. The parties agree to work together to identify areas where joint marketing efforts would benefit both parties, and upon mutual agreement shall implement such efforts. 8.2 Publicity. Neither party shall disclose the terms of this Agreement to any third party, other than its financial or legal advisors and current or potential Non-Corporate Investors, or make any announcements regarding the nature of the relationship between the parties without the prior approval of the other party, except that a party may disclose the terms of this Agreement where required by law, provided that such party uses reasonable effort to obtain confidential treatment or similar protection to the fullest extent available to avoid public disclosure of the terms of this Agreement. A party required by law to make disclosure of the terms of this 10 11 Agreement will promptly notify the other party and permit the other party to review and participate in the application process seeking confidential treatment. "Non-Corporate Investors" shall mean venture capital investors/funds and investment banking investors/funds. 8.3 Branding. JD and its [*] will use the 3Com Trademarks in conjunction with the distribution of the JD Products and in their advertising, promotional and printed materials for the JD Products and on the JD Products. 8.4 Nonsolicitation. JD agrees that during the first year of the term of this Agreement JD will not directly or indirectly, either for itself or any other person or entity, solicit any individual who is engaged as an employee, agent or independent contractor, by 3Com or 3Com's subsidiaries (including but not limited to the Palm Computing subsidiary of 3Com) to terminate his or her employment or engagement with 3Com or such subsidiary and/or to become an employee, agent or independent contractor of JD or such other person or entity; provided, however, that the foregoing limitation will not apply to any solicitation that occurs after such individual either: (i) initiates contact with JD regarding terminating his or her employment or engagement with 3Com or such subsidiary and/or becoming an employee, agent or independent contractor of JD or such other person or entity; or (ii) responds to advertisements of general circulation (including general postings on Websites) placed by, or on behalf of, JD or such other person or entity regarding terminating his or her employment or engagement with 3Com or such subsidiary and/or becoming an employee, agent or independent contractor of JD or such other person or entity. JD further agrees that during the first year of the term of this Agreement it will not directly solicit, either for itself, or any other person or entity, any strategic partner of the Palm Computing subsidiary of 3Com to cease doing business with 3Com. 9. [*] 9.1 [*]. Within thirty (30) days of the execution of this Agreement [*], 3Com agrees to [*] with a reputable, financially responsible, industry-recognized party consented to by both parties to [*]. A fully executed copy of the [*], together with a receipt [*], shall be delivered to JD within five (5) days after the execution of the [*]. In addition, [*] such materials shall become [*]. The [*] shall be borne by JD. The [*] will be authorized to deliver the [*] to JD [*] * 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. 11 12 [*]. JD acknowledges and agrees that the [*] do not, and will not, contain any [*] owned by third parties. 9.2 Use. In the event JD [*] under this Section 9, JD shall have a limited, nonexclusive, nontransferable (except as provided in Section 17.9) license to use and modify the [*] at the Designated Sites solely to continue developing, manufacturing, testing and supporting JD Products. The foregoing license shall survive termination of this Agreement for a period of [*] from such termination, subject to earlier termination if JD breaches its confidentiality obligations with respect to the [*]. Upon termination of the foregoing license, JD shall promptly: (i) return all [*], including but not limited to all copies thereof in whole and in part, to 3Com; and (ii) destroy all copies thereof, in whole and in part, residing within any computers in JD's control. Except to consultants consistent with Section 13 (Confidentiality), JD may not disclose any of the [*] to third parties under any circumstances. JD shall own all proprietary rights in modifications made pursuant hereto, subject to 3Com's underlying rights to the unmodified [*]. 9.3 [*] Dispute Resolution. In the event of a dispute regarding whether 3Com has materially breached Sections 6.1 or 7.1 of this Agreement and failed to cure such breach within the applicable cure period, the parties shall submit the matter for resolution pursuant to the arbitration procedure set forth in the [*], in which case the [*] shall not be released to JD unless and until the arbitrator finds that there has been such breach. Upon a finding of such breach by the arbitrator, the [*] shall be released to JD immediately. 9.4 3Com Update and Support Obligations. The parties agree that in the event the [*], 3Com's obligations pursuant to Sections 6.1 (Updates and Additions to 3Com Software and Materials) shall terminate upon the earlier to occur of: (a) 3Com delivering to JD the next major version of the 3Com Software and Palm Materials subsequent to the version contained in the [*]; or (b) [*] following the date of such release. In addition, in the event of such release, 3Com's obligations pursuant to Section 7 (Support) shall terminate [*] following the date of such release. 10. PROPRIETARY RIGHTS 10.1 Title. JD acknowledges that the Palm Software and Palm Materials are the valuable trade secrets of 3Com. 3Com shall be the sole and exclusive owner of the Palm Software. Subject always to 3Com's ownership of the Palm Software, JD shall be the sole and exclusive owner of the JD Products and JD Software. Applications for the JD Products shall belong solely and exclusively to the party developing such applications. 10.2 Proprietary Rights Notices. JD agrees that it will not remove, alter or otherwise obscure any proprietary rights notices appearing in the Palm Software and Palm Materials. Further, JD agrees that it will cause to appear on the container or label for each unit of the JD * 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. 12 13 Products manufactured hereunder appropriate patent and copyright notices and proprietary data legends as contained in the Palm Software delivered by 3Com or as otherwise reasonably required by 3Com. 10.3 U.S. Government Restricted Rights Legend. All 3Com technical data and computer software is commercial in nature and developed solely at private expense. Software is delivered as Commercial Computer Software as defined in DFARS 252.227-7014 (June 1995) or as a commercial item as defined in FAR 2.101(a) and as such is provided with only such rights as are provided in 3Com's standard commercial license for such software. Technical data is provided with limited rights only as provided in DFARS 252.227-7015 (Nov. 1995) or FAR 52.227-14 (June 1987), whichever is applicable. JD will: (a) identify and license the software developed by JD hereunder in all proposals and agreements with the United States Government or any contractor therefor; and (b) legend or mark such software provided pursuant to any agreement with the United States Government or any contractor therefor in a form sufficient to obtain for 3Com and its suppliers the protection intended by this Section 10.3 (U.S. Government Restricted Rights Legend). JD agrees not to remove or deface any portion of any legend on any software or documentation delivered to it under this Agreement. 10.4 End-User Licensing. JD agrees that each copy of the software distributed by JD hereunder will be accompanied by a copy of JD's standard end user software license; provided, however, that the terms of such license will be drafted so as to apply to the Palm Software and shall be at least as protective of the Palm Software as: (i) the terms and conditions JD uses for its own software products; (ii) the minimum terms and conditions set forth in Exhibit G (Minimum Terms and Conditions of End User License); and (iii) the terms and conditions governing this Agreement. JD agrees to enforce the terms and conditions applicable to the Palm Software contained in such license. 11. WARRANTY 11.1 3Com Warranty. 3Com warrants that for a period of ninety (90) days after receipt by JD of the Palm Software and Palm Materials (the "Warranty Period") the media on which 3Com delivers the Palm Software and Palm Materials to JD shall be free of defects in material and workmanship, and the Palm Software will perform substantially in accordance with the Palm End-User Documentation. As JD's sole and exclusive remedy for any breach of such warranty, 3Com shall replace any such defective media and/or correct any such performances problems in accordance with Sections 6.1 and 7 promptly following receipt of written notice from JD of such defects during the Warranty Period. EXCEPT FOR THE LIMITED WAS SET FORTH IN THIS SECTION 11, 3COM MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO ANY MATTER WHATSOEVER. IN PARTICULAR, ANY AND ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED. 11.2 JD Product Warranty. JD shall be solely responsible for customer warranty of any and all products manufactured by JD pursuant to this Agreement. 13 14 11.3 Year 2000 Warranty. (a) 3Com warrants to JD that the Palm Software will continue performing properly with regard to date-data on and after January 1, 2000, provided that all other products used by JD in connection or combination with the Palm Software accurately exchange date-data with the Palm Software. 3Com makes no certification regarding the performance of any other 3Com products with regard to date-data. (b) If it appears that any Palm Software does not perform properly with regard to date-data on and after January 1, 2000, and JD notifies 3Com thereof before April 1, 2000, 3Com shall, at its option and expense, provide JD with a software update which would effect the proper performance of the Palm Software or deliver to JD equivalent software to replace the Palm Software. Any such software update or equivalent software will be warranted pursuant to subsection (a) above for ninety (90) days or until April 1, 2000, whichever is later. 12. INDEMNIFICATION 12.1 By 3Com. 3Com shall, at its own expense, defend and indemnify JD for damages and reasonable costs incurred in any suit, claim or proceeding brought against JD alleging that the Palm Software, Palm Materials or 3Com Trademarks licensed pursuant to this Agreement infringe (i) any patents in the U.S., Canada, Japan, or the European Community, (ii) any copyrights worldwide, or (iii) any trademarks in any countries in which 3Com markets products in connection with the 3Com Trademarks, or misappropriate any trade secrets, provided that 3Com is promptly notified, rendered reasonable assistance by JD as required, and permitted to direct the defense or settlement negotiations. 3Com shall have no liability for any infringement arising from: (a) the integration or combination of the Palm Software, Palm Materials or Com, Trademarks together with other software, materials or products not integrated or combined by 3Com, if the infringement would have been avoided in the absence of such integration or combination; (b) the use of other than a current unaltered release of the software available from 3Com, if the infringement would have been avoided by the use of the then-current release, and if 3Com has provided such current release to JD; or (c) modifications to the Palm Software or Palm Materials requested by JD. 12.2 Remedies. In the event 3Com reasonably believes that the use or distribution of any Palm Software, Palm Materials or 3Com Trademarks is likely to be enjoined, 3Com may, at its option, either: (i) substitute functionally equivalent non-infringing Palm Software or Palm Materials, as the case may be; (ii) modify the infringing item so that it no longer infringes but remains functionally equivalent; (iii) obtain for JD, at 3Com's expense, the right to continue use of such item; or (iv) if none of the foregoing is feasible, 3Com may take back such infringing item or items and terminate only that portion of the license associated with respect to such item or items, subject to a mutually satisfactory equitable reduction in the Royalty and fees payable under this Agreement. Should the use or distribution of any Palm Software, Palm Materials or 3Com Trademarks be enjoined, 3Com shall, at its option, either: (i) substitute functionally equivalent non-infringing Palm Software or Palm Materials, as the case may be; (ii) modify the infringing item so that it no longer infringes but remains functionally equivalent; (iii) obtain for 14 15 JD, at 3Com's expense, the right to continue use of such item; or (iv) if none of the foregoing is feasible, 3Com may take back such infringing item or items and terminate only that portion of the license associated with respect to such item or items, subject to a mutually satisfactory equitable reduction in the Royalty and fees payable under this Agreement. Notwithstanding the foregoing, JD acknowledges that 3Com may undertake to obtain patent licenses from third parties relating to the Palm Software, and in such event the royalty obligation for the JD Products arising from such patent licenses shall be passed through to, and paid at the direction of 3Com by JD; provided, however, that the per-unit royalty obligation payable by JD shall not exceed the per-unit or percentage royalty obligation (whichever is less) payable by 3Com for products similar to the JD Products, and shall not in any event exceed [*]. SECTIONS 12.1 and 12.2 STATE JD'S SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO CLAIMS OF INFRINGEMENT OF PROPRIETARY RIGHTS OF ANY KIND, AND ALL WARRANTIES OF NON-INFRINGEMENT, EXPRESS OR IMPLIED, ARE SPECIFICALLY DISCLAIMED AND EXCLUDED. 12.3 By JD. JD shall, at its own expense, defend and indemnify 3Com for damages and reasonable costs incurred in any suit, claim or proceeding brought against Palm Computing Inc., 3Com Corporation or its and their subsidiaries alleging that the JD Products, JD Software and/or related materials infringe (i) any patents in the U.S., Canada, Japan, or the European Community, (ii) any copyrights worldwide, or (iii) any trademarks in any countries in which JD markets products in connection with the 3Com Trademarks, or misappropriate any trade secrets, provided that JD is promptly notified, rendered reasonable assistance by 3Com as required, and permitted to direct the defense or settlement negotiations. JD shall have no liability for any infringement arising from: (a) the integration or combination of the JD Products or JD Software together with other software, materials or products not integrated or combined by JD, if the infringement would have been avoided in the absence of such integration or combination; or (b) use or distribution of Palm Software or Palm Materials. SECTION 12.3 STATES 3COM'S SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO CLAIMS OF INFRINGEMENT OF PROPRIETARY RIGHTS OF ANY KIND, AND ALL WARRANTIES OF NONINFRINGEMENT, EXPRESS OR IMPLIED, ARE SPECIFICALLY DISCLAIMED AND EXCLUDED. 12.4 Other Indemnity. Each party shall indemnify and defend the other against all claims, suits, losses, expenses and liabilities (including reasonable attorneys' fees) for bodily injury, personal injury, death and tangible property damage as a result of the negligence, intentional wrongful acts or omissions, or misrepresentations of the indemnifying party or any person for whose actions it is legally liable, provided that the indemnifying party is promptly notified, rendered reasonable assistance by the indemnified party as required, and permitted to direct the defense or settlement negotiations. 13. CONFIDENTIALITY 13.1 Confidential Information. Each party acknowledges that in the course of the performance of this Agreement, it may obtain the Confidential Information of the other party. The Receiving Party (as defined in Section 1.1 (Confidential Information)) shall, at all times, * 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. 15 16 both during the term of this Agreement and thereafter for a period of three (3) years keep in confidence and trust all of the Disclosing Party's (as defined in Section 1.1 (Confidential Information)) Confidential Information received by it (except for source code, which shall be kept in confidence and trust in perpetuity). The Receiving Party shall not use the Confidential Information of the Disclosing Party other than as expressly permitted under the terms of this Agreement. The Receiving Party shall take reasonable steps to prevent unauthorized disclosure or use of the Disclosing Party's Confidential Information and to prevent it from falling into the public domain or into the possession of unauthorized persons. The Receiving Party shall not disclose Confidential Information of the Disclosing Party to any person or entity other than its officers, employees, contractors, and consultants who need access to such Confidential Information in order to effect the intent of this Agreement and who have entered into confidentiality agreements which protect the Confidential Information of the Disclosing Party sufficient to enable the Receiving Party to comply with this Section 13.1 (Confidential Information). The Receiving Party shall immediately give notice to the Disclosing Party of any unauthorized use or disclosure of Disclosing Party's Confidential Information. The Receiving Party agrees to assist the Disclosing Party to remedy such unauthorized use or disclosure of its Confidential Information. 13.2 Exceptions to Confidential Information. The obligations set forth in Section 13.1 (Confidential Information) shall not apply to the extent that Confidential Information includes information which is: (a) now or hereafter, through no unauthorized act or failure to act on the Receiving Party's part, in the public domain; (b) known to the Receiving Party without an obligation of confidentiality at the time the Receiving Party receives the same from the Disclosing Party, as evidenced by written records; (c) hereafter furnished to the Receiving Party by a third party as a matter of right and without restriction on disclosure; (d) furnished to others by the Disclosing Party without restriction on disclosure; or (e) independently developed by the Receiving Party without use of the Disclosing Party's Confidential Information. Nothing in this Agreement shall prevent the Receiving Party from disclosing Confidential Information to the extent the Receiving Party is legally compelled to do so by any governmental investigative or judicial agency pursuant to proceedings over which such agency has jurisdiction; provided, however, that prior to any such disclosure, the Receiving Party shall (i) assert the confidential nature of the Confidential Information to the agency; (ii) immediately notify the Disclosing Party in writing of the agency's order or request to disclose; and (iii) cooperate fully with the Disclosing Party in protecting against any such disclosure and/or obtaining a protective order narrowing the scope of the compelled disclosure and protecting its confidentiality. 13.3 Other Palm Software Source Code Restrictions. Except as permitted in this Agreement, JD shall not use, make, have made, distribute or disclose any copies of the source code of the Palm Software, in whole or in part, or the information contained therein without the prior written authorization of 3Com. JD shall inform its employees having access to such source code of JD's limitations, duties and obligations regarding nondisclosure and copying of such source code and shall obtain or have obtained their written agreement to comply with such limitations, duties and obligations. JD shall maintain records of its employees having access to such source code, and upon reasonable notice 3Com may audit such records. 16 17 14. LIMITATION OF LIABILITY EXCEPT FOR LIABILITY FOR BREACH OF SECTION 13 (CONFIDENTIALITY) AND EXCEPT AS SPECIFICALLY PROVIDED IN SECTION 12 (INDEMNIFICATION): (A) NEITHER PARTY SHALL HAVE ANY LIABILITY FOR INCIDENTAL, CONSEQUENTIAL, INDIRECT, SPECIAL OR PUNITIVE DAMAGES OF ANY KIND OR FOR LOSS OF REVENUE OR LOSS OF BUSINESS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, REGARDLESS OF THE FORM OF THE ACTION, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY OR OTHERWISE, EVEN IF ANY REPRESENTATIVE OF A PARTY HERETO HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; AND (B) IN NO EVENT SHALL 3COM'S LIABILITY UNDER THIS AGREEMENT EXCEED THE AMOUNTS PAID BY JD TO 3COM UNDER THIS AGREEMENT. 15. EXPORT REGULATIONS Neither party shall export, directly or indirectly, any technical data or software acquired under this Agreement or the direct product of any such technical data or software to any country for which the United States Government or any agency thereof, at the time of export, requires an export license or other government approval, without first obtaining such license or approval. With respect to any export transactions under this Agreement, both parties will cooperate in any reasonable manner to effect compliance with all applicable export regulations. 16. TERM AND TERMINATION 16.1 Term. This Agreement shall be effective from the Effective Date for a period of five (5) years ("Specified Term"), unless earlier terminated in accordance with its terms. Thereafter, this Agreement may be renewed on its anniversary dates for successive one (1) year terms if each party agrees to do so by written notice to the other party no later than sixty (60) days prior to any such anniversary date. 16.2 Termination Due to Bankruptcy, etc. In the event a party: (i) becomes insolvent; (ii) voluntarily files or has filed against it a petition under applicable bankruptcy or insolvency laws which such party fails to have released within thirty (30) days after filing; (iii) proposes any dissolution, composition or financial reorganization with creditors or if a receiver, trustee, custodian or similar agent is appointed or takes possession with respect to all or substantially all property or business of such party; or (iv) such party makes a general assignment for the benefit of creditors, the other party may terminate this Agreement by giving a termination notice, which termination shall become effective ten (10) days after mailing. 16.3 Right to Terminate; [*] Termination. (a) Either party shall have the right to terminate this Agreement if the other party is in material breach of any term or condition of this Agreement and fails to remedy such * 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. 17 18 breach within thirty (30) days after receipt of written notice of such breach given by the nonbreaching party. (b) 3Com's obligations and JD's rights under Section 9 [*] shall terminate if there is a material change in the ownership or control of JD such that more than twenty percent (20%) or more of the voting equity stock of JD is owned and/or controlled (directly or indirectly) by one or more Competitors. "Competitor" means any entity or entities that develops, manufactures, markets, and/or distributes handheld operating systems software that is licensed to third parties on a stand-alone basis. 16.4 Effect of Termination. Upon the termination or expiration of this Agreement: (i) the licenses and other provisions of this Agreement shall be terminated and JD shall discontinue the use, manufacture, reproduction, distribution and sublicensing of the JD Products, Palm Software, Palm Materials and 3Com trademarks, except as specified in this Section 16; (ii) JD's obligation to pay all sums due hereunder shall be accelerated and all such sums shall be due and payable within forty-five (45) days of the end of the calendar quarter in which the date of termination or expiration occurred; and (iii) the Receiving Party shall, within fifteen (15) days of receipt of a written request by the Disclosing Party to do so, return to the Disclosing Party or destroy all full or partial copies, in whatever media, of any and all confidential materials in the Receiving Party's possession which had been furnished to the Receiving Party by the Disclosing Party pursuant to this Agreement, and the Receiving Party shall warrant in writing to the Disclosing Party within thirty (30) days after termination or expiration that all such materials have been returned to the Disclosing Party or destroyed. In addition, upon any expiration or termination (other than for JD's breach), JD may elect to retain the licenses specified in Section 2 for two (2) years following such expiration or termination for the versions of the Palm Software and the Palm Materials that have been delivered to JD prior to such expiration or termination, on the following terms: (a) the Royalty rates specified in Exhibit E will be [*]; (b) 3Com's obligations under Sections 6, 7 and 9, and JD's obligations under Section 4.2, will [*]; and (c) the remaining provisions of this Agreement will remain in effect with regard to the JD Products for such two-year period. 16.5 Survival. Neither the termination or expiration of this Agreement shall relieve either party from its obligations to pay the other any sums accrued hereunder. The parties agree that their respective rights, obligations and duties under Sections 4 (Royalties, Fees and Reports), 5.4 (Taxes), 8.2 (Publicity), 10 (Proprietary Rights), 11 (Warranty), 12 (Indemnification), 13 (Confidentiality), 14 (Limitation of Liability), 15 (Export Regulations), 16 (Term and Termination) and 17 (Miscellaneous), as well as any rights, obligations and duties which by their nature extend beyond the termination or expiration of this Agreement shall survive any termination or expiration and remain in effect for a period of three (3) years thereafter or the period specified in this Agreement, if longer. 17. MISCELLANEOUS 17.1 Notices. Any notice provided for or permitted under this Agreement will be treated as having been given when (a) delivered personally, (b) sent by confirmed telex or fax, (c) * 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. 18 19 sent by commercial overnight courier with written verification of receipt, or (d) mailed postage prepaid by certified or registered mail, return receipt requested, to the party to be notified, at the address set forth below, or at such other place of which the other party has been notified in accordance with the provisions of this Section 17.1 (Notices). If to 3Com: Palm Computing, Inc., a subsidiary of 3Com Corporation 1565 Charleston Road Mountain View, CA 94043 Attention: Vice President Strategic Alliances and Platform Development Fax: (650) 968-9791 with copies to: 3Com Corporation 5400 Bayfront Plaza Santa Clara, CA 95052 Attention: General Counsel Fax: (408) 326-6434 If to JD: JD Technology, Inc. P.O. Box 7066 Menlo Park, CA 94026 Attention: Donna Dubinsky Fax: (650) 470-0943 Such notice will be treated as having been received upon the earlier of actual receipt or five (5) days after posting. 17.2 Amendment: Waiver. This Agreement may be amended or supplemented only by a writing that is signed by duly authorized representatives of both parties. No term or provision hereof will be considered waived by either party, and no breach excused by either party, unless such waiver or consent is in writing signed on behalf of the party against whom the waiver is asserted. No consent by either party to, or waiver, of, a breach by either party, whether express or implied, will constitute a consent to, waiver of, or excuse of any other, different, or subsequent breach by either party. 17.3 Severability. If any provision of this Agreement is held invalid or unenforceable for any reason, the remainder of the provision shall be amended to achieve as closely as possible the economic effect of the original term and all other provision shall continue in full force and effect. 17.4 Governing Law. This Agreement shall be governed by and construed under the laws of the United States and the State of California as applied to agreements entered into and to be performed entirely within California between California residents. The parties agree that the 19 20 United Nations Convention on Contracts for the International Sale of Goods is specifically excluded from application to this Agreement. 17.5 Choice of Forum. The parties hereby submit to the jurisdiction of, and waive any venue objections against, the United States District Court for the Northern District of California, San Jose Branch and the Superior and Municipal Courts of the State of California, Santa Clara County, in any litigation arising out of the Agreement. 17.6 Injunctive Relief. The copying, disclosure, or use of the Palm Software in a manner inconsistent with any provision of this Agreement may cause irreparable injury to 3Com for which 3Com may not have an adequate remedy at law. 3Com may be entitled to equitable relief in court, including but not limited to temporary restraining orders, preliminary injunctions and permanent injunctions. 17.7 Attorneys' Fees. In any action to enforce this Agreement, the prevailing party shall be awarded all court costs and reasonable attorneys' fees incurred, including such costs and attorneys' fees incurred in enforcing and collecting any judgment. 17.8 Force Majeure. Except for the payment of money, neither party will be liable for any failure or delay in performance under this Agreement due to fire, explosion, earthquake, storm, flood or other weather, unavailability of necessary utilities or raw materials, war, insurrection, riot, act of God or the public enemy, law, act, order, proclamation, decree, regulation, ordinance, or instructions of Government or other public authorities, or judgment or decree of a court of competent jurisdiction (not arising out of breach by such party of this Agreement) or any other event beyond the reasonable control of the party whose performance is to be excused. 17.9 Assignment. 3Com may assign this Agreement without restriction, provided the assignee agrees in writing to be bound by the terms of this Agreement. JD may not assign this Agreement, whether by operation of law or otherwise, without the prior written consent of 3Com, except after one year from the Effective Date to a purchaser of substantially all the stock or assets of JD who: (i) agrees in writing to be bound by the terms of this Agreement; (ii) is not a Competitor (as defined in Section 16.3(b)); and (iii) uses the Palm Software under this Agreement solely in the JD Products of JD Technology, Inc. or its successor operations within such purchaser; and any attempt to do so without such consent will be void. This Agreement will bind and inure to the benefit of the parties and their respective successors and permitted assigns. 17.10 Relationship of the Parties. The parties to this Agreement are independent contractors. There is no relationship of agency, partnership, joint venture, employment, or franchise between the parties. Neither party has the authority to bind the other or to incur any obligation on its behalf. 17.11 Allocation of Risk. The sections on limitation of liability, warranties and disclaimer of warranties allocate the risks in the Agreement between the parties. This allocation is an essential element of the basis of the bargain between the parties. 20 21 17.12 Construction of Agreement. This Agreement has been negotiated by the respective parties hereto and their attorneys and the language hereof shall not be construed for or against any party. The titles and headings herein are for reference purposes only and shall not in any manner limit the construction of this Agreement, which shall be considered as a whole. 17.13 Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument. If this Agreement is executed in counterparts, no signatory hereto shall be bound until both the parties named below have duly executed or caused to be duly executed a counterpart of this Agreement. 17.14 Entire Agreement. This Agreement, including all Exhibits to this Agreement, constitutes the entire agreement between the parties relating to this subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the dates set forth below effective as of the Effective Date. PALM COMPUTING, INC. JD TECHNOLOGY, INC. a subsidiary of 3Com Corporation By: /s/ Janice M. Roberts By: /s/ Donna L. Dubinsky -------------------------------- -------------------------------- Name: Janice M. Roberts Name: Donna L. Dubinsky ------------------------------ ------------------------------ Title: SV President Title: CEO ----------------------------- ----------------------------- Date: 9/24/98 Date: 9/18/98 ------------------------------ ------------------------------
List of Exhibits - ---------------- A Palm Software B Test Criteria C 3Com Trademark Policy Guidelines D Third Party Components E Royalties and Fees F 3Com Support Services G Minimum Terms and Conditions of End User License
21 22 EXHIBIT A PALM SOFTWARE Palm OS [*] Palm Device Applications SDK [*] Palm Desktop Software [*] Palm End-User Documentation [*] Palm Technical Documentation [*] * 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. 22 23 [*] Palm Development Environment [*] Palm Installation CD Files [*] Palm GUI [*] * 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. 24 - ------------------------------------------------------------------------------------ [*] [*] [*] [*] [*] Thu, Apr 8, 1999, 3:22 PM 32 K [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Today, 1:46 PM -- [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:11 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:11 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:10 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:10 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:10 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:10 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:10 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:09 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:09 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:09 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:09 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:09 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:09 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:09 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] - ------------------------------------------------------------------------------------
* 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. 1 25 - ------------------------------------------------------------------------------------ [*] [*] [*] [*] [*] Today, 1:46 PM -- [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Today, 1:46 PM -- [*] [*] Fri, Oct 23, 1998, 2:47 PM 64 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Mon, Oct 26, 1998, 9:42 AM 32 K [*] [*] Mon, Oct 26, 1998, 9:42 AM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Thu, Apr 8, 1999, 2:56 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Fri, Oct 23, 1998, 8:35 AM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Mon, Nov 30, 1998, 9:22 AM 64 K [*] [*] Fri, Mar 12, 1999, 9:02 AM 128 K [*] - ------------------------------------------------------------------------------------
* 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. 2 26 - ------------------------------------------------------------------------------------ [*] [*] [*] [*] [*] Fri, Mar 12, 1999, 9:02 AM 128 K [*] [*] Fri, Mar 12, 1999, 9:02 AM 128 K [*] [*] Mon, Nov 30, 1998, 923 AM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] [*] Wed, Oct 14, 1998, 1:31 PM 160 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 160 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 192 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] [*] Wed, Oct 14, 1998, 1:31 PM 192 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 64 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 192 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 64 K [*] [*] Today, 1:46 PM -- [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Today, 1:46 PM -- [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Wed, Oct 14, 1998, 1:31 PM 32 K [*] [*] Today, 1:46 PM -- [*] [*] Thu, Apr 8, 1999, 2:59 PM 32 K [*] [*] Today, 1:46 PM -- [*] [*] Today, 1:46 PM -- [*] [*] Thu, Apr 8, 1999, 2:59 PM 32 K [*] - ------------------------------------------------------------------------------------
* 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. 3 27 - ------------------------------------------------------------------------------------ [*] [*] [*] [*] [*] Thu, Apr 8, 1999, 2:59 PM 32 K [*] [*] Thu, Apr 8, 1999, 2:59 PM 32 K [*] [*] Thu, Apr 8, 1999, 2:59 PM 32 K [*] [*] Thu, Apr 8, 1999, 2:59 PM 32 K [*] [*] Thu, Apr 8, 1999, 2:59 PM 32 K [*] [*] Thu, Apr 8, 1999, 2:59 PM 32 K [*] [*] Thu, Apr 8, 1999, 2:59 PM 32 K [*] [*] Thu, Apr 8, 1999, 2:59 PM 32 K [*] [*] Thu, Apr 8, 1999, 2:59 PM 32 K [*] [*] Thu, Apr 8, 1999, 2:59 PM 64 K [*] [*] Today, 1:46 PM -- [*] [*] Thu, Apr 8, 1999, 3:02 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:02 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:02 PM 128 K [*] [*] Thu, Apr 8, 1999, 3:02 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:02 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:02 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:02 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:02 PM 32 K [*] [*] Thu, Apr 8, 1999, 3:02 PM 32 K [*] [*] Wed, Sep 23, 1998, 1:34 PM 32 K [*] - ------------------------------------------------------------------------------------
* 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. 4 28 - ------------------------------------------------------------------------------------ [*] [*] [*] [*] [*] Today, 2:05 PM 32 K [*] [*] Tue, Apr 27, 1999, 5:07 PM 64 K [*] [*] Tue, Mar 23, 1999, 2:00 PM 32 K [*] [*] Today, 2:05 PM zero K [*] [*] Fri, Mar 19, 1999, 11:17 AM -- [*] [*] Tue, Mar 23, 1999, 1:59 PM 96 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 32 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 32 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 512 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 64 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 32 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 32 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 32 K [*] [*] Fri, Mar 19, 1999, 11:17 AM -- [*] [*] Tue, Mar 23, 1999, 1:59 PM 192 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 96 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 256 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 96 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 160 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 64 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 96 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 32 K [*]t [*] Tue, Mar 23, 1999, 1:59 PM 192 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 64 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 32 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 96 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 32 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 192 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 128 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 64 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 32 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 160 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 64 K [*] - ------------------------------------------------------------------------------------
* 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. 5 29 - ------------------------------------------------------------------------------------ [*] [*] [*] [*] [*] Tue, Mar 23, 1999, 1:59 PM 96 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 32 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 96 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 32 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 1 MB [*] [*] Tue, Mar 23, 1999, 1:59 PM 64 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 384 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 160 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 64 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 32 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 32 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 32 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 128 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 64 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 64 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 64 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 32 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 96 K [*] [*] Tue, Mar 23, 1999, 1:59 PM 64 K [*] [*] Tue, Apr 27, 1999, 2:26 PM 6.9 MB [*] - ------------------------------------------------------------------------------------
* 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. 6 30 EXHIBIT B TEST CRITERIA Following the Effective Date the Test Criteria will be finalized and attached in accordance with Section 2.3(a) 24 31 PALM COMPUTING(R) PLATFORM LOGO COMPATIBILITY PROGRAM 32 Palm Computing(R) Platform TABLE OF CONTENTS Welcome..................................................................... 3 Frequently Used Terms....................................................... 3 [*] 5 [*] 5 [*] 5 [*] 5 [*] 6 [*] 6 [*] 6 [*] 6 [*] 6 [*] 7 [*] 7 [*] 7 [*] 9 [*] 11 [*] 12 [*] 12 [*] 13 [*] 13 [*] 14 [*] 14 [*] 14 [*] 14 [*] 14 [*] 15 [*] 15 [*] 15 [*] 15 [*] 16 [*] 17 Licensee Questionnaire...................................................... 18 [*] 19 [*] 21 [*] 22
* 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. 3Com/Palm Confidential 2 33 Palm Computing(R) Platform WELCOME Welcome to the Palm Computing(R) Platform Logo Compatibility Program (the "Program") designed by Palm Computing, Inc., a subsidiary of 3Com Corporation (collectively, "3Com"). The testing under the Program will be executed by one of the independent test labs certified by 3Com ("Test Labs"). All Program specifics including process, test design and Program design have been approved and are enforced by 3Com. The purpose of this document is to provide 3Com's licensees ("Licensees") with detailed information about the compatibility certification process. Comprehensive test plans for baseline features are available and a customized test plan will be created for each Licensee's device by the Test Lab. Upon successful completion of all parts of the Program, Licensees will receive the right to use the Palm Computing platform logo from 3Com with respect to a particular device. 3Com looks forward to contributing to its Licensees' success and working with each Licensee as part of the Program. FREQUENTLY USED TERMS [*] (The current page and the following 14 pages contain portions omitted from this filing and filed separately with the Securities and Exchange Commission.) * 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. 3Com/Palm Confidential 3 34 Palm Computing(R) Platform LICENSEE QUESTIONNAIRE Contact Information (completion is required) Company Name____________________________________________________________________ Address_________________________________________________________________________ City, State, Zip________________________________________________________________ Main Phone #____________________________________________________________________ Fax #___________________________________________________________________________ Email Address___________________________________________________________________ Company Website URL_____________________________________________________________ Contact Person for Test Results_________________________________________________ Title and Direct Phone or extension #___________________________________________ Contact Person for Test/Product Questions_______________________________________ Direct Phone # and email________________________________________________________ Device Name_____________________________________________________________________ Version_________________________________________________________________________ Device Category and type________________________________________________________ Product Description_____________________________________________________________ Has the product been pre-tested? YES NO How is the product currently being tested? Please provide detailed testing information as necessary. ________________________________________________________________________________ ________________________________________________________________________________ Will the device be localized for international sale? If so, for which languages? ________________________________________________________________________________ ________________________________________________________________________________ 3Com/Palm Confidential 4 35 Palm Computing(R) Platform [*]
- ---------------------------------------------------------------------------------------------------- Not Included/ *Brief description [*] Included Included Modified of modification - ---------------------------------------------------------------------------------------------------- [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] - ----------------------------------------------------------------------------------------------------
* 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. 3Com/Palm Confidential 5 36 Palm Computing(R) Platform [*]
- ---------------------------------------------------------------------------------------------------- Not Included/ *Brief description [*] Included Included Modified of modification - ---------------------------------------------------------------------------------------------------- [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] - ----------------------------------------------------------------------------------------------------
[*] * 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. 3Com/Palm Confidential 6 37 Palm Computing(R) Platform [*]
- -------------------------------------------------------------------------------------------------------- [*] Brief description of feature and/or function Risk assessment - -------------------------------------------------------------------------------------------------------- [ ] Low [ ] Med [ ] High [ ] Low [ ] Med [ ] High [ ] Low [ ] Med [ ] High [ ] Low [ ] Med [ ] High [ ] Low [ ] Med [ ] High [ ] Low [ ] Med [ ] High [ ] Low [ ] Med [ ] High [ ] Low [ ] Med [ ] High [ ] Low [ ] Med [ ] High [ ] Low [ ] Med [ ] High - --------------------------------------------------------------------------------------------------------
* 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. 3Com/Palm Confidential 7 38 Palm Computing(R) Platform [*] (The current page and the following page contain portions omitted from this filing and filed separately with the Securities and Exchange Commission.) * 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. 3Com/Palm Confidential 8 39 Palm Computing(R) Platform Palm Computing Inc. a subsidiary of 3Com Corporation 5400 Bayfront Plaza Santa Clara, CA 95052 www.palm.com PCPLCP 0399 Copyright (C)1998 3Com Corporation or its subsidiaries. All rights reserved. 3Com, the 3Com logo, Palm Computing, Graffiti and HotSync are registered trademarks, and PalmPilot, Palm III, Palm OS, Palm, the Palm Computing platform logo, the Palm Pilot logo and the Palm III logo are trademarks of Palm Computing, Inc., 3Com Corporation or its subsidiaries. Other product and brand names may be trademarks or registered trademarks of their respective owners. This product is not manufactured by Pilot Corporation or Pilot Corporation of America, manufacturers and distributors of writing instruments. 3Com/Palm Confidential 9 40 EXHIBIT C 3COM TRADEMARK POLICY GUIDELINES [to be attached] 25 41 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES MARKETING COMMUNICATIONS GUIDELINES For products designed for the Palm Computing(TM) platform INTRODUCTION The Palm Computing platform, the foundation for the market-leading PalmPilot(TM) and Palm III(TM) connected organizers, is the fastest growing handheld computing platform in history. As a developer of products designed for the Palm Computing platform, you have contributed immensely to its success. Your role will continue to increase in importance as individuals and companies find new uses for products from Palm Computing, a 3Com company, and for a growing number of products from our market-leading original equipment manufacturer (OEM) and licensing partners. To help you and your products be successful and to protect the investment in our own trademark and branding efforts, we are supplying you with these marketing materials and style guidelines. The guidelines are designed to ensure the protection and maintenance of our various brand identities on all of your products and marketing vehicles. Please take a few moments to review these materials and contact Palm Computing Developer Services at devinfo@palm.com with any questions you may have regarding your company's proposed use of trademarks and other marketing elements. To obtain a Solution Provider version of the Palm Computing Brand Identity CD ROM featuring graphics, legal and products copy, please visit http://www.palm.com/devzoneplatform_logo to place your order. 3Com applies brand names and trademarks to both products and services, and supports these brand names with a wide range of advertising and promotional activities. While trademarks are important for establishing and protecting corporate and product identity, they are fragile rights that can be lost through misuse. Trademarks must be used consistently and renewed regularly, otherwise the trademarked name, phrase or element risks becoming unenforceable. Many of our trademarks are registered with the U.S. Patent and Trademark Office and its equivalent in Foreign countries. These trademarks should be indicated with the (R) symbol. Other trademarks should be indicated with the (TM) symbol. WHAT CUSTOMERS ARE SAYING ABOUT PALM COMPUTING(TM) HANDHELDS "In only two months my PalmPilot organizer has become an integral part of my lifestyle." "There is no way to overstate how much I value my PalmPilot. It gives me all of the tools I need to keep organized in a package small enough that I actually carry it with me, instead of leaving it on my desk." "I appreciated it so much that now, I provide all members of my management team with their own. All resources (contacts, to do lists, agendas) are shared through our LAN. Thanks." "The PalmPilot was one of the best things I ever bought for myself." 1 42 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES General Trademark Usage Rules The following general trademark rules should be applied to all 3Com trademarks: 1. NEVER USE THE TRADEMARK IN A FASHION THAT RISKS MAKING THE TERM "GENERIC." In order to protect a trademark, it is important to use it in a way such that it does not become a generic term. An example of a case where using the trademark inappropriately has put a product brand or trademark at risk of being unprotected by law is "aspirin." Using the trademark "aspirin" without the proper noun "pain reliever" following it, has made "aspirin" the generic term for "pain reliever," rather than a protected trademarked brand name of Bayer Corporation. Similarly, using the term Xerox as a verb, as in "I will xerox a copy of that memo for you," has contributed to making "xerox" a generic term; as a result, Xerox Corporation has been forced to spend millions of dollars in corrective advertising. Correct: The pocket-sized Palm III(TM) connected organizers give you instant access to your most important data at your fingertips. Incorrect: 1. The pocket-sized Palm III(TM) gives you instant access to your most important data. 2. Palm III(TM) gives you instant access to your most important data in the palm of your hand. 2. TRADEMARKS MUST ALWAYS APPEAR AS ADJECTIVES, FOLLOWED BY AN APPROPRIATE DESCRIPTIVE NOUN. Correct: Widgeteer software is compatible with the Palm III(TM) connected organizer. Incorrect: Widgeteer software is compatible with the Palm III(TM). 3. TRADEMARK SYMBOLS MUST OCCUR AT LEAST ONCE IN EACH PIECE. All Palm Computing and 3Com logos, including the Designed For Palm Computing platform logo, the Designed for Palm Computing platform Platinum logo, and the 3Com logo, must carry their respective trademark symbols each time they are used. Because the Palm Computing platform logo is pending federal registration, it should be used with a (TM) symbol. Because the 3Com logo is federally registered, it should be used with a (R) symbol. For other trademarks, the appropriate trademark symbol must appear on the first prominent reference, typically in a headline, and again on the first reference in body copy. It is not necessary to repeat the designation throughout the rest of the document. However, trademark symbols should be properly designated in all charts, tables, graphs, and slides, since these marketing vehicles have greater potential to be used independently. Please reference the section entitled "Using Brand Names in Copy" for correct usage. (Developers for the Palm Computing platform are not authorized to use the 3Com logo except when Palm Computing and the developer have made the agreement to co-brand a product.) 2 43 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES General Trademark Usage Rules 4. BE CONSISTENT. ALWAYS USE TRADEMARKS AND BRAND NAMES IN THE WAYS THEY WERE INTENDED TO BE USED. Never use trademarks as possessives. Correct: The Palm III(TM) organizer's shirt pocket size is a great selling feature. Incorrect: The Palm III's(TM) shirt pocket size is a great selling feature. Never use trademarks in a plural form. Correct: Palm III(TM) connected organizers feature as infrared beaming capability. Incorrect: Palm III's(TM) feature an infrared beaming capability. Never hyphenate a trademark. Correct: Enhanced HotSync(TM) technology enables remote schnronization. Incorrect: Enhanced HotSync(TM)-enabled systems can synchronize remotely. Never abbreviate a product name in such a way that the full trademark name is left out. Correct: PalmPilot(TM) connected organizer. Incorrect: Pilot Never alter a trademark (i.e.: Never use the trademark as a verb) Correct: Synchronization, using HotSync(TM) technology, refers to a two-way data exchange-between your PC and the PalmPilot(TM) connected organizer. Incorrect: HotSynching your data assures a two-way data exchange-between your PC and the PalmPilot(TM) connected organizer. Always use the proper capitalization of a trademark. Correct: HotSync(TM) technology. Incorrect: Hotsync(TM) technology. Avoid placing descriptors between a trademark and its noun. Correct: PalmPilot(TM) connected organizer. Incorrect: PalmPilot(TM) 2MB connected organizer. Always attribute the (TM) or (R) correctly. Correct: Palm(TM) Desktop organizer software. Incorrect: Palm Desktop(TM) organizer software. 5. DIFFERENTIATE TRADEMARKS FROM TRADE NAMES. A trade name is the name of a company and is used to identify that company rather than its products. Palm Computing uses "Palm Computing" as either a trademark or a trade name, depending on the context. For example, Palm Computing(TM) platform (registered trademark) developed by Palm Computing, a 3Com company (trade name). Note: When using Palm Computing as a trade name, do not use the (R) designation. 3 44 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES Naming Your Product or Company CATEGORY DESCRIPTORS When referencing the collective grouping of organizers supported by 3Com and manufactured by Palm Computing, U.S. Robotics or 3Com, the preferred formal pairing of trademark and descriptive noun is: "Palm Computing(TM) connected organizers." To avoid repetition within a document or to better address the needs of an enterprise audience, "connected organizers" may be replaced with "handhelds", "devices" or "organizers." In informal usage or when repetition of the preferred phrase "Palm Computing" connected organizers is cumbersome, the collective grouping of organizers manufactured by Palm Computing, U.S. Robotics or 3Com may be referenced as "Palm(TM) connected organizers". To avoid repetition within a document or to better address the needs of an enterprise audience, "connected organizers" may be replaced with "handhelds," "devices," "computers" or "organizers." A collective grouping of organizers including the Palm III(TM) connected organizer and the PalmPilot(TM) organizer, may also be referenced as follows: "Palm III(TM) and PalmPilot(TM) connected organizers". Again, depending on audience, "connected organizers" may be replaced with "handhelds," "devices" or "organizers". Devices (such as the IBM WorkPad PC companions) that are manufactured by licensed and OEM partners using Palm Computing technology, in addition to Palm Computing(TM) connected organizers (such as the Palm III(TM) connected organizer), may be referred to as: "Palm Computing(TM) platform devices" or "Palm Computing(TM) platform handhelds". When referencing peripherals and software designed for use with the Palm Computing(TM) connected organizers and Palm Computing(TM) platform devices, refer to them as "Palm Computing(TM) platform compatible products". Never use Palm Computing trademarks, such as "Palm computers" to describe handheld devices (such as Microsoft Windows CE products) that are not compatible with the Palm Computing(TM) platform. Refer to such products by their own trademarks or with a generic product category such as "handhelds" or "handheld computers." TRADE DRESS 3Com and Palm Computing logos, or any confusingly similar marks, may not be used without the express, written authorization of Palm Computing. Please contact the Palm Computing Marketing Communications department for express written authorization prior to publishing. Other distinctive elements of the Palm Computing brand identity, including the color palette or other graphic elements, may not be used in a manner that closely replicates Palm Computing or 3Com materials, so as to create confusion as to whether the product, publication, or marketing vehicle is from Palm Computing, 3Com, or your company. 4 45 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES Palm Computing Trademark and Usage Guidelines for Developers USING BRAND NAMES IN COPY Following is a partial list of our trademarks with hints on using them correctly. Some are registered trademarks, others are not.
Proper Usage Improper Usage Hints - ------------ -------------- ----- PalmPilot(TM) connected organizer Palmpilot Use as an adjective followed by Palm Pilot a proper noun, as in "The PalmPilots PalmPilot(TM) connected Pilot organizer is the market-leading Pilots handheld solution." Palm III(TM) connected organizer Palm 3 Related references that are okay: Palm IIIs Palm III(TM) users Palm III's Palm III(TM) power or PalmIII functionality Palm Computing(TM) connected organizers Palm Computing connected organizers Palm Computing(TM) connected Palm Computing(TM) organizers Palm Computing organizers organizers is preferred over Palm Computing(TM) handhelds Palm Computing handhelds Palm(TM) connected organizers. Palm Computing(TM) devices Palm Computing handhelds Palm(TM) connected organizers Palm connected organizers Palm(TM) organizers Palm organizers Palm(TM) computers Palm computers Palm(TM) handhelds Palm handhelds Palm(TM) devices Palm devices HotSync(TM) Technology HotSync Use as an adjective followed by Hot Sync a proper noun, as in "For remote HotSyncing synchronization capability, download enhanced HotSync(TM) technology from www.palm.com." Palm(TM) 2MB Upgrade 2MB Upgrade 2MB upgrade as a generic description in body copy is okay. PalmPilot(TM) Modem PalmPilot modem Use as an adjective followed by a proper noun, as in "PalmPilot(TM) Modem works with Palm III(TM) and PalmPilot(TM) organizers." Graffiti(TM) power writing software graffiti Use as an adjective, followed by a proper noun, as in "Graffiti power writing software makes it easy to input data."
46 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES Palm(TM) Desktop organizer software Palm Desktop(TM) Use as an adjective followed by a PalmDesktop software proper noun, as in "load Palm(TM) Desktop organizer software on your PC to take full advantage of the Palm III(TM) organizer's features." Palm(TM) MacPac Palm Mac Pac Palm Computing(TM) platform Palm(TM) Computing platform Use as an adjective followed by a Palm(TM) platform proper noun, as in "The Palm Computing(TM) platform is supported by OEM partners who are all leaders in their respective categories." Palm OS(TM) PalmOS Mail and/or expense as a generic Palm(TM) Mail Palm Mail(TM) description in body copy is okay. Palm(TM) Expense PalmExpense Palm(TM) Date Book Palm(TM) Address Book Palm(TM) To Do List Palm(TM) Memo Pad Palm(TM) Card
Following are trademarks associated with the Palm Computing platform which are pending registration: Palm, Designed for Palm Computing platform logos, Palm III, Palm OS, and Palm Computing platform logo [icon only]. From time to time Palm Computing will advise its partners as new trademark registrations are issued. 5 47 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES Naming Your Product or Company The naming of your product, service, or company is an important decision and we encourage you to seek marketing and legal counsel to ensure that you have done the requisite trademark searches on the name(s) and that your choice(s) can be protected. The following defines what you may or may not do with respect to using Palm Computing trademarks in this context. You may not use Palm, Pilot, Palm III, PalmPilot, Palm OS, HotSync technology or any other 3Com or Palm Computing trademark as part of your own company name, product name, or as part of the brand name of your company's product. You may not create and use trademarks or logos that are confusingly similar to the Palm Computing trademarks or logos. Developers who have improperly incorporated the Palm mark (or any other Palm Computing trademark) into their naming strategy are advised to develop and communicate their transition plan to Palm Computing Developer Services. Based on an agreement with Pilot Corporation, Palm Computing has agreed to transition out of using the trademark Pilot in naming its products. Developers may continue to use the standalone word Pilot in reference to the original Pilot 1000 and Pilot 5000 connected organizers. Because the mark Pilot will not be used by Palm Computing for future products, developers are advised to discontinue using this mark for Palm Computing related products. Developers who have already incorporated the Pilot mark into their naming strategy are advised to transition away from it at their earliest convenience. Please also read the section entitled "Indicating Compatibility With Products Based on the Palm Computing Platform" following this section. Example I specifically addresses product naming. Example: Assume your company's name is Acme. The following product names are NOT permissible: Acme(TM) Palmware software Acme(TM) Palmlink software Acme(TM) Palmlegal Widgeteer software for lawyers Acme(TM) Palmpoker game software Acme(TM) Palm Computing GolfMagic software Acme(TM) HotSynched newsletter Acme(TM) Pilotlink Software Acme(TM) Widgeteer HotSynching software 6 48 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES Indicating Compatibility with Products Based on the Palm Computing Platform There are several ways in which you can indicate your product's compatibility with products based upon the Palm Computing platform. Example: Assume your company name is Acme and your product name is Widgeteer. Assume further that you have registered Acme with the U.S. Patent and Trademark Office and have not filed for registration of Widgeteer or have filed a still-pending application. 1. Incorporate this information into the product name Correct: The following are permissible: Acme(TM) Widgeteer(TM) software for Palm Computing(TM) platform handhelds Acme(TM) Widgeteer(TM) software for the Palm Computing(TM) platform Acme(TM) Widgeteer(TM) deluxe stylus for Palm Computing(TM) connected organizers Acme(TM) Widgeteer(TM) deluxe stylus for Palm Computing(TM) handhelds Widgeteer(TM) upgrades designed for PalmPilot(TM) Personal Edition organizers Incorrect: The following are NOT permissible: Acme(TM) Widgeteer(TM) Palm Computing(TM) software Acme(TM) Widgeteer(TM) software for the PalmPilot Acme(TM) Widgeteer(TM) deluxe PalmPilot stylus Palm Computing(TM) leather cases from Acme Widgeteer(TM) PalmPilot upgrades Widgeteer(TM) Palm Computing Web Site 2. Incorporate this information elsewhere such as in the body copy, system requirements section or as a tagline to your product logo. When trademark usage guidelines are utilized appropriately, you may use the terms PalmPilot(TM), Palm III(TM), Palm Computing(TM) organizers, handhelds, or devices, Palm Computing(TM) platform, Palm OS(TM), and/or HotSync(TM) technology to indicate that your products are compatible. In text, there are several ways to indicate that your products are compatible with the Palm Computing(TM) platform. For example, compatibility can be referenced in body copy, a tagline to your product logo, or in the system requirements section. Assume your company name is Acme and your product name is Widgeteer. 7 49 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES Assume further that you have registered Acme with the U.S. Patent and Trademark Office and have not filed for registration of Widgeteer or have filed a still-pending application. Indicating compatibility with Palm Computing(TM) handhelds Correct: Widgeteer(TM) upgrades are specifically designed for PalmPilot(TM) Personal Edition organizers Widgeteer(TM) software will not interfere with the HotSync(TM) functions of Palm Computing(TM) organizers Acme(TM) Widgeteer(TM) software designed for PalmPilot(TM) and Palm III(TM) connected organizers Acme(TM) Widgeteer(TM) software works with PalmPilot(TM) and Palm III(TM) connected organizers Acme(TM) Widgeteer(TM) software compatible with PalmPilot(TM) and Palm III(TM) connected organizers Acme(TM) Widgeteer(TM) deluxe stylus for Palm Computing(TM) organizers Acme(TM) Widgeteer(TM) deluxe stylus for Palm Computing(TM) handhelds Incorrect: All Acme(TM) products are Palm(TM)Pilot compatible Widgeteer(TM) is Pilot compatible Widgeteer(TM) is Palm-compatible Indicating compatibility with Palm Computing(TM) platform handhelds Correct: Acme(TM) Widgeteer(TM) software designed for handheld computing solutions based on the Palm Computing(TM) platform Acme(TM) Widgeteer(TM) software designed for Palm Computing(TM) platform devices (handheld) Acme(TM) Widgeteer(TM) software compatible with devices based on the Palm Computing(TM) platform Acme(TM) Widgeteer(TM) software for the Palm Computing(TM) platform Acme(TM) leather cases for Pilot 1000, Pilot 5000, PalmPilot(TM) Personal and PalmPilot(TM) Professional Edition, Palm III(TM) and Work Pad(TM) handheld computing products All Acme(TM) products are compatible with the Palm Computing(TM) platform Visit Widgeteer.com for the best in Palm Computing(TM) platform compatible products Incorrect: Widgeteer(TM) is HotSync compatible Widgeteer(TM) is Palm platform compatible 50 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES 3. Utilize the "Designed for Palm Computing platform" logo, or the special "Designed for Palm Computing platform Platinum" logo, on components of your product packaging - the outer box and CD ROM art - and the marketing vehicles for the product. (The platinum version of this logo is only made available to products that have passed independent compatibility testing.) Stating that your product is designed for the Palm Computing platform implies support for a larger product set than offered by 3Com, and therefore increases your potential customer base. Products from Palm Computing platform OEM and licensing partners include the IEM WorkPad PC companion , a handheld computing device sold into the enterprise market, the Franklin Day Planner from Franklin Covey, sold into the time management and training markets, and others. Symbol Technologies and QUALCOMM, Inc. are also developing products based on the platform. Visit our web site at www.palm.com for a complete list of OEM and licensing partners. 8 51 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES Designed for Palm Computing Platform Logo Usage THE DESIGNED FOR PALM COMPUTING PLATFORM LOGO There is only one Palm Computing platform logo or mark approved for usage by developers in general: the "Designed for Palm Computing platform" logo. Use of this logo allows you to easily convey to customers that your products are designed for Palm Computing(TM) handhelds and those handheld solutions developed by Palm Computing platform OEM or licensing partners. We encourage developers with products designed for the platform to utilize the logo on product packaging and pre-sales marketing vehicles. Use of this logo must be associated with a specific product, not a company or company brand. Use of this logo does not imply product endorsement by Palm Computing, nor does it imply quality standards for or compatibility with products based on the Palm Computing platform. Compliance with the Palm Computing Platform Logo License Agreement is a prerequisite for usage and can be agreed to on-line. Please visit our web site at http:www.palm.com.devzone/platform_logo to accept this agreement. The logo is shown here for your reference: [LOGO] [LOGO] DESIGNED FOR PALM COMPUTING PLATFORM PLATINUM LOGO Products that have passed independent compatibility testing are entitled to carry the special "Designed for Palm Computing platform Platinum" logo. Use of this logo allows you to easily convey to customers that your products are designed for Palm Computing handhelds and those handheld solutions developed by Palm Computing platform OEM or licensing partners - and that your product has passed compatibility tests established by Palm Computing and administered by a third party testing laboratory. This logo may only be placed on marketing materials for the specific product that has passed compatibility testing. Use of this logo must be associated with a specific product, not a company or company brands. Use of this logo does not imply product endorsement by Palm Computing. To have your products tested for Palm Computing platform compatibility, please contact Quality Partners, an independent testing lab, at (925) 484-2527 or devinfo@palm.com. Once you have passed testing and signed the Designed for Palm Computing platform Platinum Logo License Agreement, Palm Computing Developer Services will issue you the logo artwork. [LOGO] [LOGO] [LOGO] [LOGO] 9 52 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES Designed for Palm Computing Platform Logo Usage THE DESIGNED FOR PALM COMPUTING PLATFORM LOGO USAGE GUIDELINES Palm Computing has established the following set of Guidelines to assist you in proper use of the logo. 1. The following attribution footnote should accompany each use of the logo. "Palm Computing is a registered trademark and the Palm Computing platform logo is a trademark of Palm Computing, Inc., 3Com or its subsidiaries." If other 3Com trademarks are referenced in the context of the document, they should also be included in the attribution footnote. 2. You may only use the logo as a symbol that your product is designed for the Palm Computing(TM) platform and those products based upon it. You may not imply that Palm Computing in any way endorses your product. 3. The Designed for Palm Computing platform logo program is not intended to be a "certification" program; i.e., the logo does not represent that Palm Computing certifies your product in any way. 4. Usage of the Designed for Palm Computing platform Platinum logo requires that the product pass Compatibility Testing through a Palm Computing designated independent compatibility testing center. Other than maintenance or bug-fix releases, new releases of the product must be re-tested for compatibility. 5. You must sign and return the Palm Computing Platform Logo License Agreement before artwork will be provided. 6. You may not display the logo on any materials including, but not limited to, packaging, collateral and documentation, in a manner which suggests that the product is a Palm Computing product or in a manner which suggests that Palm Computing is a part of your product's name. 7. You may not alter or animate the logo in any way. SIZING, PLACEMENT AND COLOR REQUIREMENTS: 1. Palm Computing will provide camera-ready artwork of the logo in electronic format. 2. You may not display the logo on packaging, documentation, collateral or advertising in a manner which suggests that your product is a Palm Computing product or in a manner which suggests that the mark, Palm Computing, is a part of your product name. 3. The logo cannot be larger than or more prominent than your product name, trademark, logo or trade name. 4. You may not combine the logo with any other feature, including, but not limited to, other logos, words, graphics, photos, slogans, headlines, numbers, design features, or symbols. 5. The Designed for Palm Computing platform logo and the Designed for Palm Computing platform Platinum logo must stand alone. A minimum amount of empty space has been established around the logo to ensure that it appears in a clear visual field. No other object such as type, photography, borders, edges, etc. may appear in the empty space. The preferred distance between the logo border and any other type images or graphic elements on any side is equal to the height of the logo block. The minimum required border (margin of empty space around the logo) must be "x" where "x" equals the width of the logo block. 6. Minimum and maximum size requirements for the logos are displayed below. For odd-sized materials, the maximum size logo height should not exceed 5% of largest dimension. 7. The right to use this logo is at the discretion of Palm Computing and Palm Computing reserves the right to revoke that right or change its program at any time. [LOGO] [LOGO] [LOGO] [LOGO] 10 53 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES Trademark Acknowledgment & Image Usage ATTRIBUTION LINES AND LEGAL DISCLAIMERS Legal copy, sometimes called "mousetype" or "the disclaimer" is commonly found at the bottom of an ad, brochure, datasheet, direct mailer, or other marketing vehicle. To protect all involved, the mousetype for your marketing materials referencing either Palm Computing or its trademarks should incorporate the referenced trade name and trademarks. Example: Assume your company's name is Acme and the name of your product is Widgeteer and that Acme is a registered trademark and Widgeteer is a trademark. Assume also that you have included photos of the Palm III(TM) connected organizer, referenced HotSync(TM) technology in the body copy of your marketing piece, and used the Designed for Palm Computing(TM) platform logo. Your attribution line should read as follows: Copyright(C)1998 Acme Corporation. All rights reserved. Acme is a registered trademark and the Acme logo and Widgeteer are trademarks of Acme Corporation. 3Com, the 3Com logo, Palm Computing and HotSync are registered trademarks, and Palm III, the Palm III logo and the Palm Computing platform logo are trademarks of Palm Computing, Inc., 3Com Corporation or its subsidiaries. All other brands and product names may be trademarks or registered trademarks of the respective holders. The following short-form legal copy is acceptable only where space considerations will not allow for a full statement: Copyright(C)1998 Acme Corporation, Acme is a registered trademark, and the Acme logo and Widegeteer are trademarks of Acme Corporation. All other trademarks are the property of their respective owners. USING PICTURES OR IMAGES OF PALM COMPUTING PRODUCTS Use any of the photos or images provided on the Palm Computing Brand Identity CD ROM-Developer Version. If you create your own photography incorporating Palm Computing products, remember that size and form factor are key selling points, so we recommend that you show scale by making sure there is another object in the picture that gives an indication of its relative size. - The focus of your marketing vehicle should be on your product, and mentions or photography of Palm Computing products and trademarks should be in support of that messaging. - You may replace Palm Pilot(TM) or Palm III(TM) screens with your own screens designed to promote your product. - Creative concept, art and copy should reflect positively on both the features of the Palm Computing product mentioned and the Palm Computing brand in general. 11 54 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES Product Copy Samples PALM III(TM) CONNECTED ORGANIZER 100 word- Put important information at your fingertips with the pocket-sized Palm III(TM) organizer. It lets you store thousands of names, addresses, appointments, expense items, even e-mail*. Just tap on the backlit screen to access important information fast. Use your stylus or PC keyboard to enter data easily. Back-up and exchange information with your desktop PC and popular PIMs** with the touch of a button on your docking cradle. Use infrared to "beam" files and applications to other Palm III(TM) users. Palm III isn't just small, smart and totally connected ... it's the #1 value in personal organization. 50 word- Put important information at your fingertips with the pocket-sized Palm III(TM) organizer. Store thousands of names, addresses, expense items, even e-mail.* Back-up and exchange information with your desktop PC and popular PIMs** at the touch of a button. "Beam" files and applications to other Palm III users. Palm III organizer is the #1 way to stay connected and organized. 25 word- Small, light and totally connected, Palm III(TM) organizer makes it easy to store and access all your important information and exchange it with your desktop PC. It's the #1 value in personal organization. Bullet copy - (primary) - Instant access to your data, calendar, e-mail, address book, to do list, memo pad, and expenses* - Includes links to Microsoft Outlook and Symantec ACT (when BONUS PACK from MacVision Digital Publishing is included). - Exchange data with your PC at the touch of a button - no dual data entry and your data is always backed up. - Applications from thousands of developers make it even more powerful. - Use infrared to "beam" files like your business card and applications to other Palm III(TM) users. Bullet copy - (secondary) - The perfect companion to your PC. - 3 easy ways to input data - with the stylus, the onscreen keyboard, or use your PC keyboard. - The third generation of award-winning Palm Computing(TM) organizers. - Internet-ready, includes TCP/IP software to enable remote synchronization capabilities and Internet-based applications like live Internet e-mail and web browsing.* - The easy way to get your life organized. - Portable e-mail* works with leading e-mail applications like QUALCOMM Eudora, Lotus ccMail, Microsoft Exchange, Outlook, Outlook Express, and Microsoft Windows Messaging. 55 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES - Shirt pocket size at just 4.7" tall and 6 oz. it's truly portable. - 3 Easy-to-read fonts. - Sleek, new industrial design. - Backlit screen for easy viewing in dim light. - Flexible memory stores up to 5000 addresses, 5 years of appointments, 1500 to do items, 1500 memos, and 22 e-mail messages.* - Everything you need is included. - Twice the memory of the popular PalmPilot(TM) Professional Edition organizer. - Priced at just $XXX. - Software "flash upgradable" means you'll never have to replace the memory card for future system software updates. Disclaimer copy (use with all, including bullets, except 25 word copy) * Palm(TM) Mail and Expense applications not supported on Macintosh. Mail application may require optional modem and e-mail application, sold separately. ** Optional links to many popular PIMs (Personal Information Managers) sold separately. 12 56 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES PALMPILOT PROFESSIONAL AND PERSONAL EDITION CONNECTED ORGANIZERS 100 word- Now big organizing power comes in a pocket-sized package. The PalmPilot(TM) Personal and PalmPilot Professional Edition organizers let you store thousands of names, addresses, appointments, expense items, even e-mail.* Just tap on the backlit screen to access important information fast. Use your stylus or PC keyboard to enter data easily. PalmPilot organizers even make it easy to back-up and exchange information with your desktop PC and popular PIMs** at the touch of a button. At just 4.7" tall and weighing in at just 6 oz. PalmPilot organizers aren't just small, smart and totally connected ... they're the #1 value in personal organization. 50 word- Now big organizing power comes in two pocket-sized packages: PalmPilot(TM) Personal and PalmPilot Professional Edition organizers. Store thousands of names, addresses, expense items, even e-mail.* Back-up and exchange information with your desktop PC and popular PIMs** at the touch of a button on the docking cradle. PalmPilot organizers are the #1 way to stay connected and organized. 25 word- Small, light and totally connected, PalmPilot(TM) organizer makes it easy to store and access all your important information and exchange it with your desktop PC. They're the #1 value in personal organization. Bullet copy - (primary) - Instant access to your data, calendar, e-mail, address book, to do list, memo pad, and expenses.* - Applications from thousands of developers make it even more powerful - Synchronize data with your PC at the touch of a button - no dual data entry and your data is always backed up. Bullet copy - (secondary) - The perfect companion to your PC - Flexible memory stores up to 2500 addresses, 4 years of appointments, 500 to do items, and 500 memos (PalmPilot Personal Edition organizer only). - The easy way to get your life organized! - Everything you need is included. - Shirt pocket size - just 4.7" tall and 6 oz., makes it truly portable. - Portable e-mail* with the PalmPilot(TM) Professional Edition organizer only. - 3 easy ways to input data - write directly with the stylus, tap entries on the on-screen keyboard, or use your PC keyboard. - Internet-ready, includes TCP/IP software for enabling remote synchronization capabilities and Internet-based applications like live Internet access and web browsing. (PalmPilot Professional Edition organizer only). - Backlit screen for easy viewing in dim light. - Priced at just $XXXX. 57 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES - Twice the memory of the PalmPilot(TM) Personal Edition organizer (PalmPilot(TM) Professional Edition organizer only). - Flexible memory stores up to 4000 addresses, 4 years of appointments, 750 to do items, 750 memos and 100 e-mail messages. (PalmPilot(TM) Professional Edition organizer only.) Disclaimer copy (use with all, including bullet, except 25 word copy) * Palm(TM) Mail application supported on Palm III(TM) and PalmPilot(TM) Professional Edition only. Palm Mail and Expense applications not supported on Macintosh. Mail application may require optional modem and e-mail application, sold separately. ** Optional links to many popular PIMs (Personal Information Managers) sold separately. 13 58 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES PALM(TM) 2MB UPGRADE 100 word- Upgrade your PalmPilot(TM) organizer to twice the memory and get all the functionality of the Palm III(TM) connected organizer. With the Palm(TM) 2MB Upgrade, you can do it yourself, in minutes. Future system software updates will be a snap, because it's "flash upgradeable". With your upgrade, you'll be able to store up to 6000 addresses, 5 years of appointments, 1500 to do items, 1500 memos, and 200 email messages.* You can also "beam" files, like your business card, and applications to other Palm III users. And 3 new fonts make reading your organizer even easier. Now you can get even more of what you use your PalmPilot organizer for. 50 word- Get the power of the Palm III(TM) organizer in minutes! With the Palm(TM) 2MB Upgrade, you can get 2MB of storage and infrared beaming. Store up to 6000 addresses, 5 years of appointments, 1500 to do items, 1500 memos, and 200 e-mail messages.* It's the easiest way to get more from you PalmPilot(TM) organizer. 25 word - The Palm(TM) 2MB Upgrade gives you Palm III(TM) functionality and twice the memory of the PalmPilot(TM) Professional Edition organizer, store even more entries and applications designed for the Palm Computing(TM) platform. Bullet copy - (primary) - Get all the functionality of the Palm III(TM) organizer, even infrared beaming!* - Software flash upgradeable, so you'll never replace your memory card again! - Upgrade your Pilot 1000, Pilot 5000, PalmPilot(TM) Personal or Professional Edition organizer to Palm III(TM) power.* - Easy installation, do it yourself in minutes. Bullet copy - (secondary) - Upgrade to 2MB of memory, store even more entries and applications! - Price at just $XXX. - Get twice the memory of the PalmPilot(TM) Professional Edition organizer. - Portable e-mail* works with leading e-mail applications like: QUALCOMM Eudora, Lotus cc:Mail, Microsoft Exchange, Outlook, Outlook Express, and Microsoft Windows Messaging. - Internet-ready, includes TCP/IP software for enabling remote synchronization capabilities and Internet-based applications like live Internet e-mail and web browsing.* - Take advantage of 3 new easy-to-read fonts and other software enhancements. Disclaimer copy - (use with all, including bullets)- * Backlit screen not included. Palm(TM) Mail and Expense applications not supported on Macintosh. Optional modem and e-mail applications, sold separately. 14 59 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES PALMPILOT(TM) MODEM 100 word- Now you're never more than a phone jack away from your important data. With the PalmPilot(TM) Modem, you can connect to your desktop PC from almost anywhere. It's easy! Just snap it on and press a button on the modem to backup and exchange data with your PC in minutes. Your PalmPilot Modem dials in to your PC, updates and exchanges data, address entries, appointments, notes, even e-mail* with your PalmPilot(TM) or Palm III(TM) organizer. It's designed and built by 3Com, so you know it's reliable. Now, when you're on the road, you don't have to be out of touch. With the PalmPilot Modem, the small, smart and totally connected organizers are even more connected. 50 word- Now you're never more than a phone jack away from your important data. With the PalmPilot(TM) Modem, it's easy to be more connected! Just snap it onto your PalmPilot(TM) or Palm III(TM) organizer and press a button to backup and exchange data with your PC in minutes 25 word- The PalmPilot(TM) Modem is the easy way to make your PalmPilot(TM) or Palm III(TM) organizer even more connected. It's small, light, and always reliable. Bullet copy - (primary) - Small and lightweight for complete portability. - Connect to your desktop computer from anywhere there's standard analog phone line. - Manage your e-mail* on the road. Bullet copy - (secondary) - Works with organizers based on the Palm Computing(TM) platform. - Works with PalmPilot(TM) and Palm III(TM) organizers. - Includes a 10 ft. phone cord. - Priced at just $XXX. Disclaimer copy - (use with 100 word & bullet copy) * Palm(TM) Mail application supported on Palm III(TM) and PalmPilot(TM) Professional Edition organizers only. Palm Mail application not supported on Macintosh. Mail may require optional modem and e-mail application, sold separately. 15 60 PALM COMPUTING(TM) PLATFORM SOLUTION PROVIDER MARKETING COMMUNICATIONS GUIDELINES PALM(TM) MACPAC 75 word - Put your most important information at your fingertips - and on your Mac - with the Palm(TM) MacPac. The Palm MacPac has everything you need to connect any Palm Computing(TM) connected organizer to your Mac in minutes. Access and manage your calendar, contacts, to do list, notes and more! Palm MacPac lets you take advantage of the market-leading Palm III(TM) or PalmPilot(TM) connected organizers and a host of software designed for the Palm Computing(TM) platform.* 50 word- Put your most important information at your fingertips - and on your Mac - with the Palm(TM) MacPac. The Palm MacPac has everything you need to connect your Mac to award-winning Palm III(TM) and PalmPilot(TM) organizers. Access and manage your calendar, contacts, to do list, notes and more! 25 word- Keep important information at your fingertips - and on your Mac - with the Palm(TM) MacPac. The Palm MacPac seamlessly connects your Mac with Palm Computing(TM) connected organizers. Bullet copy - (primary) - The ultimate Personal Information Manager for Palm Computing(TM) connected organizers and the Mac. - Exchange data between your Palm Computing(TM) connected organizer and your Macintosh at the touch of a button. - Links to your favorite desktop applications are available now and more are on the way!* - Includes CD-ROM with on-line documentation, cradle and serial adapter cable. Bullet copy - (secondary) - Intuitive drag & drop application installation. - Customize lists, create formats, and retrieve them instantly. - See today's schedule with just one click or touch of a button. - Instant Links let you address letters, send e-mail or launch web sites with one click.** - Print labels, envelopes or calendar pages. - Links to your favorite applications are available now, and more are on the way!* Disclaimer copy (use with 75 word & bullet copy as required) * Conduit software (links to desktop application software) is optional and sold separately. ** E-mail support requires optional third party software, sold separately. 16 61 EXHIBIT D THIRD PARTY COMPONENTS [*] contained in the current [*] product and in 3Com's first shipped [*] product. * 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. 26 62 EXHIBIT E ROYALTIES AND FEES [*] * 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. 27 63 EXHIBIT F 3COM SUPPORT SERVICES 1. Definitions. "Severity One" Support is defined as-support required to address a fatal program error in the Palm Software which has a critical business impact and precludes significant useful work from being done or, significantly precludes developer and/or end-user operations. "Severity Two" Support is defined as support required to address a program error in the Palm Software which has a significant business impact where important features are unavailable with no acceptable workaround and development operations are seriously impaired. "Severity Three" Support is defined as support required to address a program error in the Palm Software with some business impact, such as important features unavailable but a workaround is available or less significant features are unavailable with no reasonable workaround. 2. Support Response Times. The parties shall promptly agree in good faith to share any information and/or documentation which may be required to permit 3Com to identify and resolve any development support requests. The support response period begins after 3Com (a) has enough information to profile the reported error and (b) can recreate the reported error or has access to a facility where the error can be recreated ("Start Date"). 3Com agrees to use commercially reasonable efforts to recreate the reported error and respond based on the following timetable: "Severity One" Support. 3Com shall use reasonable commercial efforts to resolve or reduce the severity via workaround and/or patch within two (2) business days of the Start Date, or if unable to resolve such problem within such timeframe, 3Com shall provide its action plan within such timeframe and provide regular status updates. A final resolution shall be identified in the action plan. 3Com and JD problem managers shall review incident after two (2) business days and every two (2) business days thereafter until the error has been resolved. "Severity Two" Support. 3Com shall use reasonable commercial efforts to resolve or reduce the severity via workaround and/or patch within five (5) business days of the Start Date, or if unable to resolve such problem within such timeframe, 3Com shall provide its action plan within such timeframe and provide regular status updates. 3Com and JD problem managers shall review incident after five (5) business days. A final engineering resolution shall be identified in the action plan. "Severity Three" Support. 3Com shall use reasonable commercial efforts to acknowledge the error within ten (10) business days of receipt of notice. 3Com shall provide a final engineering resolution within three (3) months or next scheduled release, whichever is sooner. So long as 3Com is using reasonable commercial efforts to recreate reported errors and resolve or reduce Severity One and Severity Two problems in accordance with the action plan provided, 3Com's inability to resolve such problems within the timeframes stated herein or the action plan shall not be deemed a material breach of Section 6.1 the Agreement. The prescribed support response times above may be extended as mutually agreed, such agreement not to be unreasonably withheld, e.g., if resolution of the problem requires timely hardware certification or test, or if resolution represents significant risk to the essential functions. Any support requests that are attributable to any matters other than errors in the unmodified Palm Software provided by 3Com to JD hereunder are subject to billing at 3Com's standard time and materials rates. 3. Support Evaluation. The parties will attempt in good faith to promptly resolve any controversy or claim relating to performance of the technical support assistance provided by 3Com under this Agreement. Each party may request the other party to involve appropriate senior executives of such other party who shall have the authority to resolve the matter. 28 64 EXHIBIT G MINIMUM TERMS AND CONDITIONS OF END USER LICENSE 1. JD Technology, Inc. ("JD") grants the end user ("End User") a nonexclusive license to use the software accompanying the JD Product ("Software"). With respect to the JD Product Desktop Software, End User may reproduce and provide one (1) copy of such Software for each personal computer or JD Product on which such Software is used as permitted hereunder. With respect to the JD Product Device Software, End User may use such Software only on one (1) JD Product. End User may assign its right under the End User License Agreement to an assignee of all of End User's rights and interest to the Software only if End User transfers all copies of the Software subject to the End User License Agreement to such assignee and such assignee agrees in writing to be bound by all the terms and conditions of the End User License Agreement. 2. End User agrees not to reverse engineer, decompile or disassemble the Software. End User will not copy the Software except as necessary to use it in accordance with this End User License Agreement. End User agrees that any such copies of the Software shall contain the same proprietary notices which appear on and in the original copy of the Software. 3. Except as stated above, the End User License Agreement does not grant End User any rights (whether by license, ownership or otherwise) in or to intellectual property with respect to the Software. 4. End User will not export or re-export the Software without all appropriate United States and other foreign government licenses. 5. Title to and ownership of the Software and any copy thereof shall remain with JD and its suppliers. 6. If the Software is licensed for a proposal or agreement with the United States Government or any contractor therefor, the Software must be legended, marked and licensed as described in Section 10.3 of the Agreement. 29 65 AMENDMENT NO. 1 TO SOFTWARE LICENSE AGREEMENT This Amendment No. 1 ("Amendment") is entered into by and between Palm Computing, Inc., a subsidiary of 3Com Corporation (collectively, "3Com"), a California corporation with a place of business at 1565 Charleston Road, Mountain View, California 94043, and Handspring, Inc. ("Licensee"), a California corporation with a place of business at 299 California Avenue, Palo Alto, California 94306. The effective date of this Amendment shall be September 24, 1998 ("Effective Date"). RECITALS A. Effective as of September 24, 1998, 3Com and Licensee entered into a Software License Agreement ("License Agreement"; capitalized terms used herein and not defined shall have the meanings set forth in the License Agreement) with regard to Licensee's developing, manufacturing and marketing handheld computing products incorporating specified 3Com software and technology related to the 3Com Palm Computing platform. B. Following the effective date of the License Agreement, Licensee changed its corporate name from "JD Technology, Inc." to "Handspring, Inc." C. Licensee has received, and hopes to receive in the future, from 3Com certain source code for the Palm Software so that Licensee may examine such source code to assist Licensee in developing products within the scope of the License Agreement. D. 3Com is willing to provide such source code to Licensee as specified in this Amendment pursuant to the terms and conditions of the License Agreement. AGREEMENT NOW, THEREFORE, the parties hereby amend the License Agreement as follows: 1 SOURCE CODE DELIVERABLES. The following is added to Section 3 of the License Agreement: "3.3 Delivery of Palm Source Code. 3Com has provided, and may at its sole option from time to time elect to provide, JD with certain source code for certain Palm Software ("Palm Source Code".)" "3.4 Delivery of Palm Source Code Documentation. 3Com may, at its option, from time to time elect to provide JD with technical documentation relating to the Palm Source Code ("Palm Source Code Documentation")." 1 66 2. LICENSES. The following is added to Section 2 of the License Agreement: "2.9 Source Code License. (a) Right to Use. Subject to the terms and conditions of this Agreement, 3Com hereby grants to JD a limited, non-exclusive, non-transferable, fully-paid license to examine the Palm Source Code and the Palm Source Code Documentation for the sole purpose of assisting JD in developing JD Products within the scope of the License Agreement and to reproduce no more than three (3) copies of the Palm Source Code and Palm Source Code Documentation. (b) Limitations of License. JD shall not have the right to: (i) sublicense any of its rights under this Section 2.9 to any third party; (ii) incorporate any Palm Source Code or Palm Source Code Documentation in any technology or products of JD or of any third party; (iii) disclose any Palm Source Code or Palm Source Code Documentation to any third party; (iv) use or reproduce any Palm Source Code or Palm Source Code Documentation other than as permitted by subsection (a) above; or (iv) modify or distribute any Palm Source Code or Palm Source Code Documentation in any manner. (c) Inspection Rights. 3Com shall have the right, upon reasonable advance notice, to inspect JD's records and facilities with respect to the use of the Palm Source Code and Palm Source Code Documentation in order to verify that such use is within the scope of this Agreement, and that there are appropriate security procedures in place to protect the Palm Source Code and Palm Source Code Documentation (including, but not limited to, the procedures set forth in Section 13.3 below). (d) No Other Licenses. The licenses granted under this Section 2.9 are specifically set forth herein, and no licenses are granted by 3Com to JD by implication or estoppel to the Palm Source Code or Palm Source Code Documentation." 3 SUPPORT. The following is added to Section 7 of the License Agreement: "7.5 Source Code Support. 3Com shall have no obligation to provide JD with any support or maintenance of any kind for the Palm Source Code or Palm Source Code Documentation at any time." 4 PROPRIETARY RIGHTS. The following is added to Section 10 of the License Agreement: "10.5 Source Code. JD acknowledges that the Palm Source Code and Palm Source Code Documentation are the valuable trade secrets and Confidential Information of 3Com. 3Com shall be the sole and exclusive owner of the Palm Source Code and Palm Source Code Documentation. JD agrees that it will not remove, alter or otherwise obscure any proprietary rights notices appearing in the Palm Source Code or Palm Source Code Documentation." 2 67 5 WARRANTY. The following is added to Section 11 of the License Agreement: "11.4 Source Code Warranty Disclaimer. 3COM MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, WHATSOEVER AS TO THE PALM SOURCE CODE OR PALM SOURCE CODE DOCUMENTATION. IN PARTICULAR, ANY AND ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT, AND YEAR 2000 COMPLIANCE THEREFOR ARE EXPRESSLY EXCLUDED." 6 CONFIDENTIALITY. The following is added to the end of Section 13.3 of the License Agreement after the period: "In the event that 3Com provides JD with a copy of the [*] (the [*]) which contains all, substantially all or a significant portion of the Palm Software in source code form, JD agrees to the following additional obligations with respect to the [*] notwithstanding any other provision of this Agreement: (i) JD shall only be entitled to use two (2) copies of the [*], (ii) JD shall not make any additional copies of the [*], (iii) JD shall only use the [*] on two (2) PC's at any one time, (iv) the following named individuals shall be the only persons permitted to use or access the [*]: [*], and [*], (v) each copy of the [*] shall be kept in a locked room or file cabinet when not in use, and (vi) use of the [*] shall be password protected. JD shall have the right to change the named individuals upon fifteen (15) days written notice to 3Com. Except as otherwise set forth in this Section 13.3, the provisions of this Agreement that apply to the Palm Source Code shall apply to the source code contained in the [*]." 6 INJUNCTIVE RELIEF. The following is added to Section 17 of the License Agreement: "17.15 Injunctive Relief. The copying, disclosure, or use of the Palm Source Code or Palm Source Code Documentation in a manner inconsistent with any provision of this Agreement will cause irreparable injury to 3Com for which 3Com will not have an adequate remedy at law. 3Com will be entitled to equitable relief in court, including but not limited to temporary restraining orders, preliminary injunctions and permanent injunctions." 7 ENTIRE AGREEMENT. The parties agree that this Amendment constitutes the entire agreement between the parties relating to its subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral; provided, however, that the License Agreement, except as modified by this Amendment, remains in full force and effect. The parties acknowledge that the terms and conditions of the License Agreement, including but not limited to Sections 2.8 (Limitations on Scope of Agreement), 8.2 (Publicity), 13 (Confidentiality), 14 (Limitation of Liability), 15 (Export Regulations), and 16.5 (Survival) of the License Agreement, will apply to the Palm Source Code or Palm Source Code Documentation. * 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. 3 68 IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the dates set forth below effective as of the Effective Date. PALM COMPUTING, INC., HANDSPRING, INC. a subsidiary of 3Com Corporation By: /s/ Mark Bercow By: /s/ Donna Dubinsky -------------------------------- --------------------------------- Name: Mark Bercow Name: Donna Dubinsky ------------------------------ ------------------------------- Title: VP Title: CEO ----------------------------- ------------------------------ Date: 1/14/99 Date: 1/8/99 ------------------------------ ------------------------------- 4 69 AMENDMENT NO. 2 TO SOFTWARE LICENSE AGREEMENT This Amendment No. 2 ("Amendment") is entered into by and between Palm Computing, Inc., a subsidiary of 3Com Corporation (collectively, "3Com"), a California corporation with a place of business at 5400 Bayfront Plaza, California 95052, and Handspring, Inc. ("Licensee"), a California corporation with a place of business at 299 California Avenue, Palo Alto, California 94306. The effective date of this Amendment shall be March 9, 1999 ("Effective Date"). RECITALS A. Effective as of September 24, 1998, 3Com and Licensee entered into a Software License Agreement, as amended ("License Agreement"; capitalized terms used herein and not defined shall have the meanings set forth in the License Agreement) with regard to Licensee's developing, manufacturing and marketing handheld computing products incorporating specified 3Com software and technology related to the 3Com Palm Computing platform. B. Licensee has received, and hopes to receive in the future, from 3Com certain source code for the Palm Software so that Licensee may modify certain portions of such source code as specified in this Amendment pursuant to the terms and conditions of the License Agreement. AGREEMENT NOW, THEREFORE, the parties hereby amend the License Agreement as follows: 1 DEFINITION. Each reference in the License Agreement to "JD" shall be deleted and replaced with the word "Licensee." 2 SOURCE CODE MODIFICATION. The following is added to Section 2 of the License Agreement: "2.10 Source Code Modification License. Subject to the terms and conditions of this Agreement, 3Com hereby grants to Licensee a limited, non-exclusive, non-transferable (subject to Section 17.9), fully-paid license to (i) modify those portions of the Palm Source Code as identified in an Attachment hereto (the "Modifiable Source Code") but only for the limited purpose(s) set forth in such Attachment with respect to such Modifiable Code, and (ii) use, reproduce and distribute such modifications (the "Modifications") in object code form to the same extent as Licensee is permitted to do so with respect to Derivative Works pursuant to Section 2.2 above. For each set of Modifiable Code, the parties shall execute separate sequentially numbered Attachments (e.g. Attachment No. 1, Attachment No. 2, etc.). Licensee shall have no right to (a) sublicense the rights granted in subsection (i) above to any third party, (b) modify any Palm Source Code other than the Modifiable Source Code, or (c) modify the Modifiable Source Code for any purpose other than as expressly set forth in the applicable 1 70 Attachment. The licenses granted under this Section 2.10 are specifically set forth herein, and no licenses are granted by 3Com to Licensee by implication or estoppel to the Modifiable Source Code." 3 OWNERSHIP. The following is added to the end of Section 10.1 of the License Agreement: "Subject always to 3Com's ownership of the Palm Software and the restrictions set forth in Section 2 above, Licensee shall be the sole and exclusive owner of the Modifications and the Modifications shall be deemed "Licensee Software" for purposes of this Agreement. Licensee agrees to provide 3Com, upon 3Com's request, copies of all Modifications. Licensee hereby grants to 3Com a worldwide, nonexclusive, fully paid, royalty free, perpetual and irrevocable license to use, reproduce, modify, display and distribute the Modifications in source code and/or executable form, including the right to sublicense such rights through single or multiple tiers of distribution." 4 TERMINATION. Except as expressly provided in this Section 4, this Amendment, and all rights and obligations under this Amendment, shall terminate and be of no further force or effect if there is a material change in the ownership or control of Licensee such that more than twenty percent (20%) or more of the voting equity stock of Licensee is owned and/or controlled (directly or indirectly) by one or more Competitors. In the event of such termination, Licensee shall promptly (i) cease all modification of the Palm Source Code, (ii) return all Modifiable Source Code to the extent such source code has not previously been provided to Licensee under Amendment No. l to the License Agreement, including, but not limited to, all copies thereof in whole and in part, to 3Com, and (iii) destroy all copies thereof, in whole and in part, residing within any computers in Licensee's control. Notwithstanding the foregoing, in the event of termination of this Amendment pursuant to this Section 4, in no event shall such termination affect Licensee's rights to reproduce and distribute in object code form Modifications existing as of the effective date of such termination pursuant to Section 2.10(ii). 5 ENTIRE AGREEMENT. The parties agree that this Amendment and any Attachments made effective pursuant to this Agreement constitute the entire agreement between the parties relating to its subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral; provided, however, that the License Agreement, except as modified by this Amendment, remains in full force and effect. 2 71 IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the dates set forth below effective as of the Effective Date. PALM COMPUTING, INC., HANDSPRING, INC. a subsidiary of 3Com Corporation By: /s/ Mark Bercow By: /s/ Donna Dubinsky -------------------------------- --------------------------------- Name: Mark Bercow Name: Donna Dubinsky ------------------------------ ------------------------------- Title: VP Title: CEO ----------------------------- ------------------------------ 3 72 ATTACHMENT NO. 1 This Attachment No. 1 is an attachment to Amendment No.2 to the Software License Agreement between Palm Computing, Inc., a subsidiary of 3Com Corporation and Handspring, Inc. [*] [*] PALM COMPUTING, INC., HANDSPRING, INC. a subsidiary of 3Com Corporation By: /s/ Gabriel Aroste-Lopez By: /s/ Donna Dubinsky -------------------------------- --------------------------------- Name: Gabriel Aroste-Lopez Name: Donna Dubinsky ------------------------------ ------------------------------- Title: Director Platform Development Title: CEO Services ----------------------------- ------------------------------ Date: 3-16-99 Date: 3/9/99 ------------------------------ ------------------------------- * 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. 4 73 ATTACHMENT NO. 2 This Attachment No.2 is an attachment to Amendment No.2 to the Software License Agreement between Palm Computing, Inc., a subsidiary of 3Com Corporation and Handspring, Inc. [*] [*] AMENDMENT TO AMENDMENT NO.2: For purposes of this Attachment No.2 only, the following two sentences are deleted from Section 3 of Amendment No.2 with respect to Modifications made by Licensee pursuant to this Attachment No.2: "Licensee agrees to provide 3Com, upon 3Com's request, copies of all Modifications. Licensee hereby grants to 3Com a worldwide, nonexclusive, fully paid, royalty free, perpetual and irrevocable license to use, reproduce, modify, display and distribute the Modifications in source code and/or executable form, including the right to sublicense such rights through single or multiple tiers of distribution." Except as modified by this Attachment No.2 with respect to this Attachment No.2, Amendment No.2 shall remain in full force and effect. PALM COMPUTING, INC., HANDSPRING, INC. a subsidiary of 3Com Corporation By: /s/ Mark Bercow By: /s/ Donna Dubinsky -------------------------------- ---------------------------------- Name: Mark Bercow Name: Donna Dubinsky ------------------------------ -------------------------------- Title: VP Title: CEO ----------------------------- ------------------------------- Date: 3/9/99 Date: 3/9/99 ------------------------------ -------------------------------- * 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. 5 74 ATTACHMENT NO. 3 This Attachment No.3 is an attachment to Amendment No.2 to the Software License Agreement between Palm Computing, Inc., a subsidiary of 3Com Corporation and Handspring, Inc. [*] [*] AMENDMENT TO AMENDMENT NO.2: For purposes of this Attachment No.3 only, the following two sentences are deleted from Section 3 of Amendment No.2 with respect to Modifications made by Licensee pursuant to this Attachment No.3: "Licensee agrees to provide 3Com, upon 3Com's request, copies of all Modifications. Licensee hereby grants to 3Com a worldwide, nonexclusive, fully paid, royalty free, perpetual and irrevocable license to use, reproduce, modify, display and distribute the Modifications in source code and/or executable form, including the right to sublicense such rights through single or multiple tiers of distribution." Except as modified by this Attachment No.3 with respect to this Attachment No.3, Amendment No.2 shall remain in full force and effect. PALM COMPUTING, INC., HANDSPRING, INC. a subsidiary of 3Com Corporation By: /s/ Mark Bercow By: /s/ Donna Dubinsky -------------------------------- ----------------------------------- Name: Mark Bercow Name: Donna Dubinsky ------------------------------ --------------------------------- Title: VP Title: CEO ----------------------------- -------------------------------- Date: 4/28/99 Date: 3/25/99 ------------------------------ --------------------------------- * 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. 75 AMENDMENT NO. 3 TO SOFTWARE LICENSE AGREEMENT This Amendment No. 3 ("Amendment") is entered into by and between Palm Computing, Inc., a subsidiary of 3Com Corporation (collectively, "3Com"), a California corporation with a place of business at 5400 Bayfront Plaza, Santa Clara, California 95052, and Handspring, Inc. ("Licensee"), a California corporation with a place of business at 299 California Avenue, Palo Alto, California 94306. The effective date of this Amendment shall be 4/8, 1999 ("Effective Date"). RECITALS A. Effective as of September 24, 1998, 3Com and Licensee entered into a Software License Agreement, as amended ("License Agreement"; capitalized terms used herein and not defined shall have the meanings set forth in the License Agreement) with regard to Licensee's developing, manufacturing and marketing handheld computing products incorporating specified 3Com software and technology related to the 3Com Palm Computing platform. B. The parties desire to amend the License Agreement as set forth in this Amendment. The parties hereby amend the License Agreement as follows: 1 CONFIDENTIALITY. The following phrases are deleted from Section 13.3 of the License Agreement: "(iv) the following named individuals shall be the only persons permitted to use or access the [*]: [*] and [*]" "Licensee shall have the right to change the named individuals upon fifteen (15) days written notice to 3Com." 2 ENTIRE AGREEMENT. The parties agree that this Amendment constitutes the entire agreement between the parties relating to its subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral; provided, however, that the License Agreement, except as modified by this Amendment, remains in full force and effect. * 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. 1 76 IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the dates set forth below effective as of the Effective Date. PALM COMPUTING, INC., HANDSPRING, INC. a subsidiary of 3Com Corporation By: /s/ Mark Bercow By: /s/ Donna Dubinsky -------------------------------- ----------------------------------- Name: Mark Bercow Name: Donna Dubinsky ------------------------------ --------------------------------- Title: VP Title: CEO ----------------------------- -------------------------------- Date: 4/28/99 Date: 4/8/99 ------------------------------ --------------------------------- 2 77 AMENDMENT NO. 4 TO SOFTWARE LICENSE AGREEMENT This Amendment No. 4 ("Amendment") is entered into by and between Palm Computing, Inc., a subsidiary of 3Com Corporation (collectively, "3Com"), a California corporation with a place of business .at 5400 Bayfront Plaza, Santa Clara, California 95052, and Handspring, Inc. ("Licensee"), a California corporation with a place of business at 299 California Avenue, Palo Alto, California 94306. The effective date of this Amendment shall be _______________, 1999 ("Effective Date"). RECITALS A. Effective as of September 24, 1998, 3Com and Licensee entered into a Software License Agreement, as amended ("License Agreement"; capitalized terms used herein and not defined shall have the meanings set forth in the License Agreement) with regard to Licensee's developing, manufacturing and marketing handheld computing products incorporating specified 3Com software and technology related to the 3Com Palm Computing platform. B. The parties desire to amend the License Agreement as set forth in this Amendment. The parties hereby amend the License Agreement as follows: 1 CONFIDENTIALITY. The last two sentences of 13.3 of the License Agreement are deleted in their entirety and restated as follows: "In the event that 3Com, from time to time, provides Licensee with a copy of one or more CDs which contain all, substantially all or a significant portion of the Palm Software in source code form, including any updates, upgrades or new versions thereof (the "Palm Software CD"), Licensee agrees to the following additional obligations with respect to the Palm Software CD notwithstanding any other provision of this Agreement: (i) Licensee shall only be entitled to use two (2) copies of the Palm Software CD, (ii) Licensee shall not make any additional copies of the Palm Software CD, (iii) Licensee shall only use the Palm Software CD on two (2) PC's at any one time, (iv) each copy of the Palm Software CD shall be kept in a locked room or file cabinet when not in use, and (v) use of the Palm Software shall be password protected. Except as otherwise set forth in this Section 13.3, the provisions of this Agreement that apply to the Palm Source Code shall apply to the source code contained in the Palm Software CD." 2 ENTIRE AGREEMENT. The parties agree that this Amendment constitutes the entire agreement between the parties relating to its subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral; provided, however, that the License Agreement, except as modified by this Amendment, remains in full, force and effect. 1 78 IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the dates set forth below effective as of the Effective Date. PALM COMPUTING, INC., HANDSPRING, INC. a subsidiary of 3Com Corporation By: /s/ Daniel S. Keller By: /s/ Donna Dubinsky -------------------------------- ---------------------------------- Name: Daniel S. Keller Name: Donna Dubinsky ------------------------------ -------------------------------- Title: VP, Platform Engineering Title: CEO ----------------------------- ------------------------------- Date: 12/9/99 Date: 12/8/99 ------------------------------ -------------------------------- 2 EX-10.16 4 0004.txt EX-10.16 1 CONFIDENTIAL TREATMENT REQUESTED EXHIBIT 10.16 ATTACHMENT NO. 5 This Attachment No. 5 is an attachment to Amendment No.2 to the Software License Agreement between Palm, Inc. (formerly Palm Computing, Inc., a subsidiary of 3Com Corporation) and Handspring, Inc. 1. [*] [*] AMENDMENT TO AMENDMENT NO.2: For purposes of Section 2 of this Attachment No.5 only, Section 3 of Amendment No.2 is deleted in its entirety with respect to Modifications made by Licensee pursuant to Section 2 of this Attachment No.5 and replaced with the following: "3Com shall be the sole and exclusive owner of the Modifications and Licensee hereby assigns to 3Com all of its right, title and interest in and to the Modifications. Licensee agrees to provide 3Com, upon 3Com's request, copies of all Modifications. Subject to 3Com's rights in the underlying Palm Source Code, 3Com hereby grants to Licensee a worldwide, nonexclusive, fully paid, royalty free, perpetual and irrevocable license to use, reproduce, modify, display and distribute the Modifications in source code and/or executable form, including the right to sublicense such rights through single or multiple tiers of distribution." ADDITIONAL TERMS: For purposes of Section 2 of this Attachment No. 5 only, Licensee agrees to the following additional terms with respect to Modifications made by Licensee pursuant to Section 2 of this Attachment No. 5: a) Licensee agrees that the Modifications shall be made in accordance with Licensee's [*] that has been approved by 3Com b) Licensee agrees that 3Com shall be permitted to perform code reviews of the Modifications c) Licensee shall provide 3Com engineers reasonable opportunity to meet with the Licensee engineers that developed the Modifications to discuss any issues with the Modifications * 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. 2 Except as modified by this Attachment No.5 with respect to this Attachment No.5, Amendment No.2 shall remain in full force and effect. PALM, INC. HANDSPRING, INC. By: /s/ MARK BERCOW By: /s/ DONNA DUBINSKY -------------------------- ----------------------- Name: Mark Bercow Name: Donna Dubinsky Title: VP, Strategic Alliances Title: CEO & Platform Date: 4/27/00 Date: 4/17/00
2 3 ATTACHMENT NO. 6 This Attachment No.6 is an attachment to Amendment No.2 to the Software License Agreement between Palm, Inc. (formerly Palm Computing, Inc., a subsidiary of 3Com Corporation) and Handspring, Inc. 1. [*] [*] PALM, INC. HANDSPRING, INC. By: /s/ MARK BERCOW By: /s/ DONNA DUBINSKY -------------------------- ----------------------- Name: Mark Bercow Name: Donna Dubinsky Title: VP, Strategic Alliances Title: CEO & Platform Date: 4/27/00 Date: 4/19/00
* 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. 3 4 AMENDMENT NO. 5 TO SOFTWARE LICENSE AGREEMENT This Amendment No. 5 ("Amendment") is entered into by and between Palm, Inc. ("Palm"), a Delaware corporation with a place of business at 5470 Great America Parkway, Santa Clara, California 95052, and Handspring, Inc. ("Licensee"), a California corporation with a place of business at 189 Bernardo Avenue, Mountain View, California 94043. The effective date of this Amendment shall be 4/17, 2000 ("Effective Date"). RECITALS A. Effective as of September 24, 1998, Palm and Licensee entered into a Software License Agreement, as amended ("License Agreement"; capitalized terms used herein and not defined shall have the meanings set forth in the License Agreement) with regard to Licensee's developing, manufacturing and marketing handheld computing products incorporating specified Palm software and technology related to the Palm OS platform. B. Since the effective date of the License Agreement, Palm Computing, Inc. changed its name to Palm, Inc. and reincorporated in Delaware. C. The parties desire to amend the License Agreement as set forth in this Amendment. The parties hereby amend the License Agreement as follows: 1. REFERENCES. All references in the Agreement to "3Com" shall be changed to "Palm." 2. PALM DESKTOP SOFTWARE. In Exhibit A the Section titled "Palm Desktop Software" is deleted in its entirety and replaced with the following: "Palm Desktop Software [*] 3. UPGRADE. Licensee acknowledges that Palm has provided Licensee with the "Mandalay" version of the Palm Software (version 3.5), a description of which is attached hereto as Exhibit A-1. 4. DESKTOP SITE LICENSE. The following is added as a new Section 2.11 to the License Agreement: * 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. 4 5 "2.11 Subject to the terms and conditions of this Agreement, Palm hereby grants to Licensee a limited, non-exclusive, non-transferable (except as provided in Section 17.9), worldwide, royalty-free license to distribute solely for use with Palm OS products, the Palm Desktop Software; provided that Licensee does not charge for copies of the Palm Desktop Software. Licensee agrees that each copy of the Palm Desktop Software will be accompanied by Licensee's standard end user software license agreement as provided in Section 10.4 below. In addition, Licensee shall have the right to sublicense to enterprise end users the right to use and reproduce the Palm Desktop Software for their internal use pursuant to a signed, written agreement with such enterprise end users, with no right to further sublicense; provided that the terms of such agreement shall be at least as protective of the Palm Desktop Software as (i) the terms and conditions Licensee uses for its own software products, (ii) the minimum terms and conditions set forth in Attachment 1 attached hereto, and (iii) the terms and conditions governing this Agreement. Licensee agrees to enforce the terms and conditions applicable to the Palm Desktop Software contained in such agreements. 5. ROM LICENSE. The following is added as a new Section 2.12 to the License Agreement: "2.12 Subject to the terms and conditions of this Agreement, Palm hereby grants to Licensee a limited, non-exclusive, non-transferable (except as provided in Section 17.9), worldwide, royalty-free license to distribute directly, solely for the development of products that are designed to be used with Licensee Products, the ROM image (including both the debug and non-debug versions) of the Palm OS that Licensee incorporates into Licensee Products (the "ROM Image"); provided that Licensee does not charge for copies of the ROM Image. Licensee agrees that each copy of the ROM Image distributed by Licensee hereunder will be accompanied by a signed, written agreement; provided that the terms of such agreement shall be at least as protective of the ROM Image as (i) the terms of the license agreement attached hereto as Attachment 2, and (ii) the terms and conditions governing this Agreement (the "ROM Image EULA"). Licensee agrees to enforce the terms and conditions applicable to the ROM Image contained in such agreements. In the event that Licensee adds functionality to its website that permits Licensee to distinguish between a developer located in the United States and a developer located outside of the United States, Licensee may distribute the ROM Image to United States developers under a ROM Image EULA that is in clickwrap form, in lieu of a signed written agreement, subject to the requirements set forth in subsections (i) and (ii) above." 6. ENTIRE AGREEMENT. The parties agree that this Amendment constitutes the entire agreement between the parties relating to its subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral; provided, however, that the License Agreement, except as modified by this Amendment, remains in full force and effect. 5 6 IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the dates set forth below effective as of the Effective Date. PALM, INC. HANDSPRING, INC. By: /s/ MARK BERCOW By: /s/ DONNA DUBINSKY -------------------------- ----------------------- Name: Mark Bercow Name: Donna Dubinsky Title: VP, Strategic Alliances Title: CEO & Platform Date: 4/27/00 Date: 4/17/00
6 7 EXHIBIT A-1 [Exhibit A-1 consists of 2 pages] [*] * 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. 7 8 ATTACHMENT 1 1. Subject to the terms of this agreement, [Licensee] grants to [end user] a non-exclusive, royalty-free, non-assignable and non-transferable license to reproduce and install the Desktop Software in executable form on personal computers owned or leased by [end user] for [end user]'s internal use. 2. [End user] agrees that the Desktop Software may be used only in connection with [Licensee's] Palm OS handheld products (the "Products") and may not be distributed outside [end user]. [End user] shall notify the users of such personal computers that the Desktop Software may be used only in connection with the Products and may not be distributed outside [end user]. 3. [End user] agrees that it shall keep records of the number of copies of the Desktop Software it installs and the number of Products purchased by [end user]. Upon request by [Licensee], [end user] shall promptly report in writing to [Licensee] the number of copies of the Desktop Software installed by [end user]. 4. Except as explicitly otherwise set forth in this agreement, the use of the Desktop Software shall be governed by the [Licensee] End User Software License Agreement accompanying the Products. Except as provided above, this agreement does not grant [end user] any rights to patents, copyrights, trade secrets, trademarks, or any other rights in respect to the Desktop Software. 8 9 ATTACHMENT 2 PROTOTYPE LICENSE AND CONFIDENTIALITY AGREEMENT This Prototype License and Confidentiality Agreement ("Agreement") is entered into between the following parties: 3COM: Palm Computing, Inc., a subsidiary of 3Com Corporation ("3Com") 5400 Bayfront Plaza P.O. Box 58007 Santa Clara, CA, 95052-8007 and LICENSEE: --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- Effective Date: ------------------------ The parties agree as follows: 1. LICENSE GRANT. Licensee shall maintain the Prototype (as defined below) at the following location:________________________________________________________ ___________ (the "Prototype Site"). Subject to Licensee's compliance with the terms and conditions of this Agreement, 3Com hereby grants to Licensee a nonexclusive, personal, limited, nontransferable right and license to use certain 3Com pre-release hardware and/or software, documentation and related 3Com products and information (collectively the "Prototype") as identified in an Appendix to this Agreement but only for the limited purposes set forth in this Section 1. For each Prototype, 3Com shall provide Licensee with a separate Appendix which shall be a part of this Agreement. Licensee agrees not to use the Prototype for any purpose other than: (i) the testing of the Prototype, and (if applicable), (ii) the development by Licensee of a product, which is designed to be compatible with the Palm Computing(R) platform ("Licensee Product"), without violating 3Com's intellectual property rights, including, but not limited to, trade secrets, patents, copyrights, trade marks and industrial design, or (iii) to the extent the Prototype is not Confidential Information, the demonstration of the Licensee Product. Licensee agrees to test the Prototype diligently and to complete and return promptly any feedback and/or bug reports supplied by 3Com. 2. STORAGE OF THE PROTOTYPE. To the extent that the Prototype licensed to Licensee hereunder consists of hardware, Licensee agrees to use and store such Prototype at all times in a locked room or other form of secured area, if a room is not available, accessible to only those employees and contractors entitled to view such Prototype under the terms of Section 4 below, at the Prototype Site. To the extent that the Prototype consists of software and/or documentation, Licensee agrees to restrict access to such Prototype so that only those employees and contractors entitled to view such Prototype under the terms of Section 4 below may see or use the Prototype. Regardless of the nature of the Prototype, however, Licensee agrees to maintain an accurate log of all those given access to the Prototype by the Licensee. Licensee may make only as many copies of Prototype software and documentation as are reasonably necessary to effectuate the permitted uses of the Prototype listed in Section 1 above. Licensee must preserve any proprietary rights notices on or in the Prototype and must place all such notices on and in any copies made. 3. DEFINITION OF CONFIDENTIAL INFORMATION. Licensee agrees that the Prototype and any information concerning the Prototype, including its nature and existence, and any other information disclosed by 3Com to Licensee, including but not limited to information learned by Licensee from 3Com employees, agents, or through 9 10 inspection of 3Com's property, that relates to 3Com's products, designs, opportunities, finances, research, development, know-how, personnel, or third-party confidential information disclosed to Licensee by 3Com, and the existence, terms and conditions of this Agreement will be considered and referred to collectively in this Agreement as "Confidential Information." Confidential Information, however, does not include information that: (1) is now or subsequently becomes generally available to the public through no fault or breach on the part of Licensee; (2) Licensee can demonstrate to have had rightfully in its possession prior to disclosure to Licensee by 3Com with written records; (3) is independently developed by Licensee without the use of any Confidential Information; or (4) Licensee rightfully obtains from a third party who has the right to transfer or disclose it without breach or violation of any obligation of confidentiality. All Confidential Information remains the sole property of 3Com. Licensee has no implied licenses or other rights in the Confidential Information not specifically granted in Section 1. 4. NONDISCLOSURE AND NON USE OF CONFIDENTIAL INFORMATION. Licensee will not disclose, publish, or disseminate Confidential Information (as defined in Section 3 above) to anyone other than those of its employees and contractors with a demonstrable need to know who have binding, written, confidentiality obligations to Licensee that protect such Confidential Information against unauthorized disclosure. To the extent that the Prototype consists of software, Licensee agrees not to decompile, reverse engineer, disassemble or otherwise reduce the Prototype to a human-perceivable form, and Licensee will not modify, network, rent, lease, or loan the Prototype in whole or in part. Licensee further agrees to take reasonable precautions to prevent any unauthorized use, disclosure, publication, or dissemination of Confidential Information. Licensee agrees to accept Confidential Information for the sole purpose of effecting the permitted uses of the Prototype as set forth in Section 1 above. Licensee agrees not to use Confidential Information otherwise for its own or any third party's benefit without the prior written approval of an authorized representative of 3Com in each instance. 5. VERIFICATION OF COMPLIANCE. Licensee agrees that authorized 3Com representatives with twenty-four hours advance notice may inspect the Prototype Site, use of the Prototype, copies of other Confidential Information and Licensee's Prototype access log during Licensee's normal business hours in order to verify that Licensee is complying with its obligations under this Agreement. 6. WARRANTY DISCLAIMER. The Prototype may be designated as alpha, beta, development, pre-release, untested, or not fully tested versions of the Prototype. The Prototype may contain errors that could cause failures or loss of data, and may be incomplete or contain inaccuracies. LICENSEE EXPRESSLY ACKNOWLEDGES AND AGREES THAT USE OF THE PROTOTYPE OR OTHER CONFIDENTIAL INFORMATION IS AT LICENSEE'S SOLE RISK. THE PROTOTYPE AND OTHER CONFIDENTIAL INFORMATION ARE PROVIDED "AS IS" AND WITHOUT WARRANTY OF ANY KIND AND 3COM EXPRESSLY DISCLAIMS ALL WARRANTIES, TERMS AND CONDITIONS, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES, TERMS AND CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT OF THIRD PARTY RIGHTS AND SATISFACTORY QUALITY. 3COM DOES NOT WARRANT THAT THE FUNCTIONS CONTAINED IN THE PROTOTYPE OR OTHER CONFIDENTIAL INFORMATION ARE SUITABLE FOR LICENSEE'S USE OR THAT THE OPERATION OF THE PROTOTYPE OR OTHER CONFIDENTIAL INFORMATION WILL BE UNINTERRUPTED OR ERROR-FREE, OR THAT DEFECTS IN THE PROTOTYPE OR OTHER CONFIDENTIAL INFORMATION WILL BE CORRECTED. FURTHERMORE, 3COM DOES NOT WARRANT OR MAKE ANY REPRESENTATIONS REGARDING THE USE OR THE RESULTS OF THE USE OF THE PROTOTYPE OR OTHER CONFIDENTIAL INFORMATION OR IN TERMS OF THEIR CORRECTNESS, ACCURACY, RELIABILITY, OR OTHERWISE. NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN BY 3COM SHALL CREATE A WARRANTY OR IN ANY WAY INCREASE THE SCOPE OF THIS WARRANTY. THIS DISCLAIMER OF WARRANTY CONSTITUTES AN ESSENTIAL PART OF THIS AGREEMENT. NO USE OF ANY PORTION OF THE PROTOTYPE OR OTHER CONFIDENTIAL INFORMATION IS AUTHORIZED HEREUNDER EXCEPT UNDER THIS DISCLAIMER. Licensee acknowledges that 3Com may not have publicly announced the availability of the Prototype, that 3Com has not promised or guaranteed to Licensee that such Prototype will be announced or made available to anyone in the future, and that 3Com has no express or implied obligation to Licensee to announce or introduce the Prototype or any similar or compatible product, or to continue to offer or support the Prototype in the future. 10 11 7. TERM AND TERMINATION. This Agreement will continue in effect until terminated in accordance with this Section. Licensee may terminate this Agreement or an individual seeding project at any time, for any reason, but only by returning to 3Com: (1) the Prototype and all existent copies of other Confidential Information on any tangible medium, and (2) a written certification by an authorized representative of Licensee that all tangible copies of the Prototype and any other Confidential Information have been returned to 3Com or completely destroyed and that all electronic memories have been purged of any Confidential Information. 3Com may terminate this Agreement or an individual seeding project at any time, with or without cause, immediately upon written notice to Licensee. Within seven (7) days of Licensee's receipt of 3Coms termination notice, or earlier if requested by 3Com, Licensee will return the Prototype and all other Confidential Information as provided in this Section. All obligations of Licensee under this Agreement will continue to bind Licensee until Licensee has fully complied with the foregoing requirements of this Section concerning the return of 3Com materials. Following termination of this Agreement or an individual seeding project for any reason, the provisions of Sections 3, 4 and 6 through 15, shall survive. 8. DISCLAIMER OF LIABILITY. UNDER NO CIRCUMSTANCES SHALL 3COM BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS OF PROFITS OR REVENUE, OR INTERRUPTION OF BUSINESS IN ANY WAY ARISING OUT OF OR RELATED TO THE USE OR INABILITY TO USE THE PROTOTYPE OR OTHER CONFIDENTIAL INFORMATION OR 3COM'S PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY OR OTHERWISE, EVEN IF 3COM HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 9. NO ASSIGNMENT. Licensee may not assign or otherwise transfer this Agreement or the rights or obligations hereunder, either in whole or in part, whether voluntarily or by operation of law, without the prior written consent of 3Com, which consent may be withheld in 3Com's sole discretion, and any attempted transfer or assignment is null and void and shall be deemed a material breach of this Agreement. 10. INJUNCTIVE RELIEF. Licensee acknowledges and agrees that the copying, disclosure or use of the Prototype or Confidential Information in a manner inconsistent with any provision of this Agreement shall cause irreparable injury to 3Com for which 3Com will not have an adequate remedy at law. Accordingly, 3Com shall be entitled to equitable relief in court, including but not limited to temporary restraining orders, preliminary injunctions and permanent injunctions. 11. EXPORT LAW ASSURANCES. Licensee may not use or otherwise export or reexport the Prototype or Confidential Information except as authorized by United States law and the laws of the jurisdiction in which the Prototype or Confidential Information were obtained. In particular, but without limitation, the Prototype or Confidential Information may not be used or otherwise exported or reexported (i) into (or to a national or resident of) any United States embargoed country or (ii) to anyone on the U.S. Treasury Department's list of Specially Designated Nationals or the U.S. Department of Commerce's Table of Denial Orders. By using the Prototype or Confidential Information, Licensee represents and warrants that Licensee is not located in, under control of, or a national or resident of any such country or on any such list. 12. GOVERNMENT END USERS. The Prototype and related documentation are a "commercial item," as that term is defined in 48 C.F.R. 2.101 (Oct. 1995), consisting of "commercial computer software" and "commercial computer software documentation," as such terms are used in 48 C.F.R. 12.212 (Sept. 1995). Consistent with 48 C.F.R. 12.212 and 48 C.F.R. 227.7202-1 through 227.7202-4 (June 1995), all U.S. Government End Users acquire the Prototype and related documentation with only those rights set forth herein. 13. RELATIONSHIP OF THE PARTIES. Nothing stated in this Agreement will be construed as creating the relationships of joint venturers, partners, employer and employee, franchisor and franchisee, master and servant, or principal and agent. 14. MISCELLANEOUS. This Agreement, including any Appendices, represents the complete, final and exclusive agreement concerning the subject matter hereof. Each and every Prototype seeded under this Agreement shall be sent to Licensee with an Appendix attached which will identify the project code name. Each Appendix shall (i) have 11 12 an Effective Date, and (ii) be governed by this Agreement. If any provision of this Agreement is held to be unenforceable, such provision shall be reformed only to the extent necessary to make it enforceable. This Agreement shall be governed by California law provisions (except to the extent applicable law, if any, provides otherwise), excluding its conflict-of-law provisions. Unless otherwise agreed in writing, all disputes relating to this Agreement (excepting any dispute relating to intellectual property rights) shall be subject to final and binding arbitration, with the losing party paying all costs of arbitration. Any arbitration relating to this Agreement shall be held in Santa Clara County, California, under the auspices of JAMS/EndDispute. Any litigation relating to this Agreement shall be subject to the jurisdiction of the Federal Courts of the Northern District of California, with venue lying in Santa Clara County, California, with the losing party responsible for costs, including without limitation, court costs and reasonable attorneys fees and expenses. The application of the United Nations Convention on Contracts for the International Sale of Goods is expressly excluded. Any law or regulation which provides that the language of a contract shall be construed against the drafter shall not apply to this Agreement. 15. ENGLISH LANGUAGE. The parties hereto confirm that they have requested that this Agreement and all related documents be drafted in English. Les parties ont exige que le present contrat et tous les documents connexes soient rediges en anglais. In witness whereof, the parties have executed this Agreement as of the Effective Date. Licensee: 3Com: Palm Computing, Inc., a subsidiary of 3Com Corporation By: By: ------------------------------- ------------------------------- Printed: Printed: -------------------------- -------------------------- Title: Title: ---------------------------- ---------------------------- PROTOTYPE LICENSEE SITE DESIGNEE Printed Name: -------------------- Title: --------------------------- E-mail: -------------------------- Phone: --------------------------- Fax: ----------------------------
This designated person will be responsible for: o Receiving "Addressee Only" Prototype materials o Site Inspection contact Note: 3Com recommends one and ONLY one person at any site have these responsibilities. Ideally person would oversee all compliance factors related to this Prototype Agreement. 12 EX-23.2 5 0005.txt EX-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 reports dated May 16, 2000 relating to the financial statements and the 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 June 7, 2000 -----END PRIVACY-ENHANCED MESSAGE-----