-----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, ACFLA6fIaPIpL5G1txz2BWyDSfxoWI8dStvE7Zn1jvo7Y6FhbZAMYQcQquhWODxI hjj4k9VG2Q5SRNOk2j7H8Q== 0000912057-00-017055.txt : 20000411 0000912057-00-017055.hdr.sgml : 20000411 ACCESSION NUMBER: 0000912057-00-017055 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20000225 FILED AS OF DATE: 20000410 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PALM INC CENTRAL INDEX KEY: 0001100389 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575] IRS NUMBER: 943150688 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-29597 FILM NUMBER: 596928 BUSINESS ADDRESS: STREET 1: 5400 BAYFRONT PLAZA CITY: SANTA CLARA STATE: CA ZIP: 95022-8145 BUSINESS PHONE: 4083265000 MAIL ADDRESS: STREET 1: 5400 BAYFRONT PLAZA CITY: SANTA CLARA STATE: CA ZIP: 95052-8145 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 25, 2000 COMMISSION FILE NO. 0-29597 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------------ PALM, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-3150688 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5470 GREAT AMERICA PARKWAY 95052 SANTA CLARA, CALIFORNIA ----- ----------------------- (Zip Code) (Address of principal executive offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 326-9000 FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT: N/A INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES NO X ----- ----- AS OF APRIL 3, 2000, 564,488,427 SHARES OF THE REGISTRANT'S COMMON STOCK WERE OUTSTANDING. THIS REPORT CONTAINS A TOTAL OF 36 PAGES OF WHICH THIS PAGE IS NUMBER 1. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PALM, INC. TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Income Statements THREE AND NINE MONTHS ENDED FEBRUARY 25, 2000 AND FEBRUARY 26, 1999 3 Condensed Consolidated Balance Sheets FEBRUARY 25, 2000 AND MAY 28, 1999 4 Condensed Consolidated Statements of Cash Flows NINE MONTHS ENDED FEBRUARY 25, 2000 AND FEBRUARY 26, 1999 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 32 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 33 ITEM 2. Changes in Securities and Use of Proceeds 34 ITEM 6. Exhibits and Reports on Form 8-K 34 Signatures 36
Palm OS is a registered trademark and Palm, Palm VII and Palm.Net are trademarks of Palm, Inc. or its subsidiaries. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PALM, INC. CONDENSED CONSOLIDATED INCOME STATEMENTS (In thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended ------------------ ----------------- February 25, February 26, February 25, February 26, 2000 1999 2000 1999 ------------- ------------ ------------ ------------ Revenues $ 272,292 $ 125,889 $ 707,352 $ 389,191 Cost of revenues 153,479 67,583 399,821 214,870 ------------- ------------- ------------- ------------- Gross profit 118,813 58,306 307,531 174,321 ------------- ------------- ------------- ------------- Operating expenses: Sales and marketing 57,591 28,725 160,277 86,587 Research and development 21,450 10,989 50,001 31,449 General and administrative 12,202 5,739 29,158 17,043 Purchased in-process technology - 2,125 - 2,125 Separation costs 8,203 - 11,983 - ------------- ------------- ------------- ------------- Total operating expenses 99,446 47,578 251,419 137,204 ------------- ------------- ------------- ------------- Operating income 19,367 10,728 56,112 37,117 Interest and other income (expense), net 418 (15) 632 (115) ------------- ------------- ------------- ------------- Income before income taxes 19,785 10,713 56,744 37,002 Income tax provision 8,832 4,116 23,271 14,218 ------------- --------------- ------------- ------------- Net income $ 10,953 $ 6,597 $ 33,473 $ 22,784 ============= ============= ============= ============= Net income per share: Basic and diluted $ 0.02 $ 0.01 $ 0.06 $ 0.04 Shares used in computing per share amounts: Basic and diluted 532,000 532,000 532,000 532,000
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 PALM, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except par value)
February 25, May 28, 2000 1999 ---- ---- (Unaudited) ASSETS Current assets: Cash and equivalents $ 40,005 $ 478 Accounts receivable, net 114,320 95,839 Inventories 29,774 12,186 Deferred income taxes 26,712 20,688 Prepaids and other 1,692 1,038 ------------- --------------- Total current assets 212,503 130,229 Property and equipment, net 10,553 8,136 Goodwill, intangibles and other assets 13,550 13,829 Deferred income taxes 1,938 53 ------------- --------------- Total assets $ 238,544 $ 152,247 ============ =============== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 88,818 $ 35,577 Payable to 3Com Corporation 125,988 40,509 Other accrued liabilities 102,725 40,793 Current portion of long-term debt 162 668 ------------- --------------- Total current liabilities 317,693 117,547 Long-term debt 383 682 Commitments and contingencies - - Stockholder's equity (deficiency): Preferred stock, $.001 par value, 125,000 shares authorized; none outstanding - - Common stock, $.001 par value, 2,000,000 shares authorized; outstanding: February 25, 2000, 532,000; May 28, 1999, 532,000 - - 3Com Corporation equity (deficiency) (79,377) 34,151 Accumulated other comprehensive income (loss) (155) (133) -------------- --------------- Total stockholder's equity (deficiency) (79,532) 34,018 -------------- --------------- Total liabilities and stockholder's equity $ 238,544 $ 152,247 ============== ===============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 PALM, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Nine Months Ended ----------------- February 25, February 26, 2000 1999 ---- ---- Cash flows from operating activities: Net income $ 33,473 $ 22,784 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,644 2,368 Loss on disposal of property and equipment 897 1,658 Deferred income taxes (7,909) (6,474) Purchased in-process technology - 2,125 Changes in assets and liabilities: Accounts receivable (18,481) (31,698) Inventories (17,588) (2,025) Prepaids and other (2,908) (547) Accounts payable 53,241 (1,255) Payable to 3Com Corporation (64,521) 22,022 Other accrued liabilities 61,932 26,051 -------------- -------------- Net cash provided by operating activities 44,780 35,009 -------------- -------------- Cash flows from investing activities: Purchase of property and equipment (7,425) (3,804) Business acquired in purchase transaction - (16,831) -------------- -------------- Net cash used for investing activities (7,425) (20,635) -------------- -------------- Cash flows from financing activities: Net transfers (to) from 3Com 2,977 (13,761) Repayments of debt (805) - -------------- -------------- Net cash used for financing activities 2,172 (13,761) -------------- -------------- Increase in cash and equivalents 39,527 613 Cash and equivalents, beginning of period 478 - -------------- -------------- Cash and equivalents, end of period $ 40,005 $ 613 ============== ============== Noncash investing and financing activities Dividend payable to 3Com $ 150,000 $ - ============== ==============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 5 PALM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation The unaudited condensed consolidated financial statements have been prepared by Palm, Inc. ("Palm," "us," "we," or "our"), pursuant to the rules of the Securities and Exchange Commission ("SEC"). In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments necessary for a fair presentation of Palm's financial position as of February 25, 2000, results of operations for the three and nine months ended February 25, 2000 and February 26, 1999, and cash flows for the nine months ended February 25, 2000 and February 26, 1999. Palm has a 52-53 week fiscal year ending on the Friday nearest to May 31. Accordingly, fiscal 2000 will end on June 2, 2000, resulting in a 53-week fiscal 2000, rather than 52 weeks as reported in fiscal 1999. For fiscal year 2000, the first three quarters will contain 13 weeks, and the fourth quarter will contain 14 weeks. The results of operations for the three and nine months ended February 25, 2000 may not be indicative of the results to be expected for the fiscal year ending June 2, 2000. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in Palm's Registration Statement on Form S-1 filed with the SEC on December 13, 1999, as amended. Through February 25, 2000, we were wholly-owned by 3Com Corporation ("3Com"). Our condensed consolidated financial statements reflect the historical results of operations and cash flows of the handheld computing business of 3Com during each respective period. The condensed consolidated financial statements have been prepared using 3Com's historical bases in the assets and liabilities and the historical results of operations of Palm. The financial information included herein may not reflect the consolidated financial statements, operating results and cash flows of Palm in the future or what they would have been had Palm been a separate stand-alone entity during the periods presented. The condensed consolidated financial statements include allocations of certain 3Com expenses, including centralized legal, accounting, treasury, real estate, information technology, distribution, customer service, sales, marketing, engineering, and other 3Com corporate services and infrastructure costs. The expense allocations have been determined on the bases that 3Com and Palm considered to be reasonable reflections of the utilization of services provided or the benefit received by Palm. The allocation methods include relative revenues, headcount or square footage. Management believes that the expenses allocated to Palm are representative of the operating expenses it would have incurred had Palm been operated on a stand-alone basis. 6 The allocated amounts from 3Com included in our results of operations were as follows (in thousands):
Nine Months Ended ----------------------------- February 25, February 26, 2000 1999 ----------- ----------- Cost of revenues $ 10,443 $ 6,199 Sales and marketing 20,541 11,114 Research and development 6,125 2,164 General and administrative 14,550 9,466 Other (income) and expense, net (632) 115
2. Separation from 3Com and Initial Public Offering On September 13, 1999, 3Com announced its plan to create an independent publicly-traded company, Palm, Inc., comprised of 3Com's handheld computing business. Following the completion of Palm's initial public offering in March 2000, 3Com owns approximately 94% of Palm's outstanding common stock. 3Com has announced that it intends to distribute its remaining shares of Palm common stock to 3Com stockholders approximately four to six months following the initial public offering ("the distribution date"), subject to receiving 3Com board approval and a ruling from the Internal Revenue Service that the distribution will be not be taxable. 3Com and Palm have entered into a Master Separation and Distribution Agreement. In accordance with the separation agreement, 3Com transferred to Palm the 3Com-owned assets and liabilities which related to Palm prior to the date of separation from 3Com ("the separation date"), except for most of Palm's accounts receivable and accounts payable, which were retained by 3Com for administrative convenience. Palm began incurring separation costs in the second quarter of fiscal year 2000, which are costs associated with the process of becoming a stand-alone, publicly-held company, including consulting and professional fees. Palm's legal separation from 3Com occurred on February 26, 2000, at which time Palm began to operate independently from 3Com. Beginning in the fourth quarter of fiscal year 2000, Palm's consolidated financial statements will no longer include an allocated portion of 3Com's corporate services and infrastructure costs. However, Palm will incur amounts payable to 3Com under transitional service agreements, under which 3Com will provide services such as information systems, real estate and transaction processing in accounting, human resources, and order processing. Palm completed its initial public offering in March 2000, receiving net proceeds of $942.3 million, after deducting underwriting commissions and estimated offering expenses, from the sale of 26,450,000 shares of common stock. Palm also received net proceeds of $225.0 million from the sale of a total of 5,921,052 shares of common stock to America Online, Motorola and Nokia in private placements. Using a portion of the proceeds from the offering, Palm paid a dividend of $150.0 million to 3Com in March 2000. This dividend was declared in January 2000 and was payable to 3Com as the sole stockholder of record on February 25, 2000. The dividend 7 payable is included in Palm's condensed consolidated balance sheet under the caption "Payable to 3Com Corporation", along with other amounts due from and payable to 3Com. 3. Comprehensive Income The components of comprehensive income are as follows (in thousands):
Three Months Ended Nine Months Ended ------------------ ----------------- February 25, February 26, February 25, February 26, 2000 1999 2000 1999 ---- ---- ---- ---- Net income $ 10,953 $ 6,597 $ 33,473 $ 22,784 Other comprehensive income: Change in accumulated translation adjustments (191) (30) (22) (30) ----------- ------------ ----------- ----------- Total comprehensive incom $ 10,762 $ 6,567 $ 33,451 $ 22,754 ============ ============ ============ ===========
4. Net Income Per Share For each period presented, basic and diluted net income per share are calculated based on the 532,000,000 shares of Palm common stock owned by 3Com. Pursuant to the requirements of SEC Staff Accounting Bulletin Topic 1.B(3), pro forma net income per share for each period is calculated based on the 532,000,000 shares of Palm owned by 3Com, plus the 4,217,011 shares of common stock whose proceeds are assumed to be used to pay the $150 million dividend to 3Com. Such pro forma net income per share amounts are the same as the basic and diluted net income per share amounts for each period. In future periods, basic net income per share will be calculated based on the weighted average shares of common stock outstanding during the period, and diluted earnings per share will be calculated based on the weighted average shares of common stock outstanding, plus the dilutive effect of stock options, calculated using the treasury stock method. At the time of Palm's initial public offering, Palm granted options to purchase approximately 9.4 million shares of Palm common stock to its employees and directors at the initial public offering price, and also issued approximately 117,000 shares of restricted stock to certain key employees. At the distribution date, options held by Palm employees to purchase 3Com common stock will be converted into options to purchase Palm common stock as described in Palm's Registration Statement on Form S-1 filed on December 13, 1999, as amended. 5. Inventories Inventories, net, consist of (in thousands):
February 25, May 28, 2000 1999 ---- ---- Finished goods $ 26,334 $ 5,900 Work-in-process 2,963 4,011 Purchased components 477 2,275 ----------- ----------- Total Inventories $ 29,774 $ 12,186 =========== ===========
8 6. Litigation Palm is a party to lawsuits in the normal course of its business. Litigation in general, and intellectual property litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. Palm believes that it has defenses to the cases set forth below and is vigorously contesting these matters. Palm is not currently able to estimate the possible loss, or range of loss, if any, from the cases listed below and an unfavorable resolution of these lawsuits could adversely affect Palm's business, results of operations or financial condition. On April 28, 1997, Xerox Corporation filed suit against U.S. Robotics Corporation and U.S. Robotics Access Corp. in the United States District Court for the Western District of New York. The case is now captioned: XEROX CORPORATION v. U.S. ROBOTICS CORPORATION, U.S. ROBOTICS ACCESS CORP., PALM COMPUTING, INC. AND 3COM CORPORATION, Civil Action No. 97-CV-6182T. The complaint alleges willful infringement of a Xerox United States patent, relating to computerized interpretation of handwriting. The complaint seeks unspecified damages and injunctive relief. Xerox has asserted that Graffiti software and certain of our products infringe the patent. On January 18, 2000, the court held a status hearing during which it ordered that all of the parties' briefs relating to motions for summary judgment would be filed with the court by April 28, 2000. Palm anticipates that oral argument on these motions will be heard thereafter. No trial date has been set. On July 22, 1999, Palm filed a copyright infringement action against Olivetti and CompanionLink in the United States District Court for the Northern District of California and obtained a preliminary injunction against further distribution, sale, import or export of Olivetti Office USA's "Royal daVinci" handheld device and the daVinci OS Software Development Kit, distributed by CompanionLink Software, Inc. The injunction is to remain in effect pending the outcome of the lawsuit. Palm also initiated a copyright infringement action in Hong Kong on July 21, 1999, against EchoLink Design Ltd., the company responsible for developing the operating system software contained in the daVinci products. The High Court of the Hong Kong Special Administrative Region issued an order the same day restraining EchoLink from further copying, distribution, sale, import or export of Palm OS-Registered Trademark- operating system source code or EchoLink's "NEXUS OS" source code, which Palm maintains infringes its copyrights. On December 13, 1999, WaveWare Communications, Inc. filed suit against 3Com, Palm and others in the Superior Court of California, San Mateo County. The case is captioned WAVEWARE COMMUNICATIONS, INC. v. 3COM CORPORATION, PALM COMPUTING, INC., AND MARK BERCOW, No. 411331. The complaint alleges breach of contract, constructive fraud, fraud and deceit, negligent misrepresentation, misappropriation of assets and trade secrets, unfair competition, unjust enrichment and intentional interference with economic advantage in connection with Palm and 3Com's discussions with WaveWare concerning WaveWare's potential acquisition by 3Com. The complaint seeks unspecified monetary damages and injunctive relief. The case is in the early stages of discovery. No trial date has been set. On December 27, 1999, Telxon Corporation and Penright! Corporation filed a complaint in the U.S. District Court for the Northern District of Ohio, Eastern Division (Case No. 1:99CV3157) against 3Com and Palm alleging copyright infringement, unfair competition and theft of trade 9 secrets. The plaintiffs allege that the Palm OS operating system contains graphical user interface software copied from the plaintiffs' software. The complaint seeks unspecified compensatory and treble damages and to enjoin, among other things, distribution and sales of the Palm OS operating system. No trial date has been set. No discovery has been exchanged. On February 28, 2000, E-Pass Technologies, Inc. filed suit against 3Com in the United States District Court for the Southern District of New York (case no. 00CIV1523). The complaint alleges infringement and induced infringement of United States patent 5,276,311 by Palm's handheld devices in connection with a method and device for simplifying the use of credit cards. The complaint seeks unspecified compensatory and treble damages and, among other things, to permanently enjoin Palm from infringing or inducing infringement of the patent as alleged. Palm is in the preliminary stages of investigating the allegations contained in the suit. No trial date has been set. No discovery has been exchanged. In connection with Palm's separation from 3Com, pursuant to the terms of the Indemnification and Insurance Matters Agreement between Palm and 3Com, Palm will indemnify and hold 3Com harmless for any damages or losses which may arise out of the Xerox, WaveWare, Telxon and Penright! and E-Pass litigation. 7. Recent Accounting Pronouncements In March 1999, the American Institute of Certified Public Accountants issued Statement of Position No. 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires that entities capitalize certain costs related to internal-use software if certain criteria are met. Palm adopted SOP 98-1 for its fiscal year ending June 2, 2000. The adoption of SOP 98-1 did not have a significant impact on Palm's financial results for the nine months ended February 25, 2000. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative Investments and Hedging Activities." This statement provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. In July 1999, the FASB issued FAS 137, which defers the effective date of FAS 133 for one year. Accordingly, Palm will now be required to adopt FAS 133 during fiscal 2001. Palm does not expect the adoption of FAS 133 to have a significant effect on Palm's financial position or results of operations. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report on Form 10-Q contains forward-looking statements, including statements concerning expected revenues from Palm platform licensing and Internet services, expected international revenue, continued strong growth in unit shipments of Palm devices, investments for strategic initiatives, future gross and operating margins, expansion into new customer segments and geographic regions, offering new wireless Internet solutions, and the launch of an aggressive marketing campaign. These statements are subject to certain risks and uncertainties. Some of the factors that could cause future events or results to materially differ from those projected in the forward-looking statements are discussed in this report (see, in particular, "Business Environment and Risk Factors"). OVERVIEW We were founded in 1992 and introduced our first handheld device in 1996. Immediately prior to our initial public offering in March 2000, we were a wholly-owned subsidiary of 3Com. To date, our business has focused primarily on developing and selling our Palm-branded handheld devices, and as of February 25, 2000, we had sold over 6 million Palm-TM- devices worldwide. In 1999, we expanded our strategy of licensing our Palm platform and developed our wireless Internet access service to support Internet-enabled handheld devices. Substantially all of our revenues to date have been generated from sales of our handheld devices and related peripherals and accessories. A small percentage of our revenues has been derived from licensing our Palm platform or from subscriptions to our wireless Internet access service. With our expanded focus on Palm platform licensing and Internet services and solutions, we expect that an increasing portion of our revenues in future periods will come from these sources. International revenues represented 34% of total revenues for the nine months ended February 25, 2000, and we expect that international revenues are likely to increase as a percentage of total revenues as we expand into international markets. We believe that we will continue to experience strong growth in unit shipments of our Palm devices, although the year over year growth rates may decline on a percentage basis compared to recent levels. Factors which we believe may impact gross margins include increased competition, introduction of new Palm handheld devices, supply constraints for certain components, and expansion of our revenue from licensing and Internet services and solutions. We anticipate that the net impact of these factors is that gross margins may be lower over the next 12-18 months when compared to recent quarters. In line with our strategy to expand our business, we expect to make significant strategic investments over the next 12-18 months. We intend to expand into new customer segments and new geographic regions, offer new wireless Internet solutions, and launch an aggressive marketing campaign to strengthen brand awareness and target new business areas. We also expect to incur some duplication of costs over the next 12-18 months, as we build the infrastructure for a stand-alone public company, while also paying 3Com to perform these services under transition service agreements. In addition, for at least the next several quarters, we expect to incur costs related to our separation from 3Com. We anticipate that our operating margins may be lower over the next 12-18 months as compared to recent quarters, and there may be several quarters in which we report operating losses as we invest to expand our business, take advantage of market opportunities and execute our strategic plan as an independent stand-alone company. 11 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage of total revenues represented by the line items reflected in Palm's condensed consolidated income statements:
Three months ended Nine months ended ------------------ ----------------- February 25, February 26, February 25, February 26, 2000 1999 2000 1999 ---- ---- ---- ---- Revenues 100.0% 100.0% 100.0% 100.0% Cost of revenues 56.4 53.7 56.5 55.2 ------ ------ ------ ------ Gross profit 43.6 46.3 43.5 44.8 Operating expenses: Sales and marketing 21.1 22.8 22.7 22.2 Research and development 7.9 8.7 7.1 8.1 General and administrative 4.5 4.6 4.1 4.4 Purchased in-process technology - 1.7 - 0.6 Separation costs 3.0 - 1.7 - ------ ------ ------ ------ Total operating expenses 36.5 37.8 35.6 35.3 ------ ------ ------ ------ Operating income 7.1 8.5 7.9 9.5 Interest and other income (expense) 0.2 - 0.1 - ------ ------ ------ ------ Income before income taxes 7.3 8.5 8.0 9.5 Income tax provision 3.3 3.3 3.3 3.6 ------ ------ ------ ------ Net income 4.0% 5.2% 4.7% 5.9% ====== ====== ====== ====== Effective tax rate 44.6% 38.4% 41.0% 38.4% Excluding purchased in-process technology and separation costs: Total operating expenses 33.5% 36.1% 33.9% 34.7% Operating income 10.1% 10.2% 9.6% 10.1%
REVENUES Revenues for the quarter ended February 25, 2000 were $272.3 million, an increase of $146.4 million or 116% over revenues for the same quarter of the previous year. This increase was due to higher unit shipments, offset by a slight decline in the average selling price. Revenues increased in all geographic areas, with Europe experiencing the highest growth rate. International revenues for the third quarter of fiscal 2000 were 32% of revenues compared with 27% of revenues in the same period of fiscal 1999. Revenues for the nine months ended February 25, 2000 were $707.4 million, an increase of $318.2 million or 82% over revenues for the same period of the previous year. This increase was due primarily to higher unit shipments while the average selling price remained relatively constant. Revenues increased in all geographic areas, with revenues in Asia-Pacific and Europe growing at a faster rate than in the United States. International revenues for the first nine months of fiscal 2000 were 34% of revenues compared with 26% of revenues in the same period of fiscal 1999. 12 GROSS PROFIT Gross profit was $118.8 million and $307.5 million for the third quarter and first nine months of fiscal 2000, increasing by 104% and 76%, respectively, over the corresponding periods in fiscal 1999. Gross profit as a percentage of revenues was 43.6% and 43.5% for the third quarter and first nine months of fiscal 2000, declining by 2.7 and 1.3 percentage points, respectively, compared to the corresponding periods in fiscal 1999. These declines were primarily attributable to costs related to providing wireless Internet access services, which we introduced during the first quarter of fiscal 2000. For the third quarter of fiscal 2000, gross profit as a percentage of revenue also declined due to a change in our product mix as compared to the prior year quarter. SALES AND MARKETING Sales and marketing expenses were $57.6 million and $160.3 million for the third quarter and first nine months of fiscal 2000, increasing by 100% and 85%, respectively, as compared to the same periods in fiscal 1999. For the year to date periods, sales and marketing expenses increased slightly as a percentage of revenue. The increases in absolute dollars compared to the prior year periods were due to increased spending on U.S. demand generation activities and media advertising, headcount and related expenses, and expanded sales and marketing activities in Europe. RESEARCH AND DEVELOPMENT Research and development expenses were $21.5 million and $50.0 million for the third quarter and first nine months of fiscal 2000, increasing by 95% and 59%, respectively, as compared to the same periods in fiscal 1999. For the year to date periods, research and development expenses declined moderately as a percentage of revenue, as certain fixed costs were spread over a higher revenue base. The increases in absolute dollars compared to the prior year periods were due to increased spending on headcount and related expenses, and development costs in new product areas, including Bluetooth and other wireless communications technology. GENERAL AND ADMINISTRATIVE General and administrative expenses were $12.2 million and $29.2 million for the third quarter and first nine months of fiscal 2000, increasing by 113% and 71%, respectively, as compared to the same periods in fiscal 1999. For the year to date periods, general and administrative expenses remained relatively constant as a percentage of revenue. The increases in absolute dollars compared to the prior year periods were due primarily to increased spending for headcount and related expenses to support the growth in revenues. For the third quarter of fiscal 2000, the increase also related to building the infrastructure for a stand-alone public company. General and administrative expenses also increased due to higher allocated costs from 3Com due to Palm's revenue increasing as a percentage of 3Com's total revenue. PURCHASED IN-PROCESS TECHNOLOGY Purchased in-process technology for the third quarter and nine months ended February 26, 1999 relates to the acquisition of Smartcode Technologie SARL in February 1999. Approximately $2.1 million of the purchase price represented purchased in-process technology that had not yet reached technological feasibility, had no alternative future use and was charged to operations in the third quarter of fiscal 1999. The primary project related to the purchased in-process technology was completed in the first quarter of 13 fiscal 2000 and Palm began to derive revenue from the developed technology beginning in the second quarter of fiscal 2000. SEPARATION COSTS Separation costs for the third quarter and nine months ended February 25, 2000 consist of costs associated with the process of becoming a stand-alone, publicly-held company, including consulting and professional fees. Separation costs were $8.2 million and $12.0 million for the third quarter and nine months ended February 25, 2000, respectively. We expect to continue to incur separation costs for at least the next several quarters. INTEREST AND OTHER INCOME (EXPENSE) Interest and other income (expense), on a net basis was $0.4 million and $0.6 million for the third quarter and first nine months of fiscal 2000, compared to a nominal expense for each period in fiscal 1999. We anticipate that interest income will increase significantly in future periods, due to the receipt of the net proceeds from the initial public offering and private placements in March 2000. INCOME TAX PROVISION The effective tax rate for the first nine months of fiscal 2000 was 41.0%, up from 38.4% for the first nine months of fiscal 1999. The increase in the effective tax rate is primarily due to non-deductible separation costs and the establishment of Palm's international legal structure, which in the initial year is expected to create losses in certain foreign jurisdictions for which no current tax benefit is obtained. We currently anticipate that our tax rate will decline slightly in fiscal 2001, and will decline further in subsequent years. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents at February 25, 2000 were $40.0 million, compared to $0.5 million at May 28, 1999. The increase of $39.5 million for the nine months ended February 25, 2000 was attributable to cash generated from operating activities of $44.8 million and cash provided by financing activities of $2.1 million, offset by cash used by investing activities of $7.4 million. Cash provided by operating activities consisted of net income, adjusted for non-cash charges and changes in working capital assets. The most significant changes in working capital assets were increases in accounts payable and other accrued liabilities, offset partially by a decrease in the payable to 3Com, and by increases in accounts receivable and inventory. The decrease in the payable to 3Com excludes the effect of the accrual of the $150 million dividend to 3Com, which is classified as a non-cash investing and financing activity. Cash used by investing activities of $7.4 million consisted entirely of capital expenditures. Cash provided by financing activities of $2.1 million consisted of net transfers from 3Com, offset by repayments of debt. Based on current plans and business conditions, we believe that our existing cash and cash equivalents, combined with the net proceeds of $1.17 billion generated from the initial public offering and private placements, less the payment of the dividend to 3Com of $150 million, will be sufficient to satisfy our anticipated cash requirements for at least the next twelve months. 14 BUSINESS ENVIRONMENT AND RISK FACTORS RISKS RELATED TO OUR BUSINESS IF WE FAIL TO DEVELOP AND INTRODUCE NEW PRODUCTS AND SERVICES RAPIDLY AND SUCCESSFULLY, WE WILL NOT BE ABLE TO COMPETE EFFECTIVELY AND OUR ABILITY TO GENERATE REVENUES WILL SUFFER. We operate in a highly competitive, quickly changing environment, and our future success depends on our ability to develop and introduce new products and services that our customers and end users choose to buy. If we are unsuccessful at developing and introducing new products and services that are appealing to end users, our business and operating results would be negatively impacted because we would not be able to compete effectively and our ability to generate revenues would suffer. The development of new products and services can be very difficult and requires high levels of innovation. The development process is also lengthy and costly. If we fail to anticipate our end users' needs and technological trends accurately or are otherwise unable to complete the development of products and services quickly, we will be unable to introduce new products and services into the market on a timely basis, if at all. For example, the Palm VII-TM- device took more than two years to develop. In addition, because the Palm VII device requires Internet services and applications to support it, we must also continue to develop new services to maintain and broaden its user appeal. Because the sales and marketing life cycle of our handheld devices is generally 12 to 18 months or less, we must: continue to develop updates to our Palm platform, new handheld devices and new Internet services, or our existing products and services will quickly become obsolete; manage the timing of new product introductions so that we minimize the impact of customers delaying purchases of existing products in anticipation of new product releases; manage the timing of new product introductions to meet seasonal market demands, including the holiday shopping season; manage the levels of existing and older product and component inventories to minimize inventory write-offs; and adjust the prices of our existing products and services in order to increase or maintain customer demand for these products and services. IF WE DO NOT CORRECTLY ANTICIPATE DEMAND FOR OUR PRODUCTS, WE MAY NOT BE ABLE TO SECURE SUFFICIENT QUANTITIES OR COST-EFFECTIVE PRODUCTION OF OUR HANDHELD DEVICES OR WE COULD HAVE COSTLY EXCESS PRODUCTION OR INVENTORIES. Historically, we have seen steady increases in demand for our products and have generally been able to increase production to meet that demand. However, the demand for our products depends on many factors and will be difficult to forecast. As we introduce and support multiple handheld device products and as competition in the market for our products intensifies, we expect that it will become more difficult to forecast demand. Significant unanticipated fluctuations in demand could cause the following problems in our operations: If demand increases beyond what we forecast, we would have to rapidly increase production at our third-party manufacturers. We would depend on suppliers to provide additional volumes of 15 components and those suppliers might not be able to increase production rapidly enough to meet unexpected demand. There is the risk that even if we are able to procure enough components, our third-party manufacturers might not be able to produce enough of our devices to meet the market demand for our products. The inability of either our manufacturers or our suppliers to increase production rapidly enough could cause us to fail to meet customer demand. 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 could lower our profits. Further, if production is increased rapidly, manufacturing yields could decline, which may also lower our profits. If forecasted demand does not develop, we could have excess production resulting in higher inventories of finished products and components, which would use cash and could lead to write-offs of some or all of the excess inventories. Lower than forecasted demand could also result in excess manufacturing capacity at our third party manufacturers and failure to meet some minimum purchase commitments, each of which could result in lower margins. OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND SEASONALITY, AND IF WE FAIL TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR SHARE PRICE MAY DECREASE SIGNIFICANTLY. Our operating results are difficult to predict. Our future quarterly operating results may fluctuate significantly and may not meet the expectations of securities analysts or investors. If this occurs, the price of our stock would likely decline. Factors that may cause fluctuations in our operating results include the following: Seasonality. Historically, our revenues have usually been weaker in the first and third quarters of each fiscal year and have, from time to time, been lower than the preceding quarter. This weakness is due to the fact that our devices are highly consumer-oriented, and consumer buying is traditionally lower in these quarters. As our licensing revenues grow, we expect that they will contribute to the fluctuations in our quarterly results because the products offered by our licensees are also primarily consumer-oriented. In addition, we attempt to time our new product releases to coincide with relatively higher consumer spending in the second and fourth fiscal quarters, which contributes to these seasonal variations. However, our revenues for the third fiscal quarter this year were greater than revenues in the second fiscal quarter this year, due to stronger demand for our products in the third fiscal quarter. This pattern may not occur in the future. Increases in Operating Expenses. As we expand our operations, we expect that our operating expenses, particularly our sales, marketing and research and development costs, will continue to increase. We also expect to make significant expenditures to expand our Internet services through increased marketing activities and investments in network expansion related to our subscription-based Internet access service. These Internet services expenditures as well as a significant portion of our sales, marketing and research and development costs are fixed, at least in the short term. If revenues decrease and we are unable to reduce those costs rapidly, our operating results would be negatively affected. In addition, we will add new fixed costs to continue building an independent business and administration infrastructure following our recent separation from 3Com. Over the next several quarters we expect expenses to grow more rapidly than revenues, which will hurt our quarterly operating results. 16 Product Mix. Our profit margins differ among the handheld device, Palm platform licensing and Internet services parts of our business. In addition, the product mix of our device sales affects profit margins in any particular quarter. As our business evolves and the mix of revenues from devices, licenses and services varies from quarter to quarter, our operating results will likely fluctuate. New Product Introductions. As we introduce new products and services, the timing of these introductions will affect our quarterly operating results. We may have difficulty predicting the timing of new product and service introductions and the user acceptance of these new products and services. If products and services are introduced earlier or later than anticipated, or if user acceptance is unexpectedly high or low, our quarterly operating results may fluctuate unexpectedly. In addition, we typically increase sales and marketing expenses to support new product introductions. Use of Purchase Orders with Customers. We rely on one-time purchase orders rather than long-term contracts with our distributor customers. Because we cannot predict with certainty incoming purchase orders, decreases in orders or failure to fulfill orders may cause our operating results to fluctuate. WE RELY ON THIRD-PARTY MANUFACTURERS TO PRODUCE OUR HANDHELD DEVICES, AND OUR REPUTATION AND RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED BY OUR INABILITY TO CONTROL THEIR OPERATIONS. We outsource all of our manufacturing to Manufacturers' Services Limited and Flextronics. We depend on these third-party manufacturers to produce sufficient volume of our products in a timely fashion and at satisfactory quality levels. If our third-party manufacturers fail to produce quality products on time and in sufficient quantities, our reputation and results of operations would suffer. We depend on Flextronics to manufacture some of our device products at its facilities in Mexico, California and Malaysia, and the rest of our device products are manufactured by Manufacturers' Services Limited at its Utah facility. The cost, quality and availability of third-party manufacturing operations are essential to the successful production and sale of our handheld devices. Our reliance on third parties exposes us to the following risks outside our control: unexpected increases in manufacturing costs; interruptions in shipments if one of our manufacturers is unable to complete production; inability to control quality of finished device products; inability to control delivery schedules; unpredictability of manufacturing yield; potential lack of adequate capacity; and potential inability to secure adequate volumes of components. We began working with Manufacturers' Services Limited when it purchased 3Com's Utah facility in November 1999. As a result, we have not had significant working experience with Manufacturers' 17 Service Limited. If we are unable to manage our relationship with Manufacturers' Services Limited successfully, our ability to manufacture our products would be harmed and our results of operations would suffer. We do not have a manufacturing agreement with Flextronics, upon whom we rely to manufacture a significant number of our device products. We presently order our products on a purchase order basis from Flextronics. The absence of a manufacturing agreement means that, with little or no notice, Flextronics could refuse to continue to manufacture all or some of the units of our devices that we require or change the terms under which it manufactures our device products. If Flextronics were to stop manufacturing our devices, we may be unable to replace the lost manufacturing capacity on a timely basis and our results of operations could be harmed. In addition, if Flextronics were to change the terms under which they manufacture for us, our manufacturing costs could increase and our profitability could suffer. WE DEPEND ON OUR SUPPLIERS, MANY OF WHICH ARE THE SOLE SOURCE FOR OUR COMPONENTS, AND OUR PRODUCTION WOULD BE SERIOUSLY HARMED IF THESE 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. The cost, quality and availability of components are essential to the successful production and sale of our device products. Recently, we have experienced shortages of certain key components, including flash memory chips and liquid crystal displays. We believe that these supply limitations are due to unexpectedly high demand from cellular telephone manufacturers. In addition, in 1999 we modified the design of our Palm VII device as a result of our inability to obtain adequate supplies of the radio crystals and memory chips. Some components, such as displays, power supply integrated circuits, digital signal processors, microprocessors, crystals and several radio frequency and 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 computing device products would be seriously harmed. In addition, because we rely on one-time purchase orders with our suppliers, including our sole and single source suppliers, we cannot predict with certainty our ability to procure components if the demand for our products exceeds our forecast. If either the shortage in radio crystals, memory chips, liquid crystal displays or any other key component persists or worsens, we will likely not be able to deliver sufficient quantities of our products to satisfy demand. In addition our costs to purchase these components would increase, which would lower our profits. WE DO NOT KNOW IF THE PALM PLATFORM LICENSING AND INTERNET SERVICES PARTS OF OUR BUSINESS WILL BE ABLE TO GENERATE SIGNIFICANT REVENUE IN THE FUTURE, AND WE WILL CONTINUE TO RELY ON OUR HANDHELD DEVICE PRODUCTS AS THE PRIMARY SOURCE OF OUR REVENUE FOR THE FORESEEABLE FUTURE. Our future growth and a significant portion of our future revenue depend on the commercial success of our Palm handheld devices, which comprise the primary product line that we currently offer. We expanded our Palm platform licensing and Internet services parts of our business only recently, and these parts of our business have generated a small percentage of our revenues. If revenues from our device business do not grow, our other business activities will not be able to compensate for this shortfall. 18 A SIGNIFICANT PORTION OF OUR REVENUES CURRENTLY COMES FROM A SMALL NUMBER OF DISTRIBUTORS, AND ANY DECREASE IN REVENUES FROM THESE DISTRIBUTORS COULD HARM OUR RESULTS OF OPERATIONS. A significant portion of our revenues comes from only a small number of distributors. Ingram Micro and Tech Data represented approximately 30% and 10%, respectively, of our revenues in the nine months ended February 25, 2000. We expect that the majority of our revenues will continue to depend on sales of our handheld devices to a small number of distributors. Any downturn in the business of these customers could seriously harm our revenues and results of operations. WE RELY ON DISTRIBUTORS, RETAILERS AND RESELLERS TO SELL OUR PRODUCTS, AND DISRUPTIONS TO THESE CHANNELS WOULD ADVERSELY AFFECT OUR ABILITY TO GENERATE REVENUES FROM THE SALE OF OUR HANDHELD DEVICES. Because we sell a significant portion of our products to distributors, retailers and traditional and Internet based resellers, we are subject to many risks, including risks related to their inventory levels and support for our products. Our distributors, retailers and resellers have traditionally maintained significant levels of our products in their inventories. If distributors, retailers and resellers attempt to reduce their levels of inventory or if they do not maintain sufficient levels to meet customer demand, our sales could be negatively impacted. If we reduce the prices of our products to these customers, we may have to compensate them for the difference between the higher price they paid to buy their inventory and the new lower prices. In addition, like other manufacturers, we are exposed to the risk of product returns from distributors, either through their exercise of contractual return rights or as a result of our strategic interest in assisting distributors in balancing inventories. Our distributors, retailers and resellers also sell products offered by our competitors. If our competitors offer our distributors, retailers and resellers more favorable terms, those distributors, retailers and resellers may de-emphasize or decline to carry our products. In the future, we may not be able to retain or attract a sufficient number of qualified distributors, retailers and resellers. Further, distributors, retailers and resellers may not recommend, or continue to recommend, our products. If we are unable to maintain successful relationships with distributors, retailers and resellers or to expand our distribution channels, our business will suffer. We believe our distributors, retailers and traditional resellers are experiencing heightened competition from Internet-based suppliers that distribute directly to end-user customers. We also sell our products directly to end-user customers from our Palm.com website. These actions could cause conflict among our channels of distribution, which could seriously harm our revenues and results of operations. 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. We compete in the handheld device, operating system software and Internet services markets. The markets for these products and services are 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 Palm 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. 19 Our handheld computing device products compete with a variety of smart handheld devices, including keyboard-based devices, sub-notebook computers, smart phones and two-way pagers. Our principal competitors include Casio, Compaq, Hewlett-Packard, Psion, Sharp and Palm platform licensees such as TRG and Handspring. Our Palm platform competes primarily with operating systems such as Microsoft's Windows CE for palm-sized personal computers and Symbian's EPOC for wireless devices. New product introductions based on both the Windows CE and EPOC operating systems have recently been announced. Licensees of our Palm platform are under no obligation to introduce new products based on our operating system, and may elect to use an alternative operating system, in which case we may not be able to increase our revenue from licensing the Palm platform, or expand the proliferation of the Palm economy. Our Internet services compete with a variety of alternative technologies and services, such as those based on different industry standards for wireless Internet access, information appliances that provide Internet connectivity and other traditional and developing methods. Potential competitors to our wireless internet services include Research in Motion Limited and Omnisky. We expect our competitors to continue to improve the performance of their current products and services and to introduce new products, services and technologies. For example, Microsoft has announced that it is planning to introduce a new version of its Windows CE operating system within the next month. We believe that Microsoft plans to invest aggressively to assist its licensees in marketing the Pocket PC line of handheld computers based on this new version of the Windows CE operating system. Successful new product introductions or enhancements by our competitors could reduce the sales and market acceptance of our products and services, 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, financial condition and results of operations. IF WE FAIL TO EFFECTIVELY RESPOND TO COMPETITION FROM PRODUCTS INTRODUCED BY LICENSEES OF OUR PALM PLATFORM OR IF OUR LICENSEES FAIL TO SELL PRODUCTS BASED ON THE PALM PLATFORM, OUR RESULTS OF OPERATIONS MAY SUFFER AS THE REVENUES WE RECEIVE FROM LICENSE FEES MAY NOT COMPENSATE FOR THE LOSS OF REVENUES FROM OUR DEVICE PRODUCTS. The success of our business depends on both the sale of handheld device products and the licensing of our Palm platform. However, licensees of our Palm platform offer products that compete directly or indirectly with our handheld computing devices. For example, licensees such as Nokia, Sony or QUALCOMM may use our Palm platform in devices such as mobile phones or other similar products that can compete indirectly with our handheld devices. In addition, while we expect to receive licensing revenue from Handspring and TRG, our device products compete directly for users and distributors with their devices. If revenues from our handheld devices suffer because of competition from licensees of our Palm platform, our results of operations would suffer and our ability to implement our business model would be seriously challenged. In addition, our licensees may not be successful in selling products based on the Palm platform, which could harm our business and results of operations. 20 OUR PALM PLATFORM AND HANDHELD DEVICES 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 Palm platform and our devices are complex and must meet stringent user requirements. We must develop our software and hardware products quickly to keep pace with the rapidly changing handheld device market. Products and services as sophisticated as ours are likely to contain undetected errors or defects, especially when first introduced or when new models or versions are released. We have in the past experienced delays in releasing some models and versions of our products until problems were 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. Any of these results could harm our business. IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR BUSINESS, WHICH COULD CAUSE US TO FAIL TO MEET OUR CUSTOMER DEMAND OR TO ATTRACT NEW CUSTOMERS. Our ability to successfully offer our products and implement our business plan in a rapidly evolving market requires an effective planning and management process. We continue to increase the scope of our operations domestically and internationally and have grown our shipments and headcount substantially. At December 31, 1999, we had a total of approximately 652 employees. At February 25, 2000 we had a total of approximately 878 employees. In addition, we plan to continue to hire a significant number of employees this year. This growth has placed, and our anticipated growth in future operations will continue to place, a significant strain on our management systems and resources and increase our expenses. We expect that we will need to continue to improve our financial and managerial controls, reporting systems and procedures. While we are currently implementing stand-alone versions of most of the transaction processing systems historically used by 3Com, we may decide to purchase new systems in the future that more closely match our business needs and incur significant additional expenses in connection with those systems. In addition, we will need to continue to expand, train and manage our work force worldwide. Furthermore, we expect that we will be required to manage multiple relationships with various customers and other third parties. In particular, we are implementing a new administrative and managerial infrastructure due to our separation from 3Com. Our future success depends on the implementation of this infrastructure. THE MARKET FOR THE DELIVERY OF INTERNET SERVICES THROUGH HANDHELD DEVICES IS NEW AND RAPIDLY EVOLVING, AND OUR BUSINESS AND OUR ABILITY TO GENERATE REVENUES FROM OUR HANDHELD DEVICES, PALM PLATFORM OR INTERNET SERVICES COULD SUFFER IF THIS MARKET DOES NOT DEVELOP OR WE FAIL TO ADDRESS THIS MARKET EFFECTIVELY. The market for the delivery of Internet services through handheld devices is new and rapidly evolving. In addition, our Internet services strategy has been developed only recently, and we must continue to adapt it to compete in the rapidly evolving Internet services market. We only recently introduced our Palm.Net(TM) service, a subscription-based wireless access service that enables Palm VII users to access 21 web-clipped content on the Internet. Other competitors have introduced or developed, or are in the process of introducing or developing, products that facilitate the delivery of Internet services through handheld devices. We cannot assure you that individuals currently using competing products to access the Internet remotely, such as portable personal computers and wireless telephones, will widely adopt handheld devices as a means of accessing Internet services. Accordingly, it is extremely difficult to predict which products will be successful in this market or the future size and growth of this market. In addition, given the limited history and rapidly evolving nature of this market, we cannot predict the price that wireless subscribers will be willing to pay for these products and services. These risks could affect our ability to support the Palm.Net service on a large scale and price the service at a level that produces expected returns. WE MAY NOT BE ABLE TO DELIVER INTERNET ACCESS IF OUR TELECOMMUNICATIONS CARRIER RAISES ITS RATES, DISCONTINUES DOING BUSINESS WITH US OR DOES NOT DELIVER ACCEPTABLE SERVICE. The future success of our Internet services business substantially depends on the capacity, affordability, reliability and security of our telecommunications networks. Only a small number of telecommunications providers offer the network services we require. We currently rely on BellSouth to provide all of our Palm VII wireless network services pursuant to an agreement. Our agreement with BellSouth permits each party to terminate the agreement on an annual basis. If BellSouth failed to provide us with service at rates acceptable to us or at all, we may not be able to provide Internet access to our users. In addition, our Palm VII products are configured around the frequency standard used by BellSouth. If we needed to switch to another telecommunications carrier, we would have to redesign significant portions of our software and hardware to permit transmission on a different frequency and service to users of existing Palm VII products would be disrupted. If we were required to redesign these elements, our Internet services part of our business could be adversely affected. If BellSouth delivers unacceptable service, the quality of our Internet services would suffer and we would likely lose users who are dissatisfied with our service. In addition, BellSouth provides service only in the continental United States. WE MAY NOT BE ABLE TO SUCCESSFULLY EXPAND OUR WIRELESS INTERNET SERVICES INTO INTERNATIONAL MARKETS. We intend to expand our network services to support Internet services internationally, but doing so will require us to enter into new relationships with telecommunications providers abroad. We may not be able to enter into relationships with international telecommunications providers which are on favorable terms to us. In addition, because many international telecommunications providers use different standards and transmit data on different frequencies than BellSouth, we are likely to incur incremental expenses related to the redesign of significant portions of our software and hardware. OUR REPUTATION AND ABILITY TO GENERATE REVENUES WILL BE HARMED IF DEMAND FOR OUR INTERNET SERVICES EXCEEDS OUR TELECOMMUNICATIONS AND NETWORK CAPACITY. We may from time to time experience increases in our Internet services usage which exceed our available telecommunications capacity and the capacity of our third-party network servers. As a result, users may be unable to register or log on to our service, may experience a general slow-down in their Internet access or may be disconnected from their sessions. Excessive user demand could also result in system failures of our third-party network servers' networks. 22 Inaccessibility, interruptions or other limitations on the ability to access our service due to excessive user demand, or any failure of our third-party network servers to handle user traffic, would have a material adverse effect on our reputation and our revenues. WE PLAN TO EXPAND OUR DIRECT E-COMMERCE OPERATION, AND OUR ABILITY TO GENERATE REVENUES FROM OUR INTERNET SERVICES COULD BE HARMED IF THIS OPERATION IS NOT SUCCESSFUL. We may not be able to achieve any or all of the necessary components of a successful e-commerce operation. We intend to expand our Palm.com and Palm.Net websites. This expansion will require additional expenditures. These expenditures are anticipated to exceed revenues from these services over the next few years. We have little experience in implementing or operating a direct e-commerce business, and if we are not successful in operating it or in successfully managing our current sales channels alongside our direct e-commerce channel, our business and financial condition could be materially harmed. OUR INTERNET SERVICES BUSINESS PROSPECTS COULD SUFFER IF THE INTERNET DOES NOT CONTINUE TO GROW AS A MEDIUM FOR INTERACTIVE CONTENT AND SERVICES. Our future success depends in part on the continued growth and reliance by consumers and businesses on the Internet, particularly in the market for Internet services and networking of handheld computing devices. Use and growth of the Internet will depend in significant part on continued rapid growth in the number of households and commercial, educational and government institutions with access to the Internet. The use and growth of the Internet will also depend on the number and quality of products and services designed for use on the Internet. Because use of the Internet as a source of information, products and services is a relatively recent phenomenon, it is difficult to predict whether the number of users drawn to the Internet will continue to increase and whether the market for commercial use of the Internet will continue to develop and expand. Internet use patterns may decline as the novelty of the medium recedes. The rapid rise in the number of Internet users and the growth of electronic commerce and applications for the Internet has placed increasing strains on the Internet's communications and transmission infrastructure. This could lead to significant deterioration in transmission speeds and the reliability of the Internet as a commercial medium and could reduce the use of the Internet by businesses and individuals. The Internet may not be able to support the demands placed upon it by this continued growth. Any failure of the Internet to support growth due to inadequate infrastructure or for any other reason would seriously limit its development as a viable source of commercial and interactive content and services. This could impair the development and acceptance of our Internet services which could in turn harm our business prospects. IF THE SECURITY OF OUR WEBSITES IS COMPROMISED, OUR REPUTATION COULD SUFFER AND CUSTOMERS MAY NOT BE WILLING TO USE OUR INTERNET SERVICES, WHICH COULD CAUSE OUR REVENUES TO DECLINE. A significant barrier to widespread use of electronic commerce sites, such as our Palm.com site, and network services sites, such as our Palm.Net site, is concern for the security of confidential information transmitted over public networks. Despite our efforts to protect the integrity of our Palm.com and Palm.Net sites, a party may be able to circumvent our security measures and could misappropriate proprietary information or cause interruptions in our operations and damage our reputation. Any such 23 action could negatively affect our customers' willingness to engage in online commerce with us. We may be required to expend significant capital and other resources to protect against these security breaches or to alleviate problems caused by these breaches. WE MAY NOT BE ABLE TO MAINTAIN AND EXPAND OUR BUSINESS IF WE ARE NOT ABLE TO RETAIN, HIRE AND INTEGRATE SUFFICIENT QUALIFIED PERSONNEL. Our future success depends partly on the continued contribution of our key executive, technical, sales, marketing, supply chain and administrative personnel. It also depends on our ability to expand, integrate and retain our management team. Many members of our senior management have been with the business only a short time. In addition, recruiting and retaining skilled personnel, including software and hardware engineers, is highly competitive. If we fail to retain, hire and integrate qualified employees and contractors, we will not be able to maintain and expand our business. THIRD PARTIES HAVE CLAIMED AND MAY CLAIM IN THE FUTURE WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY, AND WE COULD SUFFER SIGNIFICANT LITIGATION OR LICENSING EXPENSES OR BE PREVENTED FROM SELLING PRODUCTS IF THESE CLAIMS ARE SUCCESSFUL. In the course of our business, we frequently receive claims of infringement or otherwise become aware of potentially relevant patents or other intellectual property rights held by other parties. We evaluate the validity and applicability of these intellectual property rights, and determine in each case whether we must negotiate licenses or cross-licenses to incorporate or use the proprietary technologies in our products. Third parties may claim that we or our customers or Palm platform licensees are infringing their intellectual property rights, and we may be found to infringe those intellectual property rights and require a license to use those rights. We may be unaware of intellectual property rights of others that may cover some of our technology, products and services. Moreover, in connection with future intellectual property infringement claims, we will not have the benefit of asserting counterclaims based on 3Com's intellectual property portfolio, and we will not be able to offer licenses to 3Com's intellectual property rights in order to resolve claims. Any litigation regarding patents or other intellectual property could be costly and time-consuming, and divert our management and key personnel from our business operations. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement might also require us to enter into costly royalty or license agreements or indemnify our Palm platform licensees. However, we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against development and sale of our products. We often rely on licenses of intellectual property for use in our business. We cannot assure you that these licenses will be available in the future on favorable terms or at all. In addition, our position with respect to the negotiation of licenses may deteriorate as a result of our separation from 3Com. For example, we are currently re-negotiating a Patent Cross License Agreement between 3Com and IBM to name us as an additional licensee. The re-negotiation will likely require us to pay additional royalties to IBM. If we do not successfully re-negotiate this agreement, we may not be able to continue to license certain IBM technology after our separation from 3Com on favorable terms, or at all, which could have a material adverse effect on our business. 24 IF THIRD PARTIES INFRINGE OUR INTELLECTUAL PROPERTY, WE MAY EXPEND SIGNIFICANT RESOURCES ENFORCING OUR RIGHTS OR SUFFER COMPETITIVE INJURY. Our success depends in large part on our proprietary technology. We rely on a combination of patents, copyrights, trademarks and trade secrets, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. If we fail to protect or to enforce our intellectual property rights successfully, our competitive position could suffer, which could harm our operating results. Our pending patent and trademark registration applications may not be allowed or competitors may challenge the validity or scope of these patent applications or trademark registrations. In addition, our patents may not provide us a significant competitive advantage. 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. In the past, there have been several thefts of computer equipment from us and our employees. This computer equipment has contained proprietary information. We have formulated a security plan to reduce the risk of any future thefts and have cooperated with state and federal law enforcement officials in an investigation of past incidents. We may not be successful in preventing future thefts, or in preventing those responsible for past thefts from using our technology to produce competing products. The unauthorized use of Palm technology by competitors could have a material adverse effect on our ability to sell our products in some markets. OUR FUTURE RESULTS COULD BE HARMED BY ECONOMIC, POLITICAL, REGULATORY AND OTHER RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS. Since we sell our products worldwide, our business is subject to risks associated with doing business internationally. We anticipate that revenue from international operations will represent an increasing portion of our total revenue. In addition, two of the facilities where our devices are manufactured are located outside the United States. 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; potentially negative consequences from changes in tax laws; difficulty in managing widespread sales and manufacturing operations; and less effective protection of intellectual property. 25 WE INTEND TO PURSUE STRATEGIC ACQUISITIONS AND WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR OPERATIONS IF WE FAIL TO SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES. We often evaluate acquisition opportunities that could provide us with additional product or services offerings 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 inexperienced management teams. Our management has had limited experience in assimilating acquired organizations and products into our operations. We may not successfully integrate any operations, personnel or products that we may acquire in the future. If we fail to successfully integrate acquisitions, our business could be materially harmed. OUR ABILITY TO PURSUE MERGERS AND ACQUISITIONS MAY BE LIMITED. 3Com has sought a ruling from the Internal Revenue Service that the distribution of 3Com's shares of Palm common stock to 3Com's stockholders will be not be taxable. Such ruling is expected to require 3Com and Palm, for up to two years following the distribution date, not to engage in certain transactions that would constitute a change of more than 50% of the equity interest in either company. In addition, the ruling is expected to require that until the distribution date, 3Com must maintain at least an 80% controlling interest in Palm. Consequently, our ability to engage in mergers and acquisitions may be limited by these requirements. If either 3Com or Palm fail to conform to requirements set forth in the ruling, there would be material adverse consequences, potentially including making the distribution taxable, and causing the company which was responsible for such non-conformance to indemnify the other company for any resulting damages. RISKS RELATED TO OUR SEPARATION FROM 3COM WE CURRENTLY USE 3COM'S OPERATIONAL AND ADMINISTRATIVE INFRASTRUCTURE, AND OUR ABILITY TO SATISFY OUR CUSTOMERS AND OPERATE OUR BUSINESS WILL SUFFER IF WE DO NOT DEVELOP OUR OWN INFRASTRUCTURE QUICKLY AND COST-EFFECTIVELY. We currently use 3Com's systems to support our operations, including systems to manage inventory, order processing, human resources, shipping, accounting, payroll and internal computing operations. Many of these systems are proprietary to 3Com and are very complex. These systems have been modified, and are in the process of being further modified, to enable us to separately track items related to our business. These modifications, however, may result in unexpected system failures or the loss or corruption of data. We are in the process of creating our own systems to replace 3Com's systems. We may not be successful in implementing these systems and transitioning data from 3Com's systems to ours. Any failure or significant downtime in 3Com's or our own information systems could prevent us from taking customer orders, shipping products or billing customers and could harm our business. In addition, 3Com's and our information systems require the services of employees with extensive knowledge of these information systems and the business environment in which we operate. In order to successfully implement and operate our systems, we must be able to attract and retain a significant 26 number of highly skilled employees. If we fail to attract and retain the highly skilled personnel required to implement, maintain, and operate our information systems, our business could suffer. In addition, we currently have office space in 3Com's Santa Clara campus. We have entered into arrangements with 3Com to lease these facilities under a lease that is terminable with six months notice beginning in July 2001 and expires in July 2002. After this transition period, we will need to find alternative facilities. If we fail to find replacement facilities in a timely fashion, our business will be harmed. OUR STOCK PRICE MAY DECLINE AND WE WILL NOT BE ABLE TO OPERATE OUR BUSINESS WITHOUT 3COM'S CONTROL IF 3COM DOES NOT COMPLETE ITS DISTRIBUTION OF OUR COMMON STOCK. Approximately four to six months following our initial public offering, 3Com intends to distribute its remaining shares of Palm common stock to 3Com stockholders, subject to receiving 3Com board approval and a ruling from the Internal Revenue Service that the distribution will not be taxable. This distribution may not occur by that time or at all. We do not know yet what the ruling from the Internal Revenue Service regarding the tax treatment of the separation and the distribution will be. If 3Com does not receive a favorable tax ruling, it is not likely to make the distribution in the expected time frame or at all. In addition, until this distribution occurs, the risks discussed below relating to 3Com's control of us and the potential business conflicts of interest between 3Com and us will continue to be relevant to our stockholders. If the distribution is delayed or not completed at all, the liquidity of our shares in the market will be severely constrained unless and until 3Com elects to sell some of its significant ownership. There are no limits on these sales and the sale or potential sale by 3Com could adversely affect market prices. In addition, because only approximately 5% of our outstanding common stock is publicly traded, trades of a relatively small percentage of our outstanding stock could have a disproportionate effect on our stock price. Also, if 3Com does not distribute its shares, we will face significant difficulty hiring and retaining key personnel, many of whom are attracted by the potential of operating our business as a fully independent entity. WE WILL BE CONTROLLED BY 3COM AS LONG AS IT OWNS A MAJORITY OF OUR COMMON STOCK, AND OUR OTHER STOCKHOLDERS WILL BE UNABLE TO AFFECT THE OUTCOME OF STOCKHOLDER VOTING DURING SUCH TIME. 3Com owns approximately 94% of our outstanding common stock. As long as 3Com owns a majority of our outstanding common stock, 3Com will be able to change the composition of our board of directors without calling a special meeting, and therefore, control any aspect of our business direction and policies. Stockholders other than 3Com will not be able to affect the outcome of any stockholder vote prior to the planned distribution of our stock to the 3Com stockholders. OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR RESULTS AS A SEPARATE COMPANY. Our consolidated financial statements have been carved out from the consolidated financial statements of 3Com using the historical results of operations and historical bases of the assets and liabilities of the 3Com handheld computing business that we comprise. Accordingly, the historical financial information does not necessarily reflect what our financial position, results of operations and cash flows would have been had we been a separate, stand-alone entity during the periods presented. 3Com did not account for us, and we were not operated, as a separate, stand-alone entity for the periods presented. 27 Our costs and expenses include allocations from 3Com for centralized corporate services and infrastructure costs, including: legal; accounting; treasury; real estate; information technology; distribution; customer service; sales; marketing; and engineering. These allocations have been determined on bases that 3Com and Palm considered to be reasonable reflections of the utilization of services provided to or the benefit received by Palm. The historical financial information is not necessarily indicative of what our results of operations, financial position and cash flows will be in the future. We have not made adjustments to our historical financial information to reflect many significant changes that will occur in our cost structure, funding and operations as a result of our separation from 3Com, including increased costs associated with reduced economies of scale, increased marketing expenses related to building a company brand identity separate from 3Com and increased costs associated with being a publicly traded, stand-alone company. WE MAY HAVE POTENTIAL BUSINESS CONFLICTS OF INTEREST WITH 3COM WITH RESPECT TO OUR PAST AND ONGOING RELATIONSHIPS AND, BECAUSE OF 3COM'S CONTROLLING OWNERSHIP, WE MAY NOT RESOLVE THESE CONFLICTS ON THE MOST FAVORABLE TERMS TO US. Conflicts of interest may arise between 3Com and us in a number of areas relating to our past and ongoing relationships, including: labor, tax, employee benefit, indemnification and other matters arising from our separation from 3Com; intellectual property matters; employee retention and recruiting; sales or distributions by 3Com of all or any portion of its ownership interest in us; the nature, quality and pricing of transitional services 3Com has agreed to provide us; and business opportunities that may be attractive to both 3Com and us. Nothing restricts 3Com from competing with us. We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party. The agreements we have entered into with 28 3Com may be amended upon agreement between the parties. While we are controlled by 3Com, 3Com may be able to require us to agree to amendments to these agreements that may be less favorable to us than the current terms of the agreements. OUR DIRECTORS AND EXECUTIVE OFFICERS MAY HAVE CONFLICTS OF INTEREST BECAUSE OF THEIR OWNERSHIP OF 3COM COMMON STOCK. Many of our directors and executive officers have a substantial amount of their personal financial portfolios in 3Com common stock and options to purchase 3Com common stock. Their options to purchase 3Com common stock may not convert into options to purchase our common stock if the distribution does not occur. Ownership of 3Com common stock by our directors and officers could create potential or perceived conflicts of interest when directors and officers are faced with decisions that could have different implications for 3Com and us. IF THE TRANSITIONAL SERVICES BEING PROVIDED TO US BY 3COM ARE NOT SUFFICIENT TO MEET OUR NEEDS, OR IF WE ARE NOT ABLE TO REPLACE THESE SERVICES AFTER OUR AGREEMENTS WITH 3COM EXPIRE, WE WILL BE UNABLE TO MANAGE CRITICAL OPERATIONAL FUNCTIONS OF OUR BUSINESS. 3Com is providing transitional services to us, including services related to: information technology systems; supply chain; human resources administration; product order administration; customer service; buildings and facilities; treasury; and legal, finance and accounting. Although 3Com is contractually obligated to provide us with these services, these services may not be provided at the same level as when we were part of 3Com, and we may not be able to obtain the same benefits. We will also lease and sublease office space from 3Com. These transitional service and leasing arrangements generally have a term of less than two years following the separation. After the expiration of these various arrangements, we may not be able to replace the transitional services or enter into appropriate leases in a timely manner or on terms and conditions, including cost, as favorable as those we will receive from 3Com. 29 These agreements were made in the context of a parent-subsidiary relationship and were negotiated in the overall context of our separation from 3Com. The prices charged to us under these agreements may be lower than the prices that we may be required to pay third parties for similar services or the costs of similar services if we undertake them ourselves. RISKS RELATED TO THE SECURITIES MARKETS AND OWNERSHIP OF OUR COMMON STOCK SUBSTANTIAL SALES OF COMMON STOCK MAY OCCUR IN CONNECTION WITH THE DISTRIBUTION, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE. 3Com intends to distribute the remaining shares of our common stock to 3Com stockholders approximately four to six months after our initial public offering. Substantially all of these shares will be eligible for immediate resale in the public market. We are unable to predict whether significant amounts of common stock will be sold in the open market in anticipation of, or following, this distribution, or by 3Com if the distribution does not occur. We are also unable to predict whether a sufficient number of buyers will be in the market at that time. Any sales of substantial amounts of common stock in the public market, or the perception that such sales might occur, whether as a result of this distribution or otherwise, could harm the market price of our common stock. OUR SECURITIES HAVE NOT BEEN PUBLICLY TRADED VERY LONG AND OUR STOCK PRICE MAY BE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND VOLATILITY. Our common stock has been publicly traded only since March 2, 2000. The market price of our common stock has been subject to significant fluctuations since the date of our initial public offering. These fluctuations could continue. Among the factors that could affect our stock price are: quarterly variations in our operating results; changes in revenue or earnings estimates or publication of research reports by analysts; speculation in the press or investment community; strategic actions by us or our competitors, such as acquisitions or restructurings; actions by institutional stockholders or by 3Com prior to its distribution of our stock; fluctuations in 3Com's stock price; general market conditions; and domestic and international economic factors unrelated to our performance. The stock markets in general, and the markets for high technology stocks in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. 30 PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DELAY OR PREVENT ACQUISITION OF US, WHICH COULD DECREASE THE VALUE OF YOUR SHARES. Our certificate of incorporation and bylaws and Delaware law contain provisions that could make it harder for a third party to acquire us without the consent of our board of directors, although these provisions have little significance while we are controlled by 3Com. These provisions include a classified board of directors and limitations on actions by our stockholders by written consent. In addition, our board of directors has the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer. Delaware law also imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. Although we believe these provisions provide for an opportunity to receive a higher bid by requiring potential acquirers to negotiate with our board of directors, these provisions apply even if the offer may be considered beneficial by some stockholders. 31 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE SENSITIVITY As of February 25, 2000, we had cash and cash equivalents of $40.0 million which consisted of highly liquid money market instruments with maturities less than 90 days. Because of the short maturities of these instruments, a sudden change in market interest rates would not have a material impact on the fair value of the portfolio. We would 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 on our portfolio. Subsequent to the end of the quarter, the net proceeds from our initial public offering and private placements have been invested in highly liquid money market funds and other high credit quality short-term securities. FOREIGN CURRENCY EXCHANGE RISK Historically, our exposure to exchange rate risk has been managed on an enterprise-wide basis as part of 3Com's risk management strategy. This strategy has utilized foreign exchange forward and option contracts to hedge certain balance sheet exposures and intercompany balances against future movements in foreign exchange rates. Gains and losses on the forward and option contracts are largely offset by gains and losses on the underlying exposure and consequently a sudden or significant change in foreign exchange rates would not have a material impact on future net income or cash flows. We are currently evaluating our exchange rate risk management strategy. We do not currently and do not intend in the future to utilize derivative financial instruments for trading purposes. 32 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On April 28, 1997, Xerox Corporation filed suit against U.S. Robotics Corporation and U.S. Robotics Access Corp. in the United States District Court for the Western District of New York. The case is now captioned: XEROX CORPORATION v. U.S. ROBOTICS CORPORATION, U.S. ROBOTICS ACCESS CORP., PALM COMPUTING, INC. AND 3COM CORPORATION, Civil Action No. 97-CV-6182T. The complaint alleges willful infringement of a Xerox United States patent, relating to computerized interpretation of handwriting. The complaint seeks unspecified damages and injunctive relief. Xerox has asserted that Graffiti software and certain of our products infringe the patent. On January 18, 2000, the court held a status hearing during which it ordered that all of the parties' briefs relating to motions for summary judgment would be filed with the court by April 28, 2000. We anticipate that oral argument on these motions will be heard thereafter. No trial date has been set. On July 22, 1999, we filed a copyright infringement action against Olivetti and CompanionLink in the United States District Court for the Northern District of California and obtained a preliminary injunction against further distribution, sale, import or export of Olivetti Office USA's "Royal daVinci" handheld device and the daVinci OS Software Development Kit, distributed by CompanionLink Software, Inc. The injunction is to remain in effect pending the outcome of the lawsuit. We also initiated a copyright infringement action in Hong Kong on July 21, 1999, against EchoLink Design Ltd., the company responsible for developing the operating system software contained in the daVinci products. The High Court of the Hong Kong Special Administrative Region issued an order the same day restraining EchoLink from further copying, distribution, sale, import or export of Palm OS operating system source code or EchoLink's "NEXUS OS" source code, which we maintain infringes our copyrights. On December 13, 1999, WaveWare Communications, Inc. filed suit against 3Com, Palm and others in the Superior Court of California, San Mateo County. The case is captioned WAVEWARE COMMUNICATIONS, INC. v. 3COM CORPORATION, PALM COMPUTING, INC., AND MARK BERCOW, No. 411331. The complaint alleges breach of contract, constructive fraud, fraud and deceit, negligent misrepresentation, misappropriation of assets and trade secrets, unfair competition, unjust enrichment and intentional interference with economic advantage in connection with our and 3Com's discussions with WaveWare concerning WaveWare's potential acquisition by 3Com. The complaint seeks unspecified monetary damages and injunctive relief. The case is in the early stages of discovery. No trial date has been set. On December 27, 1999, Telxon Corporation and Penright! Corporation filed a complaint in the U.S. District Court for the Northern District of Ohio, Eastern Division (Case No. 1:99CV3157) against 3Com and Palm alleging copyright infringement, unfair competition and theft of trade secrets. The plaintiffs allege that the Palm OS operating system contains graphical user interface software copied from the plaintiffs' software. The complaint seeks unspecified compensatory and treble damages and to enjoin, among other things, distribution and sales of the Palm OS operating system. No trial date has been set. No discovery has been exchanged. On February 28, 2000, E-Pass Technologies, Inc. filed suit against 3Com in the United States District Court for the Southern District of New York (case no. 00CIV1523). The complaint alleges infringement and induced infringement of United States patent 5,276,311 by our handheld devices in connection with a method and device for simplifying the use of credit cards. The complaint seeks unspecified compensatory and treble damages and, among other things, to permanently enjoin us from infringing or 33 inducing infringement of the patent as alleged. We have not yet responded to the complaint. No trial date has been set. No discovery has been exchanged. In connection with our separation from 3Com, pursuant to the terms of the Indemnification and Insurance Matters Agreement between us and 3Com, we will indemnify and hold 3Com harmless for any damages or losses which may arise out of the Xerox, WaveWare, Telxon and Penright! and E-Pass litigation. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On March 7, 2000, simultaneously with the closing of our initial public offering, we sold in private placements to America Online, Inc., Motorola, Inc. and Nokia at $38.00 per share 2,105,263 shares, 1,710,526 shares and 2,105,263 shares, respectively, of our common stock. The aggregate proceeds from these sales were $225 million. The transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits.
Exhibit Number Description ------- ----------- 2.1(1) Master Separation and Distribution Agreement between 3Com and the registrant effective as of December 13, 1999, as amended. 2.2 General Assignment and Assumption Agreement between 3Com and the registrant, as amended. 2.3 Master Technology Ownership and License Agreement between 3Com and the registrant. 2.4 Master Patent Ownership and License Agreement between 3Com and the registrant. 2.5 Master Trademark Ownership and License Agreement between 3Com and the registrant. 2.6 Employee Matters Agreement between 3Com and the registrant. 2.7 Tax Sharing Agreement between 3Com and the registrant. 2.8 Master Transitional Services Agreement between 3Com and the registrant. 2.9 Real Estate Matters Agreement between 3Com and the registrant. 2.10 Master Confidential Disclosure Agreement between 3Com and the registrant. 2.11 Indemnification and Insurance Matters Agreement between 3Com and the registrant. 2.12(1) Form of Non-U.S. Plan. 3.1(1) Amended and Restated Certificate of Incorporation. 3.2(1) Bylaws. 4.1(1) Reference is made to Exhibits 3.1 and 3.2 hereof. 4.2(1) Specimen Stock Certificate.
34 (a) Exhibits. (continued)
Exhibit Number Description ------- ----------- 10.1(1)* 1999 Stock Plan. 10.2(1)* Form of 1999 Stock Plan Agreements. 10.3(1)* 1999 Employee Stock Purchase Plan. 10.4(1)* Form of 1999 Employee Stock Purchase Plan Agreements. 10.5(1)* 1999 Director Option Plan. 10.6(1)* Form of 1999 Director Option Plan Agreements. 10.7(1)* Management Retention Agreement dated as of December 1, 1999 by and between Carl J. Yankowski and the registrant. 10.8(1)* Form of Indemnification Agreement entered into by the registrant with each of its directors and executive officers. 10.9(1)** RAM Mobile Data USA Limited Partnership Value Added Reseller Agreement between RAM Mobile Data USA Limited Partnership (now BellSouth Wireless Data, L.P.) and the registrant. 10.10(1)** Supply Agreement between Manufacturers' Services Salt Lake City Operations, Inc. and the registrant. 10.11(1) Common Stock Purchase Agreement between America Online and the registrant. 10.12(1) Common Stock Purchase Agreement between Motorola and the registrant. 10.13(1) Common Stock Purchase Agreement Between Nokia and the registrant. 10.14(1) Form of Management Retention Agreement. 27.1 Financial Data Schedule.
(1) - Incorporated by reference from the Registrant's Registration Statement on Form S-1 (No. 333-92657) filed with the Commission on December 13, 1999, as amended. * - Denotes an executive or director compensation plan or arrangement. ** - Confidential treatment granted on portions of this exhibit. (b) Reports on Form 8-K None. 35 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Palm, Inc. (Registrant) Dated: April 7, 2000 By: /s/ Judy Bruner ------------- ----------------- Judy Bruner Senior Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) 36 EX-2.2 2 EXHIBIT 2.2 EXHIBIT 2.2 GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT BETWEEN 3COM CORPORATION AND PALM, INC. FEBRUARY 26, 2000 TABLE OF CONTENTS
PAGE ---- ARTICLE I CONTRIBUTION AND ASSUMPTION.................................................................................1 Section 1.1 Contribution of Assets and Assumption of Liabilities........................................1 Section 1.2 Palm Assets.................................................................................2 Section 1.3 Palm Liabilities............................................................................3 Section 1.4 The Non-US Plan.............................................................................5 Section 1.5 Methods of Transfer and Assumption..........................................................5 Section 1.6 Governmental Approvals and Consents.........................................................6 Section 1.7 Nonrecurring Costs and Expenses.............................................................7 Section 1.8 Novation of Assumed Palm Liabilities........................................................7 ARTICLE II LITIGATION.................................................................................................8 Section 2.1 Allocation..................................................................................8 Section 2.2 Cooperation.................................................................................8 ARTICLE III MISCELLANEOUS.............................................................................................9 Section 3.1 Entire Agreement............................................................................9 Section 3.2 Governing Law...............................................................................9 Section 3.3 Notices.....................................................................................9 Section 3.4 Parties in Interest.........................................................................9 Section 3.5 Counterparts...............................................................................10 Section 3.6 Assignment.................................................................................10 Section 3.7 Severability...............................................................................10 Section 3.8 Failure or Indulgence Not Waiver; Remedies Cumulative......................................10 Section 3.9 Amendment..................................................................................10 Section 3.10 Authority..................................................................................10 Section 3.11 Interpretation.............................................................................10 Section 3.12 Conflicting Agreements.....................................................................11 ARTICLE IV DEFINITIONS...............................................................................................11 Section 4.1 3Com Group.................................................................................11 Section 4.2 Action.....................................................................................11 Section 4.3 Affiliated Company.........................................................................11 Section 4.4 Ancillary Agreement........................................................................11 Section 4.5 Assets.....................................................................................11 Section 4.6 Contracts..................................................................................13 Section 4.7 Delayed Transfer Assets....................................................................13 Section 4.8 Distribution...............................................................................13 Section 4.9 Distribution Date..........................................................................13 Section 4.10 Governmental Approvals.....................................................................13 Section 4.11 Governmental Authority.....................................................................13 -i- Section 4.12 Indemnification and Insurance Matters Agreement............................................13 Section 4.13 Insurance Policies.........................................................................13 Section 4.14 Insured Palm Liabilities...................................................................13 Section 4.15 Intellectual Property......................................................................14 Section 4.16 IPO Registration Statement.................................................................14 Section 4.17 Liabilities................................................................................14 Section 4.18 Local Transfer Agreements..................................................................14 Section 4.19 Non-US Plan................................................................................14 Section 4.20 OFLs.......................................................................................14 Section 4.21 Palm Balance Sheet.........................................................................15 Section 4.22 Palm Business..............................................................................15 Section 4.23 Palm Contingent Gain.......................................................................15 Section 4.24 Palm Contingent Liability..................................................................16 Section 4.25 Palm Contracts.............................................................................16 Section 4.26 Palm Group.................................................................................17 Section 4.27 Palm Pro Forma Balance Sheet...............................................................17 Section 4.28 Person.....................................................................................17 Section 4.29 Retained Payables..........................................................................17 Section 4.30 Retained Receivables.......................................................................17 Section 4.31 Security Interest..........................................................................17 Section 4.32 Separation.................................................................................18 Section 4.33 Separation Agreement.......................................................................18 Section 4.34 Separation Date............................................................................18 Section 4.35 Subsidiary.................................................................................18 Section 4.36 Taxes......................................................................................18
-ii- SCHEDULES Schedule 1.1(c) Delayed Transfer Assets and Liabilities Schedule 1.2(a)(viii) Specific Palm Assets to be Transferred Schedule 1.2(b)(i) Excluded Assets Schedule 1.3(a)(vi) Divested Businesses Which Contain Liabilities to be Transferred to Palm Schedule 1.3(a)(vii) Specific Palm Liabilities Schedule 1.3(b)(i) Excluded Liabilities
GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT This General Assignment and Assumption Agreement (this "AGREEMENT") is entered into on February 26, 2000 between 3Com Corporation, a Delaware corporation ("3COM"), and Palm, Inc., a Delaware corporation ("PALM"). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in ARTICLE IV hereof. RECITALS WHEREAS, 3Com hereby and by certain other instruments of even date herewith transfers or will transfer to Palm effective as of the Separation Date, certain assets of the Palm Business owned by 3Com in accordance with the Master Separation and Distribution Agreement dated as of December 13, 1999 between the 3Com and Palm Computing, Inc., a California company (the "SEPARATION AGREEMENT"). WHEREAS, it is further intended between the parties that Palm assume certain of the liabilities related to the Palm Business currently owed by 3Com, as provided in this Agreement, the Separation Agreement or the other agreements and instruments provided for in the Separation Agreement. NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows: ARTICLE I CONTRIBUTION AND ASSUMPTION SECTION 1.1 CONTRIBUTION OF ASSETS AND ASSUMPTION OF LIABILITIES. (a) TRANSFER OF ASSETS. Effective on the Separation Date, 3Com hereby assigns, transfers, conveys and delivers (or will cause any applicable Subsidiary to assign, transfer, convey and deliver) to Palm, or, pursuant to SECTION 1.4, to any applicable Palm Subsidiary, and Palm hereby accepts from 3Com, or applicable 3Com Subsidiary, and agrees to cause its applicable Palm Subsidiary to accept, all of 3Com's and its applicable Subsidiaries' respective right, title and interest in Palm Assets, other than the Delayed Transfer Assets; PROVIDED, HOWEVER, that any Palm Assets that are specifically assigned or transferred pursuant to another Ancillary Agreement shall not be assigned or transferred pursuant to this SECTION 1.1(a). (b) ASSUMPTION OF LIABILITIES. Effective on the Separation Date, Palm hereby assumes and agrees faithfully to perform and fulfill (or will cause any applicable Subsidiary to assume, perform and fulfill), all the Palm Liabilities owed by 3Com, other than the Delayed Transfer Liabilities, in accordance with their respective terms. Thereafter, Palm shall be responsible (or will cause any applicable Subsidiary to be responsible) for all Palm Liabilities held by 3Com, regardless of when or where such Liabilities arose or arise, or whether the facts on which they are based occurred prior to, on or after the date hereof, regardless of where or against whom such Liabilities are asserted or determined (including any Palm Liabilities arising out of claims made by 3Com's or Palm's respective directors, officers, consultants, independent contractors, employees or agents against any member of the 3Com Group or the Palm Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of law, fraud or misrepresentation by any member of the 3Com Group or the Palm Group or any of their respective directors, officers, employees or agents. (c) DELAYED TRANSFER ASSETS AND LIABILITIES. Each of the parties hereto agrees that the Delayed Transfer Assets will be assigned, transferred, conveyed and delivered, and the Delayed Transfer Liabilities will be assumed, in accordance with the terms of the agreements that provide for such assignment, transfer, conveyance and delivery, or such assumption, after the date of this Agreement or as otherwise set forth on SCHEDULE 1.1(c). Following such assignment, transfer, conveyance and delivery of any Delayed Transfer Asset, or the assumption of any Delayed Transfer Liability, the applicable Delayed Transfer Asset or Delayed Transfer Liability shall be treated for all purposes of this Agreement and the other Ancillary Agreements as a Palm Asset or as a Palm Liability, as the case may be. (d) MISALLOCATED ASSETS. In the event that at any time or from time to time (whether prior to, on or after the Separation Date), any party hereto (or any member of such party's respective Group), shall receive or otherwise possess any Asset that is allocated to any other Person pursuant to this Agreement or any Ancillary Agreement, such party shall promptly transfer, or cause to be transferred, such Asset to the Person so entitled thereto. Prior to any such transfer, the Person receiving or possessing such Asset shall hold such Asset in trust for any such other Person. (e) PAYMENT. Palm shall make a payment in cash to 3Com to the extent that the value of transferred Palm Assets exceed transferred Palm Liabilities. Similarly, 3Com shall make payment in cash to Palm to the extent that the value of transferred Palm Liabilities exceed transferred Palm Assets. Book value shall be used in measuring the value of the transferred Palm Assets and Palm Liabilities, as the parties agree that book value is the best evidence of fair market value of the transferred Palm Assets and Palm Liabilities. SECTION 1.2 PALM ASSETS. (a) INCLUDED ASSETS. For purposes of this Agreement, "PALM ASSETS" shall mean (without duplication) the following Assets, except as otherwise provided for in any other Ancillary Agreement or other express agreement of the parties: (i) all Assets reflected in the Palm Balance Sheet, subject to any dispositions of such Assets subsequent to the date of the Palm Balance Sheet; (ii) all Assets that have been written off, expensed or fully depreciated that, had they not been written off, expensed or fully depreciated, would have been reflected in the Palm -2- Balance Sheet in accordance with the principles and accounting policies under which the Palm Balance Sheet was prepared; (iii) all Assets acquired by 3Com or its Subsidiaries after the date of the Palm Balance Sheet that would be reflected in the consolidated balance sheet of Palm as of the Separation Date if such consolidated balance sheet was prepared using the same principles and accounting policies under which the Palm Balance Sheet was prepared, including any business transaction processing that may occur on 3Com systems on behalf of Palm during the period between separation date to initialization of the processing systems required by Palm; (iv) all Assets that are used primarily by the Palm Business at the Separation Date but are not reflected in the Palm Balance Sheet due to mistake or omission; provided, however, that no Asset shall be a Palm Asset requiring any transfer by 3Com unless Palm or its Subsidiaries have, on or before the first anniversary of the Distribution Date, given 3Com or its Subsidiaries notice that such Asset is a Palm Asset; (v) all Palm Contingent Gains; (vi) all Palm Contracts; (vii) to the extent permitted by law and subject to the Indemnification and Insurance Matters Agreement, all rights of any member of the Palm Group under any of 3Com's Insurance Policies or other insurance policies issued by Persons unaffiliated with 3Com; and (viii) all Assets that are expressly contemplated by this Agreement, the Separation Agreement or any other Ancillary Agreement (or SCHEDULE 1.2(a)(viii) or any other Schedule hereto or thereto) as Assets to be transferred to Palm or any other member of the Palm Group. (b) EXCLUDED ASSETS. For the purposes of this Agreement, "EXCLUDED ASSETS" shall mean: (i) the Assets listed or described on SCHEDULE 1.2(b)(i); (ii) the Retained Receivables; and (iii) any Assets that are expressly contemplated by the Separation Agreement, this Agreement or any other Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be retained by 3Com or any other member of the 3Com Group. SECTION 1.3 PALM LIABILITIES. -3- (a) INCLUDED LIABILITIES. For the purposes of this Agreement, "PALM LIABILITIES" shall mean (without duplication) the following Liabilities, except as otherwise provided for in any other Ancillary Agreement or other express agreement of the parties: (i) all Liabilities reflected in the Palm Balance Sheet, subject to any discharge of such Liabilities subsequent to the date of the Palm Balance Sheet; (ii) all Liabilities of 3Com or its Subsidiaries that arise after the date of the Palm Balance Sheet that would be reflected in the consolidated balance sheet of Palm as of the Separation Date if such consolidated balance sheet was prepared using the same principles and accounting policies under which the Palm Balance Sheet was prepared; (iii) all Liabilities that are related primarily to the Palm Business at the Separation Date but are not reflected in the Palm Balance Sheet due to mistake or unintentional omission; PROVIDED, HOWEVER, that no Liability shall be considered as a Palm Liability unless 3Com or its Subsidiaries, on or before the first anniversary of the Distribution Date, has given Palm or its Subsidiaries notice that such Liability is a Palm Liability; (iv) all Palm Contingent Liabilities; (v) all Liabilities (other than Liabilities for Taxes), whether arising before, on or after the Separation Date, primarily relating to, arising out of or resulting from: (1) the operation of the Palm Business, as conducted at any time prior to, on or after the Separation Date (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Person's authority)); (2) the operation of any business conducted by any member of the Palm Group at any time after the Separation Date (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Person's authority)); or (3) any Palm Assets; (vi) all Liabilities relating to, arising out of or resulting from any of the terminated, divested or discontinued businesses and operations listed or described on SCHEDULE 1.3(a)(vi); and (vii) all Liabilities that are expressly contemplated by this Agreement, SCHEDULE 1.3(a)(vii), the Separation Agreement or any other Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be assumed by Palm or any member of the Palm Group, and all agreements, obligations and Liabilities of any member of the Palm Group under this Agreement or any of the Ancillary Agreements. -4- Notwithstanding the foregoing, any Liabilities of any Subsidiaries of 3Com listed on SCHEDULE 2.1(b) of the Separation Agreement shall not be assumed pursuant to SECTION 1.2(a), and the Palm Liabilities shall not include the Excluded Liabilities referred to in SECTION 1.3(b) below. (b) EXCLUDED LIABILITIES. For the purposes of this Agreement, "EXCLUDED LIABILITIES" shall mean: (i) all Liabilities listed or described in SCHEDULE 1.3(b)(i); (ii) the Retained Payables; (iii) all Insured Palm Liabilities; (iv) all Liabilities that are expressly contemplated by this Agreement, the Separation Agreement or any other Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be retained or assumed by 3Com or any other member of the 3Com Group, and all agreements and obligations of any member of the 3Com Group under the Separation Agreement, this Agreement or any other Ancillary Agreement. SECTION 1.4 THE NON-US PLAN. Each of 3Com and Palm shall take, and shall cause each member of its respective Group to take, such action as reasonably necessary to consummate the transactions contemplated by the Non-US Plan (whether prior to, on or after the Separation Date). Notwithstanding anything in this Agreement, the Separation Agreement or in any other Ancillary Agreement to the contrary, no party to a Local Transfer Agreement shall be entitled to receive or retain any Asset unless such party shall have paid any consideration contemplated to be paid in connection therewith pursuant to the Non-US Plan. SECTION 1.5 METHODS OF TRANSFER AND ASSUMPTION. (a) TERMS OF OTHER ANCILLARY AGREEMENTS GOVERN. The parties shall enter into the other Ancillary Agreements, on or about the date of this Agreement. To the extent that the transfer of any Palm Asset or the assumption of any Palm Liability is expressly provided for by the terms of any other Ancillary Agreement, the terms of such other Ancillary Agreement shall effect, and determine the manner of, the transfer or assumption. It is the intent of the parties that pursuant to SECTIONS 1.1, 1.2 AND 1.3, the transfer and assumption of all other Palm Assets and Palm Liabilities, other than Delayed Transfer Assets and Delayed Transfer Liabilities, shall be made effective as of the Separation Date; PROVIDED, HOWEVER, that circumstances in various jurisdictions outside the United States may require the transfer of certain Assets and the assumption of certain Liabilities to occur in such other manner and at such other time as the parties shall agree, as provided in SECTION 1.4 hereof. (b) MISTAKEN ASSIGNMENTS AND ASSUMPTIONS. In addition to those transfers and assumptions accurately identified and designated by the parties to take place but which the parties are not able to effect prior to the Separation Date, there may exist (i) Assets that the parties discover were, contrary -5- to the agreements between the parties, by mistake or omission, transferred to Palm or (ii) Liabilities that the parties discover were, contrary to the agreements between the parties, by mistake or omission, assumed by Palm. The parties shall cooperate in good faith to effect the transfer or re-transfer of such Assets, and/or the assumption or re-assumption of such Liabilities, to or by the appropriate party and shall not use the determination that remedial actions need to be taken to alter the original intent of the parties hereto with respect to the Assets to be transferred to or Liabilities to be assumed by Palm. Each party shall reimburse the other or make other financial adjustments (e.g., without limitation, cash reserves) or other adjustments to remedy any mistakes or omissions relating to any of the Assets transferred hereby or any of the Liabilities assumed hereby. (c) DOCUMENTS RELATING TO OTHER TRANSFERS OF ASSETS AND ASSUMPTION OF LIABILITIES. In furtherance of the assignment, transfer and conveyance of Palm Assets and the assumption of Palm Liabilities set forth in SECTIONS 1.5(a) AND (b) and certain other Ancillary Agreements, simultaneously with the execution and delivery hereof or as promptly as practicable thereafter, (i) 3Com shall execute and deliver, and shall cause its Subsidiaries in accordance with Local Transfer Agreements to execute and deliver, such bills of sale, stock powers, certificates of title, assignments of contracts and other instruments of transfer, conveyance and assignment as and to the extent necessary to evidence the transfer, conveyance and assignment of all of 3Com's and its Subsidiaries' right, title and interest in and to the Palm Assets to Palm and (ii) Palm shall execute and deliver to 3Com and its Subsidiaries such assumptions of contracts and other instruments of assumption as and to the extent necessary to evidence the valid and effective assumption of the Palm Liabilities by Palm. SECTION 1.6 GOVERNMENTAL APPROVALS AND CONSENTS. (a) TRANSFER IN VIOLATION OF LAWS. If and to the extent that the valid, complete and perfected transfer assignment or novation to the Palm Group of any Palm Assets and Palm Liabilities (or from the Palm Group of any Non-Palm Assets) would be a violation of applicable laws or require any Consent or Governmental Approval in connection with the Separation, the IPO or the Distribution, then, unless 3Com shall otherwise determine, the transfer, assignment or novation to or from the Palm Group, as the case may be, of such Palm Assets or Non-Palm Assets, respectively, shall be automatically deemed deferred and any such purported transfer, assignment or novation shall be null and void until such time as all legal impediments are removed and/or such Consents or Governmental Approvals have been obtained. Notwithstanding the foregoing, such Asset shall still be considered a Palm Asset for purposes of determining whether any Liability is a Palm Liability; PROVIDED, HOWEVER, that if such covenants or Governmental Approvals have not been obtained within six months of the Distribution Date, the parties will use their reasonable commercial efforts to achieve an alternative solution in accordance with the parties' intentions. (b) TRANSFERS NOT CONSUMMATED PRIOR TO SEPARATION DATE. If the transfer, assignment or novation of any Assets intended to be transferred or assigned hereunder, including pursuant to the Non-US Plan, is not consummated prior to or on the Separation Date, whether as a result of the provisions of SECTION 1.6(a) or for any other reason, then the Person retaining such Asset shall -6- thereafter hold such Asset for the use and benefit, insofar as reasonably possible, of the Person entitled thereto (at the expense of the Person entitled thereto). In addition, the Person retaining such Asset shall take such other actions as may be reasonably requested by the Person to whom such Asset is to be transferred in order to place such Person, insofar as reasonably possible, in the same position as if such Asset had been transferred as contemplated hereby and so that all the benefits and burdens relating to such Palm Assets (or such Non-Palm Assets, as the case may be), including possession, use, risk of loss, potential for gain, and dominion, control and command over such Assets, are to inure from and after the Separation Date to the Palm Group (or the 3Com Group, as the case may be). If and when the Consents and/or Governmental Approvals, the absence of which caused the deferral of transfer of any Asset pursuant to SECTION 1.6(a), are obtained, the transfer of the applicable Asset shall be effected in accordance with the terms of this Agreement and/or such other applicable Ancillary Agreement. (c) EXPENSES. The Person retaining an Asset due to the deferral of the transfer of such Asset shall not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced by the Person entitled to the Asset, other than reasonable out-of-pocket expenses, attorneys' fees and recording or similar fees, all of which shall be promptly reimbursed by the Person entitled to such Asset. SECTION 1.7 NONRECURRING COSTS AND EXPENSES. Notwithstanding anything herein to the contrary, any nonrecurring costs and expenses incurred by the parties hereto to effect the transactions contemplated hereby which are not allocated pursuant to the terms of the Separation Agreement, this Agreement or any other Ancillary Agreement shall be the responsibility of the party which incurs such costs and expenses. SECTION 1.8 NOVATION OF ASSUMED PALM LIABILITIES. (a) REASONABLE COMMERCIAL EFFORTS. Each of 3Com and Palm, at the request of the other, shall use its reasonable commercial efforts to obtain, or to cause to be obtained, any consent, substitution, approval or amendment required to novate (including with respect to any federal government contract) or assign all rights and obligations under agreements, leases, licenses and other obligations or Liabilities (including Palm OFLs) of any nature whatsoever that constitute Palm Liabilities or to obtain in writing the unconditional release of all parties to such arrangements other than any member of the Palm Group, so that, in any such case, Palm and its Subsidiaries will be solely responsible for such Liabilities; PROVIDED, HOWEVER, that neither 3Com, Palm nor their Subsidiaries shall be obligated to pay any consideration therefor to any third party from whom such consents, approvals, substitutions and amendments are requested. (b) INABILITY TO OBTAIN NOVATION. If 3Com or Palm is unable to obtain, or to cause to be obtained, any such required consent, approval, release, substitution or amendment, the applicable member of the 3Com Group shall continue to be bound by such agreements, leases, licenses and other obligations and, unless not permitted by law or the terms thereof (except to the extent expressly set forth in this Agreement, the Separation Agreement or any other Ancillary Agreement), Palm shall, as agent or subcontractor for 3Com or such other Person, as the case may be, pay, -7- perform and discharge fully, or cause to be paid, transferred or discharged all the obligations or other Liabilities of 3Com or such other Person, as the case may be, thereunder from and after the date hereof. 3Com shall, without further consideration, pay and remit, or cause to be paid or remitted, to Palm or its appropriate Subsidiary promptly all money, rights and other consideration received by it or any member of its respective Group in respect of such performance (unless any such consideration is an Excluded Asset). If and when any such consent, approval, release, substitution or amendment shall be obtained or such agreement, lease, license or other rights or obligations shall otherwise become assignable or able to be novated, 3Com shall thereafter assign, or cause to be assigned, all its rights, obligations and other Liabilities thereunder or any rights or obligations of any member of its respective Group to Palm without payment of further consideration and Palm shall, without the payment of any further consideration, assume such rights and obligations. ARTICLE II LITIGATION SECTION 2.1 ALLOCATION. Notwithstanding any contrary provisions in the Indemnification and Insurance Matters Agreement, on the Separation Date, the responsibilities for management of the litigation identified in a litigation disclosure letter (the "LITIGATION DISCLOSURE LETTER"), which will be delivered by 3Com to Palm on the Separation Date, shall be transferred in their entirety from 3Com and its Subsidiaries to Palm and its Subsidiaries. As of the Separation Date and thereafter, Palm shall manage the defense of such litigation and shall cause its applicable Subsidiaries to do the same. 3Com and its Subsidiaries must first obtain the prior consent of Palm or its applicable Subsidiary for any action taken subsequent to the Separation Date in connection with the litigation identified in the Litigation Disclosure Letter, which consent cannot be unreasonably withheld or delayed. All other matters relating to such litigation, including but not limited to indemnification for such claims, shall be governed by the provisions of the Indemnification and Insurance Matters Agreement. SECTION 2.2 COOPERATION. 3Com and Palm and their respective Subsidiaries shall cooperate with each other in the defense of any litigation covered under this ARTICLE II and afford to each other reasonable access upon reasonable advance notice to witnesses and Information (other than Information protected from disclosure by applicable privileges) that is reasonably required to defend this litigation (as "INFORMATION" is defined pursuant to SECTION 5.4 of the Separation Agreement). The foregoing agreement to cooperate includes, but is not limited to, an obligation to provide access to qualified assistance to provide information, witnesses and documents to respond to discovery requests in specific lawsuits. In such cases, cooperation shall be timely so that the party responding to discovery may meet all court-imposed deadlines. The party requesting information shall reimburse the party providing information consistent with the terms of SECTION 5.4 of the Separation Agreement. The obligations set forth in this paragraph are more clearly defined in SECTION 5.4 of the Separation Agreement. -8- ARTICLE III MISCELLANEOUS SECTION 3.1 ENTIRE AGREEMENT. This Agreement, the Separation Agreement, the other Ancillary Agreements and the Exhibits and Schedules referenced or attached hereto and thereto, constitutes the entire agreement between the parties with respect to the subject matter hereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof. SECTION 3.2 GOVERNING LAW. This Agreement shall be construed in accordance with and all Disputes hereunder shall be governed by the laws of the State of California, excluding its conflict of law rules and the United Nations Convention on Contracts for the International Sale of Goods. The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have jurisdiction and venue over all Disputes between the parties that are permitted to be brought in a court of law pursuant to SECTION 5.9 of the Separation Agreement. SECTION 3.3 NOTICES. Notices, offers, requests or other communications required or permitted to be given by either party pursuant to the terms of this Agreement shall be given in writing to the respective parties to the following addresses: if to 3Com: 3Com Corporation 5400 Bayfront Plaza Santa Clara, California 95052 Attention: General Counsel Fax: (408) 326-6434 if to Palm: Palm, Inc. 5470 Great America Parkway Santa Clara, California 95052 Attention: General Counsel or to such other address as the party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested. All other notices may also be sent by fax, confirmed by first class mail. All notices shall be deemed to have been given and received on the earlier of actual delivery or three (3) days from the date of postmark. SECTION 3.4 PARTIES IN INTEREST. This Agreement, including the Exhibits and Schedules hereto, and the other documents referred to herein, shall be binding upon and inure solely to the benefit of each party hereto and their legal representatives and successors, and nothing in this -9- Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. SECTION 3.5 COUNTERPARTS. This Agreement, including the Exhibits and Schedules hereto, and the other documents referred to herein, may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. SECTION 3.6 ASSIGNMENT. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives and successors. This Agreement may not be assigned by any party hereto, without the other party's express written consent. SECTION 3.7 SEVERABILITY. If any term or other provision of this Agreement or the Exhibits or Schedules attached hereto is determined by a nonappealable decision by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible. SECTION 3.8 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement or the Schedules or Exhibits attached hereto are cumulative to, and not exclusive of, any rights or remedies otherwise available. SECTION 3.9 AMENDMENT. No change or amendment will be made to this Agreement except by an instrument in writing signed on behalf of each of the parties to such agreement. SECTION 3.10 AUTHORITY. Each of the parties hereto represents to the other that (a) it has the corporate or other requisite power and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other action, (c) it has duly and validly executed and delivered this Agreement, and (d) this Agreement is a legal, valid and binding obligation, enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and general equity principles. SECTION 3.11 INTERPRETATION. The headings contained in this Agreement, in any Exhibit or Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term -10- used in any Schedule or Exhibit but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an Article or a Section, Exhibit or Schedule, such reference shall be to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. SECTION 3.12 CONFLICTING AGREEMENTS. In the event of conflict between this Agreement and any other Ancillary Agreement or other agreement executed in connection herewith, the provisions of such other agreement shall prevail (other than (i) as otherwise provided herein and (ii) the Separation Agreement). ARTICLE IV DEFINITIONS SECTION 4.1 3COM GROUP. "3COM GROUP" means 3Com, each Subsidiary and Affiliated Company of 3Com (other than any member of the Palm Group) immediately after the Separation Date, after giving effect to the Non-US Plan and each Person that becomes a Subsidiary or Affiliate Company of 3Com after the Separation Date. SECTION 4.2 ACTION. "ACTION" means any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any federal, state, local, foreign or international governmental authority or any arbitration or mediation tribunal. SECTION 4.3 AFFILIATED COMPANY. "AFFILIATED COMPANY" of any Person means a Person that controls, is controlled by, or is under common control with such Person. As used herein, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities or other interests, by contract or otherwise. SECTION 4.4 ANCILLARY AGREEMENT. "ANCILLARY AGREEMENT" has the meaning set forth in SECTION 2.1 of the Separation Agreement. SECTION 4.5 ASSETS. "ASSETS" means assets, properties and rights (including goodwill), wherever located (including in the possession of vendors or other third parties or elsewhere), whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person, including the following: (i) all accounting and other books, records and files whether in paper, microfilm, microfiche, computer tape or disc, magnetic tape or any other form; (ii) all apparatus, computers and other electronic data processing equipment, , automobiles, trucks, aircraft, rolling stock, vessels, motor vehicles and other transportation -11- equipment, special and general tools, test devices, prototypes and models and other tangible personal property, but excluding fixtures, machinery, equipment, furniture and office equipment; (iii) all inventories of materials, parts, raw materials, supplies, work-in-process and finished goods and products; (iv) all interests in real property of whatever nature, including easements, whether as owner, mortgagee or holder of a Security Interest, lessor, sublessor, lessee, sublessee or otherwise; (v) all interests in any capital stock or other equity interests of any Subsidiary or any other Person; all bonds, notes, debentures or other securities issued by any Subsidiary or any other Person; all loans, advances or other extensions of credit or capital contributions to any Subsidiary or any other Person; and all other investments in securities of any Person; (vi) all license agreements, leases of personal property, open purchase orders for raw materials, supplies, parts or services, unfilled orders for the manufacture and sale of products and other contracts, agreements or commitments; (vii) all deposits, letters of credit and performance and surety bonds; (viii) all written technical information, data, specifications, research and development information, engineering drawings, operating and maintenance manuals, and materials and analyses prepared by consultants and other third parties; (ix) all Intellectual Property and licenses from third Persons granting the right to use any Intellectual Property; (x) all computer applications, programs and other software, including operating software, network software, firmware, middleware, design software, design tools, systems documentation and instructions; (xi) all cost information, sales and pricing data, customer prospect lists, supplier records, customer and supplier lists, customer and vendor data, correspondence and lists, product literature, artwork, design, development and manufacturing files, vendor and customer drawings, formulations and specifications, quality records and reports and other books, records, studies, surveys, reports, plans and documents; (xii) all prepaid expenses, trade accounts and other accounts and notes receivables; (xiii) all rights under contracts or agreements, all claims or rights against any Person arising from the ownership of any Asset, all rights in connection with any bids or offers and all claims, choses in action or similar rights, whether accrued or contingent; -12- (xiv) all rights under insurance policies and all rights in the nature of insurance, indemnification or contribution; (xv) all licenses (including radio and similar licenses), permits, approvals and authorizations which have been issued by any Governmental Authority; (xvi) cash or cash equivalents, bank accounts, lock boxes and other deposit arrangements; and (xvii) interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements. SECTION 4.6 CONTRACTS. "CONTRACTS" means any contract, agreement, lease, license, sales order, purchase order, instrument or other commitment that is binding on any Person or any part of its property under applicable law. SECTION 4.7 DELAYED TRANSFER ASSETS. "DELAYED TRANSFER ASSETS" means any Palm Assets that are expressly provided in this Agreement, the Separation Agreement or any other Ancillary Agreement to be transferred after the date of this Agreement. SECTION 4.8 DISTRIBUTION. "DISTRIBUTION" means 3Com's pro rata distribution to the holders of its common stock, $0.001 par value, following the IPO as provided in the Separation Agreement, of all of the shares of Palm common stock owned by 3Com. SECTION 4.9 DISTRIBUTION DATE. "DISTRIBUTION DATE" has the meaning set forth in Section 4.1 of the Separation Agreement. SECTION 4.10 GOVERNMENTAL APPROVALS. "GOVERNMENTAL APPROVALS" means any notices, reports or other filings to be made, or any consents, registrations, approvals, permits or authorizations to be obtained from, any Governmental Authority. SECTION 4.11 GOVERNMENTAL AUTHORITY. "GOVERNMENTAL AUTHORITY" means any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority. SECTION 4.12 INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT. "Indemnification and Insurance Matters Agreement" means the Indemnification and Insurance Matters Agreement attached as Exhibit J to the Separation Agreement. SECTION 4.13 INSURANCE POLICIES. "INSURANCE POLICIES" means insurance policies pursuant to which a Person makes a true risk transfer to an insurer. SECTION 4.14 INSURED PALM LIABILITIES. "INSURED PALM LIABILITIES" means any Palm Liability to the extent that (i) it is covered under the terms of 3Com's Insurance Policies in effect -13- prior to the Distribution Date and (ii) Palm is not a named insured under, or otherwise entitled to the benefits of, such Insurance Policies. SECTION 4.15 INTELLECTUAL PROPERTY. "INTELLECTUAL PROPERTY" means all domestic and foreign patents and patent applications, together with any continuations, continuations-in-part or divisional applications thereof, and all patents issuing thereon (including reissues, renewals and re-examinations of the foregoing); design patents, invention disclosures; mask works; copyrights, and copyright applications and registrations; Web addresses, trademarks, service marks, trade names, and trade dress, in each case together with any applications and registrations therefor and all appurtenant goodwill relating thereto; trade secrets, commercial and technical information, know-how, proprietary or confidential information, including engineering, production and other designs, notebooks, processes, drawings, specifications, formulae, and technology; computer and electronic data processing programs and software (object and source code), data bases and documentation thereof; inventions (whether patented or not); utility models; registered designs, certificates of invention and all other intellectual property under the laws of any country throughout the world. SECTION 4.16 IPO REGISTRATION STATEMENT. "IPO REGISTRATION STATEMENT" means the registration statement on Form S-1 pursuant to the Securities Act of 1933, as amended, to be filed with the Securities and Exchange Commission registering the shares of common stock of Palm to be issued in the initial public offering, together with all amendments thereto. SECTION 4.17 LIABILITIES. "LIABILITIES" means all debts, liabilities, guarantees, assurances, commitments and obligations, whether fixed, contingent or absolute, asserted or unasserted, matured or unmatured, liquidated or unliquidated, accrued or not accrued, known or unknown, due or to become due, whenever or however arising (including, without limitation, whether arising out of any Contract or tort based on negligence or strict liability) and whether or not the same would be required by generally accepted principles and accounting policies to be reflected in financial statements or disclosed in the notes thereto. SECTION 4.18 LOCAL TRANSFER AGREEMENTS. "LOCAL TRANSFER AGREEMENTS" means the agreements necessary to effect the Non-US Plan (as defined in the Separation Agreement). SECTION 4.19 NON-US PLAN. "NON-US PLAN" has the meaning set forth in Section 5.8 of the Separation Agreement. SECTION 4.20 OFLS. "OFLS" mean all liabilities, obligations, contingencies, instruments and other Liabilities of any member of the 3Com Group of a financial nature with third parties existing on the date hereof or entered into or established between the date hereof and the Separation Date, including any of the following: (i) foreign exchange contracts; (ii) letters of credit; -14- (iii) guarantees of third party loans to customers; (iv) surety bonds (excluding surety for workers' compensation self-insurance); (v) interest support agreements on third party loans to customers; (vi) performance bonds or guarantees issued by third parties; (vii) swaps or other derivatives contracts; and (viii) recourse arrangements on the sale of receivables or notes. SECTION 4.21 PALM BALANCE SHEET. "PALM BALANCE SHEET" means the audited consolidated balance sheet (including the notes thereto) of the Palm Business as of August 27, 1999, that is included in the IPO Registration Statement. SECTION 4.22 PALM BUSINESS. "PALM BUSINESS" means the business and operations of the business of Palm as described in the IPO Registration Statement and, except as otherwise expressly provided herein, any terminated, divested or discontinued businesses or operations that at the time of termination, divestiture or discontinuation primarily related to the Palm Business as then conducted. SECTION 4.23 PALM CONTINGENT GAIN. "PALM CONTINGENT GAIN" means any claim or other right of a member of the 3Com Group or the Palm Group that primarily relates to the Palm Business, whenever arising, against any Person other than a member of the 3Com Group or the Palm Group, if and to the extent that (i) such claim or right arises out of the events, acts or omissions occurring as of the Separation Date (based on then existing law) and (ii) the existence or scope of the obligation of such other Person as of the Separation Date was not acknowledged, fixed or determined in any material respect, due to a dispute or other uncertainty as of the Separation Date or as a result of the failure of such claim or other right to have been discovered or asserted as of the Separation Date. A claim or right meeting the foregoing definition shall be considered a Palm Contingent Gain regardless of whether there was any Action pending, threatened or contemplated as of the Separation Date with respect thereto. In the case of any claim or right a portion of which arises out of events, acts or omissions occurring prior to the Separation Date and a portion of which arises out of events, acts or omissions occurring on or after the Separation Date, only that portion that arises out of events, acts or omissions occurring prior to the Separation Date shall be considered a Palm Contingent Gain. For purposes of the foregoing, a claim or right shall be deemed to have accrued as of the Separation Date if all the elements of the claim necessary for its assertion shall have occurred on or prior to the Separation Date, such that the claim or right, were it asserted in an Action on or prior to the Separation Date, would not be dismissed by a court on ripeness or similar grounds. Notwithstanding the foregoing, none of (i) any Insurance Proceeds, (ii) any Excluded Assets, (iii) any reversal of any litigation or other reserve, or (iv) any matters relating to Taxes (which are governed by the Tax Sharing Agreement) shall be deemed to be a Palm Contingent Gain. -15- SECTION 4.24 PALM CONTINGENT LIABILITY. "PALM CONTINGENT LIABILITY" means any Liability, other than Liabilities for Taxes (which are governed by the Tax Sharing Agreement), of a member of the 3Com Group or the Palm Group that primarily relates to the Palm Business, whenever arising, to any Person other than a member of the 3Com Group or the Palm Group, if and to the extent that (i) such Liability arises out of the events, acts or omissions occurring as of the Separation Date and (ii) the existence or scope of the obligation of a member of the 3Com Group or the Palm Group as of the Separation Date with respect to such Liability was not acknowledged, fixed or determined in any material respect, due to a dispute or other uncertainty as of the Separation Date or as a result of the failure of such Liability to have been discovered or asserted as of the Separation Date (it being understood that the existence of a litigation or other reserve with respect to any Liability shall not be sufficient for such Liability to be considered acknowledged, fixed or determined). In the case of any Liability a portion of which arises out of events, acts or omissions occurring prior to the Separation Date and a portion of which arises out of events, acts or omissions occurring on or after the Separation Date, only that portion that arises out of events, acts or omissions occurring prior to the Separation Date shall be considered a Palm Contingent Liability. For purposes of the foregoing, a Liability shall be deemed to have arisen out of events, acts or omissions occurring prior to the Separation Date if all the elements necessary for the assertion of a claim with respect to such Liability shall have occurred on or prior to the Separation Date, such that the claim, were it asserted in an Action on or prior to the Separation Date, would not be dismissed by a court on ripeness or similar grounds. For purposes of clarification of the foregoing, the parties agree that no Liability relating to, arising out of or resulting from any obligation of any Person to perform the executory portion of any contract or agreement existing as of the Separation Date, or to satisfy any obligation accrued under any Plan (as defined in the Employee Matters Agreement) as of the Separation Date, shall deemed to be a Palm Contingent Liability. For purposes of determining whether a claim relating to the Year 2000 problem is a Palm Contingent Liability, claims relating to products shipped prior to the Separation Date shall be deemed to have arisen prior to the Separation Date. SECTION 4.25 PALM CONTRACTS. "PALM CONTRACTS" means the following contracts and agreements to which 3Com is a party or by which it or any of its Assets is bound, whether or not in writing, except for any such contract or agreement that is contemplated to be retained by 3Com or any member of the 3Com Group pursuant to any provision of this Agreement or any other Ancillary Agreement: (i) any contract or agreement entered into in the name of, or expressly on behalf of, any division or business unit of Palm; (ii) any contract or agreement that relates primarily to the Palm Business; (iii) any contract or agreement that is otherwise expressly contemplated pursuant to this Agreement, the Separation Agreement or any of the other Ancillary Agreements to be assigned to Palm; -16- (iv) any guarantee, indemnity, representation, warranty or other Liability of any member of the Palm Group or the 3Com Group in respect of any other Palm Contract, any Palm Liability or the Palm Business (including guarantees of financing incurred by customers or other third parties in connection with purchases of products or services from the Palm Business); and (v) any Palm OFL. SECTION 4.26 PALM GROUP. "PALM GROUP" means Palm, each Subsidiary and Affiliated Company of Palm immediately after the Separation Date or that is contemplated to be a Subsidiary or Affiliated Company of Palm pursuant to the Non-US Plan and each Person that becomes a Subsidiary or Affiliate Company of Palm after the Separation Date. SECTION 4.27 PALM PRO FORMA BALANCE SHEET. "PALM PRO FORMA BALANCE SHEET" means the unaudited pro forma condensed consolidated balance sheet appearing in the IPO Registration Statement. SECTION 4.28 PERSON. "PERSON" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. SECTION 4.29 RETAINED PAYABLES. "RETAINED PAYABLES" means (i) all accounts payable and other obligations of payment for goods or services purchased, leased or otherwise received in the conduct of the Palm Business that as of the Separation Date are payable to a third Person by 3Com or any of 3Com's Subsidiaries, whether past due, due or to become due, including any interest, sales or use taxes, finance charges, late or returned check charges and other obligations of 3Com or any of 3Com's Subsidiaries with respect thereto, and any obligations related to any of the foregoing and (ii) all employee compensation Liabilities and other miscellaneous Liabilities for which an adjustment is made in the Palm Pro Forma Balance Sheet. SECTION 4.30 RETAINED RECEIVABLES. "RETAINED RECEIVABLES" means (i) all accounts receivable and other rights to payment for goods or services sold, leased or otherwise provided in the conduct of the Palm Business that as of the Separation Date are payable by a third Person to 3Com or any of 3Com's Subsidiaries, whether past due, due or to become due, including any interest, sales or use taxes, finance charges, late or returned check charges and other obligations of the account debtor with respect thereto, and any proceeds of any of the foregoing and (ii) all other miscellaneous Assets for which an adjustment is made in the Palm Pro Forma Balance Sheet. SECTION 4.31 SECURITY INTEREST. "SECURITY INTEREST" means any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer, or other encumbrance of any nature whatsoever. -17- SECTION 4.32 SEPARATION. "SEPARATION" means the transfer and contribution from 3Com to Palm, and Palm's receipt and assumption of, directly or indirectly, substantially all of the Assets and Liabilities currently associated with the Palm Business and the stock, investments or similar interests currently held by 3Com in subsidiaries and other entities that conduct such business. SECTION 4.33 SEPARATION AGREEMENT. "SEPARATION AGREEMENT" means the Master Separation and Distribution Agreement dated as of December 13, 1999, of which this is an Exhibit thereto. SECTION 4.34 SEPARATION DATE. "SEPARATION DATE" means the effective date and time of each transfer of property, assumption of liability, license, undertaking, or agreement in connection with the Separation, which shall be 12:01 a.m., Pacific Time, February 26, 2000, or such date as may be fixed by the Board of Directors of 3Com. SECTION 4.35 SUBSIDIARY. "SUBSIDIARY" of any Person means any corporation or other organization whether incorporated or unincorporated of which at least a majority of the securities or interest having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; provided, however that no Person that is not directly or indirectly wholly owned by any other Person shall be a Subsidiary of such other Person unless such other Person controls, or has the right, power or ability to control, that Person. SECTION 4.36 TAXES. "TAXES" has the meaning set forth in the Tax Sharing Agreement. [SIGNATURES ON FOLLOWING PAGE] -18- IN WITNESS WHEREOF, each of the parties has caused this General Assignment and Assumption Agreement to be executed on its behalf by its officers thereunto duly authorized on the day and year first above written. 3COM CORPORATION PALM, INC. By:________________________________ By:________________________________ Name:______________________________ Name:______________________________ Title:_____________________________ Title:_____________________________ SCHEDULE 1.1(c) DELAYED TRANSFER ASSETS AND LIABILITIES None. SCHEDULE 1.2(a)(VIII) SPECIFIC PALM ASSETS TO BE TRANSFERRED Inventories. SCHEDULE 1.2(b)(i) EXCLUDED ASSETS None. SCHEDULE 1.3(a)(vi) DIVESTED BUSINESSES WHICH CONTAIN LIABILITIES TO BE TRANSFERRED TO PALM None. SCHEDULE 1.3(a)(vii) SPECIFIC PALM LIABILITIES None. SCHEDULE 1.3(b)(i) EXCLUDED LIABILITIES None. EX-2.3 3 EXHIBIT 2.3 Exhibit 2.3 MASTER TECHNOLOGY OWNERSHIP AND LICENSE AGREEMENT BETWEEN 3COM CORPORATION AND PALM, INC. EFFECTIVE AS OF FEBRUARY 26, 2000 MASTER TECHNOLOGY OWNERSHIP AND LICENSE AGREEMENT TABLE OF CONTENTS PAGE ARTICLE 1 DEFINITIONS.................................................................................................1 1.1 ANCILLARY AGREEMENTS................................................................................1 1.2 COPYRIGHTS..........................................................................................1 1.3 DATABASE RIGHTS.....................................................................................1 1.4 DISTRIBUTION DATE...................................................................................2 1.5 GALAHAD PROJECT.....................................................................................2 1.6 GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT.........................................................2 1.7 INVENTION DISCLOSURE................................................................................2 1.8 IPO REGISTRATION STATEMENT..........................................................................2 1.9 JOINT TECHNOLOGY....................................................................................2 1.10 MASK WORK RIGHTS....................................................................................2 1.11 MASTER CONFIDENTIAL DISCLOSURE AGREEMENT............................................................2 1.12 MASTER PATENT OWNERSHIP AND ASSIGNMENT AGREEMENT....................................................2 1.13 MASTER SEPARATION AND DISTRIBUTION AGREEMENT........................................................2 1.14 PALM BUSINESS.......................................................................................3 1.15 PALM COMPUTING PLATFORM.............................................................................3 1.16 PALM OS.............................................................................................3 1.17 PALM PRODUCTS DATABASE..............................................................................3 1.18 PALM TECHNOLOGY.....................................................................................3 1.19 PALM TECHNOLOGY DATABASE............................................................................3 1.20 PATENTS.............................................................................................3 1.21 PERSON..............................................................................................3 1.22 SELL................................................................................................3 1.23 SEPARATION DATE.....................................................................................3 1.24 SUBSIDIARY..........................................................................................4 1.25 TDC.................................................................................................4 1.26 TECHNOLOGY..........................................................................................4 1.27 THIRD PARTY.........................................................................................4 ARTICLE 2 OWNERSHIP...................................................................................................4 2.1 OWNERSHIP OF PALM TECHNOLOGY........................................................................4 2.2 JOINT TECHNOLOGY....................................................................................5 2.3 PRIOR GRANTS........................................................................................5 2.4 ASSIGNMENT DISCLAIMER...............................................................................6 ARTICLE 3 LICENSES AND RIGHTS.........................................................................................6 3.1 PALM COMPUTING PLATFORM.............................................................................6 3.2 GALAHAD PROJECT AND TDC.............................................................................6
-i- TABLE OF CONTENTS (CONTINUED) 3.3 RIGHTS TO JOINT TECHNOLOGY..........................................................................6 3.4 NO PATENT LICENSES..................................................................................7 3.5 THIRD PARTY TECHNOLOGY..............................................................................8 ARTICLE 4 CONFIDENTIALITY.............................................................................................8 ARTICLE 5 NO TERMINATION..............................................................................................8 ARTICLE 6 DISPUTE RESOLUTION..........................................................................................8 6.1 MEDIATION...........................................................................................8 6.2 ARBITRATION.........................................................................................9 6.3 COURT ACTION........................................................................................9 6.4 CONTINUITY OF SERVICE AND PERFORMANCE...............................................................9 ARTICLE 7 LIMITATION OF LIABILITY.....................................................................................9 ARTICLE 8 MISCELLANEOUS PROVISIONS...................................................................................10 8.1 DISCLAIMER.........................................................................................10 8.2 NO IMPLIED LICENSES................................................................................10 8.3 INFRINGEMENT SUITS.................................................................................10 8.4 NO OTHER OBLIGATIONS...............................................................................10 8.5 ENTIRE AGREEMENT...................................................................................11 8.6 GOVERNING LAW......................................................................................11 8.7 DESCRIPTIVE HEADINGS...............................................................................11 8.8 NOTICES............................................................................................11 8.9 NONASSIGNABILITY...................................................................................12 8.10 SEVERABILITY.......................................................................................12 8.11 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE..............................................12 8.12 AMENDMENT..........................................................................................12 8.13 COUNTERPARTS.......................................................................................12
-ii- MASTER TECHNOLOGY OWNERSHIP AND LICENSE AGREEMENT This Master Technology Ownership and License Agreement (the "Agreement") is effective as of February 26, 2000 (the "Effective Date"), between 3Com Corporation, a Delaware corporation ("3Com"), having an office at 5400 Bayfront Plaza, Santa Clara, California, 95052 and Palm, Inc., a Delaware corporation ("Palm"), having an office at 5470 Great America Parkway, Santa Clara, California, 95052. WHEREAS, the Board of Directors of 3Com has determined that it is in the best interest of 3Com and its stockholders to separate 3Com's existing businesses into two independent businesses; WHEREAS, as part of the foregoing, 3Com and Palm's predecessor, Palm Computing, Inc., a California Corporation, have entered into a Master Separation and Distribution Agreement (as defined below), which provides, among other things, for the separation of certain Palm assets and Palm liabilities, the initial public offering of Palm stock, the distribution of such stock and the execution and delivery of certain other agreements in order to facilitate and provide for the foregoing; and WHEREAS, also as part of the foregoing, the parties desire to confirm Palm's ownership or joint ownership of certain technology. NOW, THEREFORE, in consideration of the mutual promises of the parties, and of good and valuable consideration, it is agreed by and between the parties as follows: ARTICLE 1 DEFINITIONS For the purpose of this Agreement the following capitalized terms are defined in this Article 1 and shall have the meaning specified herein: 1.1 ANCILLARY AGREEMENTS. "Ancillary Agreements" shall have the meaning set forth in the Master Separation and Distribution Agreement. 1.2 COPYRIGHTS. "Copyrights" mean (i) any copyright in any original works of authorship fixed in any tangible medium of expression as set forth in 17 U.S.C. Section 101 et. seq., whether registered or unregistered, including any applications for registration thereof, (ii) any corresponding foreign copyrights under the laws of any jurisdiction, in each case, whether registered or unregistered, and any applications for registration thereof, and (iii) moral rights under the laws of any jurisdiction. 1.3 DATABASE RIGHTS. "Database Rights" means any rights in databases under the laws of the United States or any other jurisdiction, whether registered or unregistered, and any applications for registration thereof. 1.4 DISTRIBUTION DATE. "Distribution Date" shall have the meaning set forth in the Master Separation and Distribution Agreement. 1.5 GALAHAD PROJECT. "Galahad Project" means the development effort within 3Com's Wireless Connectivity Division (WCD) currently known internally as the Galahad Project. 1.6 GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT. "General Assignment and Assumption Agreement" means the General Assignment and Assumption Agreement between the parties. 1.7 INVENTION DISCLOSURE. "Invention Disclosure" means a disclosure of an invention (i) written for the purpose of allowing legal and business people to determine whether to file a Patent application with respect to such invention and (ii) recorded with a control number in the owning party's records. 1.8 IPO REGISTRATION STATEMENT. "IPO Registration Statement" means the registration statement on Form S-1 pursuant to the Securities Act of 1933, as amended, to be filed with the Securities and Exchange Commission registering the shares of common stock of Palm to be issued in the initial public offering, together with all amendments thereto. 1.9 JOINT TECHNOLOGY. "Joint Technology" means the manufacturing Technology indicated to be jointly owned in the Palm Technology Database, and Technology which has been jointly developed by the parties prior to the Separation Date that is incorporated into Current Palm Products (as defined in the Master Patent Ownership and Assignment Agreement); provided, however, that Joint Technology shall not include any Technology developed under the Galahad Project or work done by TDC, except as otherwise agreed by the parties in writing. 1.10 MASK WORK RIGHTS. "Mask Work Rights" means (i) any rights in mask works, as defined in 17 U.S.C. Section 901, whether registered or unregistered, including applications for registration thereof, and (ii) any foreign rights in semiconductor topologies under the laws of any jurisdiction, whether registered or unregistered, including applications for registration thereof. 1.11 MASTER CONFIDENTIAL DISCLOSURE AGREEMENT. "Master Confidential Disclosure Agreement" means the Master Confidential Disclosure Agreement between 3Com and Palm. 1.12 MASTER PATENT OWNERSHIP AND ASSIGNMENT AGREEMENT. "Master Patent Ownership and Assignment Agreement" means the Master Patent Ownership and Assignment Agreement between 3Com and Palm. 1.13 MASTER SEPARATION AND DISTRIBUTION AGREEMENT. "Master Separation and Distribution Agreement" means the Master Separation and Distribution Agreement between 3Com and Palm. 2 1.14 PALM BUSINESS. "Palm Business" means the business and operations of Palm as described in the IPO Registration Statement. 1.15 PALM COMPUTING PLATFORM. "Palm Computing Platform" means the Palm OS and other related software and hardware technology and documentation generally licensed by Palm to third party developers of handheld computing or communication products. 1.16 PALM OS. "Palm OS" means the Palm operating system software files and build tools. 1.17 PALM PRODUCTS DATABASE. "Palm Products Database" means the mutually agreed Palm Products Database as of the Separation Date, as it may be updated by the parties upon mutual agreement (signed by authorized officers) of the parties to add Palm products as of the Separation Date. 1.18 PALM TECHNOLOGY. "Palm Technology" means (i) all Technology developed solely by Palm or Subsidiaries of Palm or by its subcontractors for Palm or its Subsidiaries, (ii) all Technology for which the direct costs were solely paid for by Palm, (iii) the Palm Computing Platform, (iv) the manufacturing technology that is indicated as to be owned by Palm in the Palm Technology Database, and (v) all Technology developed or being developed solely by the Palm Business as of the Separation Date. For the avoidance of doubt, the parties agree that 3Com owns all right, title and interest in and to any Technology that may have been jointly developed by the parties in the Galahad Project and any projects with the TDC and any Technology either developed solely by 3Com or for which the direct costs were solely paid for by 3Com. 1.19 PALM TECHNOLOGY DATABASE. "Palm Technology Database" means the mutually agreed Palm Technology Database as of the Separation Date, as it may be updated by the parties upon mutual agreement (signed by authorized officers) of the parties to add Palm Technology as of the Separation Date. 1.20 PATENTS. "Patents" means patents, utility models, design patents, design registrations, certificates of invention and other governmental grants for the protection of inventions or industrial designs anywhere in the world and all reissues, renewals, re-examinations and extensions of any of the foregoing. 1.21 PERSON. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, and a governmental entity or any department, agency or political subdivision thereof. 1.22 SELL. To "Sell" a product means to sell, transfer, lease or otherwise dispose of a product. "Sale" and "Sold" have the corollary meanings ascribed thereto. 1.23 SEPARATION DATE. "Separation Date" means 12:01 a.m., Pacific Time, February 26, 2000, or such other date as may be fixed by the Board of Directors of 3Com. 3 1.24 SUBSIDIARY. "Subsidiary" of any Person means a corporation or other organization, whether incorporated or unincorporated, of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; provided, however, that no Person that is not directly or indirectly wholly-owned by any other Person shall be a Subsidiary of such other Person unless such other Person controls, or has the right, power or ability to control, that Person. For purposes of this Agreement, Palm shall be deemed not to be a subsidiary of 3Com. 1.25 TDC. "TDC" means the 3Com Technology Development Center. 1.26 TECHNOLOGY. "Technology" means technological models, algorithms, manufacturing processes, design processes, behavioral models, logic diagrams, schematics, test vectors, know-how, computer and electronic data processing and other apparatus programs and software (object code and source code), databases and documentation thereof, trade secrets, technical information, specifications, drawings, records, documentation, works of authorship or other creative works, websites, ideas, knowledge, data or the like. The term Technology includes Copyrights, Database Rights, Mask Work Rights, trade secrets and any other intellectual property right, but expressly does not include (i) any trademark, trade name, trade dress or service mark, or applications for registration thereof or (ii) any Patents or applications therefor, including any of the foregoing that may be based on Invention Disclosures that are covered by the Master Patent Ownership and License Agreement between the parties, but does include trade secret rights in and to inventions disclosed in such Patent applications and Invention Disclosures. 1.27 THIRD PARTY. "Third Party" means a Person other than 3Com and its Subsidiaries and Palm and its Subsidiaries. ARTICLE 2 OWNERSHIP 2.1 OWNERSHIP OF PALM TECHNOLOGY. The parties hereby confirm that Palm owns all right, title and interest in and to the Palm Technology. Subject to Sections 2.3 and 2.4 below, to the extent that 3Com has any ownership rights in and to the Palm Technology, 3Com hereby grants, conveys and assigns (and agrees to cause its appropriate Subsidiaries to grant, convey and assign) to Palm, by execution hereof (or, where appropriate or required, by execution of separate instruments of assignment), all its (and their) right, title and interest in and to the Palm Technology, to be held and enjoyed by Palm, its successors and assigns. 3Com further grants, conveys and assigns (and agrees to cause its appropriate Subsidiaries to grant, convey and assign) to Palm all its (and their) right, title and interest in and to any and all causes of action and rights of recovery for past infringement of Copyrights, Database Rights and Mask Work Rights in and to the Palm Technology, and for past misappropriation of trade secrets in and to the Palm Technology. 3Com further covenants that 3Com will, without demanding any further consideration therefor, at the request and expense of Palm (except for the value of the time of 3Com employees), do (and cause its 4 Subsidiaries to do) all lawful and just acts that may be or become necessary for evidencing, maintaining, recording and perfecting Palm's rights to such Palm Technology consistent with 3Com's general business practice as of the Separation Date, including but not limited to, execution and acknowledgement of (and causing its Subsidiaries to execute and acknowledge) assignments and other instruments in a form reasonably required by Palm for each Copyright, Mask Work Right or Database Right jurisdiction. 2.2 JOINT TECHNOLOGY. The parties hereby confirm that 3Com and Palm jointly own all right, title and interest in and to the Joint Technology. (a) Subject to Sections 2.3 and 2.4 below, 3Com hereby grants, conveys and assigns (and agrees to cause its appropriate Subsidiaries to grant, convey and assign) to Palm an undivided one-half interest in and to the Joint Technology to be held and enjoyed by Palm, its successors and assigns. 3Com further grants, conveys and assigns (and agrees to cause its appropriate Subsidiaries to grant, convey and assign) to Palm an undivided one-half interest in and to any and all causes of action and rights of recovery for past infringement of Copyrights, Database Rights and Mask Work Rights in and to the Joint Technology, and for past misappropriation of trade secrets in and to the Joint Technology. 3Com further covenants that 3Com will, without demanding any consideration therefor, at the request and expense of Palm (except for the value of the time of 3Com employees), do (and cause its Subsidiaries to do) all lawful and just acts including the execution and acknowledgement of instruments, that may be or become necessary for evidencing, maintaining and perfecting Palm's rights to such Joint Technology consistent with 3Com's general business practice as of the Separation Date, including but not limited to, execution and acknowledgement of (and causing its Subsidiaries to execute and acknowledge) assignments and other instruments in a form reasonably required by Palm for each Copyright, Mask Work Right or Database Right jurisdiction. (b) Subject to Sections 2.3 and 2.4 below, Palm hereby grants, conveys and assigns (and agrees to cause its appropriate Subsidiaries to grant, convey and assign) to 3Com an undivided one-half interest in and to the Joint Technology to be held and enjoyed by 3Com, its successors and assigns. Palm further grants, conveys and assigns (and agrees to cause its appropriate Subsidiaries to grant, convey and assign) to 3Com an undivided one-half interest in and to any and all causes of action and rights of recovery for past infringement of Copyrights, Database Rights and Mask Work Rights in and to the Joint Technology, and for past misappropriation of trade secrets in and to the Joint Technology. Palm further covenants that Palm will, without demanding any consideration therefor, at the request and expense of 3Com (except for the value of the time of Palm employees), do (and cause its Subsidiaries to do) all lawful and just acts including the execution and acknowledgement of instruments, that may be or become necessary for evidencing, maintaining and perfecting 3Com's rights to such Joint Technology consistent with Palm's general business practice as of the Separation Date, including but not limited to, execution and acknowledgement of (and causing its Subsidiaries to execute and acknowledge) assignments and other instruments in a form reasonably required by 3Com for each Copyright, Mask Work Right or Database Right jurisdiction. 2.3 PRIOR GRANTS. 5 (a) Palm acknowledges and agrees that the foregoing assignment is subject to any and all licenses or other rights that may have been granted by or to 3Com or its Subsidiaries with respect to the Palm Technology prior to the Separation Date. 3Com shall respond to reasonable inquiries from Palm regarding any such prior grants. (b) 3Com acknowledges and agrees that the foregoing assignment is subject to any and all licenses or other rights that may have been granted by or to Palm or its Subsidiaries with respect to the 3Com Technology prior to the Separation Date. Palm shall respond to reasonable inquiries from 3Com regarding any such prior grants. 2.4 ASSIGNMENT DISCLAIMER. THE PARTIES ACKNOWLEDGE AND AGREE THAT THE FOREGOING ASSIGNMENTS ARE MADE ON AN "AS IS," QUITCLAIM BASIS AND THAT NEITHER PARTY NOR ANY SUBSIDIARY OF EITHER PARTY HAS MADE OR WILL MAKE ANY WARRANTY WHATSOEVER, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ENFORCEABILITY OR NON-INFRINGEMENT. FURTHER, THE PARTIES ACKNOWLEDGE AND AGREE THAT NEITHER PARTY NOR ANY SUBSIDIARY OF EITHER PARTY SHALL HAVE ANY OBLIGATION UNDER THIS AGREEMENT TO MAINTAIN OR SUPPORT ANY OF THE TECHNOLOGY ASSIGNED UNDER THIS AGREEMENT OR TO PROVIDE ANY UPGRADES OR ENHANCEMENTS THERETO TO THE OTHER PARTY. ARTICLE 3 LICENSES AND RIGHTS 3.1 PALM COMPUTING PLATFORM. In recognition of the fact that 3Com and Palm were affiliated entities prior to the Separation Date, Palm agrees to grant a license (i) to 3Com with respect to the Palm Computing Platform on favorable terms, and (ii) to 3Com (IAD) with respect to certain portions of the Palm OS on favorable terms. The parties agree to negotiate such licensing agreements reasonably and in good faith as promptly as they can reasonably accomplish, but in no event later than the Distribution Date. 3.2 GALAHAD PROJECT AND TDC. The parties agree to negotiate reasonably and in good faith joint development and licensing agreements with respect to Technology developed in the Galahad Project and TDC (with respect to Palm related projects) as promptly as they can reasonably accomplish, but in no event later than the Distribution Date. 3.3 RIGHTS TO JOINT TECHNOLOGY. (a) Each party has the right to (i) use and exploit the Joint Technology, (ii) license the Joint Technology to Third Parties, and (iii) transfer its ownership interest in any or all Joint Technology to any Third Party, in each case (x) without restriction, (y) without the consent of the other party, and (z) without the obligation to account to the other party for profits derived therefrom. 6 (b) Should either party (the "Registering Party") desire at any time to register Copyrights, Database Rights or Mask Work Rights in and to the Joint Technology in any jurisdiction, such party shall notify the other party (the "Non-Registering Party") in writing of its intent and the reasons therefor. The Non-Registering Party promptly shall communicate in writing any objections it may have. In the absence of any written objections within thirty (30) days after the date of its notice, the Registering Party shall be free to proceed with the desired registration in the name of both 3Com and Palm. In the event of any such objections by the Non-Registering Party, the parties shall discuss and negotiate reasonably and in good faith to resolve the objections based on each party's business objectives with respect to the relevant item of Joint Technology. The parties shall share equally any actual and reasonable out-of-pocket expenses (expressly excluding the value of the time of either party's employees) incurred in connection with any such registration. The Registering Party promptly shall provide the Non-Registering Party with copies of each application and issued registration under this Section 3.3(b). (c) Should either party become aware of any actual infringement or misappropriation of Joint Technology, such party shall promptly communicate the details to the other party and the parties will meet and confer regarding any enforcement action with respect to such Joint Technology. If the parties decide jointly to bring an action for infringement or misappropriation of such Joint Technology, the parties shall equally share all actual and reasonable expenses associated therewith (except for the value of the time of each party's employees in connection with the action; each party shall alone bear its employee expenses) and any resulting damages or compensation, including any amounts paid in settlement. If the parties decide not to jointly bring such an action, either party or any of its Subsidiaries may, at its own expense (including, as the parties shall agree on a case by case basis, compensation, if any, of the other party for the value of time of the other party's employees as reasonably required in connection with the action), enforce any Joint Technology against any Third Party infringer or misappropriating Person without the consent of the other party, subject to the following: (i) neither party shall have any obligation to be joined as a party plaintiff in such action without its prior written consent, which may be granted or withheld in its sole discretion, regardless of whether such joinder is required in order to confer jurisdiction in the jurisdiction in which the action is to be brought, (ii) if either party brings any such action on its own, including cases in which the other party consents to be named as party plaintiff, the party bringing the action agrees to defend, indemnify and hold harmless the other party for all losses, costs, liabilities and expenses arising out of or related to the bringing of such action, and (iii) the party bringing such action may not take any action, or make any admissions, that may affect the validity of any registration for Copyrights, Database Rights or Mask Work Rights covering Joint Technology without the prior written consent of the other party. If the enforcing party or its Subsidiaries recovers any damages or compensation for any action the enforcing party or the Subsidiaries of the enforcing party takes hereunder, including any settlement, the enforcing party or the Subsidiaries of the enforcing party shall retain one hundred percent (100%) of such damages. If the parties cooperate in any such enforcement action, then any recovery of damages or compensation shall be allocated pursuant to mutual agreement. 3.4 NO PATENT LICENSES. Nothing contained in this Agreement shall be construed as conferring to either party by implication, estoppel or otherwise any license or right under any 7 Patent or applications therefor, whether or not the exercise of any right herein granted necessarily employs an invention of any existing or later issued Patent. The applicable licenses granted by 3Com to Palm with respect to Patents are set forth in a separate Master Patent Ownership and License Agreement. 3.5 THIRD PARTY TECHNOLOGY. The assignment of any applicable license agreements with respect to Third Party Technology are set forth in the General Assignment and Assumption Agreement. ARTICLE 4 CONFIDENTIALITY The terms of the Master Confidential Disclosure Agreement between the parties shall apply to any Confidential Information (as defined therein) which is the subject matter of this Agreement. ARTICLE 5 NO TERMINATION Each party acknowledges and agrees that its remedy for breach by the other party of any provision hereof shall be, subject to the requirements of Article 6, to bring a claim to recover damages subject to the limits set forth in this Agreement and to seek any other appropriate equitable relief, other than termination of this Agreement. For the avoidance of doubt, the parties intend that this Agreement continue in perpetuity. ARTICLE 6 DISPUTE RESOLUTION 6.1 MEDIATION. If a dispute, controversy or claim ("Dispute") arises between the parties relating to the interpretation or performance of this Agreement appropriate senior executives (e.g. director or V.P. level) of each party who shall have the authority to resolve the matter shall meet to attempt in good faith to negotiate a resolution of the Dispute prior to pursuing other available remedies. The initial meeting between the appropriate senior executives shall be referred to herein as the "Dispute Resolution Commencement Date." Discussions and correspondence relating to trying to resolve such Dispute shall be treated as Confidential Information developed for the purpose of settlement and shall be exempt from discovery or production and shall not be admissible. If the senior executives are unable to resolve the Dispute within thirty (30) days from the Dispute Resolution Commencement Date, and either party wishes to pursue its rights relating to such Dispute, then the Dispute will be mediated by a mutually acceptable mediator appointed pursuant to the mediation rules of JAMS/Endispute within thirty (30) days after written notice by one party to the other demanding non-binding mediation. Neither party may unreasonably withhold consent to the selection of a mediator or the location of the mediation. Both parties will share the 8 costs of the mediation equally, except that each party shall bear its own costs and expenses, including attorneys' fees, witness fees, travel expenses, and preparation costs. The parties may also agree to replace mediation with some other form of non-binding or binding alternate dispute resolution ("ADR"). 6.2 ARBITRATION. Any Dispute which the parties cannot resolve through mediation within ninety (90) days of the Dispute Resolution Commencement Date, unless otherwise mutually agreed, shall be submitted to final and binding arbitration under the then current Commercial Arbitration Rules of the American Arbitration Association ("AAA"), by three (3) arbitrators in Santa Clara County, California. Such arbitrators shall be selected by the mutual agreement of the parties or, failing such agreement, shall be selected according to the aforesaid AAA rules. The arbitrators will be instructed to prepare and deliver a written, reasoned opinion stating their decision within thirty (30) days of the completion of the arbitration. The prevailing party in such arbitration shall be entitled to expenses, including costs and reasonable attorneys' and other professional fees, incurred in connection with the arbitration (but excluding any costs and fees associated with prior negotiation or mediation). The decision of the arbitrator shall be final and non-appealable and may be enforced in any court of competent jurisdiction. The use of any ADR procedures will not be construed under the doctrine of laches, waiver or estoppel to adversely affect the rights of either party. 6.3 COURT ACTION. Any Dispute regarding the following is not required to be negotiated, mediated or arbitrated prior to seeking relief from a court of competent jurisdiction: breach of any obligation of confidentiality; infringement, misappropriation, or misuse of any intellectual property right; any other claim where interim relief from the court is sought to prevent serious and irreparable injury to one of the parties or to others. However, the parties to the Dispute shall make a good faith effort to negotiate and mediate such Dispute, according to the above procedures, while such court action is pending. 6.4 CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in writing, the parties will continue to provide service and honor all other commitments under this Agreement during the course of dispute resolution pursuant to the provisions of this Article 6 with respect to all matters not subject to such dispute, controversy or claim. ARTICLE 7 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY OR ITS SUBSIDIARIES BE LIABLE TO THE OTHER PARTY OR ITS SUBSIDIARIES FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EACH PARTY'S OBLIGATIONS EXPRESSLY ASSUMED IN EXHIBIT J OF THE MASTER SEPARATION AND DISTRIBUTION AGREEMENT; 9 PROVIDED FURTHER THAT THE EXCLUSION OF PUNITIVE DAMAGES SHALL APPLY IN ANY EVENT. ARTICLE 8 MISCELLANEOUS PROVISIONS 8.1 DISCLAIMER. EACH PARTY ACKNOWLEDGES AND AGREES THAT ALL TECHNOLOGY AND ANY OTHER INFORMATION OR MATERIALS PROVIDED HEREUNDER IS PROVIDED ON AN "AS IS" BASIS, AND THAT NEITHER PARTY NOR ANY OF ITS SUBSIDIARIES MAKES ANY REPRESENTATIONS OR EXTENDS ANY WARRANTIES WHATSOEVER, EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT THERETO, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ENFORCEABILITY OR NON-INFRINGEMENT. Without limiting the generality of the foregoing, neither party nor any of its Subsidiaries makes any warranty or representation that any manufacture, use, importation, offer for sale or sale of any product or service will be free from infringement of any Patent or other intellectual property right of any Third Party. 8.2 NO IMPLIED LICENSES. Nothing contained in this Agreement shall be construed as conferring any rights by implication, estoppel or otherwise, under any intellectual property right, other than the rights expressly granted in this Agreement with respect to the Palm Technology and the Joint Technology. Neither party is required hereunder to furnish or disclose to the other any technical or other information, except as specifically provided herein. 8.3 INFRINGEMENT SUITS. Neither party shall have any obligation hereunder to institute any action or suit against Third Parties for infringement of any Copyrights, Database Rights or Mask Work Rights or misappropriation of any trade secret rights in or to any Technology licensed to the other party hereunder, or to defend any action or suit brought by a Third Party which challenges or concerns the validity of any of such rights or which claims that any Technology assigned or licensed to the other party hereunder infringes any Patent, Copyright, Database Right, Mask Work Right or other intellectual property right of any Third Party or constitutes a misappropriated trade secret of any Third Party. 3Com shall not have any right to institute any action or suit against Third Parties for infringement of any of the Copyrights, Database Rights or Mask Work Rights in or to the Palm Technology. 8.4 NO OTHER OBLIGATIONS. NEITHER PARTY ASSUMES ANY RESPONSIBILITIES OR OBLIGATIONS WHATSOEVER, OTHER THAN THE RESPONSIBILITIES AND OBLIGATIONS EXPRESSLY SET FORTH IN THIS AGREEMENT OR A SEPARATE WRITTEN AGREEMENT BETWEEN THE PARTIES. Without limiting the generality of the foregoing, neither party, nor any of its Subsidiaries, is obligated under this Agreement to provide any technical assistance. 10 8.5 ENTIRE AGREEMENT. This Agreement, the Master Separation and Distribution Agreement and the other Ancillary Agreements and the Exhibits and Schedules referenced or attached hereto and thereto constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof. This Agreement shall prevail in the event of any conflicting terms or legends which may appear on any portion of the Palm Technology or the Joint Technology. To the extent there is a conflict between this Agreement and the Master Assignment and Assumption Agreement between the parties, the terms of this Agreement shall govern. To the extent that the parties enter into specific agreements regarding specific projects such as the Galahad Project or the Palm Computing Platform license, such agreements shall supersede this Agreement with respect to any common subject matter. 8.6 GOVERNING LAW. This Agreement shall be construed in accordance with and all Disputes hereunder shall be governed by the laws of the State of California, excluding its conflict of law rules and the United Nations Convention on Contracts for the International Sale of Goods. The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have jurisdiction and venue over all Disputes between the parties that are permitted to be brought in a court of law pursuant to Article 6 above. 8.7 DESCRIPTIVE HEADINGS. The headings contained in this Agreement, in any Exhibit or Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any Exhibit or Schedule but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an Article or a Section, Exhibit or Schedule, such reference shall be to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. 8.8 NOTICES. Notices, offers, requests or other communications required or permitted to be given by either party pursuant to the terms of this Agreement shall be given in writing to the respective parties to the following addresses: if to 3Com : 3Com Corporation 5400 Bayfront Plaza Santa Clara, California 95052 Attention: General Counsel Fax: (408) 326-6434 if to Palm: Palm, Inc. 5470 Great America Parkway Santa Clara, California 95052 Attention: General Counsel 11 or to such other address as the party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice involving non-performance or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested. All other notices may also be sent by fax, confirmed by first class mail. All notices shall be deemed to have been given and received on the earlier of actual delivery or three (3) days from the date of postmark. 8.9 NONASSIGNABILITY. Neither party may, directly or indirectly, in whole or in part, whether by operation of law or otherwise, assign or transfer this Agreement, without the other party's prior written consent, and any attempted assignment, transfer or delegation without such prior written consent shall be voidable at the sole option of such other party. Notwithstanding the foregoing, each party (or its successive assignees or transferees hereunder) may, without such consent, assign this Agreement to an entity that succeeds to all or substantially all of the business or assets of such party as long as such Person agrees to accept all of the terms set forth herein; provided, however, that the rights and obligations set forth in Sections 3.1 and 3.2 may not be assigned or transferred in any event (except in the case of a reincorporation of such party in another state). Without limiting the foregoing, this Agreement will be binding upon and inure to the benefit of the parties and their permitted successors and assigns. 8.10 SEVERABILITY. If any term or other provision of this Agreement is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. 8.11 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of either party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. 8.12 AMENDMENT. No change or amendment will be made to this Agreement except by an instrument in writing signed on behalf of each of the parties to such agreement. 8.13 COUNTERPARTS. This Agreement, including the Ancillary Agreements and the Exhibits and Schedules hereto and thereto and the other documents referred to herein or therein, may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. 12 WHEREFORE, the parties have signed this Master Technology Ownership and License Agreement effective as of the date first set forth above. 3COM CORPORATION PALM, INC. By: By: ------------------------- ---------------------------- Name: Name: ---------------------- -------------------------- Title: Title: ---------------------- ------------------------- 13 EX-2.4 4 EXHIBIT 2.4 Exhibit 2.4 MASTER PATENT OWNERSHIP AND LICENSE AGREEMENT BETWEEN 3COM CORPORATION AND PALM, INC. EFFECTIVE AS OF FEBRUARY 26, 2000 MASTER PATENT OWNERSHIP AND LICENSE AGREEMENT TABLE OF CONTENTS PAGE ARTICLE 1 DEFINITIONS.................................................................................................1 1.1 ALLOCATED PATENT ASSETS DATABASE....................................................................1 1.2 ASSIGNED PATENTS....................................................................................2 1.3 BLUETOOTH...........................................................................................2 1.4 DISTRIBUTION DATE...................................................................................3 1.5 FIRST EFFECTIVE FILING DATE.........................................................................3 1.6 GALAHAD PATENTS.....................................................................................3 1.7 GALAHAD PROJECT.....................................................................................3 1.8 INVENTION DISCLOSURE................................................................................3 1.9 MASTER SEPARATION AND DISTRIBUTION AGREEMENT........................................................3 1.10 PALM PATENTS........................................................................................3 1.11 PALM PRODUCTS.......................................................................................3 1.12 PATENTS.............................................................................................3 1.13 PERSON..............................................................................................4 1.14 SEPARATION DATE.....................................................................................4 1.15 SUBSIDIARY..........................................................................................4 1.16 THIRD PARTY.........................................................................................4 1.17 THIRD PARTY PATENTS.................................................................................4 1.18 3COM PATENTS........................................................................................4 1.19 3COM PRODUCTS.......................................................................................4 ARTICLE 2 OWNERSHIP...................................................................................................5 2.1 OWNERSHIP OF PATENTS................................................................................5 2.2 PRIOR GRANTS........................................................................................6 2.3 ASSIGNMENT DISCLAIMER...............................................................................6 ARTICLE 3 LICENSES AND COVENANTS NOT TO SUE...........................................................................6 3.1 LICENSE GRANTS TO PALM WITH RESPECT TO GALAHAD PATENTS..............................................6 3.2 RESTRICTION ON 3COM LICENSING OF GALAHAD PATENTS....................................................6 3.3 RESTRICTION ON PALM'S "HAVE MADE" RIGHTS TO GALAHAD PATENTS.........................................6 3.4 COMBINATION EXCLUSION...............................................................................6 3.5 PALM'S SUBLICENSE RIGHTS WITH RESPECT TO GALAHAD PATENTS............................................7 3.6 DURATION............................................................................................7 3.7 ACQUISITION OF PALM OR TRANSFER OF A BUSINESS OR SUBSIDIARY RELATED TO GALAHAD PATENTS...............................................................7
-i- TABLE OF CONTENTS (CONTINUED) PAGE 3.8 COPIES OF PATENT APPLICATIONS AND INVENTION DISCLOSURES.............................................9 3.9 THIRD PARTY PATENTS.................................................................................9 3.10 3COM COVENANT NOT TO SUE............................................................................9 3.11 PALM COVENANT NOT TO SUE...........................................................................10 ARTICLE 4 ADDITIONAL OBLIGATIONS.....................................................................................12 4.1 ADDITIONAL OBLIGATIONS WITH REGARD TO ASSIGNED PATENTS.............................................12 4.2 ADDITIONAL OBLIGATIONS WITH REGARD TO GALAHAD PATENTS..............................................13 4.3 STANDARDS BODIES...................................................................................14 4.4 ASSIGNMENT OF PATENTS..............................................................................14 4.5 RECORDATION OF LICENSES............................................................................14 ARTICLE 5 CONFIDENTIALITY............................................................................................14 ARTICLE 6 TERMINATION................................................................................................15 6.1 VOLUNTARY TERMINATION..............................................................................15 6.2 SURVIVAL...........................................................................................15 6.3 NO OTHER TERMINATION...............................................................................15 ARTICLE 7 DISPUTE RESOLUTION.........................................................................................15 7.1 MEDIATION..........................................................................................15 7.2 ARBITRATION........................................................................................16 7.3 COURT ACTION.......................................................................................16 7.4 CONTINUITY OF SERVICE AND PERFORMANCE..............................................................16 ARTICLE 8 LIMITATION OF LIABILITY....................................................................................16 ARTICLE 9 MISCELLANEOUS PROVISIONS...................................................................................17 9.1 DISCLAIMER.........................................................................................17 9.2 NO IMPLIED LICENSES................................................................................17 9.3 INFRINGEMENT SUITS.................................................................................17 9.4 NO OTHER OBLIGATIONS...............................................................................17 9.5 ENTIRE AGREEMENT...................................................................................18 9.6 GOVERNING LAW......................................................................................18 9.7 DESCRIPTIVE HEADINGS...............................................................................18 9.8 NOTICES............................................................................................18 9.9 NONASSIGNABILITY...................................................................................19 9.10 SEVERABILITY.......................................................................................19 9.11 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE..............................................19
-ii- TABLE OF CONTENTS (CONTINUED) PAGE 9.12 AMENDMENT..........................................................................................19 9.13 COUNTERPARTS.......................................................................................19
-iii- MASTER PATENT OWNERSHIP AND LICENSE AGREEMENT This Master Patent Ownership and License Agreement (the "Agreement") is effective as of February 26, 2000 (the "Effective Date"), between 3Com Corporation, a Delaware corporation ("3Com"), having an office at 5400 Bayfront Plaza, Santa Clara, California, 95052 and Palm, Inc., a Delaware corporation ("Palm"), having an office at 5470 Great America Parkway, Santa Clara, California, 95052. WHEREAS, the Board of Directors of 3Com has determined that it is in the best interest of 3Com and its stockholders to separate 3Com's existing businesses into two independent businesses; WHEREAS, as part of the foregoing, 3Com and Palm's predecessor, Palm Computing, Inc., a California Corporation, have entered into a Master Separation and Distribution Agreement (as defined below), which provides, among other things, for the separation of certain Palm assets and Palm liabilities, the initial public offering of Palm stock, the distribution of such stock and the execution and delivery of certain other agreements in order to facilitate and provide for the foregoing; WHEREAS, also as part of the foregoing, 3Com and Palm desire to confirm Palm's ownership of all patents, patent applications and invention disclosures invented by or for Palm and to record in Palm's name any such patents and patent applications that are recorded in 3Com's name; WHEREAS, Palm and 3Com desire to confirm 3Com's ownership of certain jointly developed technology and Palm desires to receive and 3Com is willing to grant to Palm certain licenses and rights under patents, patent applications and invention disclosures covering such technology; and WHEREAS, Palm and 3Com further desire to enter into reciprocal covenants not to sue for patent infringement. NOW, THEREFORE, in consideration of the mutual promises of the parties, and of good and valuable consideration, it is agreed by and between the parties as follows: ARTICLE 1 DEFINITIONS For the purpose of this Agreement the following capitalized terms are defined in this Article 1 and shall have the meaning specified herein: 1.1 ALLOCATED PATENT ASSETS DATABASE. "Allocated Patent Assets Database" means the mutually agreed Allocated Patent Assets Database as of the Separation Date, as it may be updated by the parties upon mutual agreement to add Patents, Patent applications and Invention Disclosures as of the Separation Date. 1.2 ASSIGNED PATENTS. "Assigned Patents" means only those (a) Patents, Patent applications and Invention Disclosures that are recorded in 3Com's name and are allocated to Palm in the Allocated Patent Assets Database; (b) Patent applications filed on the foregoing Invention Disclosures described in Section 1.2(a); (c) continuations, continuations-in-part, divisions and substitutions of any of the foregoing Patent applications described in Sections 1.2(a) and (b); (d) Patents which may issue on any of the foregoing Patent applications described in Sections 1.2(a)-(c); (e) renewals, reissues, reexaminations and extensions of the foregoing Patents described in Sections 1.2(a) and (d); and (f) foreign Patent applications and Patents that are counterparts of any of the foregoing Patent applications or Patents described in Sections 1.2(a)-(e), including any Patent application or Patent to the extent that it claims priority from any of the foregoing Patent applications or Patents described in Sections 1.2(a)-(e); but (g) excluding from any Patent or Patent application described in Sections 1.2(c)-(f) any claim (i) directed to subject matter that does not appear in any Patent application having a First Effective Filing Date prior to the Separation Date and (ii) of which neither Palm nor any person having a legal duty to assign his/her interest therein to Palm is entitled to be named as an inventor. 1.3 BLUETOOTH. "Bluetooth" means the short range wireless standard currently being promulgated by the Bluetooth Special Interest Group, of which 3Com is an adopter. 1.4 CURRENT PALM PRODUCTS. "Current Palm Products" means Palm Products of the businesses in which Palm or any of its Subsidiaries is engaged as of the Separation Date, including any Palm Products under development as set forth in 3Com's High Level Product Plan for Fiscal Year 2000 or as otherwise agreed by the parties, as well as future versions of such Palm Products, but only to the extent that they use the same designs and/or technology as such Palm Products. 1.5 CURRENT 3COM PRODUCTS. "Current 3Com Products" means 3Com Products of the businesses in which 3Com or any of its Subsidiaries is engaged as of the Separation Date, including any 3Com Products under development as set forth in 3Com's High Level Product Plan for Fiscal Year 2000 or as otherwise agreed by the parties, as well as future versions of such 3Com Products, but only to the extent that they use the same designs and/or technology as such 3Com Products. -2- 1.6 DISTRIBUTION DATE. "Distribution Date" has the meaning set forth in the Master Separation and Distribution Agreement. 1.7 FIRST EFFECTIVE FILING DATE. "First Effective Filing Date" means the earliest effective filing date in the particular country for any Patent or any application for any Patent. By way of example, it is understood that the First Effective Filing Date for a United States Patent is the earlier of (i) the actual filing date of the United States Patent application which issued into such Patent, (ii) the priority date under 35 U.S.C. Section 119 for such Patent, or (iii) the priority date under 35 U.S.C. Section 120 for such Patent. 1.8 GALAHAD PATENTS. "Galahad Patents" means any Patents, Patent applications and Invention Disclosures arising from the Galahad Project which have at least one inventor employed by Palm and at least one inventor employed by 3Com. 1.9 GALAHAD PROJECT. "Galahad Project" means the development effort within 3Com's Wireless Connectivity Division (WCD) currently known internally as the Galahad Project. 1.10 INVENTION DISCLOSURE. "Invention Disclosure" means a disclosure of an invention (i) written for the purpose of allowing legal and business people to determine whether to file a Patent application with respect to such invention and (ii) recorded with a control number in the owning party's records) with a First Effective Filing Date before the Separation Date. 1.11 MASTER SEPARATION AND DISTRIBUTION AGREEMENT. "Master Separation and Distribution Agreement" means the Master Separation and Distribution Agreement between the parties. 1.12 PALM PATENTS. "Palm Patents" means: (a) the Assigned Patents; (b) every Patent to the extent entitled to a First Effective Filing Date prior to the Separation Date provided that, at any time after the First Effective Filing Date of any such Patent and prior to the Separation Date, Palm (or any Subsidiary of Palm) has ownership or control of any such Patent; and (c) applications for the foregoing Patents described in Section 1.12(b), including without limitation any continuations, continuations-in-part, divisions and substitutions. 1.13 PALM PRODUCTS. "Palm Products" means any and all products and services of the businesses in which Palm or any of its Subsidiaries is engaged now or in the future, in all cases which products are designed or created primarily by Palm (or by any sublicensed Subsidiary) and/or by a subcontractor for Palm (or for any sublicensed Subsidiary). 1.14 PATENTS. "Patents" means patents, utility models, design patents, design registrations, certificates of invention and other governmental grants for the protection of inventions -3- or industrial designs anywhere in the world and all reissues, renewals, re-examinations and extensions of any of the foregoing. 1.15 PERSON. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. 1.16 SEPARATION DATE. "Separation Date" means 12:01 a.m., Pacific Time, February 26, 2000, or such other date as may be fixed by the Board of Directors of 3Com. 1.17 SUBSIDIARY. "Subsidiary" of any Person means a corporation or other organization, whether incorporated or unincorporated, of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; provided, however, that no Person that is not directly or indirectly wholly-owned by any other Person shall be a Subsidiary of such other Person unless such other Person controls, or has the right, power or ability to control, that Person. For the purposes of this Agreement, Palm shall be deemed not to be a Subsidiary of 3Com. 1.18 THIRD PARTY. "Third Party" means a Person other than 3Com and its Subsidiaries and Palm and its Subsidiaries. 1.19 THIRD PARTY PATENTS. "Third Party Patents" means all Third Party Patents licensed by 3Com or any Subsidiary of 3Com that, as of the Effective Date, may be sublicensed to Palm (e.g., because Palm is a Subsidiary of 3Com) under the terms of this Agreement without the requirement to pay a royalty or other consideration to a Third Party (unless 3Com has the right to grant such a sublicense to Palm on payment of a royalty and Palm agrees to pay such royalty to such Third Party). 1.20 3COM PATENTS. "3Com Patents" means: (a) every Patent to the extent entitled to a First Effective Filing Date prior to the Separation Date provided that, at any time after the First Effective Filing Date of any such Patent and prior to the Separation Date, 3Com (or any Subsidiary of 3Com) has ownership or control of any such Patent; and (b) applications for the foregoing Patents described in Section 1.18(a), including without limitation any continuations, continuations-in-part, divisions and substitutions. 1.21 3COM PRODUCTS. "3Com Products" means any and all products and services of the businesses in which 3Com or any of its Subsidiaries is engaged now or in the future, in all cases which products are designed or created primarily by 3Com (or by any sublicensed Subsidiary) and/or by a subcontractor for 3Com (or for any sublicensed Subsidiary), as well as future versions of such 3Com Products. -4- ARTICLE 2 OWNERSHIP 2.1 OWNERSHIP OF PATENTS. (a) PALM PATENTS. The parties agree that Palm hereby retains ownership of all right, title and interest in and to all Palm Patents. (b) ASSIGNED PATENTS. Subject to Sections 2.2 and 2.3 below, 3Com hereby grants, conveys and assigns (and agrees to cause its appropriate Subsidiaries to grant, convey and assign) to Palm, by execution hereof (or, where appropriate or required, by execution of separate instruments of assignment), all its (and their) right, title and interest in and to the Assigned Patents, to be held and enjoyed by Palm, its successors and assigns. 3Com further grants, conveys and assigns (and agrees to cause its appropriate Subsidiaries to grant, convey and assign) to Palm all its (and their) right, title and interest in and to any and all causes of action and rights of recovery for past infringement of the Assigned Patents and the right to claim priority from the Assigned Patents. 3Com will, without demanding any further consideration therefor, at the request and expense of Palm (except for the value of the time of 3Com employees), do (and cause its Subsidiaries to do) all lawful and just acts, that may be or become necessary for prosecuting, sustaining, obtaining continuations of, or reissuing said Assigned Patents and for evidencing, maintaining, recording and perfecting Palm's rights to said Assigned Patents, consistent with 3Com's general business practice as of the Separation Date, including but not limited to execution and acknowledgement of (and causing its Subsidiaries to execute and acknowledge) assignments and other instruments in a form reasonably required by Palm for each Patent jurisdiction. (c) GALAHAD PATENTS. Subject to Sections 2.2 and 2.3 below, Palm hereby grants, conveys and assigns (and agrees to cause its appropriate Subsidiaries to grant, convey and assign) to 3Com, by execution hereof (or, where appropriate or required, by execution of separate instruments of assignment), all its (and their) right, title and interest in and to the Galahad Patents, to be held and enjoyed by 3Com, its successors and assigns. Palm further grants, conveys and assigns (and agrees to cause its appropriate Subsidiaries to grant, convey and assign) to 3Com all its (and their) right, title and interest in and to any and all causes of action and rights of recovery for past infringement of the Galahad Patents and the right to claim priority from the Galahad Patents. Palm will, without demanding any further consideration therefor, at the request and expense of 3Com (except for the value of the time of Palm employees), do (and cause its Subsidiaries to do) all lawful and just acts, that may be or become necessary for prosecuting, sustaining, obtaining continuations of, or reissuing said Galahad Patents and for evidencing, maintaining, recording and perfecting 3Com's rights to said Galahad Patents, consistent with Palm's general business practice as of the Separation Date, including but not limited to execution and acknowledgement of (and causing its Subsidiaries to execute and acknowledge) assignments and other instruments in a form reasonably required by 3Com for each Patent jurisdiction. -5- 2.2 PRIOR GRANTS. Palm acknowledges and agrees that the foregoing assignments are subject to any and all licenses or other rights that may have been granted by 3Com or its Subsidiaries with respect to the Assigned Patents prior to the Separation Date. 3Com shall respond to reasonable inquiries from Palm regarding any such prior grants. 2.3 ASSIGNMENT DISCLAIMER. EACH PARTY ACKNOWLEDGES AND AGREES THAT THE FOREGOING ASSIGNMENTS ARE MADE ON AN "AS-IS," QUITCLAIM BASIS AND THAT NEITHER PARTY NOR ANY SUBSIDIARY OF SUCH PARTY HAS MADE OR WILL MAKE ANY WARRANTY WHATSOEVER, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ENFORCEABILITY, NON-INFRINGEMENT, OR VALIDITY OF PATENT CLAIMS (ISSUED OR PENDING). ARTICLE 3 LICENSES AND COVENANTS NOT TO SUE 3.1 LICENSE GRANTS TO PALM WITH RESPECT TO GALAHAD PATENTS. 3Com grants (and agrees to cause its appropriate Subsidiaries to grant) to Palm, under the Galahad Patents, an irrevocable, nonexclusive, worldwide, fully-paid, royalty-free and non-transferable (except as set forth in Section 9.9) license to make (including the right to practice methods, processes and procedures), have made (except as restricted in Section 3.3 below), use, lease, sell, offer for sale and import Palm Products. 3.2 RESTRICTION ON 3COM LICENSING OF GALAHAD PATENTS. 3Com agrees that it will not license any of the Galahad Patents to any Third Party for use in lightweight handheld mobile computing devices or operating systems for such devices; provided, however, that 3Com retains the right to license the Galahad Patents to Third Parties for such use for defensive purposes (i.e., to resolve a claim of patent infringement brought against 3Com by a Third Party). 3.3 RESTRICTION ON PALM'S "HAVE MADE" RIGHTS TO GALAHAD PATENTS. The license granted in Section 3.1 to have Palm Products made by a Third Party shall (i) only apply when the portion of the "have made" Palm Product covered by the Galahad Patents has been designed or created by Palm and/or one of Palm's subcontractors (not such Third Party) who is not a direct competitor of 3Com in the field of the Palm Product being designed or created and (ii) shall not apply to (A) any methods used, or (B) any Palm Products or portions thereof that have been manufactured or marketed, by a Third Party prior to Palm furnishing the designs or creations to such Third Party. 3.4 COMBINATION EXCLUSION. Except as expressly provided herein, no license or immunity is granted under this Agreement by 3Com, either directly or by implication, estoppel or otherwise to any third parties acquiring Palm Products from Palm for the combination of such Palm Products with other items or for the use of such combination. Notwithstanding the previous sentence, -6- 3Com grants to the direct and indirect customers of Palm, an immunity from suit under the Galahad Patents for the combination of any such Palm Products with other Palm Products and their use in such combination where the Palm Products have no other substantial noninfringing use aside from the combination with other Palm Products sold or otherwise transferred by Palm directly or indirectly to such customer. 3.5 PALM'S SUBLICENSE RIGHTS WITH RESPECT TO GALAHAD PATENTS. (a) Palm may grant sublicenses to its Subsidiaries under the license grant set forth in Section 3.1 within the scope of Palm's license hereunder (with no right to grant further sublicenses other than, in the case of a sublicensed Subsidiary, to another Subsidiary of Palm and as described in Section 3.5(c) below). (b) Any sublicense under Section 3.5(a) may be made effective retroactively, but not prior to the sublicensee's becoming a Subsidiary of Palm. (c) Any Palm Product for which a software license is granted by Palm (or any sublicensed Subsidiary) to its distributors, resellers, OEM customers, VAR customers, VAD customers, systems integrators and other channels of distribution and to its end user customers (including, but not limited to, the Palm operating system) shall be considered to be covered under the license grant set forth in Section 3.1 within the scope of Palm's license hereunder, but only to the extent that the Palm Product incorporates the technology covered by the claims of the Galahad Patents. (d) Palm shall have no rights to grant sublicenses to the Galahad Patents, except as expressly provided in Section 3.5 (a), (b) and (c) above. 3.6 DURATION. (a) All licenses granted herein with respect to each Patent shall expire upon the expiration of the term of such Patent. (b) All sublicenses granted pursuant to this Agreement to a particular Subsidiary of Palm shall terminate the date that the Subsidiary ceases to be a Subsidiary of Palm. 3.7 ACQUISITION OF PALM OR TRANSFER OF A BUSINESS OR SUBSIDIARY RELATED TO GALAHAD PATENTS. (a) If Palm, after the Separation Date, transfers all or substantially all of its business or assets, or all or substantially all of the business or assets to which the Galahad Patents relate, then regardless of whether such transfer is part of (i) an asset sale to any Third Party, or (ii) a sale of shares or securities in Palm or a Subsidiary to a Third Party (in each case, any such Third Party shall be referred to herein as a "Transferee"), then upon written request by Palm and the Transferee to 3Com within sixty (60) days following the transfer, 3Com shall grant a royalty-free -7- license to the Transferee with respect to the Galahad Patents under the same terms of the license granted to Palm under this Agreement subject to the following: (i) the effective date of such license shall be the effective date of transfer; and (ii) the products and services of the Transferee that are subject to such license shall be limited to the specific Palm Products in the transferred business that are (A) commercially released as of the date of transfer or which, prior to the transfer, (B) were planned for release within three (3) months from the date of transfer and actually are commercially released within three (3) months from the date of transfer and (C) for new versions of such specific Palm Products covered by clauses (A) and (B) above that have merely minor differences from such Palm Products with no additional features; and (iii) the Galahad Patents that are subject to such license shall be limited to the Galahad Patents that are entitled to a First Effective Filing Date before the date of such transfer; and (iv) the Transferee shall have no right to grant sublicenses (except as set forth in Section 3.5(c) above); and (v) this Section 3.7 shall be excluded from such license in any event and therefore 3Com shall have no obligation to grant a license to a subsequent transferee; (b) provided, that 3Com shall have no obligation to grant such license unless the Transferee grants to 3Com a royalty-free license under a comparable license grant as the license granted to Palm under this Agreement, subject to the following: (i) the effective date of such license shall be the effective date of the transfer; and (ii) the products and services of 3Com that are subject to such license shall be all the 3Com Products; and (iii) the Patents of the Transferee that are subject to such license shall be the Patents owned or controlled by the Transferee claiming inventions in the wireless field that are entitled to a First Effective Filing Date on or before the date of such transfer and applications for such patents (including without limitation any continuations, continuations-in-part, divisions and substitutions); and (c) provided, further, that in the event that 3Com and the Transferee are engaged in litigation, arbitration or other formal dispute resolution proceedings covering Patent infringement (pending in any court, tribunal, or administrative agency or before any appointed or agreed upon arbitrator in any jurisdiction worldwide), then 3Com shall have no obligation to grant such license to the Transferee under this Section 3.7. -8- 3.8 COPIES OF PATENT APPLICATIONS AND INVENTION DISCLOSURES. 3Com agrees, at its own expense from time to time upon Palm's request, to provide to Palm copies of (i) the Assigned Patents and (ii) the Galahad Patents. 3.9 THIRD PARTY PATENTS. 3Com confirms that it has granted, and hereby grants (and agrees to cause its appropriate Subsidiaries to grant) to Palm, under the Third Party Patents, a nonexclusive, worldwide sublicense to make (including the right to practice methods, processes and procedures), have made, use, lease, sell, offer for sale and import any products and services subject to any and all terms and conditions set forth in the applicable agreement between 3Com and the Third Party Patent owner, but only to the extent and for the period of time 3Com has the legal right to grant such a sublicense. 3Com shall respond to reasonable inquires from Palm regarding any Third Party Patents. 3.10 3COM COVENANT NOT TO SUE. (a) 3Com irrevocably grants, on behalf of itself and its Subsidiaries, at no charge, an immunity from suit to Palm and its Subsidiaries, and its or their direct or indirect customers and Third Party manufacturers (subject to the restrictions set forth in the next sentence) for infringement of any 3Com Patent by any Current Palm Product. The foregoing covenant with respect to Third Party manufacturers (i) shall apply only when the portion of the "have made" Current Palm Product covered by the 3Com Patents has been designed or created by Palm and/or one of Palm's subcontractors (not the Third Party manufacturer) who is not a direct competitor of 3Com in the field of the Current Palm Product being designed or created and (ii) shall not apply to (A) any methods used, or (B) any products or portions thereof that have been manufactured or marketed, by any Third Party prior to Palm furnishing the designs or creations to such Third Party. No immunity is granted under the foregoing covenant by 3Com, either directly or by implication, estoppel or otherwise to any Third Parties acquiring Current Palm Products from Palm for the combination of such Current Palm Products with other items or for the use of such combination; provided, however, that the foregoing covenant shall apply to the direct and indirect customers of Palm for the combination of any such acquired Current Palm Products with other Palm Products and their use in such combination where the acquired Current Palm Products have no other substantial noninfringing use aside from the combination with other Palm Products sold or otherwise transferred by Palm directly or indirectly to such customer. (b) The foregoing covenant shall continue with respect to each 3Com Patent for the term of such 3Com Patent. (c) If Palm, after the Separation Date, transfers all or substantially all of its business or assets, or transfers a Subsidiary or business unit, then regardless of whether such transfer is part of (i) an asset sale to any Third Party, or (ii) a sale of shares or securities in Palm or a Subsidiary to a Third Party (in each case, any such Third Party shall be referred to herein as a "Transferee"), then upon written request by Palm and the Transferee to 3Com within sixty (60) days following the transfer, 3Com shall grant an immunity from suit to the Transferee under the same terms as the covenant set forth in Section 3.10 (a) and (b) above subject to the following: -9- (i) the effective date of such covenant shall be the effective date of transfer; and (ii) the products and services of the Transferee that are subject to such covenant shall be limited to the specific Current Palm Products in the transferred business that are (A) commercially released as of the date of transfer or which, prior to the transfer, (B) were planned for release within three (3) months from the date of transfer and actually are commercially released within three (3) months from the date of transfer and (C) for new versions of such specific Current Palm Products covered by Clauses (i) or (ii) above that have merely minor differences from such Current Palm Products with no additional features; and (iii) the 3Com Patents that are subject to such covenant shall be limited to the 3Com Patents that are entitled to a First Effective Filing Date before the date of such transfer and, in the event that the transfer is a transfer of a Subsidiary or business unit and not all or substantially all of Palm's business or assets, then the 3Com Patents that are subject to such covenant shall be limited to the 3Com Patents in the field of use of the transferred Subsidiary or business ; and (iv) this Section 3.10(c) shall be excluded from such covenant in any event and therefore 3Com shall have no obligation to grant a covenant not to sue to any subsequent transferee; (v) provided, however, that 3Com shall have no obligation to grant such covenant unless the Transferee grants to 3Com and its customers and suppliers a covenant not to sue at no charge on the following terms: (1) the effective date of such covenant shall be the effective date of the transfer; and (2) the products and services of 3Com that are subject to such covenant shall be the 3Com Products; and (3) the Patents of the Transferee that are subject to such covenant shall be all the Patents owned or controlled by the Transferee that are entitled to a First Effective Filing Date before the date of such transfer and applications for such Patents (including without limitation any continuations, continuations-in-part, divisions and substitutions); and (vi) provided, further, that in the event that 3Com and any such Transferee are engaged in litigation, arbitration or other formal dispute resolution proceedings covering Patent infringement (pending in any court, tribunal, or administrative agency or before any appointed or agreed upon arbitrator in any jurisdiction worldwide), then 3Com shall have no obligation to grant such covenant under this Section 3.10(c). 3.11 PALM COVENANT NOT TO SUE -10- (a) Palm irrevocably grants, on behalf of itself and its Subsidiaries, at no charge, an immunity from suit to 3Com and its Subsidiaries, and its or their direct or indirect customers and manufacturers (subject to the restrictions set forth in the next sentence) for infringement of any Palm Patent by any Current 3Com Product. The foregoing covenant with respect to Third Party manufacturers (i) shall apply only when the portion of the "have made" Current 3Com Product covered by the Palm Patents has been designed or created by 3Com and/or one of 3Com's subcontractors (not the Third Party manufacturer) who is not a direct competitor of Palm in the field of the Current 3Com Product being designed or created and (ii) shall not apply to (A) any methods used, or (B) any products or portions thereof that have been manufactured or marketed by any Third Party prior to 3Com furnishing the designs or creations to such Third Party. No immunity is granted under the foregoing covenant by Palm, either directly or by implication, estoppel or otherwise to any Third Parties acquiring Current 3Com Products from 3Com for the combination of such Current 3Com Products with other items or for the use of such combination; provided, however, that the foregoing covenant shall apply to the direct and indirect customers of 3Com for the combination of any such acquired Current 3Com Products with other 3Com Products and their use in such combination where the acquired Current 3Com Products have no other substantial noninfringing use aside from the combination with other 3Com Products sold or otherwise transferred by 3Com directly or indirectly to such customer. (b) The foregoing covenant shall continue with respect to each Palm Patent, for the term of such Palm Patent. (c) If 3Com, after the Separation Date, transfers all or substantially all of its business or assets, or transfers a Subsidiary or business unit, then regardless of whether such transfer is part of (i) an asset sale to any Third Party, or (ii) a sale of shares or securities in 3Com or a Subsidiary to a Third Party (in each case, any such Third Party shall be referred to herein as a "Transferee"), then upon written request by 3Com and the Transferee to Palm within sixty(60) days following the transfer, Palm shall grant an immunity from suit to the Transferee under the same terms as the covenant set forth in Section 3.11(a) and (b) above subject to the following: (i) the effective date of such covenant shall be the effective date of transfer; and (ii) the products and services of the Transferee that are subject to such covenant shall be limited to the specific Current 3Com Products in the transferred business that are (A) commercially released as of the date of transfer or which, prior to the transfer, (B) were planned for release within three (3) months from the date of transfer and actually are commercially released within three (3) months from the date of transfer and (C) for new versions of such specific Current 3Com Products covered by clauses (i) or (ii) above, that have merely minor differences from such Current 3Com Products with no additional features; and (iii) the Palm Patents that are subject to such covenant shall be limited to the Palm Patents that are entitled to a First Effective Filing Date before the date of such transfer and, in the event that the transfer is a transfer of a Subsidiary or business unit and not all or substantially -11- all of 3Com's business or assets, then the Palm Patents that are subject to such covenant shall be limited to the Palm Patents in the field of use of the transferred Subsidiary or business; and (iv) this Section 3.11(c) shall be excluded from such covenant in any event and therefore, Palm shall have no obligation to grant a covenant not to sue to any subsequent transferee; (v) provided, however, that Palm shall have no such obligation to grant such covenant unless the Transferee grants to Palm and its customers and suppliers a covenant not to sue at no charge on the following terms: (1) the effective date of such covenant shall be the effective date of the transfer; and (2) the products and services of Palm that are subject to such covenant shall be the Palm Products; and (3) the Patents of the Transferee that are subject to such covenant shall be all the Patents owned or controlled by the Transferee that are entitled to a First Effective Filing Date before the date of such transfer and applications for such Patents including without limitation any continuations, continuations-in-part, divisions and substitutions; and (vi) provided, further, that in the event that Palm and any such Transferee are engaged in litigation, arbitration or other formal dispute resolution proceedings covering Patent infringement (pending in any court, tribunal, or administrative agency or before any appointed or agreed upon arbitrator in any jurisdiction worldwide), then Palm shall have no obligation to grant such covenant under this Section 3.11(c). ARTICLE 4 ADDITIONAL OBLIGATIONS 4.1 ADDITIONAL OBLIGATIONS WITH REGARD TO ASSIGNED PATENTS. (a) The parties will cooperate to effect a smooth transfer of the responsibility for prosecution, maintenance and enforcement of the Assigned Patents from 3Com to Palm. Until such transfer has been effected, 3Com agrees to continue the prosecution and maintenance of, and ongoing litigation (if any) with respect to, the Assigned Patents (including payment of maintenance fees), and to maintain its files and records relating to the Assigned Patents using the same standard of care and diligence that it uses with respect to 3Com's Patents. Palm will reimburse 3Com for all actual and reasonable expenses (excluding the value of the time of 3Com employees) to continue to prosecute and maintain the Assigned Patents after the Separation Date until the transfer of -12- responsibility for the Assigned Patents has been completed and to continue any such ongoing litigation. The parties shall agree on a case by case basis on compensation, if any, of 3Com for the value of time of 3Com's employees as reasonably required in connection with any such litigation. 3Com will provide Palm with the originals or copies of its files relating to the Assigned Patents upon such transfer or at such earlier time as the parties may agree. (b) 3Com shall provide continuing reasonable support to Palm with respect to the Assigned Patents, including by way of example the following: (i) executing all documents prepared by Palm necessary for prosecution, maintenance, and litigation of the Assigned Patents, (ii) making available to Palm or its counsel, inventors and other persons employed by 3Com for interviews and/or testimony to assist in good faith in further prosecution, maintenance or litigation of the Assigned Patents, including the signing of documents related thereto, (iii) forwarding copies of all correspondence sent and received concerning the Assigned Patents within a reasonable period of time after receipt by 3Com, and (iv) making all relevant documents in the possession or control of 3Com and corresponding to the Assigned Patents, or any licenses thereunder, available to Palm or its counsel. Any actual and reasonable out-of-pocket expenses associated with any such assistance shall be borne by Palm, expressly excluding the value of the time of such 3Com employees; provided, however, that in the case of assistance with litigation, the parties shall agree on a case by case basis on compensation, if any, of 3Com for the value of the time of 3Com's employees as reasonably required in connection with such litigation. 4.2 ADDITIONAL OBLIGATIONS WITH REGARD TO GALAHAD PATENTS. Palm shall provide continuing reasonable support to 3Com with respect to the Galahad Patents, including by way of example the following: (a) executing all documents prepared by 3Com necessary for prosecution, maintenance, and litigation of the Galahad Patents, (b) making available to 3Com or its counsel, inventors and other persons employed by Palm for interviews and/or testimony to assist in good faith in further prosecution, maintenance or litigation of the Galahad Patents, including the signing of documents related thereto, (c) forwarding copies of all correspondence sent and received concerning the Galahad Patents within a reasonable period of time after receipt by Palm, and -13- (d) making all relevant documents in the possession or control of Palm and corresponding to the Galahad Patents, or any licenses thereunder, available to 3Com or its counsel. Any actual and reasonable out-of-pocket expenses associated with such assistance shall be borne by 3Com, expressly excluding the value of the time of such Palm personnel; provided, however, that in the case of assistance with litigation, the parties shall agree on a case by case basis on compensation, if any, of Palm for the value of the time of Palm's employees as reasonably required in connection with such litigation. 4.3 STANDARDS BODIES. For a period of five (5) years from the Separation Date, the parties agree to cooperate reasonably and in good faith with each other with respect to the licensing of each party's Patents in the context of Bluetooth related standards bodies, to the extent consistent with each party's own business objectives. 4.4 ASSIGNMENT OF PATENTS. 3Com shall not assign or grant any rights under any of the Galahad Patents unless such assignment or grant is made subject to the licenses granted in this Agreement. 4.5 RECORDATION OF LICENSES. (a) For any country, now or in the future, that requires the express consent of all inventors or their assignees to the grant of licenses or rights under Patents issued in such countries for joint inventions: (i) each party shall give such consent, or shall obtain such consent from its employees, its Subsidiaries or employees of any of its Subsidiaries, as required to make full and effective any such licenses and rights respecting any joint invention granted to a grantee hereunder by such party; and (ii) each party shall take steps that are reasonable under the circumstances to obtain from Third Parties whatever other consents are necessary to make full and effective such licenses and rights respecting any joint invention purported to be granted by it hereunder. If, in spite of such reasonable steps, such party is unable to obtain the requisite consents from such Third Parties, the resulting inability of such party to make full and effective its purported grant of such licenses and rights shall not be considered to be a breach of this Agreement. (b) Each party agrees, without demanding any further consideration, to execute (and to cause its Subsidiaries to execute) all documents reasonably requested by the other party to effect recordation of the license relationship between the parties created by this Agreement. ARTICLE 5 CONFIDENTIALITY -14- The terms of the Master Confidential Disclosure Agreement between the parties shall apply to any Confidential Information (as defined therein) which is the subject matter of this Agreement. ARTICLE 6 TERMINATION 6.1 VOLUNTARY TERMINATION. By written notice to 3Com, Palm may voluntarily terminate all or a specified portion of the licenses and rights granted to it hereunder by 3Com. Such notice shall specify the effective date of such termination and shall clearly specify any affected Patent, Patent application, Invention Disclosure, product or service. 6.2 SURVIVAL. Any voluntary termination of licenses and rights of Palm under Section 6.1 shall not affect Palm's licenses and rights with respect to any licensed product made or service furnished prior to such termination, and shall not affect the licenses and rights granted to 3Com hereunder. 6.3 NO OTHER TERMINATION. Each party acknowledges and agrees that its remedy for breach by the other party of the licenses granted to it hereunder or of any other provision hereof, shall be, subject to the requirements of Article 7, to bring a claim to recover damages subject to the limits set forth in this Agreement and to seek any other appropriate equitable relief, other than termination of the licenses or covenants not to sue granted by it in this Agreement. ARTICLE 7 DISPUTE RESOLUTION 7.1 MEDIATION. If a dispute, controversy or claim ("Dispute") arises between the parties relating to the interpretation or performance of this Agreement, or the grounds for the termination hereof, appropriate senior executives (e.g. director or V.P. level) of each party who shall have the authority to resolve the matter shall meet to attempt in good faith to negotiate a resolution of the Dispute prior to pursuing other available remedies. The initial meeting between the appropriate senior executives shall be referred to herein as the "Dispute Resolution Commencement Date." Discussions and correspondence relating to trying to resolve such Dispute shall be treated as confidential information developed for the purpose of settlement and shall be exempt from discovery or production and shall not be admissible. If the senior executives are unable to resolve the Dispute within thirty (30) days from the Dispute Resolution Commencement Date, and either party wishes to pursue its rights relating to such Dispute, then the Dispute will be mediated by a mutually acceptable mediator appointed pursuant to the mediation rules of JAMS/Endispute within thirty (30) days after written notice by one party to the other demanding non-binding mediation. Neither party may unreasonably withhold consent to the selection of a mediator or the location of the mediation. Both parties will share the costs of the mediation equally, except that each party shall bear its own costs -15- and expenses, including attorney's fees, witness fees, travel expenses, and preparation costs. The parties may also agree to replace mediation with some other form of non-binding or binding ADR. 7.2 ARBITRATION. Any Dispute which the parties cannot resolve through mediation within ninety (90) days of the Dispute Resolution Commencement Date, unless otherwise mutually agreed, shall be submitted to final and binding arbitration under the then current Commercial Arbitration Rules of the American Arbitration Association ("AAA"), by three (3) arbitrators in Santa Clara County, California. Such arbitrators shall be selected by the mutual agreement of the parties or, failing such agreement, shall be selected according to the aforesaid AAA rules. The arbitrators will be instructed to prepare and deliver a written, reasoned opinion stating their decision within thirty (30) days of the completion of the arbitration. The prevailing party in such arbitration shall be entitled to expenses, including costs and reasonable attorneys' and other professional fees, incurred in connection with the arbitration (but excluding any costs and fees associated with prior negotiation or mediation). The decision of the arbitrator shall be final and non-appealable and may be enforced in any court of competent jurisdiction. The use of any ADR procedures will not be construed under the doctrine of laches, waiver or estoppel to adversely affect the rights of either party. 7.3 COURT ACTION. Any Dispute regarding the following is not required to be negotiated, mediated or arbitrated prior to seeking relief from a court of competent jurisdiction: breach of any obligation of confidentiality; infringement, misappropriation, or misuse of any intellectual property right; any other claim where interim relief from the court is sought to prevent serious and irreparable injury to one of the parties or to others. However, the parties to the Dispute shall make a good faith effort to negotiate and mediate such Dispute, according to the above procedures, while such court action is pending. 7.4 CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in writing, the parties will continue to provide service and honor all other commitments under this Agreement during the course of dispute resolution pursuant to the provisions of this Article 7 with respect to all matters not subject to such dispute, controversy or claim. ARTICLE 8 LIMITATION OF LIABILITY IN NO EVENT SHALL EITHER PARTY OR ITS SUBSIDIARIES BE LIABLE TO THE OTHER PARTY OR ITS SUBSIDIARIES FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT DAMAGES FOR INFRINGEMENT AVAILABLE TO EITHER PARTY UNDER APPLICABLE LAW IN THE EVENT OF BREACH BY THE OTHER PARTY OF SECTIONS 3.1, 3.2, 3.3 OR 3.5(a) OR FOR INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS NOT LICENSED OR COVENANTED HEREIN AND -16- SHALL NOT LIMIT EACH PARTY'S OBLIGATIONS EXPRESSLY ASSUMED IN EXHIBIT J OF THE MASTER SEPARATION AND DISTRIBUTION AGREEMENT; PROVIDED FURTHER THAT THE EXCLUSION OF PUNITIVE DAMAGES SHALL APPLY IN ANY EVENT. ARTICLE 9 MISCELLANEOUS PROVISIONS 9.1 DISCLAIMER. EACH PARTY ACKNOWLEDGES AND AGREES THAT ALL PATENTS AND ANY OTHER INFORMATION OR MATERIALS LICENSED OR PROVIDED HEREUNDER ARE LICENSED OR PROVIDED ON AN "AS IS" BASIS AND THAT NEITHER PARTY NOR ANY OF ITS SUBSIDIARIES MAKES ANY REPRESENTATIONS OR EXTENDS ANY WARRANTIES WHATSOEVER, EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT THERETO INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ENFORCEABILITY OR NON-INFRINGEMENT. Without limiting the generality of the foregoing, neither party nor any of its Subsidiaries makes any warranty or representation as to the validity and/or scope of any Patent licensed by it to the other party hereunder or any warranty or representation that any manufacture, use, importation, offer for sale or sale of any product or service will be free from infringement of any Patent or other intellectual property right of any Third Party. 9.2 NO IMPLIED LICENSES. Nothing contained in this Agreement shall be construed as conferring any rights by implication, estoppel or otherwise, under any intellectual property right, other than the rights expressly granted in this Agreement with respect to the Galahad Patents and Assigned Patents. Neither party is required hereunder to furnish or disclose to the other any technical or other information except as specifically provided herein. 9.3 INFRINGEMENT SUITS. Neither party shall have any obligation hereunder to institute any action or suit against Third Parties for infringement of any Patent or to defend any action or suit brought by a Third Party which challenges or concerns the validity of any Patent. Unless the parties otherwise agree in writing, neither party shall have any right to institute any action or suit against Third Parties for infringement of any Patent owned by the other party. 9.4 NO OTHER OBLIGATIONS. NEITHER PARTY ASSUMES ANY RESPONSIBILITIES OR OBLIGATIONS WHATSOEVER, OTHER THAN THE RESPONSIBILITIES AND OBLIGATIONS EXPRESSLY SET FORTH IN THIS AGREEMENT OR A SEPARATE WRITTEN AGREEMENT BETWEEN THE PARTIES. Without limiting the generality of the foregoing, neither party, nor any of its Subsidiaries is obligated to (i) file any Patent application, or to secure any Patent or Patent rights, (ii) to maintain any Patent in force, or (iii) provide any technical assistance, except for the obligations expressly assumed in this Agreement. -17- 9.5 ENTIRE AGREEMENT. This Agreement, the Master Separation and Distribution Agreement and the other Ancillary Agreements (as defined in the Master Separation and Distribution Agreement) and the Exhibits and Schedules referenced or attached hereto and thereto constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof. To the extent there is a conflict between this Agreement and the Master Assignment and Assumption Agreement between the parties, the terms of this Agreement shall govern. 9.6 GOVERNING LAW. This Agreement shall be construed in accordance with and all Disputes hereunder shall be governed by the laws of the State of California, excluding its conflict of law rules and the United Nations Convention on Contracts for the International Sale of Goods. The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have jurisdiction and venue over all Disputes between the parties that are permitted to be brought in a court of law pursuant to Article 7 above. 9.7 DESCRIPTIVE HEADINGS. The headings contained in this Agreement, in any Exhibit or Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any Exhibit or Schedule but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an Article or a Section, Exhibit or Schedule, such reference shall be to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. 9.8 NOTICES. Notices, offers, requests or other communications required or permitted to be given by either party pursuant to the terms of this Agreement shall be given in writing to the respective parties to the following addresses: if to 3Com: 3Com Corporation 5400 Bayfront Plaza Santa Clara, California 95052 Attention: General Counsel Fax: (408) 326-6434 if to Palm: Palm, Inc. 5470 Great America Parkway Santa Clara, California 95052 Attention: General Counsel or to such other address as the party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested. All other notices may also be sent by fax, confirmed -18- by first class mail. All notices shall be deemed to have been given and received on the earlier of actual delivery or three (3) days from the date of postmark. 9.9 NONASSIGNABILITY. Neither party may, directly or indirectly, in whole or in part, whether by operation of law or otherwise, assign or transfer this Agreement, without the other party's prior written consent, and any attempted assignment, transfer or delegation without such prior written consent shall be voidable at the sole option of such other party. Notwithstanding the foregoing, each party (or its successive assignees or transferees hereunder) may, without such consent, assign or transfer this Agreement, to a Person that succeeds to all or substantially all of its business or assets of such party as long as such Person agrees to accept all of the terms set forth herein; provided, however, that the licenses and covenants not to sue set forth in Article 3 may not be assigned or transferred in any event (except in the case of a reincorporation of such party in another state); and provided, further, that the prohibition on assignment or transfer of the licenses and covenants not to sue set forth in Article 3 shall not limit 3Com's or Palm's obligations in Sections 3.7, 3.10(c) and 3.11(c) to grant licenses and/or covenants not to sue to a Transferee. Without limiting the foregoing, this Agreement will be binding upon and inure to the benefit of the parties and their permitted successors and assigns. 9.10 SEVERABILITY. If any term or other provision of this Agreement is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. 9.11 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of either party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. 9.12 AMENDMENT. No change or amendment will be made to this Agreement except by an instrument in writing signed on behalf of each of the parties to such agreement. 9.13 COUNTERPARTS. This Agreement, including the Ancillary Agreement and the Exhibits and Schedules hereto and thereto and the other documents referred to herein or therein, may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. -19- WHEREFORE, the parties have signed this Master Patent Ownership and License Agreement effective as of the date first set forth above. 3COM CORPORATION PALM, INC. By: By: ----------------------------- ----------------------------- Name: Name: --------------------------- --------------------------- Title: Title: -------------------------- -------------------------- -20- EX-2.5 5 EXHIBIT 2.5 Exhibit 2.5 MASTER TRADEMARK OWNERSHIP AND LICENSE AGREEMENT BETWEEN 3COM CORPORATION AND PALM, INC. Effective as of February 26, 2000 MASTER TRADEMARK OWNERSHIP AND LICENSE AGREEMENT TABLE OF CONTENTS
PAGE ---- ARTICLE 1 DEFINITIONS.................................................................................................1 1.1 AUTHORIZED DEALERS..................................................................................1 1.2 COLLATERAL MATERIALS................................................................................1 1.3 CORPORATE IDENTITY MATERIALS........................................................................1 1.4 DISTRIBUTION DATE...................................................................................2 1.5 LICENSED MARKS......................................................................................2 1.6 MAINTENANCE CONTRACTS...............................................................................2 1.7 MARK................................................................................................2 1.8 MASTER SEPARATION AND DISTRIBUTION AGREEMENT........................................................2 1.9 PALM BUSINESS.......................................................................................2 1.10 PALM BUSINESS MARKS.................................................................................2 1.11 PALM BUSINESS MARKS DATABASE........................................................................2 1.12 PALM BUSINESS PRODUCTS..............................................................................2 1.13 PERSON..............................................................................................2 1.14 QUALITY STANDARDS...................................................................................3 1.15 SELL................................................................................................3 1.16 SEPARATION DATE.....................................................................................3 1.17 SUBSIDIARY..........................................................................................3 1.18 THIRD PARTY.........................................................................................3 1.19 TRADEMARK USAGE GUIDELINES..........................................................................3 ARTICLE 2 OWNERSHIP...................................................................................................3 2.1 OWNERSHIP OF PALM BUSINESS MARKS....................................................................3 2.2 PRIOR GRANTS........................................................................................4 2.3 ASSIGNMENT DISCLAIMER...............................................................................4 ARTICLE 3 LICENSES....................................................................................................4 3.1 LICENSE GRANT.......................................................................................4 3.2 LICENSE RESTRICTIONS................................................................................4 3.3 LICENSEE UNDERTAKINGS...............................................................................5 3.4 NON-TRADEMARK USE...................................................................................5 3.5 RESERVATION OF RIGHTS...............................................................................5 3.6 THIRD PARTY LICENSES................................................................................6 ARTICLE 4 PERMITTED SUBLICENSES.......................................................................................6 4.1 SUBLICENSES.........................................................................................6 4.2 AUTHORIZED DEALERS'USE OF MARKS.....................................................................6 4.3 ENFORCEMENT OF AGREEMENTS...........................................................................6
-i- TABLE OF CONTENTS (continued) ARTICLE 5 TRADEMARK USAGE GUIDELINES..................................................................................7 5.1 TRADEMARK USAGE GUIDELINES..........................................................................7 5.2 TRADEMARK REVIEWS...................................................................................7 ARTICLE 6 TRADEMARK USAGE GUIDELINE ENFORCEMENT.......................................................................7 6.1 INITIAL CURE PERIOD.................................................................................7 6.2 SECOND CURE PERIOD..................................................................................7 6.3 FINAL CURE PERIOD...................................................................................8 ARTICLE 7 QUALITY STANDARDS...........................................................................................8 7.1 GENERAL.............................................................................................8 7.2 QUALITY STANDARDS...................................................................................8 7.3 QUALITY CONTROL REVIEWS.............................................................................8 7.4 PRODUCT DISCONTINUATION.............................................................................8 ARTICLE 8 QUALITY STANDARD ENFORCEMENT................................................................................9 8.1 INITIAL CURE PERIOD.................................................................................9 8.2 SECOND CURE PERIOD..................................................................................9 8.3 FINAL CURE PERIOD...................................................................................9 ARTICLE 9 PROTECTION OF LICENSED MARKS................................................................................9 9.1 OWNERSHIP AND RIGHTS................................................................................9 9.2 PROTECTION OF MARKS.................................................................................9 9.3 SIMILAR MARKS......................................................................................10 9.4 INFRINGEMENT PROCEEDINGS...........................................................................10 ARTICLE 10 TERMINATION...............................................................................................11 10.1 TERM...............................................................................................11 10.2 VOLUNTARY TERMINATION..............................................................................11 10.3 SURVIVAL...........................................................................................11 10.4 OTHER TERMINATION..................................................................................11 ARTICLE 11 DISPUTE RESOLUTION........................................................................................11 11.1 MEDIATION..........................................................................................11 11.2 ARBITRATION........................................................................................11 11.3 COURT ACTION.......................................................................................12 11.4 CONTINUITY OF SERVICE AND PERFORMANCE..............................................................12
-ii- TABLE OF CONTENTS (continued) ARTICLE 12 LIMITATION OF LIABILITY...................................................................................12 ARTICLE 13 MISCELLANEOUS PROVISIONS..................................................................................13 13.1 DISCLAIMER.........................................................................................13 13.2 NO IMPLIED LICENSES................................................................................13 13.3 INFRINGEMENT SUITS.................................................................................13 13.4 NO OTHER OBLIGATIONS...............................................................................13 13.5 ENTIRE AGREEMENT...................................................................................13 13.6 GOVERNING LAW......................................................................................14 13.7 DESCRIPTIVE HEADINGS...............................................................................14 13.8 NOTICES............................................................................................14 13.9 NONASSIGNABILITY...................................................................................15 13.10 SEVERABILITY.......................................................................................15 13.11 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE..............................................15 13.12 AMENDMENT..........................................................................................15 13.13 COUNTERPARTS.......................................................................................15
EXHIBIT A: LICENSED MARKS -iii- MASTER TRADEMARK OWNERSHIP AND LICENSE AGREEMENT This Master Trademark Ownership and License Agreement (the "Agreement") is effective as of February 26, 2000 (the "Effective Date"), between 3Com Corporation, a Delaware corporation ("3Com"), having an office at 5400 Bayfront Plaza, Santa Clara, California, 95052 and Palm, Inc., a Delaware corporation ("Palm"), having an office at 5470 Great America Parkway, Santa Clara, California, 95052. WHEREAS, the Board of Directors of 3Com has determined that it is in the best interest of 3Com and its stockholders to separate 3Com's existing businesses into two independent businesses; WHEREAS, as part of the foregoing, 3Com and Palm's predecessor, Palm Computing, Inc., a California Corporation, have entered into a Master Separation and Distribution Agreement (as defined below) which provides, among other things, for the separation of certain Palm assets and Palm liabilities, the initial public offering of Palm stock, the distribution of such stock and the execution and delivery of certain other agreements in order to facilitate and provide for the foregoing; WHEREAS, the parties desire that 3Com assign and transfer to Palm the Palm Business Marks (as defined below); and WHEREAS, the parties further desire that 3Com license the Licensed Marks (as defined below) to Palm after the separation of the Palm businesses. NOW, THEREFORE, in consideration of the mutual promises of the parties, and of good and valuable consideration, it is agreed by and between the parties as follows: ARTICLE 1 DEFINITIONS For the purpose of this Agreement, the following capitalized terms are defined in this Article 1 and shall have the meaning specified herein: 1.1 AUTHORIZED DEALERS. "Authorized Dealers" means any distributor, dealer, OEM customer, VAR customer, VAD customer, systems integrator or other agent that on or after the Separation Date is authorized to market, advertise, sell, lease, rent, service or otherwise offer Palm Business Products. Palm will provide 3Com a list of the then current Authorized Dealers within a reasonable period after 3Com's request. 1.2 COLLATERAL MATERIALS. "Collateral Materials" means all packaging, tags, labels, advertising, promotions, display fixtures, instructions, warranties and other materials of any and all types associated with the Palm Business Products that are marked with at least one of the Licensed Marks. 1.3 CORPORATE IDENTITY MATERIALS. "Corporate Identity Materials" means materials that are not products or product-related and that Palm may now or hereafter use to communicate its identity, including, by way of example and without limitation, business cards, letterhead, stationery, paper stock and other supplies, and signage on real property and buildings. 1.4 DISTRIBUTION DATE. "Distribution Date" has the meaning set forth in the Master Separation and Distribution Agreement. 1.5 LICENSED MARKS. "Licensed Marks" means the Marks set forth on Exhibit A hereto. 1.6 MAINTENANCE CONTRACTS. "Maintenance Contracts" means agreements pursuant to which Palm, its Subsidiaries or its or their Authorized Dealers or their designees provide repair and maintenance services (whether preventive, diagnostic, remedial, warranty or non-warranty) in connection with Palm Business Products, including without limitation agreements entered into by 3Com prior to the Separation Date and assigned to Palm pursuant to the Master Separation and Distribution Agreement or the Ancillary Agreements (as such term is defined in the Master Separation and Distribution Agreement). 1.7 MARK. "Mark" means any trademark, service mark, trade name, domain name, and the like, or other word, name, symbol or device, or any combination thereof, used or intended to be used by a Person to identify and distinguish the products or services of that Person from the products or services of others and to indicate the source of such goods or services, including without limitation all registrations and applications therefor throughout the world and all common law and other rights therein throughout the world. 1.8 MASTER SEPARATION AND DISTRIBUTION AGREEMENT. "Master Separation and Distribution Agreement" means the Master Separation and Distribution Agreement between the parties. 1.9 PALM BUSINESS. "Palm Business" means the business and operations of Palm. 1.10 PALM BUSINESS MARKS. "Palm Business Marks" means the mutually agreed Marks listed in the Palm Business Marks Database. 1.11 PALM BUSINESS MARKS DATABASE. "Palm Business Marks Database" means the mutually agreed Palm Business Marks Database as of the Separation Date, as it may be updated by the parties upon mutual agreement to add additional Marks as of the Separation Date. 1.12 PALM BUSINESS PRODUCTS means any and all products of the Palm Business commercially released prior to the Separation Date. 1.13 PERSON. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, and a governmental entity or any department, agency or political subdivision thereof. -2- 1.14 QUALITY STANDARDS. "Quality Standards" means standards of quality applicable to the Palm Business Products, as in use immediately prior to the Separation Date, unless otherwise communicated in writing by 3Com from time to time. 1.15 SELL. To "Sell" a product means to sell, transfer, lease or otherwise dispose of a product. "Sale" and "Sold" have the corollary meanings ascribed thereto. 1.16 SEPARATION DATE. "Separation Date" means 12:01 a.m., Pacific Time, February 26, 2000, or such other date as may be fixed by the Board of Directors of 3Com. 1.17 SUBSIDIARY. "Subsidiary" of any Person means a corporation or other organization whether incorporated or unincorporated of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; provided, however, that no Person that is not directly or indirectly wholly-owned by any other Person shall be a Subsidiary of such other Person unless such other Person controls, or has the right, power or ability to control, that Person. For purposes of this Agreement, Palm shall be deemed not to be a subsidiary of 3Com. 1.18 THIRD PARTY. "Third Party" means a Person other than 3Com and its Subsidiaries and Palm and its Subsidiaries. 1.19 TRADEMARK USAGE GUIDELINES. "Trademark Usage Guidelines" means the guidelines for proper usage of the Licensed Marks, as in use immediately prior to the Separation Date, as such guidelines may be revised and updated in writing by 3Com from time to time. ARTICLE 2 OWNERSHIP 2.1 OWNERSHIP OF PALM BUSINESS MARKS. The parties agree that Palm hereby retains ownership of all right, title and interest in and to the Palm Business Marks. Subject to Sections 2.2 and 2.3 below, to the extent that any Palm Business Marks are registered in 3Com's name anywhere in the world, or to the extent that 3Com otherwise has any ownership rights in and to the Palm Business Marks or any goodwill therein, 3Com hereby grants, conveys and assigns (and agrees to cause its appropriate Subsidiaries to grant, convey and assign) to Palm, by execution hereof (or, where appropriate or required, by execution of separate instruments of assignment), all its (and their) right, title and interest in and to the Palm Business Marks, including all goodwill of the Palm Business appurtenant thereto, to be held and enjoyed by Palm, its successors and assigns. 3Com further grants, conveys and assigns (and agrees to cause its appropriate Subsidiaries to grant, convey and assign) to Palm all its (and their) right, title and interest in and to any and all causes of action and rights of recovery for past infringement of the Palm Business Marks. 3Com will, without demanding any further consideration therefor, at the request and expense of Palm (except for the -3- value of the time of 3Com employees), do (and to cause its Subsidiaries to do) all lawful and just acts that may be or become necessary for evidencing, maintaining, recording and perfecting Palm's rights to such Palm Business Marks consistent with 3Com's general business practice as of the Separation Date, including but not limited to execution and acknowledgement of (and causing its Subsidiaries to execute and acknowledge) assignments and other instruments in a form reasonably required by Palm or the relevant governmental or other authorities for each Mark in all jurisdictions in which 3Com owns rights thereto. 2.2 PRIOR GRANTS. Palm acknowledges and agrees that the foregoing assignment is subject to any and all licenses or other rights that may have been granted by 3Com or its Subsidiaries with respect to the Palm Business Marks prior to the Separation Date. 3Com shall respond to reasonable inquiries from Palm regarding any such prior grants. 2.3 ASSIGNMENT DISCLAIMER. PALM ACKNOWLEDGES AND AGREES THAT THE FOREGOING ASSIGNMENTS ARE MADE ON AN "AS-IS," QUITCLAIM BASIS AND THAT NEITHER 3COM NOR ANY SUBSIDIARY OF 3COM HAS MADE OR WILL MAKE ANY WARRANTY WHATSOEVER, EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF TITLE, ENFORCEABILITY OR NON-INFRINGEMENT. ARTICLE 3 LICENSES 3.1 LICENSE GRANT. 3Com grants (and agrees to cause its appropriate Subsidiaries to grant) to Palm a personal, irrevocable, nonexclusive, worldwide, fully-paid and non-transferable (except as set forth in Section 13.9) license to use the Licensed Marks on the Palm Business Products and in connection with the Sale and offer for Sale of Palm Business Products (or, in the case of Palm Business Products in the form of software, in connection with licensing of Palm Business Products) and to use the Licensed Marks in the advertisement and promotion of such Palm Business Products. 3.2 LICENSE RESTRICTIONS. (a) Palm may not make any use whatsoever, in whole or in part, of the Licensed Marks, or any other Mark owned by 3Com, in connection with Palm's corporate, doing business as, or fictitious name, or on Corporate Identity Materials without the prior written consent of 3Com, except as expressly set forth in this Section 3.2(a) or in Section 3.4 below. Notwithstanding the foregoing, Palm may use any business cards, letterhead, stationery, paper stock and other supplies, and the like throughout their useful life in connection with the conduct of the Palm Business, to the extent that, as of the Separation Date, they are in use, in inventory or on order. -4- (b) Palm may not use any Licensed Mark in direct association with another Mark such that the two Marks appear to be a single Mark or in any other composite manner with any Marks of Palm or any Third Party (other than the Palm Business Marks as permitted herein). (c) In all respects, Palm's usage of the Licensed Marks pursuant to the license granted hereunder shall be in a manner consistent with the high standards, reputation and prestige represented by the Licensed Marks, and any usage by Palm that is inconsistent with the foregoing shall be deemed to be outside the scope of the license granted hereunder. As a condition to the license granted hereunder, Palm shall at all times present, position and promote the Palm Business Products marked with one or more of the Licensed Marks in a manner consistent with the high standards and prestige represented by the Licensed Marks. 3.3 LICENSEE UNDERTAKINGS. As a condition to the licenses granted hereunder, Palm undertakes to 3Com that: (a) Palm shall not use the Licensed Marks (or any other Mark of 3Com) in any manner which is deceptive or misleading, which ridicules or is derogatory to the Licensed Marks, or which compromises or reflects unfavorably upon the goodwill, good name, reputation or image of 3Com or the Licensed Marks, or which might jeopardize or limit 3Com's proprietary interest therein. (b) Palm shall not use the Licensed Marks in connection with any products or services other than the Palm Business Products. (c) Palm shall not (i) misrepresent to any Person the scope of its authority under this Agreement, (ii) incur or authorize any expenses or liabilities chargeable to 3Com, or (iii) take any actions that would impose upon 3Com any obligation or liability to a Third Party other than obligations under this Agreement, or other obligations which 3Com expressly approves in writing for Palm to incur on its behalf. (d) All press releases and corporate advertising and promotions that embody the Licensed Marks and messages conveyed thereby shall be consistent with the high standards and prestige represented by the Licensed Marks. 3.4 NON-TRADEMARK USE. Each party may make appropriate and truthful references to the other party and the other party's products and technology. 3.5 RESERVATION OF RIGHTS. Except as otherwise expressly provided in this Agreement, 3Com shall retain all rights in and to the Licensed Marks, including without limitation: (a) All rights of ownership in and to the Licensed Marks; (b) The right to use (including the right of 3Com's Subsidiaries to use) the Licensed Marks, either alone or in combination with other Marks, in connection with the marketing, -5- offer or provision of any product or service, including any product or service which competes with Palm Business products; and (c) The right to license Third Parties to use the Licensed Marks. 3.6 THIRD PARTY LICENSES. 3Com agrees that it and its Subsidiaries will not license or transfer the Licensed Marks to Third Parties (other than to and among Subsidiaries or Joint Ventures (as defined below) of 3Com) for use in connection with products or services which compete with Palm Business Products that are listed on a mutually agreed Palm corporate price list as of the Distribution Date until two (2) years after the Separation Date. Such restriction shall be binding on any successors and assigns of the Licensed Marks. As used in this Section 3.6, "Joint Venture" means a corporation or other organization whether incorporated or unincorporated of which at least fifth percent (50%) of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by 3Com. ARTICLE 4 PERMITTED SUBLICENSES 4.1 SUBLICENSES (a) SUBLICENSES TO SUBSIDIARIES. Subject to the terms and conditions of this Agreement, including all applicable Quality Standards and Trademark Usage Guidelines and other restrictions in this Agreement, Palm may grant sublicenses to its Subsidiaries to use the Licensed Marks in accordance with the license grant in Section 3.1 above; provided, that (i) Palm enters into a written sublicense agreement with each such Subsidiary sublicensee, and (ii) such agreement does not include the right to grant further sublicenses other than, in the case of a sublicensed Subsidiary of Palm, to another Subsidiary of Palm. Palm shall provide copies of such written sublicense agreements to 3Com upon request. If Palm grants any sublicense rights pursuant to this Section 4.1(a) and any such sublicensed Subsidiary ceases to be a Subsidiary, then the sublicense granted to such Subsidiary pursuant to this Section 4.1(a) shall terminate 180 days from the date of such cessation. 4.2 AUTHORIZED DEALERS' USE OF MARKS. Subject to the terms and conditions of this Agreement, including all applicable Quality Standards and Trademark Usage Guidelines and other restrictions in this Agreement, Palm (and those Subsidiaries sublicensed to use the Licensed Marks pursuant to Section 4.1) may allow Authorized Dealers to, and may allow such Authorized Dealers to allow other Authorized Dealers to, use the Licensed Marks in the advertisement and promotion of Palm Business Products Sold by such Authorized Dealers. 4.3 ENFORCEMENT OF AGREEMENTS. Palm shall take all appropriate measures at Palm's expense promptly and diligently to enforce the terms of any sublicense agreement or other -6- agreement with any Subsidiary or Authorized Dealer, or of any existing agreement with any Authorized Dealer, and shall restrain any such Subsidiary or Authorized Dealer from violating such terms, including without limitation (i) monitoring the Subsidiaries' and Authorized Dealers' compliance with the relevant Trademark Usage Guidelines and Quality Standards and causing any noncomplying Subsidiary or Authorized Dealer promptly to remedy any failure, (ii) terminating such agreement and/or (iii) commencing legal action, in each case, using a standard of care consistent with 3Com's practices as of the Separation Date. In the event that 3Com determines that Palm has failed promptly and diligently to enforce the terms of any such agreement using such standard of care, 3Com reserves the right to enforce such terms, and Palm shall reimburse 3Com for its fully allocated direct costs and expenses incurred in enforcing such agreement, plus all out-of-pocket costs and expenses, plus five percent (5%). ARTICLE 5 TRADEMARK USAGE GUIDELINES 5.1 TRADEMARK USAGE GUIDELINES. Palm and its Subsidiaries and Authorized Dealers shall use the Licensed Marks only in a manner that is consistent with the Trademark Usage Guidelines. 5.2 TRADEMARK REVIEWS. At 3Com's request, Palm agrees to furnish or make available for inspection to 3Com samples of all Palm Business Products and Collateral Materials of Palm, its Subsidiaries and Authorized Dealers that are marked with one or more of the Licensed Marks (to the extent that Palm has the right to obtain such samples). If Palm is notified or determines that it or any of its Subsidiaries or Authorized Dealers is not complying with any Trademark Usage Guidelines, it shall notify 3Com and the provisions of Article 6 and Section 4.3 shall apply to such noncompliance. ARTICLE 6 TRADEMARK USAGE GUIDELINE ENFORCEMENT 6.1 INITIAL CURE PERIOD. If 3Com becomes aware that Palm or any Subsidiary or Authorized Dealer is not complying with any Trademark Usage Guidelines, 3Com shall notify Palm in writing, setting forth in reasonable detail a written description of the noncompliance and any requested action for curing such noncompliance. Palm shall then have sixty (60) days with regard to noncompliance by Authorized Dealers and thirty (30) days with regard to noncompliance by Palm or any Subsidiary after receipt of such notice ("Guideline Initial Cure Period") to correct such noncompliance or submit to 3Com a written plan to correct such noncompliance which written plan is reasonably acceptable to 3Com. 6.2 SECOND CURE PERIOD. If noncompliance with the Trademark Usage Guidelines continues beyond the Guideline Initial Cure Period, Palm and 3Com shall each promptly appoint a representative to negotiate in good faith actions that may be necessary to correct such -7- noncompliance. The parties shall have thirty (30) days following the expiration of the Guideline Initial Cure Period to agree on corrective actions, and Palm shall have thirty (30) days from the date of an agreement of corrective actions to implement such corrective actions and cure or cause the cure of such noncompliance ("Second Guideline Cure Period"). 6.3 FINAL CURE PERIOD. If the noncompliance with the Trademark Usage Guidelines remains uncured after the expiration of the Second Guideline Cure Period, then at 3Com's election, Palm, or the noncomplying Subsidiary or Authorized Dealer, whichever is applicable, promptly shall cease using the noncomplying Collateral Materials until 3Com determines that Palm, or the noncomplying Subsidiary or Authorized Dealer, whichever is applicable, has demonstrated its ability and commitment to comply with the Trademark Usage Guidelines. Nothing in this Article 6 shall be deemed to limit Palm's obligations under Section 4.3 above or to preclude 3Com from exercising any rights or remedies under Section 4.3 above. ARTICLE 7 QUALITY STANDARDS 7.1 GENERAL. Palm acknowledges that the Palm Business Products permitted by this Agreement to be marked with one or more of the Licensed Marks must continue to be of sufficiently high quality as to provide protection of the Licensed Marks and the goodwill they symbolize, and Palm further acknowledges that the maintenance of the high quality standards associated with such products is of the essence of this Agreement. 7.2 QUALITY STANDARDS. Palm and its Authorized Dealers and Subsidiaries shall use the Licensed Marks only on and in connection with Palm Business Products that meet or exceed in all respects the Quality Standards. 7.3 QUALITY CONTROL REVIEWS. At 3Com's request, Palm agrees to furnish or make available to 3Com for inspection sample Palm Business Products marked with one or more of the Licensed Marks. 3Com may also independently conduct customer satisfaction surveys to determine if Palm and its Subsidiaries and Authorized Dealers are meeting the Quality Standards. Palm shall cooperate with 3Com fully in the distribution of such surveys. In the event of a challenge by 3Com, 3Com shall, at the request of Palm, provide Palm with copies of customer surveys used by 3Com to determine if Palm is meeting the Quality Standards. If Palm is notified or determines that it or any of its Subsidiaries or Authorized Dealers is not complying with any Quality Standards, it shall notify 3Com and the provisions of Article 8 and Section 4.3 shall apply to such noncompliance. 7.4 PRODUCT DISCONTINUATION. If, at any time during or after the term of this Agreement, Palm discontinues the sale of a Palm Business Product that has been marked with one or more of the Licensed Marks, Palm shall substantially comply with the discontinuation procedure used by 3Com for such or similar products immediately prior to Separation Date. -8- ARTICLE 8 QUALITY STANDARD ENFORCEMENT 8.1 INITIAL CURE PERIOD. If 3Com becomes aware that Palm or any Subsidiary or Authorized Dealer sublicensee is not complying with any Quality Standards, 3Com shall notify Palm in writing, setting forth in reasonable detail a written description of the noncompliance and any requested action for curing such noncompliance. Palm shall then have thirty (30) days after receipt of such notice ("Initial Cure Period") to correct such noncompliance or submit to 3Com a written plan to correct such noncompliance which written plan is reasonably acceptable to 3Com. 8.2 SECOND CURE PERIOD. If noncompliance with the Quality Standards continues beyond the Initial Cure Period, Palm and 3Com shall each promptly appoint a representative to negotiate in good faith actions that may be necessary to correct such noncompliance. The parties shall have thirty (30) days following the expiration of the Initial Cure Period to agree on corrective actions, and Palm shall have thirty (30) days from the date of an agreement of corrective actions to implement such corrective actions and cure or cause the cure of such noncompliance ("Second Cure Period"). 8.3 FINAL CURE PERIOD. If the noncompliance with the Quality Standards remains uncured after the expiration of the Second Cure Period, then at 3Com's election, Palm, or the noncomplying Subsidiary or Authorized Dealer, whichever is applicable, promptly shall cease offering the noncomplying Palm Business Products under the Licensed Marks until 3Com determines that Palm, or the noncomplying Subsidiary or Authorized Dealer, whichever is applicable, has demonstrated its ability and commitment to comply with the Quality Standards. Nothing in this Article 8 shall be deemed to limit Palm's obligations under Section 4.3 above or to preclude 3Com from exercising any rights or remedies under Section 4.3 above. ARTICLE 9 PROTECTION OF LICENSED MARKS 9.1 OWNERSHIP AND RIGHTS. To the extent not contrary to applicable law, Palm agrees not to challenge the ownership or validity of the Licensed Marks. Palm shall not disparage, dilute or adversely affect the validity of the Licensed Marks. Palm's use of the Licensed Marks shall inure exclusively to the benefit of 3Com, and Palm shall not acquire or assert any rights therein. Palm recognizes the value of the goodwill associated with the Licensed Marks, and that the Licensed Marks may have acquired secondary meaning in the minds of the public. 9.2 PROTECTION OF MARKS. Palm shall assist 3Com, at 3Com's request and expense, in the procurement and maintenance of 3Com's intellectual property rights in the Licensed Marks. Palm will not grant or attempt to grant a security interest in the Licensed Marks, or to record any such security interest in the United States Patent and Trademark Office or elsewhere, against any trademark application or registration belonging to 3Com. Palm agrees to, and to cause its Subsidiaries to, execute all documents reasonably requested by 3Com to effect further registration -9- of, maintenance and renewal of the Licensed Marks, recordation of the license relationship between 3Com and Palm, and recordation of Palm as a registered user. 3Com makes no warranty or representation that trademark registrations have been or will be applied for, secured or maintained in the Licensed Marks throughout, or anywhere within, the world. Palm shall cause to appear on all Palm Business Products, and all Collateral Materials, such legends, markings and notices as may be required by applicable law or reasonably requested by 3Com. 9.3 SIMILAR MARKS. Palm agrees not to use or register in any country any Mark that infringes 3Com's rights in the Licensed Marks, or any element thereof. If any application for registration is, or has been, filed in any country by Palm which relates to any Mark that infringes 3Com's rights in the Licensed Marks, Palm shall immediately abandon any such application or registration or assign it to 3Com. To the extent not contrary to applicable law, Palm shall not challenge 3Com's ownership of or the validity of the Licensed Marks or any application for registration thereof throughout the world. Palm shall not use or register in any country any copyright, domain name, telephone number or any other intellectual property right, whether recognized currently or in the future, or other designation which would affect the ownership or rights of 3Com in and to the Licensed Marks, or otherwise to take any action which would adversely affect any of such ownership rights, or assist anyone else in doing so. Palm shall cause its Subsidiaries and Authorized Dealers to comply with the provisions of this Section 9.3. 9.4 INFRINGEMENT PROCEEDINGS. In the event that the Palm General Counsel learns of any infringement or threatened infringement of the Licensed Marks, or any unfair competition, passing-off or dilution with respect to the Licensed Marks, Palm shall notify 3Com or its authorized representative giving particulars thereof, and Palm shall provide necessary information and assistance to 3Com or its authorized representatives at 3Com's expense in the event that 3Com decides that proceedings should be commenced. Notwithstanding the foregoing, Palm is not obligated to monitor or police use of the Licensed Marks by Third Parties other than as specifically set forth in Section 4.3. 3Com shall have exclusive control of any litigation, opposition, cancellation or related legal proceedings, relating to the use of the licensed trademarks by third parties. The decision whether to bring, maintain or settle any such proceedings shall be at the exclusive option and expense of 3Com, and all recoveries shall belong exclusively to 3Com. Palm shall not and shall have no right to initiate any such litigation, opposition, cancellation or related legal proceedings in its own name, but, at 3Com's request, agrees to be joined as a party in any action taken by 3Com to enforce its rights in the Licensed Marks. 3Com shall incur no liability to Palm or any other Person under any legal theory by reason of 3Com's failure or refusal to prosecute or by 3Com's refusal to permit Palm to prosecute, any alleged infringement by Third Parties, nor by reason of any settlement to which 3Com may agree. -10- ARTICLE 10 TERMINATION 10.1 TERM. This Agreement shall remain in effect for a period of two (2) years from the Effective Date unless earlier terminated as provided below. 10.2 VOLUNTARY TERMINATION. By written notice to 3Com, Palm may voluntarily terminate all or a specified portion of the licenses and rights granted to it hereunder by 3Com. Such notice shall specify the effective date of such termination and shall clearly specify any affected Licensed Marks, Palm Business Products or services. 10.3 SURVIVAL. Any termination of licenses and rights of Palm under Section 10.2 shall not affect Palm's licenses and rights with respect to any Palm Business Products made or sold prior to such termination. 10.4 OTHER TERMINATION. 3Com acknowledges and agrees that its rights to terminate the licenses granted to Palm hereunder are solely as set forth in Section 4.3 and Articles 6 and 8. ARTICLE 11 DISPUTE RESOLUTION 11.1 MEDIATION. If a dispute, controversy or claim ("Dispute") arises between the parties relating to the interpretation or performance of this Agreement or the Ancillary Agreements, or the grounds for the termination hereof, appropriate senior executives (e. g. director or V.P. level) of each party who shall have the authority to resolve the matter shall meet to attempt in good faith to negotiate a resolution of the Dispute prior to pursuing other available remedies. The initial meeting between the appropriate senior executives shall be referred to herein as the "Dispute Resolution Commencement Date." Discussions and correspondence relating to trying to resolve such Dispute shall be treated as confidential information developed for the purpose of settlement and shall be exempt from discovery or production and shall not be admissible. If the senior executives are unable to resolve the Dispute within thirty (30) days from the Dispute Resolution Commencement Date, and either party wishes to pursue its rights relating to such Dispute, then the Dispute will be mediated by a mutually acceptable mediator appointed pursuant to the mediation rules of JAMS/Endispute within thirty (30) days after written notice by one party to the other demanding non-binding mediation. Neither party may unreasonably withhold consent to the selection of a mediator or the location of the mediation. Both parties will share the costs of the mediation equally, except that each party shall bear its own costs and expenses, including attorney's fees, witness fees, travel expenses, and preparation costs. The parties may also agree to replace mediation with some other form of non-binding or binding ADR. 11.2 ARBITRATION. Any Dispute which the parties cannot resolve through mediation within ninety (90) days of the Dispute Resolution Commencement Date, unless otherwise mutually -11- agreed, shall be submitted to final and binding arbitration under the then current Commercial Arbitration Rules of the American Arbitration Association ("AAA"), by three (3) arbitrators in Santa Clara County, California. Such arbitrators shall be selected by the mutual agreement of the parties or, failing such agreement, shall be selected according to the aforesaid AAA rules. The arbitrators will be instructed to prepare and deliver a written, reasoned opinion stating their decision within thirty (30) days of the completion of the arbitration. The prevailing party in such arbitration shall be entitled to expenses, including costs and reasonable attorneys' and other professional fees, incurred in connection with the arbitration (but excluding any costs and fees associated with prior negotiation or mediation). The decision of the arbitrator shall be final and non-appealable and may be enforced in any court of competent jurisdiction. The use of any ADR procedures will not be construed under the doctrine of laches, waiver or estoppel to adversely affect the rights of either party. 11.3 COURT ACTION. Any Dispute regarding the following is not required to be negotiated, mediated or arbitrated prior to seeking relief from a court of competent jurisdiction: breach of any obligation of confidentiality; infringement, misappropriation, or misuse of any intellectual property right; any other claim where interim relief from the court is sought to prevent serious and irreparable injury to one of the parties or to others. However, the parties to the Dispute shall make a good faith effort to negotiate and mediate such Dispute, according to the above procedures, while such court action is pending. 11.4 CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in writing, the parties will continue to provide service and honor all other commitments under this Agreement and each Ancillary Agreement during the course of dispute resolution pursuant to the provisions of this Article 11 with respect to all matters not subject to such dispute, controversy or claim. ARTICLE 12 LIMITATION OF LIABILITY IN NO EVENT SHALL EITHER PARTY OR ITS SUBSIDIARIES BE LIABLE TO THE OTHER PARTY OR ITS SUBSIDIARIES FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS OR ANY OTHER DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EACH PARTY'S OBLIGATIONS EXPRESSLY ASSUMED IN EXHIBIT J OF THE MASTER SEPARATION AND DISTRIBUTION AGREEMENT; PROVIDED FURTHER THAT THE EXCLUSION OF PUNITIVE DAMAGES SHALL APPLY IN ANY EVENT. -12- ARTICLE 13 MISCELLANEOUS PROVISIONS 13.1 DISCLAIMER. EACH PARTY ACKNOWLEDGES AND AGREES THAT ALL LICENSED MARKS AND ANY OTHER INFORMATION OR MATERIALS LICENSED OR PROVIDED HEREUNDER ARE LICENSED OR PROVIDED ON AN "AS IS" BASIS AND THAT NEITHER PARTY NOR ANY OF ITS SUBSIDIARIES MAKE ANY REPRESENTATIONS OR EXTENDS ANY WARRANTIES WHATSOEVER, EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT THERETO INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF TITLE, ENFORCEABILITY OR NON-INFRINGEMENT. Without limiting the generality of the foregoing, neither 3Com nor any of its Subsidiaries makes any warranty or representation as to the validity of any Mark licensed by it to Palm or any warranty or representation that any use of any Mark with respect to any product or service will be free from infringement of any rights of any Third Party. 13.2 NO IMPLIED LICENSES. Nothing contained in this Agreement shall be construed as conferring any rights by implication, estoppel or otherwise, under any intellectual property right, other than the rights expressly granted in this Agreement with respect to the Licensed Marks. Neither party is required hereunder to furnish or disclose to the other any information (including copies of registrations of the Marks), except as specifically provided herein. 13.3 INFRINGEMENT SUITS. Except as set forth in Section 4.3, (i) neither party shall have any obligation hereunder to institute any action or suit against Third Parties for infringement of any of the Licensed Marks or to defend any action or suit brought by a Third Party which challenges or concerns the validity of any of the Licensed Marks and (ii) Palm shall not have any right to institute any action or suit against Third Parties for infringement of any of the Licensed Marks. 13.4 NO OTHER OBLIGATIONS. NEITHER PARTY ASSUMES ANY RESPONSIBILITIES OR OBLIGATIONS WHATSOEVER, OTHER THAN THE RESPONSIBILITIES AND OBLIGATIONS EXPRESSLY SET FORTH IN THIS AGREEMENT OR A SEPARATE WRITTEN AGREEMENT BETWEEN THE PARTIES. Without limiting the generality of the foregoing, neither party, nor any of its Subsidiaries, is obligated to (i) file any application for registration of any Mark, or to secure any rights in any Marks, (ii) to maintain any Mark registration, or (iii) provide any assistance, except for the obligations expressly assumed in this Agreement. 13.5 ENTIRE AGREEMENT. This Agreement, the Master Separation and Distribution Agreement and the other Ancillary Agreements (as defined in the Master Separation and Distribution Agreement) and the Exhibits and Schedules referenced or attached hereto and thereto constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof. To the extent there is a conflict -13- between this Agreement and the General Assignment and Assumption Agreement between the parties, the terms of this Agreement shall govern. 13.6 GOVERNING LAW. This Agreement shall be construed in accordance with and all Disputes hereunder shall be governed by the laws of the State of California, excluding its conflict of law rules and the United Nations Convention on Contracts for the International Sale of Goods. The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have jurisdiction and venue over all Disputes between the parties that are permitted to be brought in a court of law pursuant to Article 11 above. 13.7 DESCRIPTIVE HEADINGS. The headings contained in this Agreement, in any Exhibit or Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any Exhibit or Schedule but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an Article or a Section, Exhibit or Schedule, such reference shall be to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. 13.8 NOTICES. Notices, offers, requests or other communications required or permitted to be given by either party pursuant to the terms of this Agreement shall be given in writing to the respective parties to the following addresses: if to 3Com : 3Com Corporation 5400 Bayfront Plaza Santa Clara, California 95052 Attention: General Counsel Fax: (408) 326-6434 if to Palm: Palm, Inc. 5470 Great America Parkway Santa Clara, California 95052 Attention: General Counsel or to such other address as the party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested. All other notices may also be sent by fax, confirmed by first class mail. All notices shall be deemed to have been given and received on the earlier of actual delivery or three (3) days from the date of postmark. -14- 13.9 NONASSIGNABILITY. Neither party may, directly or indirectly, in whole or in part, whether by operation of law or otherwise, assign or transfer this Agreement, without the other party's prior written consent, and any attempted assignment, transfer or delegation without such prior written consent shall be voidable at the sole option of such other party. Notwithstanding the foregoing, each party (or its permitted successive assignees or transferees hereunder) may assign or transfer this Agreement as a whole without consent to a Person that succeeds to all or substantially all of the business or assets of such party as long as such Person agrees to accept all the terms and conditions set forth herein. Without limiting the foregoing, this Agreement will be binding upon and inure to the benefit of the parties and their permitted successors and assigns. 13.10 SEVERABILITY. If any term or other provision of this Agreement is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. 13.11 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of either party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. 13.12 AMENDMENT. No change or amendment will be made to this Agreement except by an instrument in writing signed on behalf of each of the parties to such agreement. 13.13 COUNTERPARTS. This Agreement, including the Ancillary Agreements and the Exhibits and Schedules hereto and thereto and the other documents referred to herein or therein, may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. -15- WHEREFORE, the parties have signed this Trademark Ownership and License Agreement effective as of the date first set forth above. 3COM CORPORATION PALM, INC. By: By: -------------------------- -------------------------- Name: Name: ------------------------ ------------------------ Title: Title: ----------------------- ----------------------- -16- EXHIBIT A TO MASTER TRADEMARK OWNERSHIP AND LICENSE AGREEMENT LICENSED MARKS 3Com 3Com Logo EX-2.6 6 EXHIBIT 2.6 EMPLOYEE MATTERS AGREEMENT BETWEEN 3COM CORPORATION AND PALM, INC. EFFECTIVE AS OF FEBRUARY 26, 2000 TABLE OF CONTENTS
PAGE ARTICLE I DEFINITIONS.................................................................................................1 1.1 3Com................................................................................................1 1.2 3Com Employee.......................................................................................1 1.3 3Com Group..........................................................................................2 1.4 3Com Stock Value....................................................................................2 1.5 3Com Terminated Employee............................................................................2 1.6 401(k) Plan.........................................................................................2 1.7 AD&D Plan...........................................................................................2 1.8 Affiliate...........................................................................................2 1.9 Agreement...........................................................................................2 1.10 Ancillary Agreements................................................................................2 1.11 ASO Contracts.......................................................................................2 1.12 Assets..............................................................................................2 1.13 Benefits Committee..................................................................................2 1.14 Bonus Plan..........................................................................................2 1.15 Business Travel Accident Insurance..................................................................3 1.16 COBRA...............................................................................................3 1.17 Code................................................................................................3 1.18 Deferred Compensation Plan..........................................................................3 1.19 Disability Plan.....................................................................................3 1.20 Distribution........................................................................................3 1.21 Distribution Date...................................................................................3 1.22 DOL.................................................................................................3 1.23 Educational Assistance Program......................................................................3 1.24 Employee Assistance Program.........................................................................4 1.25 ERISA...............................................................................................4 1.26 Executive Bonus Plan................................................................................4 1.27 FMLA................................................................................................4 1.28 Food Programs.......................................................................................4 1.29 Foreign Plan........................................................................................4 1.30 Fringe Benefit Plans................................................................................4 1.31 FSA/Dependent Reimbursement Plan....................................................................4 1.32 FSA/Medical Reimbursement Plan......................................................................4 1.33 General Assignment and Assumption Agreement.........................................................4 1.34 Group Insurance Policies............................................................................5 1.35 Group Life Plan.....................................................................................5 1.36 HCFA................................................................................................5 1.37 Health and Welfare Plans............................................................................5 1.38 Health Plans........................................................................................5 1.39 HMO.................................................................................................5 ii TABLE OF CONTENTS (Continued) 1.40 HMO Agreements......................................................................................5 1.41 IPO.................................................................................................5 1.42 IPO Closing Date....................................................................................5 1.43 IPO Registration Statement..........................................................................5 1.44 IRS.................................................................................................5 1.45 Leave of Absence Plans..............................................................................5 1.46 Liabilities.........................................................................................6 1.47 Long-Term Care Plan.................................................................................6 1.48 Long-Term Disability Plan...........................................................................6 1.49 Master Transitional Services Agreement..............................................................6 1.50 Material Feature....................................................................................6 1.51 Nasdaq..............................................................................................6 1.52 Non-U.S. Plan.......................................................................................6 1.53 Option..............................................................................................7 1.54 Outsourcing.........................................................................................7 1.55 Palm................................................................................................7 1.56 Palm Business.......................................................................................7 1.57 Palm Claims.........................................................................................7 1.58 Palm Employee.......................................................................................7 1.59 Palm Group..........................................................................................7 1.60 Palm Stock Value....................................................................................7 1.61 Palm Terminated Employee............................................................................7 1.62 Palm Transferred Employee...........................................................................8 1.63 Participating Company...............................................................................8 1.64 Person..............................................................................................8 1.65 Plan................................................................................................8 1.66 Post-Distribution Period............................................................................8 1.67 Premium Plan........................................................................................8 1.68 PTO.................................................................................................9 1.69 QDRO................................................................................................9 1.70 QMCSO...............................................................................................9 1.71 Rabbi Trust.........................................................................................9 1.72 Ratio...............................................................................................9 1.73 Record Date.........................................................................................9 1.74 Restricted Stock....................................................................................9 1.75 Revenue.............................................................................................9 1.76 Sabbatical Plan.....................................................................................9 1.77 SEC.................................................................................................9 1.78 Section 125 Plan...................................................................................10 -iii- TABLE OF CONTENTS (Continued) 1.79 Separation.........................................................................................10 1.80 Separation Agreement...............................................................................10 1.81 Separation Date....................................................................................10 1.82 Severance Plan.....................................................................................10 1.83 Short-Term Disability Plan.........................................................................10 1.84 SOS Plan...........................................................................................10 1.85 Stock Plan.........................................................................................10 1.86 Stock Purchase Plan................................................................................10 1.87 Subsidiary.........................................................................................11 1.88 Tax Sharing Agreement..............................................................................11 1.89 Unemployment Insurance Program.....................................................................11 1.90 WellCom Program....................................................................................11 1.91 Workers'Compensation Plan..........................................................................11 ARTICLE II GENERAL PRINCIPLES........................................................................................12 2.1 Assumption of Palm Liabilities.....................................................................12 2.2 Establishment of Palm Plans........................................................................12 2.3 Palm Under No Obligation to Maintain Plans.........................................................13 2.4 Palm's Participation in 3Com Plans.................................................................13 2.5 Terms of Participation by Palm Transferred Employees in Palm Plans.................................14 2.6 Benefits Committee and Dispute Resolution..........................................................15 2.7 Foreign Plans......................................................................................15 ARTICLE III DEFINED CONTRIBUTION PLAN................................................................................16 3.1 401(k) Plan........................................................................................16 ARTICLE IV NON-QUALIFIED PLAN........................................................................................17 4.1 Deferred Compensation Plan.........................................................................17 ARTICLE V HEALTH AND WELFARE PLANS...................................................................................18 5.1 Health Plans as of the Distribution Date...........................................................18 5.2 Health Plans from the Separation Date through the Distribution Date................................19 5.3 Group Life Plan....................................................................................19 5.4 AD&D Plan..........................................................................................20 5.5 Severance Plan.....................................................................................20 5.6 Sabbatical Plan....................................................................................20 5.7 Disability Plans...................................................................................21 5.8 Business Travel Accident Insurance.................................................................21 5.9 Long-Term Care Plan................................................................................22 5.10 Section 125 Plan...................................................................................22 -iv- TABLE OF CONTENTS (Continued) 5.11 COBRA..............................................................................................22 5.12 Leave of Absence Plans and FMLA....................................................................23 5.13 Workers'Compensation Plan..........................................................................23 5.14 Administrative Services............................................................................24 ARTICLE VI EQUITY AND OTHER COMPENSATION.............................................................................25 6.1 Bonus Plan.........................................................................................25 6.2 Executive Bonus Plan...............................................................................25 6.3 3Com Options.......................................................................................26 6.4 3Com Restricted Stock..............................................................................26 6.5 Stock Purchase Plan................................................................................27 6.6 Administrative Services............................................................................27 ARTICLE VII FRINGE AND OTHER BENEFITS................................................................................28 7.1 Employee Assistance Program........................................................................28 7.2 Educational Assistance Program.....................................................................28 7.3 Credit Union.......................................................................................28 7.4 Cafeteria and Related Subsidies....................................................................28 7.5 Employee Product Discounts and Company Store.......................................................29 7.6 WellCom............................................................................................29 7.7 SOS Plan...........................................................................................29 7.8 Other Benefits.....................................................................................29 7.9 Administrative Services............................................................................30 ARTICLE VIII ADMINISTRATIVE PROVISIONS...............................................................................31 8.1 Master Transitional Services Agreement.............................................................31 8.2 Payment of Liabilities, Plan Expenses and Related Matters..........................................31 8.3 Transitional Staffing Services.....................................................................32 8.4 Sharing of Participant Information.................................................................32 8.5 Reporting and Disclosure Communications to Participants............................................32 8.6 Audits Regarding Vendor Contracts..................................................................32 8.7 Employee Identification Numbers....................................................................33 8.8 Beneficiary Designations...........................................................................33 8.9 Requests for IRS and DOL Opinions..................................................................33 8.10 Fiduciary Matters..................................................................................33 8.11 Consent of Third Parties...........................................................................33 8.12 3Com Intranet......................................................................................33 8.13 Tax Cooperation....................................................................................33 -v- TABLE OF CONTENTS (Continued) ARTICLE IX EMPLOYMENT-RELATED MATTERS................................................................................34 9.1 Terms of Palm Employment...........................................................................34 9.2 HR Data Support Systems............................................................................34 9.3 Non-Solicitation of Employees......................................................................34 9.4 Employment of Employees with U.S.Work Visas........................................................34 9.5 Confidentiality and Proprietary Information........................................................35 9.6 PTO................................................................................................35 9.7 Personnel Records..................................................................................35 9.8 Medical Records....................................................................................35 9.9 Unemployment Insurance Program.....................................................................35 9.10 Non-Termination of Employment; No Third-Party Beneficiaries........................................36 9.11 Employment Litigation..............................................................................36 ARTICLE X GENERAL PROVISIONS.........................................................................................37 10.1 Effect if Separation, IPO and/or Distribution Does Not Occur.......................................37 10.2 Relationship of Parties............................................................................37 10.3 Affiliates.........................................................................................37 10.4 Incorporation of Separation Agreement Provisions...................................................37 10.5 Governing Law......................................................................................37 10.6 Assignment.........................................................................................37 10.7 Severability.......................................................................................38 10.8 Interpretation.....................................................................................38 10.9 Amendment..........................................................................................38 10.10 Termination........................................................................................38 10.11 Conflict...........................................................................................38 10.12 Counterparts.......................................................................................38
-vi- TABLE OF CONTENTS
SCHEDULES PAGE SCHEDULE 2.7 FOREIGN PLANS...........................................i SCHEDULE 5.1(a) PALM HEALTH AND WELFARE PLANS...........................ii SCHEDULE 5.1(c)(i) THIRD PARTY ASO.........................................iii SCHEDULE 5.1(c)(ii) GROUP INSURANCE POLICIES................................iv SCHEDULE 5.1(c)(iii) HMO AGREEMENT...........................................v SCHEDULE 5.2(a) 3COM HEALTH AND WELFARE PLANS...........................vi SCHEDULE 6.3 OPTIONS HELD BY CERTAIN NON-U.S PALM....................vii TRANSFERRED EMPLOYEES SCHEDULE 6.4 3COM RESTRICTED STOCK HELD BY NON-U.S PALM..............viii TRANSFERRED EMPLOYEES SCHEDULE 7.8 OTHER FRINGE BENEFITS..................................ix
vii EMPLOYEE MATTERS AGREEMENT This EMPLOYEE MATTERS AGREEMENT is entered into on February 26, 2000, between 3Com Corporation, a Delaware corporation, and Palm, Inc., a Delaware corporation. Capitalized terms used herein (other than the formal names of 3Com Plans (as defined below) and related trusts of 3Com) and not otherwise defined, shall have the respective meanings assigned to them in Article I hereof. WHEREAS, the Board of Directors of 3Com has determined that it is in the best interests of 3Com and its shareholders to separate 3Com's existing businesses into two (2) independent businesses, 3Com and the Palm Business; and WHEREAS, in furtherance of the foregoing, 3Com and Palm have agreed to enter into this Agreement to allocate between them Assets, Liabilities and responsibilities with respect to certain employee compensation, benefit plans, programs and arrangements, and certain employment matters; NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows: ARTICLE I DEFINITIONS Wherever used in this Agreement, the following terms shall have the meanings indicated below, unless a different meaning is plainly required by the context. The singular shall include the plural, unless the context indicates otherwise. Headings of sections are used for convenience of reference only, and in case of conflict, the text of this Agreement, rather than such headings, shall control: 1.1 3COM. "3Com" means 3Com Corporation, a Delaware corporation. In all such instances in which 3Com is referenced in this Agreement, it shall also be deemed to include a reference to each member of the 3Com Group, unless it specifically provides otherwise; 3Com shall be solely responsible to Palm for ensuring that each member of the 3Com Group complies with the applicable terms of this Agreement. 1.2 3COM EMPLOYEE. "3Com Employee" means an individual who, on the Distribution Date, is: (a) either actively employed by, or on leave of absence from, the 3Com Group; (b) a 3Com Terminated Employee; or (c) an employee or group of employees designated as 3Com Employees by 3Com and Palm, by mutual agreement. 1.3 3COM GROUP. "3Com Group" means 3Com and each Subsidiary and Affiliate of 3Com (or any predecessor organization thereof). 1.4 3COM STOCK VALUE. "3Com Stock Value" means the closing per-share price of 3Com common stock as listed on the Nasdaq on the last trading day before the Distribution. 1.5 3COM TERMINATED EMPLOYEE. "3Com Terminated Employee" means any individual who is a former employee of the 3Com Group and who, on the Distribution Date, is not a Palm Transferred Employee. 1.6 401(k) PLAN. "401(k) Plan," when immediately preceded by "3Com," means the 3Com Corporation 401(k) Plan, a defined contribution plan. When immediately preceded by "Palm," "401(k) Plan" means the defined contribution plan to be established by Palm pursuant to Section 2.2 and Article III. 1.7 AD&D PLAN. "AD&D Plan," when immediately preceded by "3Com," means the 3Com Accidental Death and Dismemberment ("AD&D") Plan. When immediately preceded by "Palm," "AD&D Plan" means the accidental death and dismemberment plan to be established by Palm pursuant to Sections 2.2 and 5.4. 1.8 AFFILIATE. "Affiliate" means, with respect to any specified Person, means any entity that Controls, is Controlled by, or is under common Control with such Person. For this purpose, "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities or other interests, by control, or otherwise. 1.9 AGREEMENT. "Agreement" means this Employee Matters Agreement, including all the Schedules hereto, and all amendments made hereto from time to time. 1.10 ANCILLARY AGREEMENTS. "Ancillary Agreements" means all of the underlying agreements, documents and instruments referred to, contemplated by, or made a part of the Separation Agreement. 1.11 ASO CONTRACTS. "ASO Contracts" is defined in Subsection 5.1(c)(i) and Schedule 5.1(c)(i). 1.12 ASSETS. "Assets" is defined in Section 4.4 of the General Assignment and Assumption Agreement. 1.13 BENEFITS COMMITTEE. "Benefits Committee" means the benefits committee established, implemented and operated pursuant to Section 2.6. 1.14 BONUS PLAN. "Bonus Plan," when immediately preceded by "3Com," means the 3Com 3Bonus Plan; provided, however, with respect to Palm Employees in the 3Com 3Bonus Plan, 2 that "Bonus Plan" means the bonus plan as established and implemented with respect to the Palm Employees. When immediately preceded by "Palm," "Bonus Plan" means the bonus plan to be established by Palm pursuant to Sections 2.2 and 6.1. 1.15 BUSINESS TRAVEL ACCIDENT INSURANCE. "Business Travel Accident Insurance," when immediately preceded by "3Com," means the policy or policies covering 3Com Business Travel Accident Insurance in the U.S. and to the extent applicable, outside the U.S. When immediately preceded by "Palm," "Business Travel Accident Insurance" means the policy or policies covering the business travel accident insurance to be established by Palm pursuant to Sections 2.2 and 5.8. 1.16 COBRA. "COBRA" means the continuation coverage requirements for "group health plans" under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended from time to time, and as codified in Code Section 4980B and ERISA Sections 601 through 608. 1.17 CODE. "Code" means the Internal Revenue Code of 1986, as amended from time to time. 1.18 DEFERRED COMPENSATION PLAN. "Deferred Compensation Plan," when immediately preceded by "3Com," means the 3Com Deferred Compensation Plan. When immediately preceded by "Palm," "Deferred Compensation Plan" means the deferred compensation plan to be established by Palm pursuant to Section 2.2 and Article IV. 1.19 DISABILITY PLAN. "Disability Plan," when immediately preceded by "3Com," means the 3Com Disability Plan which consists of the 3Com Short-Term Disability Plan and the 3Com Long-Term Disability Plan. When immediately preceded by "Palm," "Disability Plan" means the Palm Short-Term Disability Plan and the Palm Long-Term Disability Plan, to be established by Palm pursuant to Sections 2.2 and 5.7. 1.20 DISTRIBUTION. "Distribution" means 3Com's pro rata distribution to the holders of its common stock, $0.001 par value, several months following the IPO, of all the shares of Palm common stock owned by 3Com. 1.21 DISTRIBUTION DATE. "Distribution Date" means the date that the Distribution is effective. 1.22 DOL. "DOL" means the United States Department of Labor. 1.23 EDUCATIONAL ASSISTANCE PROGRAM. "Educational Assistance Program," when immediately preceded by "3Com," means the 3Com Educational Assistance Program. When immediately preceded by "Palm," "Educational Assistance Program" means the educational assistance program to be established by Palm pursuant to Sections 2.2 and 7.2. 3 1.24 EMPLOYEE ASSISTANCE PROGRAM. "Employee Assistance Program," when immediately preceded by "3Com," means the 3Com Employee Assistance Program. When immediately preceded by "Palm," "Employee Assistance Program" means the employee assistance program to be established by Palm pursuant to Sections 2.2 and 7.1. 1.25 ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.26 EXECUTIVE BONUS PLAN. "Executive Bonus Plan," when immediately preceded by "3Com," means the 3Com Executive Bonus Program. When immediately preceded by "Palm," "Executive Bonus Plan" means the executive bonus plan to be established by Palm pursuant to Sections 2.2 and 6.2. 1.27 FMLA. "FMLA" means the Family and Medical Leave Act of 1993, as amended from time to time. 1.28 FOOD PROGRAMS. "Food Programs" is defined in Section 7.4. 1.29 FOREIGN PLAN. "Foreign Plan," when immediately preceded by "3Com," means a Plan maintained by the 3Com Group for the benefit of its employees outside the U.S. When immediately preceded by "Palm," "Foreign Plan" means a Plan to be established by Palm for the benefit of its employees outside the U.S. 1.30 FRINGE BENEFIT PLANS. "Fringe Benefit Plans," when immediately preceded by "3Com," means the 3Com employee assistance program, educational assistance program and other fringe benefit plans, programs and arrangements, sponsored and maintained by 3Com (as set forth in Article VII and Schedule 7.8). When immediately preceded by "Palm," "Fringe Benefit Plans" means the fringe benefit plans, programs and arrangements to be established by Palm pursuant to Section 2.2 and Article VII. 1.31 FSA/DEPENDENT REIMBURSEMENT PLAN. "FSA/Dependent Reimbursement Plan," when immediately preceded by "3Com," means the 3Com FSA/Dependent Reimbursement Plan. When immediately preceded by "Palm," "FSA/Dependent Reimbursement Plan" means the dependent care assistance reimbursement plan to be established by Palm pursuant to Sections 2.2 and 5.10. 1.32 FSA/MEDICAL REIMBURSEMENT PLAN. "FSA/Medical Reimbursement Plan," when immediately preceded by "3Com," means the 3Com FSA/Medical Reimbursement Plan. When immediately preceded by "Palm," "FSA/Medical Reimbursement Plan" means the medical expense reimbursement plan to be established by Palm pursuant to Sections 2.2 and 5.10. 1.33 GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT. "General Assignment and Assumption Agreement" means the Ancillary Agreement which is Exhibit C to the Separation Agreement. 4 1.34 GROUP INSURANCE POLICIES. "Group Insurance Policies" is defined in Subsection 5.1(c)(ii) and Schedule 5.1(c)(ii). 1.35 GROUP LIFE PLAN. "Group Life Plan," when immediately preceded by "3Com," means the 3Com Group Life Plan. When immediately preceded by "Palm," "Group Life Plan" means the group life plan to be established by Palm pursuant to Sections 2.2 and 5.3. 1.36 HCFA. "HCFA" means the United States Health Care Financing Administration. 1.37 HEALTH AND WELFARE PLANS. "Health and Welfare Plans," when immediately preceded by "3Com," means the 3Com Health Plans, the 3Com Section 125 Plan, and the health and welfare plans listed on Schedule 5.2(a) established and maintained by 3Com for the benefit of eligible employees of the 3Com Group, and such other welfare plans or programs as may apply to such employees as of the Distribution Date. When immediately preceded by "Palm," "Health and Welfare Plans" means the Palm Health Plans, the Palm Section 125 Plan, and the health and welfare plans to be established by Palm pursuant to Section 2.2, Article V, and Schedule 5.1(a). 1.38 HEALTH PLANS. "Health Plans," when immediately preceded by "3Com," means the medical, HMO, vision, and dental plans and any similar or successor Plans. When immediately preceded by "Palm," "Health Plans" means the medical, HMO, vision and dental plans to be established by Palm pursuant to Section 2.2 and Article V. 1.39 HMO. "HMO" means a health maintenance organization that provides benefits under the 3Com Health Plans or the Palm Health Plans. 1.40 HMO AGREEMENTS. "HMO Agreements" is defined in Subsection 5.1(c)(iii) and Schedule 5.1(c)(iii). 1.41 IPO. "IPO" means the initial public offering of Palm common stock pursuant to a registration statement on Form S-1 pursuant to the Securities Act of 1933, as amended. 1.42 IPO CLOSING DATE. "IPO Closing Date" means the closing of the IPO, which is currently scheduled to occur prior to June 2, 2001. 1.43 IPO REGISTRATION STATEMENT. "IPO Registration Statement" means the registration statement on Form S-1 pursuant to the Securities Act of 1933 as amended, to be filed with the SEC, registering the shares of common stock of Palm to be issued in the IPO, together with all amendments thereto. 1.44 IRS. "IRS" means the United States Internal Revenue Service. 1.45 LEAVE OF ABSENCE PLANS. "Leave of Absence Plans," when immediately preceded by "3Com," means the personal, medical/disability, military, and FMLA leave offered from time to time under the personnel policies and practices of 3Com. When immediately preceded by "Palm," 5 "Leave of Absence Plans" means the leave of absence programs to be established by Palm pursuant to Sections 2.2 and 5.12. 1.46 LIABILITIES. "Liabilities" means all debts, liabilities, guarantees, assurances, commitments, and obligations, whether fixed, contingent or absolute, asserted or unasserted, matured or unmatured, liquidated or unliquidated, accrued or not accrued, known or unknown, due or to become due, whenever or however arising (including, without limitation, whether arising out of any Contract or tort based on negligence or strict liability) and whether or not the same would be required by generally accepted accounting principles to be reflected in financial statements or disclosed in the notes thereto. For this purpose, "Contract" means any contract, agreement, lease, license, sales order, purchase order, instrument or other commitment that is binding on any Person or any part of its property under applicable law. 1.47 LONG-TERM CARE PLAN. "Long-Term Care Plan," when immediately preceded by "3Com," means the 3Com Long-Term Care Plan. When immediately preceded by "Palm," "Long-Term Care Plan" means the long-term care plan, if any, that may be established by Palm pursuant to Sections 2.2 and 5.9. 1.48 LONG-TERM DISABILITY PLAN. "Long-Term Disability Plan," when immediately preceded by "3Com," means the 3Com Long-Term Disability Plan. When immediately preceded by "Palm," Long-Term Disability Plan" means the long-term disability plan to be established by Palm pursuant to Section 2.2 and Subsection 5.7(b). 1.49 MASTER TRANSITIONAL SERVICES AGREEMENT. "Master Transitional Services Agreement" means the Ancillary Agreement which is Exhibit G to the Separation Agreement. 1.50 MATERIAL FEATURE. "Material Feature" means any feature of a Plan that could reasonably be expected to be of material importance, in the aggregate, to the sponsoring employer or the participants (or their dependents or beneficiaries) of that Plan, which could include, depending on the type and purpose of the particular Plan, the class or classes of employees eligible to participate in such Plan, the nature, type, form, source, and level of benefits provided under such Plan, the amount or level of contributions, if any, required to be made by participants (or their dependents or beneficiaries) to such Plan, and the costs and expenses incurred by the sponsoring employer or Participating Companies for implementing and/or maintaining such Plan. 1.51 NASDAQ. "Nasdaq" means the Nasdaq National Market. 1.52 NON-U.S. PLAN. "Non-U.S. Plan" means the local transfer agreements, assignments, assumptions, novations and other documents executed by the foreign subsidiaries of 3Com and Palm as shall be necessary to carry out the plan of reorganization described in Exhibit K to the Separation Agreement to effect the purposes of the Separation Agreement with respect to 3Com and Palm's respective operations outside the U.S. 6 1.53 OPTION. "Option," when immediately preceded by "3Com," means an option to purchase 3Com common stock pursuant to a Stock Plan. When immediately preceded by "Palm," "Option" means an option to purchase Palm common stock pursuant to a Stock Plan. 1.54 OUTSOURCING. "Outsourcing" is defined in Section 5.13(c). 1.55 PALM. "Palm" means Palm, Inc., a Delaware corporation. In all such instances in which Palm is referred to in this Agreement, it shall also be deemed to include a reference to each member of the Palm Group, unless it specifically provides otherwise; Palm shall be solely responsible to 3Com for ensuring that each member of the Palm Group complies with the applicable terms of this Agreement. 1.56 PALM BUSINESS. "Palm Business" means the hand-held computing business and related businesses and operations as described in the IPO Registration Statement. 1.57 PALM CLAIMS. "Palm Claims" is defined in Subsection 5.13(a). 1.58 PALM EMPLOYEE. "Palm Employee" means any individual who is: (a) either actively employed by, or on leave of absence from, the Palm Group on the Separation Date; (b) either actively employed by, or on leave of absence from, the 3Com Group as either part of a work group or organization, or common support function that, at any time after the Separation Date and before the Distribution Date, moves to the employ of the Palm Group from the employ of the 3Com Group; (c) a Palm Terminated Employee; (d) employed by the Palm Group; (e) any other employee or group of employees designated as Palm Employees (as of the specified date) by 3Com and Palm by mutual agreement; or (f) an alternate payee under a QDRO, alternate recipient under a QMCSO, beneficiary, covered dependent, or qualified beneficiary (as such term is defined under COBRA), in each case, of an employee or former employee, described in Subsections 1.58(a) through (e) with respect to that employee's or former employee's benefit under the applicable Plan(s) (unless specified otherwise in this Agreement, such an alternate payee, alternate recipient, beneficiary, covered dependent, or qualified beneficiary shall not otherwise be considered a Palm Employee with respect to any benefits he or she accrues or has accrued under any applicable Plan(s), unless he or she is a Palm Employee by virtue of Subsections 1.58(a) through (e)). 1.59 PALM GROUP. "Palm Group" means Palm and each Subsidiary and Affiliate of Palm immediately after the Separation Date, or that is contemplated to be a Subsidiary or Affiliate of Palm pursuant to the Non-U.S. Plan and each Person that becomes a Subsidiary or Affiliate of Palm after the Separation Date. 1.60 PALM STOCK VALUE. "Palm Stock Value" means the opening per-share price of Palm common stock as listed on Nasdaq, as applicable, on the first trading day after the Distribution. 1.61 PALM TERMINATED EMPLOYEE. "Palm Terminated Employee" means any individual who is: (a) a former employee of the 3Com Group who was terminated from the Palm Business on or before the Separation Date; or (b) a former employee of the Palm Group. Notwithstanding the 7 foregoing, "Palm Terminated Employee" shall not, unless otherwise expressly provided to the contrary in this Agreement, include: (a) an individual who is a 3Com Employee at the Distribution Date; or (b) an individual who is otherwise a Palm Terminated Employee, but who is subsequently employed by the 3Com Group prior to the Distribution Date. 1.62 PALM TRANSFERRED EMPLOYEE. "Palm Transferred Employee" means any individual who, as of the Distribution Date, is: (a) either actively employed by, or on a leave of absence from, the Palm Group; (b) a Palm Terminated Employee; (c) an employee or group of employees designated by 3Com and Palm, by mutual agreement, as Palm Transferred Employees; or (d) an alternate payee under a QDRO, alternate recipient under a QMCSO, beneficiary, covered dependent, or qualified beneficiary (as such term is defined under COBRA), in each case, of an employee or former employee, described in Subsections 1.62(a) through (c) with respect to that employee's or former employee's benefit under the applicable Plan(s) (unless specified otherwise in this Agreement, such an alternate payee, alternate recipient, beneficiary, covered dependent, or qualified beneficiary shall not otherwise be considered a Palm Transferred Employee with respect to any benefits he or she accrues or accrued under any applicable Plan(s), unless he or she is a Palm Transferred Employee by virtue of Subsections 1.62(a) through (c)). An employee may be a Palm Transferred Employee pursuant to this Section regardless of whether such employee is, as of the Distribution Date, alive, actively employed, on a temporary leave of absence from active employment, on layoff, terminated from employment, retired or on any other type of employment or post-employment status relative to a 3Com Plan, and regardless of whether, as of the Distribution Date, such employee is then receiving any coverage under or benefits from a 3Com Plan. 1.63 PARTICIPATING COMPANY. "Participating Company" means: (a) 3Com; (b) any Person (other than an individual) that 3Com has approved for participation in, has accepted participation in, and which is participating in, a Plan sponsored by 3Com; and (c) any Person (other than an individual) which, by the terms of such Plan, participates in such Plan or any employees of which, by the terms of such Plan, participate in or are covered by such Plan. 1.64 PERSON. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, and a governmental entity or any department, agency or political subdivision thereof. 1.65 PLAN. "Plan" means any plan, policy, program, payroll practice, arrangement, contract, trust, insurance policy, or any agreement or funding vehicle providing compensation or benefits to employees, former employees, directors or consultants of 3Com or Palm. 1.66 POST-DISTRIBUTION PERIOD. "Post-Distribution Period" means, for each designated Plan, the period beginning as of the Distribution Date and ending on the date that no member of the Palm Group is using 3Com benefit delivery and administrative services with respect to that Plan. 1.67 PREMIUM PLAN. "Premium Plan," when immediately preceded by "3Com," means the 3Com Medical/Dental Pre-Tax Premium Plan, the vehicle by which employees participating in the 3Com Health and Welfare Plans can contribute their portion of the premium payments with pre-tax 8 dollars. When immediately preceded by "Palm," "Premium Plan" means the medical/dental pre-tax premium plan to be established by Palm pursuant to Sections 2.2 and 5.10. 1.68 PTO. "PTO," when immediately preceded by "3Com," means the 3Com Personal Time Off Policy. When immediately preceded by "Palm," "PTO" means the Palm personal time off policy to be established by Palm pursuant to Sections 2.2 and 9.6. 1.69 QDRO. "QDRO" means a domestic relations order which qualifies under Code Section 414(p) and ERISA Section 206(d) and which creates or recognizes an alternate payee's right to, or assigns to an alternate payee, all or a portion of the benefits payable to a participant under the 3Com 401(k) Plan. 1.70 QMCSO. "QMCSO" means a medical child support order which qualifies under ERISA Section 609(a) and which creates or recognizes the existence of an alternate recipient's right to, or assigns to an alternate recipient the right to, receive benefits for which a participant or beneficiary is eligible under any of the Health Plans. 1.71 RABBI TRUST. "Rabbi Trust," when immediately preceded by "3Com," means the grantor trust established for purposes of holding assets under the 3Com Deferred Compensation Plan. When immediately preceded by "Palm," "Rabbi Trust" means the grantor trust to be established by Palm pursuant to Section 4.1(a). 1.72 RATIO. "Ratio" means the ratio determined by dividing the Palm Stock Value by the 3Com Stock Value. 1.73 RECORD DATE. "Record Date" means the close of business on the date to be determined by the Board of Directors of 3Com as the record date for determining the stockholders of 3Com entitled to receive shares of common stock of Palm in the Distribution. 1.74 RESTRICTED STOCK. "Restricted Stock," when immediately preceded by "3Com," means shares of 3Com common stock that are subject to transfer restrictions or to employment and/or performance vesting conditions, pursuant to a 3Com Stock Plan. When immediately preceded by "Palm," "Restricted Stock" means shares of Palm common stock that are subject to transfer restrictions or to employment and/or performance vesting conditions, pursuant to a Palm Stock Plan. 1.75 REVENUE. "Revenue" means net revenue as determined in accordance with generally accepted accounting principles. 1.76 SABBATICAL PLAN. "Sabbatical Plan," when immediately preceded by "3Com," means the 3Com Sabbatical Plan. When immediately preceded by "Palm," "Sabbatical Plan" means the sabbatical plan, if any, to be established by Palm pursuant to Sections 2.2 and 5.6. 1.77 SEC. "SEC" means the United States Securities and Exchange Commission. 9 1.78 SECTION 125 PLAN. "Section 125 Plan," when immediately preceded by "3Com," means the 3Com Premium Plan, the 3Com FSA/Dependent Reimbursement Plan, and the 3Com FSA/Medical Reimbursement Plan. When immediately preceded by "Palm," "Section 125 Plan" means the Palm Premium Plan, the Palm FSA/Dependent Reimbursement Plan, and the Palm FSA/Medical Reimbursement Plan to be established by Palm pursuant to Sections 2.2 and 5.10. 1.79 SEPARATION. "Separation" means the contribution and transfer from 3Com to Palm, and Palm's receipt and assumption of, directly or indirectly, substantially all of the Assets and Liabilities currently associated with the Palm Business and the stock, investments or similar interests currently held by 3Com in subsidiaries and other entities that conduct such business. 1.80 SEPARATION AGREEMENT. "Separation Agreement" means the Master Separation and Distribution Agreement, dated as of December 13, 1999, of which this is Exhibit E thereto. 1.81 SEPARATION DATE. "Separation Date" means the effective date and time of each transfer of property, assumption of liability, license, undertaking, or agreement in connection with the Separation which shall, with respect to non-Foreign Plans and U.S. employees, be 12:01 a.m., Pacific Time, February 26, 2000, and/or such other date(s) as may be fixed by the Board of Directors of 3Com. 1.82 SEVERANCE PLAN. "Severance Plan," when immediately preceded by "3Com," means the 3Com Severance Plan. When immediately preceded by "Palm," "Severance Plan" means the severance program, if any, to be established by Palm pursuant to Sections 2.2 and 5.5. 1.83 SHORT-TERM DISABILITY PLAN. "Short-Term Disability Plan," when immediately preceded by "3Com," means the 3Com Short-Term Disability Plan. When immediately preceded by "Palm," "Short-Term Disability Plan" means the short-term disability plan to be established by Palm pursuant to Section 2.2 and Subsection 5.7(a). 1.84 SOS PLAN. "SOS Plan," when immediately preceded by "3Com," means the 3Com Share Our Success ("SOS") Plan. When immediately preceded by "Palm," "SOS" means the matching gift program for charitable contributions, if any, to be established by Palm pursuant to Sections 2.2 and 7.7. 1.85 STOCK PLAN. "Stock Plan," when immediately preceded by "3Com," means any plan, program, or arrangement, other than the Stock Purchase Plan, pursuant to which employees and other service providers hold Options, 3Com Restricted Stock, or other 3Com equity incentives. When immediately preceded by "Palm," "Stock Plan" means plans, programs, or arrangements that are substantially similar to the 3Com Stock Plans, to be established by Palm pursuant to Section 2.2 and Article VI. 1.86 STOCK PURCHASE PLAN. "Stock Purchase Plan," when immediately preceded by "3Com," means the 3Com Employee Stock Purchase Plan. When immediately preceded by "Palm," 10 "Stock Purchase Plan" means the employee stock purchase plan to be established by Palm pursuant to Sections 2.2 and 6.5. 1.87 SUBSIDIARY. "Subsidiary" of any person means a corporation or other organization, whether incorporated or unincorporated, of which at least a majority of the securities or interest having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization, is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; provided, however that no Person that is not directly or indirectly wholly-owned by any other Person shall be a Subsidiary of such other Person unless such other Person controls, or has the right, power or ability to control that Person. Unless the context otherwise requires, reference to 3Com and its Subsidiaries shall not include the subsidiaries of 3Com that will be transferred to Palm after giving effect to the Separation, including the actions taken pursuant to the Non-U.S. Plans. 1.88 TAX SHARING AGREEMENT. "Tax Sharing Agreement" means the Ancillary Agreement, which is Exhibit F to the Separation Agreement. 1.89 UNEMPLOYMENT INSURANCE PROGRAM. "Unemployment Insurance Program," when immediately preceded by "3Com," means the group unemployment insurance policies purchased by 3Com from time to time. When immediately preceded by "Palm," "Unemployment Insurance Program" means any group unemployment insurance program to be established by Palm pursuant to Section 9.10. 1.90 WELLCOM PROGRAM. "WellCom Program" is defined in Section 7.6. 1.91 WORKERS' COMPENSATION PLAN. "Workers' Compensation Plan" when immediately preceded by "3Com" means the 3Com Workers' Compensation Plan, consisting of the various arrangements established by a member of the 3Com Group to comply with the workers' compensation requirements of the states in which the 3Com Group conducts business. When immediately preceded by "Palm," "Workers' Compensation Plan" means the workers' compensation program to be established by Palm pursuant to Section 5.13. 11 ARTICLE II GENERAL PRINCIPLES 2.1 ASSUMPTION OF PALM LIABILITIES. Except as specified otherwise in this Agreement or as mutually agreed upon by Palm and 3Com from time to time, effective as of Separation Date, Palm hereby assumes and agrees to pay, perform, fulfill and discharge, in accordance with their respective terms, all of the following: (a) all Liabilities of, or relating to, Palm Employees or Palm Transferred Employees, in each case relating to, arising out of, or resulting from future, present or former employment with the Palm Business (including Liabilities relating to, arising out of, or resulting from 3Com Plans and Palm Plans); (b) all Liabilities relating to, arising out of, or resulting from any other actual or alleged employment relationship with the Palm Group; and (c) all other Liabilities relating to, arising out of, or resulting from obligations, liabilities and responsibilities expressly assumed or retained by the Palm Group, or a Palm Plan pursuant to this Agreement. Except as specified otherwise in this Agreement or as otherwise mutually agreed upon by 3Com and Palm from time to time, 3Com shall transfer to Palm amounts equal to trust assets, insurance reserves, and other related assets as consistent with the applicable Plan transition that relates to, arises out of, or results from Palm's pro rata interest in each 3Com Plan. 2.2 ESTABLISHMENT OF PALM PLANS. (a) HEALTH AND WELFARE PLANS. Except as specified otherwise in this Agreement, effective as of the Distribution Date (or such other date(s) as 3Com and Palm may mutually agree), Palm shall adopt the Palm Health and Welfare Plans. Except as otherwise specified in this Agreement, to the extent administratively and financially practicable, each of the foregoing Palm Plans as in effect as of the Distribution Date (or such other date(s) as 3Com and Palm may mutually agree), shall be comparable in the aggregate in all Material Features to the corresponding 3Com Plan as in effect as of such agreed upon date. (b) 401(K) AND FRINGE BENEFIT PLANS. Except as specified otherwise in this Agreement, effective as of the Distribution Date (or such other date(s) as 3Com and Palm may mutually agree), Palm shall adopt the Palm 401(k) Plan and the Palm Fringe Benefit Plans. Except as otherwise specified in this Agreement, to the extent administratively and financially practicable, each of the foregoing Palm Plans as in effect as of the Distribution Date (or such other date(s) as 3Com and Palm may mutually agree), shall be comparable in the aggregate in all Material Features to the corresponding 3Com Plan as in effect as of such agreed upon date; provided, however, that the Palm 401(k) Plan shall allow for a discretionary matching contribution, as determined by the Palm Board of Directors (in contrast to the 3Com 401(k) Plan that currently provides for a specific matching contribution per payroll period). (c) EQUITY AND OTHER COMPENSATION. Except as specified otherwise in this Agreement, effective on or before the IPO (or such other date(s) as 3Com and Palm may mutually 12 agree), Palm shall adopt the Palm Stock Plans. Except as specified otherwise in this Agreement, effective as of the Distribution Date (or such other date(s) as 3Com and Palm may mutually agree), Palm shall adopt the Palm Executive Bonus Plan and the Palm Bonus Plan. Effective on or before the IPO (or such other date as 3Com and Palm may mutually agree), Palm shall adopt the Palm Stock Purchase Plan. Each of the foregoing Palm Plans as in effect as of the IPO (or such other date(s) as 3Com and Palm may mutually agree), shall be comparable in the aggregate in all Material Features to the corresponding 3Com Plan as in effect on the IPO. (d) OTHER PLANS. Except as otherwise specified in this Agreement, effective as of the Separation Date (or such other date(s) as 3Com and Palm may mutually agree), Palm shall adopt certain Palm Plans that are specifically tied to its payroll practices, including, without limitation, a Short-Term Disability Plan, a PTO Plan and a Deferred Compensation Plan. Palm shall also adopt a Section 125 Plan, effective as of January 1, 2000. 2.3 PALM UNDER NO OBLIGATION TO MAINTAIN PLANS. Except as specified otherwise in this Agreement, nothing in this Agreement shall preclude Palm, at any time after the Distribution Date, from amending, merging, modifying, terminating, eliminating, reducing, or otherwise altering in any respect any Palm Plan, any benefit under any Palm Plan or any trust, insurance policy or funding vehicle related to any Palm Plans, or any employment or other service arrangement with Palm Employees or vendors (to the extent permitted by law). 2.4 PALM'S PARTICIPATION IN 3COM PLANS. (a) PARTICIPATION IN 3COM PLANS. Except as specified otherwise in this Agreement or as 3Com and Palm may mutually agree, Palm shall, until the Distribution Date, continue to be a Participating Company in the 3Com Plans to the extent that Palm has not established a corresponding Plan. Effective as of any date on or after the Separation Date and before the Distribution Date (or such other date(s) as 3Com or Palm may mutually agree), any member of the Palm Group not described in the preceding sentence may, at its request and with the consent of 3Com and Palm, become a Participating Company in any or all of the 3Com Plans, to the extent that Palm has not yet established a corresponding Plan. (b) 3COM'S GENERAL OBLIGATIONS AS PLAN SPONSOR. To the extent that Palm is a Participating Company in any 3Com Plan, 3Com shall continue to administer, or cause to be administered, in accordance with its terms and applicable law, such 3Com Plan, and shall have the sole and absolute discretion and authority to interpret the 3Com Plan, as set forth therein. 3Com shall not amend any Material Feature of any 3Com Plan in which Palm is a Participating Company, except to the extent: (i) such amendment would not materially affect any coverage or benefits of Palm Employees or Palm Transferred Employees under such Plan; (ii) Palm shall consent to such amendment and such consent shall not be unreasonably withheld; or (iii) such amendment is necessary or appropriate to comply with applicable law. (c) PALM'S GENERAL OBLIGATIONS AS PARTICIPATING COMPANY. Palm shall perform, with respect to its participation in the 3Com Plans, the duties of a Participating Company as set forth 13 in each such Plan or any procedures adopted pursuant thereto, including (without limitation): (i) assistance in the administration of claims, to the extent requested by the claims administrator of the applicable 3Com Plan; (ii) full cooperation with 3Com Plan auditors, benefit personnel and benefit vendors; (iii) preservation of the confidentiality of all financial arrangements 3Com has or may have with any vendors, claims administrators, trustees, service providers or any other entity or individual with whom 3Com has entered into an agreement relating to the 3Com Plans; and (iv) preservation of the confidentiality of participant information (including, without limitation, health information in relation to FMLA leaves) to the extent not specified otherwise in this Agreement. (d) TERMINATION OF PARTICIPATING COMPANY STATUS. Except as otherwise may be mutually agreed upon by 3Com and Palm, effective as of the Distribution Date or such other date as Palm establishes a corresponding Plan (as specified in Section 2.2 or otherwise in this Agreement), Palm shall automatically cease to be a Participating Company in the corresponding 3Com Plan. 2.5 TERMS OF PARTICIPATION BY PALM TRANSFERRED EMPLOYEES IN PALM PLANS. (a) NON-DUPLICATION OF BENEFITS. Except as specified otherwise in this Agreement, as of the Distribution Date, or other later date that applies to the particular Palm Plan established thereafter, the Palm Plans shall be, with respect to Palm Transferred Employees, in all respects the successors in interest to, and shall not provide benefits that duplicate benefits provided by, the corresponding 3Com Plans. 3Com and Palm shall agree on methods and procedures, including amending the respective Plan documents, to prevent Palm Employees from receiving duplicate benefits from the 3Com Plans and the Palm Plans. (b) SERVICE CREDIT. Except as specified otherwise in this Agreement, with respect to Palm Transferred Employees, each Palm Plan shall provide that all service, all compensation and all other benefit-affecting determinations that, as of the Distribution Date, were recognized under the corresponding 3Com Plan shall, as of the Distribution Date, receive full recognition and credit and be taken into account under such Palm Plan to the same extent as if such items occurred under such Palm Plan, except to the extent that duplication of benefits would result. Notwithstanding the foregoing, 3Com and Palm shall recognize service with either 3Com or Palm that was recognized as of the Distribution Date, except to the extent provided in Subsection 2.5(a) above. The service crediting provisions shall be subject to any respectively applicable "service bridging," "break in service," "employment date," or "eligibility date" rules under the Palm Plans and the 3Com Plans. (c) ASSUMPTION OF LIABILITIES. Except as specified otherwise in this Agreement (including, without limitation, the exception applicable to self-insured Health Plans), the provisions of this Agreement for the transfer of Assets relating to 3Com Plans to Palm and/or the appropriate Palm Plans are based upon the understanding of the parties that Palm and/or the appropriate Palm Plan will assume all Liabilities of the corresponding 3Com Plan to or relating to Palm Transferred Employees, as provided for herein. If any such Liabilities are not effectively assumed by Palm and/or the appropriate Palm Plan, then the amount of transferred Assets shall be recomputed accordingly, taking into account the retention of such Liabilities by such 3Com Plan, and Assets 14 shall be transferred from Palm and/or the appropriate Palm Plan to 3Com and/or the appropriate 3Com Plan so as to place Palm and/or the appropriate Palm Plan in the position it would have been in had the initial Asset transfer been made in accordance with such recomputed amount of assets. 2.6 BENEFITS COMMITTEE AND DISPUTE RESOLUTION. From the date of this Agreement through the later of the Distribution Date or the end of the Post-Distribution Period, as applicable, the management of the Plans shall be conducted under the supervision of the Benefits Committee. The Benefits Committee shall consist of an equal number of representatives from 3Com and Palm as appointed by the 3Com Senior Vice President, Human Resources, and the Palm Vice President, Human Resources, and shall provide strategic oversight and direction of the cohesive administration of the Plans. Issues that cannot be resolved by the Benefits Committee shall be decided, at the request of either party, by the Palm Vice President, Human Resources (or his or her authorized delegate) and the 3Com Senior Vice President, Human Resources (or his or her authorized delegate). After the exhaustion of the process, as specified herein, any outstanding issue shall be resolved in accordance with Section 5.9 of the Separation Agreement, entitled "Dispute Resolution." 2.7 FOREIGN PLANS. Palm and 3Com each intend that the matters, issues or Liabilities relating to, arising out of, or resulting from Foreign Plans and non-U.S.-related employment matters be handled in a manner that is in compliance with the requirements of applicable local law and, to the extent permitted by applicable local law, in a manner consistent with comparable U.S. matters, issues or Liabilities as reflected in this Agreement. Without in any way limiting the general principle set forth in the preceding sentence, Schedule 2.7 sets forth the specific manner in which certain existing 3Com Foreign Plans in non-U.S. jurisdictions shall be handled, effective as of the Separation Date (or such other date(s) as 3Com and Palm may mutually agree) consistent with the provisions of this Section 2.7 or as permitted under applicable local law. 15 ARTICLE III DEFINED CONTRIBUTION PLAN 3.1 401(k) PLAN. (a) 401(k) PLAN TRUST. Effective as of the Distribution Date (or such other date as 3Com and Palm may mutually agree), Palm shall establish, or cause to be established, a separate trust, which is intended to be tax-qualified under Code Section 401(a), to be exempt from taxation under Code Section 501(a)(1), and to form the Palm 401(k) Plan. (b) 401(k) PLAN: ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS. Effective as of the Distribution Date (or such other date as 3Com and Palm may mutually agree): (i) the Palm 401(k) Plan shall assume and be solely responsible for all Liabilities relating to, arising out of, or resulting from Palm Transferred Employees under the 3Com 401(k) Plan; and (ii) 3Com shall cause the accounts of the Palm Transferred Employees under the 3Com 401(k) Plan that are held by its related trust to be transferred to the Palm 401(k) Plan and its related trust, and Palm shall cause such transferred accounts to be accepted by such Plan and its related trust. Effective as of the Distribution Date (or such other date as 3Com and Palm may mutually agree), Palm shall use its commercially reasonable best efforts to enter into agreements satisfactory to Palm to accomplish such assumption and transfer, the maintenance of the necessary participant records, the appointment of an initial trustee under the Palm 401(k) Plan, and the engagement of an initial recordkeeper under the Palm 401(k) Plan. Palm and 3Com each agree to use their commercially reasonable best efforts to accomplish this 401(k) Plan and related trust spin-off. (c) 401(k) PLAN: STOCK CONSIDERATIONS. As a result of the spin-off of the 3Com 401(k) Plan and to the extent that immediately prior to such time, the 3Com 401(k) Plan continues to consist of 3Com employer securities, then the resulting 3Com 401(k) Plan and Palm 401(k) Plan shall both consist in part of 3Com and Palm employer securities. Palm and 3Com shall assume sole responsibility for ensuring that their respective company stock funds, and underlying employer securities held in each such fund, are maintained in compliance with all requirements of the SEC. (d) NO DISTRIBUTION TO PALM TRANSFERRED EMPLOYEES. The 3Com 401(k) Plan and the Palm 401(k) Plan shall provide that no distribution of account balances shall be made to any Palm Transferred Employee on account of the Palm Group ceasing to be an Affiliate of the 3Com Group as of the Distribution Date. 16 ARTICLE IV NON-QUALIFIED PLAN 4.1 DEFERRED COMPENSATION PLAN. (a) ESTABLISHMENT OF PALM RABBI TRUST. Effective on or before the Separation Date (or such other date as 3Com and Palm may mutually agree), Palm shall establish the Palm Deferred Compensation Plan and the Palm Rabbi Trust. (b) ALLOCATION AND ASSUMPTION OF LIABILITIES. As of the date that Palm establishes the Palm Deferred Compensation Plan, 3Com shall determine the amount of Liabilities under the 3Com Deferred Compensation Plan, attributable to Palm Employees. As soon as administratively practicable thereafter, 3Com shall pay to Palm or to the trustee of the Palm Rabbi Trust, as Palm specifies, an amount of 3Com's Assets equal to such Liabilities. Coincident with the receipt of such transfer of Assets, Palm shall assume all responsibilities and obligations relating to, arising out of, or resulting from such Liabilities. (c) PARTICIPATION IN DEFERRED COMPENSATION PLANS. Effective as of the Separation Date (or such other date as 3Com and Palm may mutually agree), eligible Palm Employees may commence participation in the Palm Deferred Compensation Plan. Palm Employees who are currently participating in the 3Com Deferred Compensation Plan shall continue their participation in that Plan (according to its terms) to the Separation Date (or such other date as 3Com and Palm may mutually agree). 17 ARTICLE V HEALTH AND WELFARE PLANS 5.1 HEALTH PLANS AS OF THE DISTRIBUTION DATE. (a) PALM HEALTH PLANS. As of the Distribution Date (or such other date(s) as 3Com and Palm may mutually agree), Palm shall have established the Palm Health Plans listed on Schedule 5.1(a) and, correspondingly, Palm shall cease to be a Participating Company in the 3Com Health Plans. Palm shall be solely responsible for the administration of the Palm Health Plans, including the payment of all employer-related costs in establishing and maintaining the Palm Health Plans, and for the collection and remittance of employee premiums, subject to Section 8.2. (b) PENDING TREATMENTS. Notwithstanding Subsection 5.1(a) above, all treatments which have been pre-certified for or are being provided to a Palm Transferred Employee as of the Distribution Date shall be provided without interruption under the appropriate 3Com Health Plan (to the extent such continued treatment is not provided under a Palm Health Plan) until such treatment is concluded, discontinued, or, if earlier, through December 31, 2000, pursuant to applicable Health Plan rules and limitations, but Palm shall continue to be responsible for all Liabilities relating to, arising out of, or resulting from such on-going treatments as of the Distribution Date. (c) VENDOR ARRANGEMENTS. 3Com shall use its commercially reasonable best efforts for and on behalf of Palm to procure, effective as of the Distribution Date (or such other date(s) as 3Com and Palm may mutually agree): (i) third party ASO Contracts which are comparable in the aggregate in all Material Features to the ASO Contracts entered into by 3Com, as set forth in Schedule 5.1(c)(i) (the "ASO Contracts); (ii) Group Insurance Policies, which are comparable in the aggregate in all Material Features to the Group Insurance Policies entered into by 3Com, as set forth in Schedule 5.1(c)(ii) (the "Group Insurance Policies"); and (iii) an HMO Agreement which is comparable in the aggregate in all Material Features to the HMO Agreement entered into by 3Com, as set forth in Schedule 5.1(c)(iii) (the "HMO Agreement"). In each case, Palm shall, as of the Distribution Date (or such other date as 3Com and Palm may mutually agree), establish, adopt and/or implement such contracts, agreements or arrangements. Palm may, at such future date after the Distribution Date, elect to discontinue such contracts, agreements or arrangements in accordance with Section 2.3. (d) CONTINUANCE OF ELECTIONS, CO-PAYMENTS AND MAXIMUM BENEFITS. (i) As of the Distribution Date and for the remainder of the plan year in which the Distribution Date occurs (or such other period as 3Com and Palm may mutually agree), Palm shall make its commercially reasonable best efforts to cause the Palm Health Plans to recognize and maintain all coverage and contribution elections made by Palm Employees and Palm Transferred Employees under the 3Com Health Plans and apply such elections under the Palm 18 Health Plans for the remainder of the period or periods for which such elections are by their terms applicable. The transfer or other movement of employment between 3Com to Palm at any time upon or before the Distribution Date shall neither constitute nor be treated as a "status change" or termination of employment under the 3Com Health Plans or the Palm Health Plans. (ii) On and after the Distribution Date, Palm shall cause the Palm Health Plans to recognize and give credit for (A) all amounts applied to deductibles, out-of-pocket maximums, co-payments and other applicable benefit coverage limits with respect to which such expenses have been incurred by Palm Transferred Employees under the 3Com Health Plans for the remainder of the calendar year in which the Distribution Date occurs, and (B) all benefits paid to Palm Transferred Employees under the 3Com Health Plans for purposes of determining when such persons have reached their lifetime maximum benefits under the Palm Health Plans. (e) HCFA. As of the Separation Date (or such other date as 3Com and Palm may mutually agree), Palm shall assume all Liabilities relating to, arising out of, or resulting from claims, if any, under the HCFA data match reports that relate to Palm Transferred Employees 5.2 HEALTH PLANS FROM THE SEPARATION DATE THROUGH THE DISTRIBUTION DATE. Except as otherwise agreed by 3Com and Palm, for the period beginning with the Separation Date and ending on the Distribution Date (or such other period as 3Com and Palm may mutually agree), Palm shall be a Participating Company in the 3Com Health Plans listed on Schedule 5.2(a). 3Com shall administer claims incurred under the 3Com Health Plans by Palm Employees before the Distribution Date but only to the extent that Palm has not, before the Distribution Date, established and assumed administrative responsibility for a corresponding Health Plan. Any determination made or settlements entered into by 3Com with respect to such claims shall be final and binding. 3Com shall retain financial and administrative ("run-out") Liability and all related obligations and responsibilities for all claims incurred by Palm Transferred Employees before the Distribution Date (or such other date(s) as 3Com and Palm may mutually agree), including any claims that were administered by 3Com as of, on, or after the Distribution Date (or such other date(s) as 3Com and Palm may mutually agree). Except as set forth in the preceding sentence, Palm shall reimburse 3Com for any and all direct and indirect costs and expenses associated with its participation in the 3Com Health Plans, subject to Section 8.2. 5.3 GROUP LIFE PLAN. (a) PALM'S PARTICIPATION IN 3COM GROUP LIFE PLAN. Palm shall, until the Distribution Date (or such other date as 3Com and Palm may mutually agree), continue to be a Participating Company in the 3Com Group Life Plan. Palm shall cease to be a Participating Company in the 3Com Group Life Plan coincident with Palm's establishment of the Palm Group Life Plan (or, if none, Palm's written notice to 3Com of its withdrawal as a Participating Company in the 3Com Group Life Plan). Palm shall reimburse 3Com for any and all direct and indirect costs and expenses associated with its participation in the 3Com Group Life Plan, subject to Section 8.2. 19 (b) PALM'S ESTABLISHMENT OF PALM GROUP LIFE PLAN. 3Com shall make its commercially reasonable best efforts to procure an arrangement on behalf of Palm for a Group Life Plan which shall be comparable in the aggregate in all Material Features to the 3Com Group Life Plan as are financially, administratively and legally practicable. If 3Com procures such an arrangement, Palm will not unreasonably withhold its consent to adopt such an arrangement to constitute the Palm Group Life Plan. Palm will reimburse 3Com for its direct and indirect costs and expenses associated with its procurement, preparation, and implementation of the Palm Group Life Plan, subject to Section 8.2. 5.4 AD&D PLAN. (a) PALM'S PARTICIPATION IN 3COM AD&D PLAN. Palm shall, until the Distribution Date (or such other date as 3Com and Palm may mutually agree), continue to be a Participating Company in the 3Com AD&D Plan. Palm shall cease to be a Participating Company in the 3Com AD&D Plan coincident with Palm's establishment of the Palm AD&D Plan (or, if none, Palm's written notice to 3Com of its withdrawal as a Participating Company in the 3Com AD&D Plan). Palm shall reimburse 3Com for any and all direct and indirect costs and expenses associated with its participation in the 3Com AD&D Plan, subject to Section 8.2. (b) PALM'S ESTABLISHMENT OF PALM AD&D PLAN. 3Com shall make its commercially reasonable best efforts to procure an arrangement on behalf of Palm for an AD&D Plan which shall be comparable in the aggregate in all Material Features to the 3Com AD&D Plan as are financially, administratively and legally practicable to Palm. If 3Com procures such an arrangement, Palm shall not unreasonably withhold its consent to adopt such an arrangement to constitute the Palm AD&D Plan. Palm will reimburse 3Com for its direct and indirect costs and expenses associated with its procurement, preparation and implementation of the Palm AD&D Plan, subject to Section 8.2. 5.5 SEVERANCE PLAN. Palm shall, until the Distribution Date (or such other date as 3Com and Palm may mutually agree), continue to be a Participating Company in the 3Com Severance Plan. Palm shall cease to be a Participating Company in the 3Com Severance Plan coincident with Palm's establishment of the Palm Severance Plan (or if none, Palm's written notice to 3Com of its withdrawal as a Participating Company in the 3Com Severance Plan). If Palm so elects, 3Com will assist Palm in establishing the Palm Severance Plan. Palm will reimburse 3Com for any and all direct and indirect costs and expenses related to its participation in the 3Com Severance Plan and 3Com's preparation and implementation of the Palm Severance Plan, subject to Section 8.2. 5.6 SABBATICAL PLAN. (a) PALM'S PARTICIPATION IN 3COM SABBATICAL PLAN. Palm shall, until the Distribution Date (or such other date as 3Com and Palm may mutually agree), continue to be a Participating Company in the 3Com Sabbatical Plan. Palm shall remit to 3Com or the trust fund for the 3Com Sabbatical Plan, as specified by 3Com, sufficient funds to assume its funding Liability under the 3Com Sabbatical Plan relating to, arising out of, or resulting from Palm's participation in 20 the 3Com Sabbatical Plan. Palm will also reimburse 3Com for any and all direct and indirect costs and expenses associated with its participation in the 3Com Sabbatical Plan, subject to Section 8.2. Palm shall cease to be a Participating Company in the 3Com Sabbatical Plan coincident with Palm's establishment of the Palm Sabbatical Plan. (b) ALLOCATION AND ASSUMPTION OF LIABILITIES. 3Com shall determine the amount of Assets under the 3Com Sabbatical Plan and related trust as of the Distribution Date (or such other date that Palm establishes the Palm Sabbatical Plan) attributable to Palm. As soon as administratively practicable thereafter, 3Com shall pay to Palm or to the trustee of the Palm Sabbatical Plan, as Palm specifies, an amount equal to Palm's Assets under the 3Com Sabbatical Plan, if any. (c) PALM SABBATICAL PLAN. Effective as of the Distribution Date (or such other date as 3Com and Palm may mutually agree), Palm shall establish the Palm Sabbatical Plan which is comparable in the aggregate in all Material Features to the 3Com Sabbatical Plan. If Palm so elects, 3Com will assist Palm in preparing and implementing the Palm Sabbatical Plan and Palm will reimburse 3Com for its costs and expenses associated with the preparation and implementation of the Palm Sabbatical Plan, subject to Section 8.2. 5.7 DISABILITY PLANS. (a) SHORT-TERM DISABILITY PLAN. Effective on or before the Separation Date (or such other date as 3Com and Palm may mutually agree), Palm shall implement or cause to be implemented, payroll procedures for purposes of sponsoring and administering the Palm Short-Term Disability Plan outside of California. Palm has adopted a state voluntary Disability Plan for Palm Employees and Palm Transferred Employees who are employed in California. 3Com will administer Palm's Short-Term Disability Plan through the Distribution Date (or such other date as 3Com and Palm may mutually agree). Palm shall reimburse 3Com for its costs and expenses associated with such administration, subject to Section 8.2. (b) LONG-TERM DISABILITY PLAN. Palm shall, until the Distribution Date (or such other date as Palm and 3Com may mutually agree), continue to be a Participating Company in the 3Com Long-Term Disability Plan. 3Com shall use its commercially reasonable best efforts for and on behalf of Palm to procure, effective as of the Distribution Date (or such other date as 3Com and Palm may mutually agree), a Palm Long-Term Disability Plan. Palm will reimburse 3Com for any and all direct and indirect costs and expenses associated with its participation in the 3Com Long-Term Disability Plan and 3Com's assistance in procuring, preparing, and implementing the Palm Long-Term Disability Plan, subject to Section 8.2. 5.8 BUSINESS TRAVEL ACCIDENT INSURANCE. Through the Distribution Date (or such other date as 3Com and Palm may mutually agree), Palm shall remain a Participating Company in the 3Com Business Travel Accident Insurance policy. 3Com shall be responsible for administering or causing to be administered the 3Com Business Travel Accident Insurance policy with respect to Palm Employees. Palm shall reimburse 3Com for any and all direct and indirect expenses and costs 21 associated with its participation in the 3Com Business Travel Accident Insurance policy, subject to Section 8.2. 3Com shall use its commercially reasonable best efforts for and on behalf of Palm to procure a Business Travel Accident Insurance policy which shall be comparable in the aggregate in all Material Features to the 3Com Business Travel Accident Insurance policy, effective as of the Distribution Date (or such other date as 3Com and Palm may mutually agree). If 3Com procures such an agreement, Palm shall not unreasonably withhold its consent to adopt such an agreement to constitute the Palm Business Travel Accident Insurance policy. Effective as of the Distribution Date, Palm shall be solely responsible for maintaining its own Business Travel Accident Insurance policy. 5.9 LONG-TERM CARE PLAN. Through the Distribution Date (or such other date as 3Com and Palm may mutually agree), Palm shall remain a Participating Company in the 3Com Long-Term Care Plan. 3Com shall be responsible for administering or causing to be administered the 3Com Long-Term Care Plan. Palm shall reimburse 3Com for any and all direct and indirect costs and expenses associated with its participation in the 3Com Long-Term Care Plan, subject to Section 8.2. The Palm Employees and Palm Transferred Employees participating in the 3Com Long-Term Care Plan shall have the rights to take their existing benefits with them under such 3Com Long-Term Care Plan (a "portable benefit") at the time their rights to participation would otherwise terminate. 5.10 SECTION 125 PLAN. Through December 31, 1999 (or such other date as 3Com and Palm may mutually agree), Palm and designated members of the Palm Group shall remain Participating Companies in the 3Com Section 125 Plan. The existing elections for Palm Employees participating in the 3Com Section 125 Plan and for newly-eligible Palm Employees who elect to participate in the 3Com Section 125 Plan shall remain in effect through December 31, 1999 (or such other date as 3Com and Palm may mutually agree). Effective on January 1, 2000 (or such other date immediately following the date that Palm's participation in the 3Com Section 125 Plan terminates), Palm shall establish, or caused to be established, the Palm Section 125 Plan and Palm shall be solely responsible for the Palm Section 125 Plan. 3Com will administer, or cause to be administered, the 3Com Section 125 Plan for Palm Employees and the Palm Section 125 Plan through such date as 3Com and Palm may mutually agree. Palm shall reimburse 3Com for any and all direct and indirect expenses and costs attributable to Palm Employees, subject to Section 8.2. 5.11 COBRA. 3Com shall be responsible through the Distribution Date (or such other date as 3Com and Palm may mutually agree), for compliance with the health care continuation coverage requirements of COBRA and the 3Com Health and Welfare Plans with respect to Palm Employees and qualified beneficiaries (as such term is defined under COBRA). Palm shall be responsible for providing 3Com with all necessary employee change notices and related information for covered dependents, spouses, qualified beneficiaries (as such term is defined under COBRA), and alternate recipients pursuant to QMCSO, in accordance with applicable 3Com COBRA policies and procedures. As soon as administratively practicable after the Distribution Date (or such other date as 3Com and Palm may mutually agree), 3Com shall provide Palm (through hard copy, electronic format, or such other mechanism as is appropriate under the circumstances), with a list of all qualified beneficiaries (as such term is defined under COBRA) that relate to the Palm Group and 22 the relevant information pertaining to their coverage elections and remaining COBRA time periods. Effective as of the Distribution Date (or such other date as 3Com and Palm may mutually agree), Palm shall be solely responsible for compliance with the health care continuation coverage requirements of COBRA and the Palm Health and Welfare Plans for Palm Transferred Employees and their qualified beneficiaries (as such term is defined under COBRA); provided, however, Palm may elect to retain 3Com's services in such manner and for such period as 3Com and Palm may mutually agree to assist it with COBRA administration and Palm will reimburse 3Com for its costs and expenses associated with such administration, subject to Section 8.2. 5.12 LEAVE OF ABSENCE PLANS AND FMLA. (a) ALLOCATION OF RESPONSIBILITIES AFTER SEPARATION DATE. Effective as of the Separation Date (or such other date as 3Com and Palm may mutually agree): (i) Palm shall adopt Leave of Absence Plans which shall be comparable in the aggregate in all Material Features to the 3Com Leave of Absence Plans as in effect on the Separation Date (or such other date as 3Com and Palm may mutually agree); (ii) Palm shall honor all terms and conditions of leaves of absence which have been granted to any Palm Employee under a 3Com Leave of Absence Plan or FMLA before the Separation Date by 3Com, including such leaves that are to commence after the Separation Date (or such other date as 3Com and Palm may mutually agree); and (iii) Palm shall recognize all periods of service of Palm Employees and Palm Transferred Employees with the 3Com Group, as applicable, to the extent such service is recognized by the 3Com Group for the purpose of eligibility for leave entitlement under the 3Com Leave of Absence Plans and FMLA; provided, however, that no duplication of benefits shall, to the extent permitted by law, be required by the foregoing. (b) ADMINISTRATION. Through the Distribution Date (or such other such period as 3Com and Palm may mutually agree), 3Com will administer, or cause to be administered, the Palm Leave of Absence Plans in such manner as 3Com and Palm may mutually agree. Palm will reimburse 3Com for its costs and expenses associated with such administration, subject to Section 8.2. (c) DISCLOSURE. Before the Distribution Date (or such other date as 3Com and Palm may mutually agree), 3Com shall provide to Palm copies of all records pertaining to the 3Com Leave of Absence Plans and FMLA with respect to all Palm Employees and Palm Transferred Employees to the extent such records have not been previously provided. 5.13 WORKERS' COMPENSATION PLAN. (a) ASSUMPTION OF 3COM AND PALM WORKERS' COMPENSATION PLAN LIABILITIES BY PALM. Effective as of the Separation Date, Palm shall assume and be solely responsible for all Liabilities relating to, arising out of, or resulting from their claims by Palm Employees and Palm Transferred Employees employment with the Palm Business ("Palm Claims") whether incurred before or after the Separation Date. 23 (b) PARTICIPATION IN THE 3COM WORKERS' COMPENSATION PLAN. Palm shall, until the Distribution Date (or such earlier date as Palm and 3Com may mutually agree), continue to be a Participating Company in the 3Com Workers' Compensation Plan. 3Com shall continue to administer, or cause to be administered, the 3Com Workers' Compensation Plan in accordance with its terms and applicable law. Palm shall fully cooperate with 3Com and its insurance company in the administration and reporting of Palm Claims under the 3Com Workers' Compensation Plan. Any determination made, or settlement entered into, by or on behalf of 3Com or its insurance company with respect to Palm claims under the 3Com Workers' Compensation Plan shall be final and binding. Palm shall reimburse 3Com and its insurance company for any and all direct and indirect costs related to the Palm claims or Palm's participation in the 3Com Workers' Compensation Plan, including, but not limited to loss costs, claims administration fees, legal expenses, premium audits, and retrospective premium adjustments, subject to Section 8.2. 3Com shall transfer to and reimburse Palm any assets related to the Palm claims or Palm's participation in the 3Com Workers' Compensation Plan, including, but not limited to, loss reserves, premium audits, and retrospective premium adjustments. (c) OUTSOURCING OF PALM WORKERS' COMPENSATION PLAN CLAIMS. Palm shall have the right to transfer the administration of Palm Claims incurred under the 3Com Workers' Compensation Plan to a third party administrator, vendor, or insurance company ("Outsourcing"). Palm shall promptly notify 3Com of its intent to transfer such claims, including the material terms and conditions of the transfer before the effective date thereof. 3Com, upon the request of Palm, shall use its commercially reasonable best efforts to procure such Outsourcing on behalf of Palm, assist Palm in the transition to Outsourcing, and provide Palm with any information that is in the possession of 3Com and is reasonably available and necessary to obtain such Outsourcing. (d) ESTABLISHMENT OF THE PALM WORKERS' COMPENSATION PLAN. As of the Distribution Date, Palm shall be responsible for complying with the workers' compensation requirements of the states in which the Palm Group conducts business and for obtaining and maintaining insurance programs for its risk of loss. Such insurance arrangements shall be separate and apart from the 3Com Workers' Compensation Plan. Notwithstanding the foregoing, 3Com, upon the request of Palm, shall use its commercially reasonable best efforts to procure workers' compensation insurance policies on behalf of Palm, assist Palm in the transition to its own separate insurance program, and provide Palm with any information that is in the possession of 3Com and is reasonably available and necessary to either obtain insurance coverages for Palm or to assist Palm in preventing unintended self-insurance, in whatever form. 5.14 ADMINISTRATIVE SERVICES. To the extent not provided otherwise in this Article, 3Com shall provide certain administrative services to Palm in conjunction with both the 3Com and Palm Health and Welfare Plans in such manner and for such period as 3Com and Palm may mutually agree. Palm shall reimburse 3Com for any and all direct and indirect costs and expenses related thereto, subject to Section 8.2. 24 ARTICLE VI EQUITY AND OTHER COMPENSATION 6.1 BONUS PLAN. Employees of the Palm Business (including, for this purpose, any employees of 3Com who are designated as employees of the Palm Business for purposes of the Separation) shall cease their participation in the 3Com Bonus Plan in the quarter ending prior to the Distribution Date (or such other date as 3Com and Palm may mutually agree). Any bonus pool, or portion thereof, that has been finally determined or accrued for under the 3Com Bonus Plan for the benefit of, or that is allocable to, employees of the Palm Business (including for this purpose, any employees of 3Com who are designated as employees of the Palm Business for purposes of the Separation) shall be paid to such Employees pursuant to the terms and conditions of the 3Com Bonus Plan, except that such payment shall be made on the Distribution Date (or such other date as 3Com and Palm may mutually agree). Effective as of the last day of the quarter ending prior to the Distribution Date (or such other date as 3Com and Palm may mutually agree), Palm shall establish the Palm Bonus Plan for Palm Employees and Palm Transferred Employees for Palm fiscal period(s) beginning on and after such date (or such other date as 3Com and Palm may mutually agree), to be administered by the Compensation Committee of the Palm Board of Directors. 6.2 EXECUTIVE BONUS PLAN. Employees of the Palm Business (including, for this purpose, any employees of 3Com who are designated as employees of the Palm Business for purposes of the Separation) shall cease their participation in the 3Com Executive Bonus Plan in the quarter ending prior to the Distribution Date (or such other date as 3Com and Palm may mutually agree). Any bonus pool, or portion thereof, that has been finally determined or accrued for under the 3Com Executive Bonus Plan for the benefit of, or that is allocable to, employees of the Palm Business (including for this purpose, any employees of 3Com who are designated as employees of the Palm Business for purposes of the Separation) shall be paid to such Employees pursuant to the terms and conditions of the 3Com Bonus Plan, except that such payment shall be made on the Distribution Date (or such other date as 3Com and Palm may mutually agree). The 3Com Board of Directors may, in its absolute discretion following the IPO, adjust the performance and other factors applicable to any employee of the Palm Business (including, for this purpose, any employees of 3Com who are designated as employees of the Palm Business for purposes of the Separation) under the 3Com Executive Bonus Plan to reflect any changes in such employee's position, duties and responsibilities following the IPO in such equitable fashion as it shall determine. Effective as of the Distribution Date (or such other date as 3Com and Palm may mutually agree), Palm shall establish the Palm Executive Bonus Plan for Palm Employees and Palm Transferred Employees for Palm fiscal period(s) beginning on and after the Distribution Date (or such other date as 3Com and Palm may mutually agree), to be administered by the Compensation Committee of the Palm Board of Directors. 25 6.3 3COM OPTIONS. (a) OPTION ASSUMPTION BY PALM. At the Distribution Date (or such other date as 3Com and Palm may mutually agree), each outstanding 3Com Option held by Palm Transferred Employees, whether vested or unvested, shall be, in connection with the Distribution, assumed by Palm. Each 3Com Option so assumed by Palm shall continue to have, and be subject to, the same terms and conditions set forth in the 3Com Stock Plans and as provided in the respective option agreements governing such 3Com Option as of the Distribution Date (or such other date as 3Com and Palm may mutually agree), except that (i) such 3Com Option shall be exercisable for that number of whole shares of Palm common stock equal to the quotient of the number of shares of 3Com common stock that were issuable upon exercise of such 3Com Option as of the Distribution Date divided by the Ratio, rounded down to the nearest whole number of shares of Palm common stock, and (ii) the per share exercise price for the shares of Palm common stock issuable upon exercise of such assumed 3Com Option shall be equal to the product determined by multiplying the exercise price per share of 3Com common stock at which such 3Com Option was exercisable as of the Distribution Date by the Ratio, rounded up to the nearest whole cent. (b) ASSUMPTION CRITERIA. The intention of 3Com and Palm is that the assumption of 3Com Options by Palm pursuant to Subsection 6.3(a) meet the following criteria: (i) the aggregate intrinsic value of the assumed 3Com Options immediately after the assumption is not greater than such value immediately before the assumption; (ii) with respect to each such assumed 3Com Option, the ratio of the exercise price per share to the Palm Stock Value of the assumed 3Com Options immediately after the assumption is not less than the ratio of the exercise price per share to the 3Com Stock Value immediately before the assumption; and (iii) the vesting and option term of the assumed 3Com Options shall not be changed. (c) CERTAIN NON-U.S. OPTIONEES. Except as may otherwise be agreed upon by 3Com and Palm and/or as set forth in Schedule 6.3, this Section 6.3 shall govern the treatment of 3Com Options held by non-U.S. Palm Transferred Employees. 6.4 3COM RESTRICTED STOCK. (a) FORFEITURE. Except as otherwise specified herein and subject to the terms of the applicable 3Com Stock Plans, on the Distribution Date, 3Com Restricted Stock (including any Palm common stock issued with respect to such 3Com Restricted Stock in connection with the Distribution) held by Palm Transferred Employees shall be forfeited in accordance with the terms of the applicable 3Com Stock Plans. (b) SUBSTITUTION. Each Palm Employee who holds 3Com Restricted Stock shall receive Palm Restricted Stock at the Distribution Date (or such other date as 3Com and Palm may mutually agree), as more fully set forth in this Subsection 6.4(b). The value of a Palm Employee's 26 resulting Palm Restricted Stock award shall be substantially equivalent to the value of his or her forfeited 3Com Restricted Stock award (such value to be reasonably determined by Palm immediately before the Record Date, the Distribution Date (or such other date as 3Com and Palm may mutually agree)). The resulting Palm Restricted Stock shall vest under circumstances substantially identical to the vesting conditions applicable to the corresponding 3Com Restricted Stock. (c) CERTAIN NON-U.S. RESTRICTED STOCK HOLDERS. Except as may otherwise be agreed upon by 3Com and Palm and/or as set forth in Schedule 6.4, this Section 6.4 shall govern the treatment of 3Com Restricted Stock held by non-U.S. Palm Transferred Employees. 6.5 STOCK PURCHASE PLAN. Through the Distribution Date, employees of the Palm Business (including for this purpose any employee of 3Com who is designated as an employee of the Palm Business for purposes of the Separation) shall continue to be eligible for participation in the 3Com Stock Purchase Plan. Effective on or before the IPO (or such other date as 3Com and Palm may mutually agree), Palm shall sponsor a Stock Purchase Plan for the benefit of Palm Employees and Palm Transferred Employees which shall be comparable in the aggregate in all Material Features to the corresponding 3Com Stock Purchase Plan, except that the Palm Stock Purchase Plan shall limit the payroll deductions that may be made by a participant thereunder, when cumulated with his or her payroll deductions under the 3Com Stock Purchase Plan, to an aggregate of ten percent (10%) of his or her compensation (as such term is defined in the 3Com and Palm Stock Purchase Plans). 6.6 ADMINISTRATIVE SERVICES. To the extent not provided otherwise in this Article, 3Com shall provide certain administrative services to Palm in conjunction with both the 3Com and Palm Bonus Plans, Executive Bonus Plan and Stock Plans in such manner and for such period as 3Com and Palm may mutually agree. Palm shall reimburse 3Com for any and all direct and indirect costs and expenses related thereto, subject to Section 8.2. 27 ARTICLE VII FRINGE AND OTHER BENEFITS 7.1 EMPLOYEE ASSISTANCE PROGRAM. 3Com shall use its commercially reasonable best efforts for and on behalf of Palm to procure, effective as of the Distribution Date (or such other date as 3Com and Palm may mutually agree), a contract with Concern, which is comparable in the aggregate in all Material Features to 3Com's contract with Concern that provides for a Palm Employee Assistance Program. Palm shall not unreasonably withhold its consent to enter into such contracts and/or arrangements as procured by 3Com. Palm shall cease to be a Participating Company in the 3Com Employee Assistance Program coincident with Palm's establishment of the Palm Employee Assistance Program. Palm shall reimburse 3Com for any and all direct and indirect costs and expenses associated with its participation in the 3Com Employee Assistance Program and 3Com's procurement of a contract or arrangement on behalf of Palm, subject to Section 8.2. 7.2 EDUCATIONAL ASSISTANCE PROGRAM. Effective as of the Distribution Date (or such other date as Palm and 3Com may mutually agree), Palm shall provide a Palm Educational Assistance Program to Palm Employees which is comparable in the aggregate in all Material Features to the 3Com Educational Assistance Program. Palm shall cease to be a Participating Company in the 3Com Educational Assistance Program coincident with Palm's establishment of the Palm Educational Assistance Program. At such time, any and all outstanding approved reimbursements under the 3Com Educational Assistance Program for Palm Employees shall be made by Palm. Furthermore, Palm shall reimburse 3Com for any and all direct and indirect costs and expenses associated with its participation in the 3Com Educational Assistance Program and 3Com's preparation of an Educational Assistance Program on behalf of Palm, subject to Section 8.2. 7.3 CREDIT UNION. 3Com shall use its commercially reasonable best efforts to make the AEA Technology Credit Union available to Palm Employees on substantially similar terms and conditions as are offered to current employees of the 3Com Group, through such date as Palm and 3Com may mutually agree). 3Com shall use its commercially reasonable best efforts to make certain other credit unions are available to former Employees of Palm on substantially similar terms and conditions as offered to former employees of the 3Com Group, through such date as Palm and 3Com may mutually agree). Palm shall reimburse 3Com for any and all direct and indirect costs and expenses related thereto, subject to Section 8.2. 7.4 CAFETERIA AND RELATED SUBSIDIES. 3Com shall continue to make its cafeterias, vending machines, and other food or beverage provision facilities at the 3Com Santa Clara campus (collectively, the "Food Programs"), available to Palm Employees on substantially similar terms and conditions as are offered to employees of the 3Com Group, until the termination of the occupancy agreements between 3Com and Palm regarding Palm's occupancy of the 3Com Santa Clara campus 28 (or such other date as 3Com and Palm may mutually agree). 3Com and Palm shall use their commercially reasonable best efforts to mutually agree on the appropriate methods and/or processes to ensure continued tax-favored status of 3Com's Food Programs under the Code. To the extent not otherwise addressed in the occupancy agreements, Palm shall reimburse 3Com for any and all direct and indirect costs and expenses associated with allowing Palm access to 3Com's Food Programs, subject to Section 8.2. 7.5 EMPLOYEE PRODUCT DISCOUNTS AND COMPANY STORE. 3Com shall provide access to its Company Store until the termination of the occupancy agreements between 3Com and Palm at the 3Com Santa Clara campus (or such other date as 3Com and Palm may mutually agree). 3Com shall provide qualified employee discounts available to Palm Employees on substantially similar terms and conditions as such discounts are made available to employees of the 3Com Group through the Distribution Date (or such other date as 3Com and Palm may mutually agree). To the extent not otherwise addressed in the occupancy agreements, 3Com and Palm shall each reimburse the other for any and all direct and indirect costs and expenses relating to the provision of qualified discounts and access to the Company Store, subject to Section 8.2. 7.6 WELLCOM. 3Com shall continue to provide access to its gym and other athletic facilities (collectively, the "WellCom Program") available to Palm Employees on substantially similar terms and conditions as are offered to employees of the 3Com Group until the termination of the occupancy agreements between 3Com and Palm regarding Palm's occupancy of the 3Com Santa Clara campus (or such other date as 3Com and Palm may mutually agree). To the extent not otherwise addressed in the occupancy agreements, Palm shall reimburse 3Com for any and all direct and indirect costs and expenses associated with allowing Palm access to 3Com's WellCom Program, subject to Section 8.2. 7.7 SOS PLAN. Effective as of the Distribution Date (or such other date as Palm and 3Com may mutually agree), Palm shall provide an SOS Plan to Palm Employees. Palm shall cease to be a Participating Company in the 3Com SOS Plan coincident with Palm's establishment of the Palm SOS Plan (or, if none, Palm's written notice to 3Com of its withdrawal as a Participating Company in the 3Com SOS Plan). At such time, any and all outstanding approved matching charity contributions under the 3Com SOS Plan for Palm Employees shall be made by Palm. Furthermore, Palm shall reimburse 3Com for any and all direct and indirect costs and expenses associated with its participation in the 3Com SOS Plan and 3Com's preparation of an SOS Plan on behalf of Palm, subject to Section 8.2. 7.8 OTHER BENEFITS. To the extent that 3Com maintains, sponsors or provides other fringe benefits specified in Schedule 7.8 to its eligible employees, then 3Com shall, to the extent permitted by law, continue to make such benefits available to Palm Employees on substantially similar terms and conditions as are offered to the employees of the 3Com Group through the Distribution Date (or such other date upon which Palm and 3Com mutually agree). Palm shall reimburse 3Com for any and all direct and indirect costs and expenses associated with, arising out of, or resulting from the provision of such other fringe benefits to its employees, subject to Section 8.2. Palm and 3Com 29 agree to make commercially reasonable best efforts to mutually agree on whether, when, and on what terms any member of the Palm Group shall maintain, sponsor, or offer fringe benefits. 7.9 ADMINISTRATIVE SERVICES. To the extent not provided otherwise in this Article, 3Com shall provide certain administrative services to Palm in conjunction with both the 3Com and the Palm Fringe Benefit Plans in such manner and for such period as 3Com and Palm may mutually agree. Palm shall reimburse 3Com for any and all direct and indirect costs and expenses related thereto, subject to Section 8.2. 30 ARTICLE VIII ADMINISTRATIVE PROVISIONS 8.1 MASTER TRANSITIONAL SERVICES AGREEMENT. On or prior to the Separation Date (or such other date as Palm and 3Com may mutually agree), 3Com and Palm may enter into a services agreement covering the provisions of interim services, including financial, accounting, legal, benefits-related and other services by 3Com to Palm or, in certain circumstances, vice versa, if appropriate or necessary. 8.2 PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED MATTERS. (a) EXPENSES AND COSTS CHARGEABLE TO A TRUST. Effective as of the Separation Date, Palm shall pay its share of any contributions made to any trust maintained in connection with a 3Com Plan while Palm is a Participating Company in that 3Com Plan. (b) CONTRIBUTIONS TO TRUSTS. With respect to 3Com Plans to which Palm Employees and Palm Transferred Employees make contributions, 3Com shall use reasonable procedures to determine Palm Assets and Liabilities associated with each such Plan, taking into account such contributions, settlements, refunds and similar payments. (c) ADMINISTRATIVE EXPENSES NOT CHARGEABLE TO A TRUST. Effective as of the Separation Date, to the extent not charged pursuant to a services agreement (as contemplated by Section 8.1) or another Ancillary Agreement (including, without limitation, the Master Transitional Services Agreement), and to the extent not otherwise agreed to in writing by 3Com and Palm, and to the extent not chargeable to a trust established in connection with a 3Com Plan (as provided in paragraph (a)), Palm shall be responsible, through either direct payment or reimbursement to 3Com in accordance with Section 5.3 of the Separation Agreement and/or with the Master Transitional Services Agreement, for its allocable share of actual third party and/or vendor costs and expenses incurred by 3Com and additional costs and expenses, subject to the methodology reasonably agreed upon by 3Com and Palm, in the administration of (i) the 3Com Plans while Palm participates in such 3Com Plans, and (ii) the Palm Plans, to the extent 3Com procures, prepares, implements and/or administers such Palm Plans. To the extent not otherwise determinable through direct allocation of costs and expenses, Palm's allocable share of such costs and expenses will be based on Palm Revenue as a percentage of total 3Com Revenue. (d) ALLOCATION OF COSTS AND EXPENSES. Except as otherwise provided in this Agreement, the Master Transitional Services Agreement, or in any services agreement between 3Com and Palm (as contemplated in Section 8.1) relating to the Separation, the IPO, or the Distribution, all costs and expenses of the parties hereto in connection with the Separation, the IPO (including underwriting discounts and commissions) and the Distribution and costs and expenses of the parties hereto in connection with the Separation shall be allocated between Palm and 3Com. 31 Palm and 3Com shall each be responsible for their own internal fees, costs and expenses incurred in connection with the Separation, the IPO and the Distribution. 8.3 TRANSITIONAL STAFFING SERVICES. 3Com shall provide certain transitional staffing services and other services as 3Com and Palm may mutually agree (provided, however, for purposes of the Workers' Compensation Plan (as set forth in Section 5.13) the Transitional Staffing Services Agreement for finance shall control) to Palm in such manner and for such period as 3Com and Palm may mutually agree. Palm shall reimburse 3Com for any and all direct and indirect costs and expenses related thereto, subject to Section 8.2. 8.4 SHARING OF PARTICIPANT INFORMATION. In addition to the responsibilities and obligations of 3Com and Palm specified in Exhibit I to the Separation Agreement, 3Com and Palm shall share, or cause to be shared, all participant information that is necessary or appropriate for the efficient and accurate administration of each of the 3Com Plans and the Palm Plans during the respective periods applicable to such Plans as Palm and 3Com may mutually agree). 3Com and Palm and their respective authorized agents shall, subject to applicable laws of confidentiality and data protection, be given reasonable and timely access to, and may make copies of, all information relating to the subjects of this Agreement in the custody of the other party or its agents, to the extent necessary or appropriate for such administration. 8.5 REPORTING AND DISCLOSURE COMMUNICATIONS TO PARTICIPANTS. While Palm is a Participating Company in the 3Com Plans, Palm shall take, or cause to be taken, all actions necessary or appropriate to facilitate the distribution of all 3Com Plan-related communications and materials to employees, participants and beneficiaries, including (without limitation) summary plan descriptions and related summaries of material modification(s), summary annual reports, investment information, prospectuses, notices and enrollment material for the 3Com Plans and Palm Plans. Palm shall reimburse 3Com for the costs and expenses relating to the copies of all such documents provided to Palm, except to the extent such costs are charged pursuant to Section 8.2 (or are otherwise addressed in this Agreement) or pursuant to an Ancillary Agreement. Palm shall assist 3Com in complying with all reporting and disclosure requirements of ERISA, including the preparation of Form Series 5500 annual reports for the 3Com Plans, as applicable. 8.6 AUDITS REGARDING VENDOR CONTRACTS. From the period beginning as of the Separation Date and ending on such date as 3Com and Palm may mutually agree, 3Com and Palm and their duly authorized representatives shall have the right to conduct joint audits with respect to any vendor contracts that relate to both the 3Com Health and Welfare Plans and the Palm Health and Welfare Plans. The scope of such audits shall encompass the review of all correspondence, account records, claim forms, canceled drafts (unless retained by the bank), provider bills, medical records submitted with claims, billing corrections, vendor's internal corrections of previous errors and any other documents or instruments relating to the services performed by the vendor under the applicable vendor contracts. 3Com and Palm shall agree on the performance standards, audit methodology, auditing policy and quality measures, reporting requirements, and the manner in which costs and expenses incurred in connection with such audits will be shared. 32 8.7 EMPLOYEE IDENTIFICATION NUMBERS. Until the Distribution Date (or such other period as 3Com and Palm may mutually agree), 3Com and Palm shall not change any employee identification numbers assigned by 3Com. 3Com and Palm mutually agree to establish a policy pursuant to which employee identification numbers assigned to either employees of 3Com or Palm shall not be duplicated between 3Com and Palm. 8.8 BENEFICIARY DESIGNATIONS. Subject to Section 8.11, all beneficiary designations made by Palm Employees and Palm Transferred Employees for the 3Com Plans shall be transferred to and be in full force and effect under the corresponding Palm Plans, in accordance with the terms of each such applicable Palm Plan, until such beneficiary designations are replaced or revoked by the Palm Employees and Palm Transferred Employees who made the beneficiary designations. 8.9 REQUESTS FOR IRS AND DOL OPINIONS. 3Com and Palm shall make such applications to regulatory agencies, including the IRS and DOL, as may be necessary or appropriate. Palm and 3Com shall cooperate fully with one another on any issue relating to the transactions contemplated by this Agreement for which 3Com and/or Palm elects to seek a determination letter or private letter ruling from the IRS or an advisory opinion from the DOL. 8.10 FIDUCIARY MATTERS. 3Com and Palm each acknowledge that actions contemplated to be taken pursuant to this Agreement may be subject to fiduciary duties or standards of conduct under ERISA or other applicable law, and that no party shall be deemed to be in violation of this Agreement if such party fails to comply with any provisions hereof based upon such party's good faith determination that to do so would violate such a fiduciary duty or standard. 8.11 CONSENT OF THIRD PARTIES. If any provision of this Agreement is dependent on the consent of any third party (such as a vendor) and such consent is withheld, 3Com and Palm shall use their commercially reasonable best efforts to implement the applicable provisions of this Agreement. If any provision of this Agreement cannot be implemented due to the failure of such third party to consent, 3Com and Palm shall negotiate in good faith to implement such provision in a mutually satisfactory manner. 8.12 3COM INTRANET. Through the Distribution Date (or such other date as Palm and 3Com may mutually agree), 3Com shall make its 3Community intranet site available to Palm Employees on substantially the same terms as such intranet site is made available to 3Com Employees. Palm shall reimburse 3Com for any and all costs and expenses related to making its intranet site available to Palm Employees, subject to the Master Transitional Services Agreement. 3Com and Palm shall use their commercially reasonable best efforts to mutually agree on the appropriate methods by which Palm shall establish its own intranet site. 8.13 TAX COOPERATION. In connection with the interpretation and administration of this Agreement, 3Com and Palm shall take into account the agreements and policies established pursuant to the Separation Agreement and the parties' intent to qualify the Distribution as a tax-free reorganization under Code Sections 355 and 368(a)(1)(D). 33 ARTICLE IX EMPLOYMENT-RELATED MATTERS 9.1 TERMS OF PALM EMPLOYMENT. All basic terms and conditions of employment for Palm Employees and Palm Transferred Employees including, without limitation, their pay and benefits in the aggregate, shall, to the extent legally and practicably possible, remain substantially the same through the Distribution Date as the terms and conditions that were in place when the Palm Employee or Palm Transferred Employee was employed by the 3Com Group, as applicable. Notwithstanding the foregoing, Palm Employees and Palm Transferred Employees shall be required to execute a new agreement regarding confidential information and proprietary developments in a form approved by Palm by the Distribution Date. In addition, nothing in the Separation Agreement, this Agreement, or any Ancillary Agreement should be construed to change the at-will status of the employment of any of the employees of the 3Com Group or the Palm Group. 9.2 HR DATA SUPPORT SYSTEMS. 3Com shall provide human resources data support for Palm Employees and Palm Transferred Employees through December 31, 2000 (or such other period as 3Com and Palm may mutually agree). Palm agrees to fully reimburse 3Com for any and all direct and indirect costs and expenses associated with its use of the 3Com human resources data support systems, subject to Section 8.2. In the event that 3Com and Palm agree to extend the time period beyond December 31, 2000, then the costs and expenses will be computed in accordance with Section 8.2; provided, however, an additional ten percent (10%) charge will be incurred by Palm. 3Com and Palm each reserves the right to discontinue Palm's access to any 3Com human resources data support systems with sixty (60) days notice (or such other period as 3Com and Palm may mutually agree). 9.3 NON-SOLICITATION OF EMPLOYEES. Subject to Section 5.12 of the Separation Agreement, 3Com and Palm each agree that, effective as of the IPO, they shall not solicit or recruit, without the other party's express written consent, the other party's employees for a period of two (2) years following the Distribution Date. To the extent this prohibition is waived, any recruitment efforts by either 3Com or Palm during the period of two (2) years after the Distribution Date shall be coordinated with the Senior Vice President, Human Resources of 3Com and the Vice President, Human Resources of Palm or each of their respective designates and appropriate management. Notwithstanding the foregoing, this prohibition on solicitation does not apply to actions taken by a party either: (a) solely as a result of an employee's affirmative response to a general recruitment effort carried out through a public solicitation or general solicitation, or (b) as a result of an employee's initiative. 9.4 EMPLOYMENT OF EMPLOYEES WITH U.S. WORK VISAS. Palm Employees with U.S. work visas authorizing them to work for Palm will continue to hold work authorization for the Palm Group after the Separation Date. Palm will request amendments to the nonimmigrant visa status of Palm Employees and Palm Transferred Employees with U.S. work visas authorizing them to work for 3Com, excluding the Palm Group, to request authorization to work for Palm. 34 9.5 CONFIDENTIALITY AND PROPRIETARY INFORMATION. No provision of the Separation Agreement or any Ancillary Agreement shall be deemed to release any individual for any violation of the 3Com non-competition guideline or any agreement or policy pertaining to confidential or proprietary information of any member of the 3Com Group, or otherwise relieve any individual of his or her obligations under such non-competition guideline, agreement, or policy. 9.6 PTO. Effective as of the Separation Date (or such other date as 3Com and Palm may mutually agree), Palm shall establish the Palm PTO Plan which shall be comparable in the aggregate in all Material Features to the 3Com PTO Plan. Effective as soon as administratively practicable after the Separation Date (or such other date as 3Com and Palm may mutually agree), 3Com shall transfer to Palm all data and information relating to the 3Com PTO Plan. Effective as soon as administratively practicable following the Separation Date (or such other date as 3Com and Palm may mutually agree), Palm shall assume all Liabilities attributable to Palm Employees under the 3Com PTO Plan. In the event that a 3Com Employee or Palm Employee transfers his or her employment to the other party before the Distribution Date, such transfer of employment shall not result in a payout or constitute a termination event for purposes of the PTO Plan, and no duplication of benefits shall occur as a result of any such transfer of employment between 3Com and Palm. Furthermore, the Liability attributable to any Palm Employee or 3Com Employee who transfers employment between 3Com and Palm prior to the Distribution Date shall be assumed by the employer subsequent to the transfer. 9.7 PERSONNEL RECORDS. Subject to applicable laws on confidentiality and data protection, 3Com shall deliver to Palm prior to the Distribution Date (or such other date as 3Com and Palm may mutually agree), personnel records of Palm Employees and Palm Transferred Employees to the extent such records relate to Palm Employees' and Palm Transferred Employees' active employment by, leave of absence from, or termination of employment with Palm. Palm shall fully reimburse 3Com for any and all direct and indirect costs and expenses associated with such delivery, subject to Section 8.2. 9.8 MEDICAL RECORDS. Subject to applicable laws on confidentiality and data protection, 3Com shall deliver to Palm prior to the Distribution Date (or such other date as 3Com and Palm may mutually agree), medical records of Palm Employees and Palm Transferred Employees to the extent such records (a) relate to Palm Employees' and Palm Transferred Employees' active employment by, leave of absence from, or termination of employment with Palm, and (b) are necessary to administer and maintain employee benefit plans, including Health Plans and Workers' Compensation Plan and for determining eligibility for paid and unpaid Leaves of Absence for medical reasons. Palm shall fully reimburse 3Com for any and all direct and indirect costs and expenses associated with such delivery, subject to Section 8.2. 9.9 UNEMPLOYMENT INSURANCE PROGRAM. (a) CLAIMS ADMINISTRATION THROUGH DISTRIBUTION DATE. Unless otherwise directed by Palm, 3Com shall use its commercially reasonable best efforts to cause Palm to receive service from 3Com's third party unemployment insurance administrator through the Distribution Date (or 35 such other date as 3Com and Palm may mutually agree). Palm shall reimburse 3Com for its allocable share of fees paid and related costs and expenses by 3Com to its third party unemployment insurance administrator for services rendered during such period, pursuant to the Master Transitional Services Agreement. Palm shall cooperate with the unemployment insurance administrator by providing any and all necessary or appropriate information reasonably available to Palm. (b) CLAIM ADMINISTRATION POST-DISTRIBUTION DATE. Before the Distribution Date, 3Com shall use its commercially reasonable best efforts for and on behalf of Palm to procure an agreement with its third party unemployment insurance administrator comparable in the aggregate in all Material Features to the 3Com third party unemployment insurance agreement, including, without limitation, administration of all unemployment compensation claims of Palm Transferred Employees and Palm Employees, regardless of whether such claims were filed before, on, or after the Distribution Date. Palm shall not unreasonably withhold its consent to adopt such an agreement with such administrator. Palm shall reimburse 3Com for any and all direct and indirect costs and expenses associated with such procurement, subject to the Master Transitional Services Agreement. 9.10 NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY BENEFICIARIES. No provision of this Agreement, the Separation Agreement, or any Ancillary Agreement shall be construed to create any right or accelerate entitlement to any compensation or benefit whatsoever on the part of any Palm Employee, Palm Transferred Employee or other former, present or future employee of 3Com or Palm under any 3Com Plan or Palm Plan or otherwise. Without limiting the generality of the foregoing: (a) neither the Distribution or Separation, nor the termination of the Participating Company status of Palm or any member of the Palm Group shall cause any employee to be deemed to have incurred a termination of employment; and (b) no transfer of employment between 3Com and Palm before the Distribution Date shall be deemed a termination of employment for any purpose hereunder. 9.11 EMPLOYMENT LITIGATION. (a) CLAIMS TO BE TRANSFERRED TO PALM AND/OR JOINTLY DEFENDED BY 3COM AND PALM. On or before the Separation Date, 3Com and Palm will enter into a written agreement that specifies the legal responsibility and accompanying Liability for identified claims of Palm. (b) UNSCHEDULED CLAIMS. Palm shall have the sole responsibility for all employment-related claims regarding Palm Employees and Palm Transferred Employees that exist, or come into existence, on or after the Separation Date relating to, arising out of, or resulting from their employment with the Palm Business or the Palm Group. 36 ARTICLE X GENERAL PROVISIONS 10.1 EFFECT IF SEPARATION, IPO AND/OR DISTRIBUTION DOES NOT OCCUR. Subject to Section 10.10, if the Separation, IPO and/or Distribution does not occur, then all actions and events that are, under this Agreement, to be taken or occur effective as of the Separation Date, IPO, and/or Distribution Date, or otherwise in connection with the Separation, IPO and/or Distribution, shall not be taken or occur except to the extent specifically agreed by Palm and 3Com. 10.2 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be deemed or construed by the parties or any third party as creating the relationship of principal and agent, partnership or joint venture between the parties, the understanding and agreement being that no provision contained herein, and no act of the parties, shall be deemed to create any relationship between the parties other than the relationship set forth herein. 10.3 AFFILIATES. Each of 3Com and Palm shall cause to be performed and hereby guarantee the performance of any and all actions of the 3Com Group or the Palm Group, respectively. 10.4 INCORPORATION OF SEPARATION AGREEMENT PROVISIONS. The following provisions of the Separation Agreement are hereby incorporated herein by reference, and unless otherwise expressly specified herein, such provisions shall apply as if fully set forth herein (references in this Section to an "Article" or "Section" shall mean Articles or Sections of the Separation Agreement, and, except as expressly set forth below, references within the material incorporated herein by reference shall be references to the Separation Agreement): Section 5.4 (relating to Agreement for Exchange of Information); Section 5.9 (relating to Dispute Resolution); Section 5.11 (relating to No Representation or Warranty); and Article V (relating to Covenants and Other Matters). 10.5 GOVERNING LAW. To the extent not preempted by applicable federal law, including, without limitation, ERISA, the Code and applicable securities laws, this Agreement shall be governed by, construed and interpreted in accordance with the laws of the State of California, irrespective of the choice of law principles of the State of California, as to all matters, including matters of validity, construction, effect, performance and remedies. 10.6 ASSIGNMENT. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives and successors, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. This Agreement may be enforced separately by each member of the 3Com Group and each member of the Palm Group. Neither party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other party, and any such assignment shall be void; provided, however, either party may assign this Agreement to a successor entity in conjunction with such party's reincorporation. 37 10.7 SEVERABILITY. If any term or other provision of this Agreement is determined to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible and in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest possible extent. 10.8 INTERPRETATION. The headings contained in this Agreement or any Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any Schedule but not otherwise defined therein shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an Article, Section or Schedule, such reference shall be to an Article of, Section of, or Schedule to this Agreement unless otherwise indicated. 10.9 AMENDMENT. The Board of Directors of Palm and 3Com may mutually agree to amend the provisions of this Agreement at any time or times, for any reason, either prospectively or retroactively, to such extent and in such manner as the Boards mutually deem advisable. Each Board may delegate its amendment power, in whole or in part, to one or more Persons or committees as it deems advisable. The Senior Vice President, Human Resources of 3Com and the Vice President, Human Resources of Palm have full power and authority to mutually adopt an amendment to this Agreement (subject to each of their authority to amend Plans). No change or amendment will be made to this Agreement, except by an instrument in writing signed by authorized individuals. 10.10 TERMINATION. This Agreement may be terminated and the Distribution abandoned at any time prior to the IPO Closing Date by and in the sole discretion of 3Com without the approval of Palm. This Agreement may be terminated at any time after the IPO Closing Date and before the Distribution Date by mutual consent of 3Com and Palm. In the event of termination pursuant to this Section, no party shall have any liability of any kind to the other party. 10.11 CONFLICT. In the event of any conflict between the provisions of this Agreement and the Separation Agreement, any Ancillary Agreement, or Plan, the provisions of this Agreement shall control. 10.12 COUNTERPARTS. This Agreement, including the Schedules hereto and the other documents referred to herein, may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same agreement. 38 IN WITNESS WHEREOF, each of the parties have caused this Employee Matters Agreement to be executed on its behalf by its officers thereunto duly authorized on the day and year first above written. 3COM CORPORATION By:___________________________________ Name:_________________________________ Title: PALM, INC. By: __________________________________ Name: ________________________________ Title: SCHEDULE 2.7 FOREIGN PLANS ------------- - ------------------------------------------------------------------------------ Actions Required in Relation to Palm at Separation
- ----------------------------------------------------------------------------------------------------------------------- - -------------------- ------------------------------------- ------------------------------------------------------------ Country Benefit Action - -------------------- ------------------------------------- ------------------------------------------------------------ - -------------------- ------------------------------------- ------------------------------------------------------------ UK Pension Plan Amend plan to enable Palm Employees to participate until Distribution Date - -------------------- ------------------------------------- ------------------------------------------------------------ Healthcare Amend current arrangements to enable Palm Employees to continue to participate until April 2001 (renewal data) - -------------------- ------------------------------------- ------------------------------------------------------------ Life Assurance Amend current arrangements to enable Palm Employees to continue to participate until Distribution Date - -------------------- ------------------------------------- ------------------------------------------------------------ PHI Amend current arrangements to enable Palm Employees to continue to participate until Distribution Date - -------------------- ------------------------------------- ------------------------------------------------------------ - -------------------- ------------------------------------- ------------------------------------------------------------ France Supplementary Pension Plan Withdraw this benefit - -------------------- ------------------------------------- ------------------------------------------------------------ Healthcare/Disability Replicate current arrangements - -------------------- ------------------------------------- ------------------------------------------------------------ - -------------------- ------------------------------------- ------------------------------------------------------------ Sweden Pension/Life/Disability Replicate current arrangements at Separation - -------------------- ------------------------------------- ------------------------------------------------------------ Healthcare Arrange for Palm Employees to participate in 3Com arrangements until Distribution Date - -------------------- ------------------------------------- ------------------------------------------------------------ - -------------------- ------------------------------------- ------------------------------------------------------------ Switzerland Life/Pension Disability Replicate current arrangements - -------------------- ------------------------------------- ------------------------------------------------------------ - -------------------- ------------------------------------- ------------------------------------------------------------ Italy Personal Replicate current arrangements Accident/Healthcare/Medical Check Up - -------------------- ------------------------------------- ------------------------------------------------------------ - -------------------- ------------------------------------- ------------------------------------------------------------ Netherlands Pension Arrange for Palm Employees to participate in 3Com arrangements until Distribution Date - -------------------- ------------------------------------- ------------------------------------------------------------ Healthcare/Life/Disability Arrange for Palm Employees to participate in 3Com arrangements until Distribution Date - -------------------- ------------------------------------- ------------------------------------------------------------ - -------------------- ------------------------------------- ------------------------------------------------------------ Germany Support Fund Replicate current arrangements - -------------------- ------------------------------------- ------------------------------------------------------------ Direct Insurance Transfer Palm Employees' arrangements to Palm - -------------------- ------------------------------------- ------------------------------------------------------------ -i-
SCHEDULE 5.1(a) PALM HEALTH AND WELFARE PLANS Palm Health Plans: - Aetna US Healthcare Exclusive Provider Organization (EPO) - Aetna US Healthcare Preferred Provider Organization (PPO) - Aetna US Healthcare Out-of-Area Plan - Kaiser HMO - MetLife Dental Plan - Vision Service Plan Palm Welfare Plans Group Life Plan AD&D Plan Severance Plan Sabbatical Plan Disability Plans Business Travel Accident Insurance Section 125 Plan Leave of Absence Programs and FMLA 3Com Workers' Compensation Plan -ii- SCHEDULE 5.1(c)(i) THIRD PARTY ASO Aetna US Healthcare Medical Plans MetLife Dental Plans Matrix Short-Term Disability Plan Administrator -iii- SCHEDULE 5.1(c)(ii) GROUP INSURANCE POLICIES Prudential Life Insurance Prudential LTD Insurance The Hartford Accidental Death and Dismemberment (AD&D) Insurance The Hartford Business Travel Accident (BTA) Insurance -iv- SCHEDULE 5.1(c)(iii) HMO AGREEMENT Kaiser HMO -v- SCHEDULE 5.2(a) 3COM HEALTH AND WELFARE PLANS 3Com Health Plans: - Aetna US Healthcare Exclusive Provider Organization (EPO) - Aetna US Healthcare Preferred Provider Organization (PPO) - Aetna US Healthcare Out-of-Area Plan - Harvard Pilgrim Health Care HMO - HMO Illinois - Kaiser HMO - MetLife Dental Plan - Vision Service Plan 3Com Welfare Plans Group Life Plan AD&D Plan Severance Plan Sabbatical Plan Disability Plans Business Travel Accident Insurance Long-Term Care Plan Section 125 Plan Leave of Absence Programs and FMLA Workers' Compensation Plan -vi- SCHEDULE 6.3 OPTIONS HELD BY CERTAIN NON-U.S. PALM TRANSFERRED EMPLOYEES Certain Non-U.S. jurisdictions require the consent of Palm Transferred Employees to Palm's assumption of such Employee's 3Com Options. To the extent that such consent is not obtained, the Options held by such Palm Transferred Employees shall not be assumed and shall generally terminate three (3) months after the Distribution. -vii- SCHEDULE 6.4 3COM RESTRICTED STOCK HELD BY NON-U.S. PALM TRANSFERRED EMPLOYEES NONE -viii- SCHEDULE 7.8 OTHER FRINGE BENEFITS Financial Engines Retirement Web Advisor Human Resources Education and Development Program Hyatt Legal International SOS Assistance (travel protection) MetLife Group Auto and Home Insurance Outplacement Services Training -ix- EX-2.7 7 EXHIBIT 2.7 Exhibit 2.7 TAX SHARING AGREEMENT This Tax Sharing Agreement, dated February 26, 2000, is by and between 3Com Corporation ("3Com"), a Delaware corporation, and Palm, Inc. ("Palm"), a Delaware corporation. RECITALS A. U.S. Robotics Corporation ("USR"), a Delaware corporation, acquired all of the stock of Palm on September 1, 1995. Consequently, Palm was a member of the affiliated group of corporations of which USR was the common parent (the "USR Group"), beginning on September 2, 1995, and ending on June 12, 1997, when 3Com acquired all of the stock of USR. B. During the period that Palm was a member of the USR Group, it joined other members of the group in filing consolidated federal income tax returns. For its taxable years ended October 1, 1995, and September 26, 1996, Palm incurred net operating losses that reduced the consolidated tax liability of the USR Group. Palm received no compensation from USR or other members of the Group for the use of Palm's net operating losses to offset taxable income of other members of the Group. For its taxable year ended June 12, 1997, when 3Com acquired USR, Palm had taxable income that increased the consolidated tax liability of the USR Group. Palm did not pay USR to compensate USR for Palm's share of the group's consolidated federal income tax liability. C. When 3Com acquired USR, both USR and Palm became members of the affiliated group of corporations of which 3Com was the common parent (the "3Com Group"). Beginning with its taxable year ended May 31, 1998, Palm has joined the other members of the 3Com Group in filing consolidated federal income tax returns. During its 1998 taxable year, Palm earned taxable income that was offset by net operating losses incurred by other members of the group. Palm did not pay 3Com to compensate for the use of losses of other group members to offset Palm's income. D. Under the tax laws of some states and foreign jurisdictions, Palm has joined other members of the USR Group or the 3Com Group in filing consolidated, combined, or unitary returns. Palm has made no payments to other members in respect of its share of the tax liability reported on those returns or to compensate other members for the use of their losses, credits or similar tax attributes to reduce Palm's share of the aggregate tax liability. Similarly, Palm has received no payments from other members to compensate Palm for the use of its losses, credits, or similar tax attributes to reduce the aggregate tax liability. E. Palm plans to issue new shares of its common stock through a combination of private placements to strategic investors and a public offering. Thereafter, pursuant to a Master Separation and Distribution Agreement dated December 13, 1999, between 3Com and Palm, 3Com will distribute all of its stock in Palm to its shareholders (the "Distribution"). The Distribution will cause Palm to leave the 3Com Group. F. In anticipation of Palm's departure from the 3Com Group, 3Com and Palm would like to allocate responsibilities for certain tax matters. In particular, the parties would like to provide for the payment by Palm of its share of tax liabilities determined on a consolidated, combined, or unitary basis and to compensate affiliates for the use of their losses, credits, or other tax attributes to reduce Palm's share of the aggregate tax liability. Similarly, the parties would like to provide for the compensation of Palm for the use of its losses, credits, or similar tax attributes to reduce the aggregate tax liability. The parties would also like to provide for compensation or reimbursement as appropriate to reflect redeterminations of the tax liability of Palm for periods during which it joined in the filing of consolidated, combined, or unitary returns with 3Com or other affiliates. Finally, the parties would like to provide and fix the responsibilities for certain administrative matters, such as (1) the preparation and filing of tax returns for periods beginning before the date of the Distribution (the "Distribution Date"), (2) the payment of taxes shown to be due and payable on those returns (as well as any estimated or advance payments required before the filing of those returns), (3) the retention, maintenance and provision of access to all records necessary to prepare and file appropriate tax returns, and (4) the conduct of audits, examinations, and proceedings that could result in a redetermination of tax liabilities of 3Com, Palm or other subsidiaries of 3Com for periods beginning before the Distribution Date. AGREEMENT To accomplish the purposes described above, 3Com and Palm agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the term "Tax" shall mean all federal, state, local, foreign or other taxes, assessments or other governmental charges, including income, estimated income, business occupation, franchise, property, sales, use, excise, employment, unemployment, payroll, social security, ad valorem, transfer, gains, profits, capital stock, license, gross receipts, stamp, real estate, severance and withholding taxes, customs duties and harbor maintenance fees. Taxes associated with improper classification of employees as independent contractors shall be treated as payroll taxes and thus included within the definition of Taxes. Other capitalized terms not defined in this Agreement shall have the meaning given those terms by the Master Separation and Distribution Agreement entered into as of December 13, 1999, between 3Com and Palm. 2. COMPUTATION OF TAX LIABILITY. The computation of Tax liability on any consolidated, combined or unitary return that includes Palm and at least one other corporation and covers a period beginning before the Distribution (a "Pre-Distribution Group Return") shall, to the extent permitted by law, be made in accordance with the methods used in comparable returns filed before the date of this Agreement. 3. ALLOCATION OF TAX LIABILITY (a) REGULAR FEDERAL INCOME TAX. If the consolidated federal income tax liability of the USR Group or 3Com Group for any taxable year for which the group filed or files a Pre-Distribution Group Return is determined on a regular tax basis, the amount of federal income taxes allocable to Palm shall be determined using the method described in section 1.1502-32(b)(3)(iv)(D) of the Treasury regulations. Thus, Palm shall be required to pay for any reduction in its separate company -2- liability because of the absorption of losses, credits or other tax attributes of other members. Conversely, Palm shall be entitled to compensation to the extent that the absorption of its losses, credits, or other tax attributes reduces the group's consolidated federal income tax liability. (b) FEDERAL ALTERNATIVE MINIMUM TAX. (i) GENERAL RULE. If the USR Group or 3Com Group pays alternative minimum tax (AMT) for any year for which it filed or files a Pre-Distribution Group Return, Palm's share of the group's consolidated federal income taxes shall equal its share of the group's consolidated AMT, determined under Section 3(b)(ii), with the adjustments provided in Section 3(b)(iii) to reflect the absorption of losses, credits or other tax attributes. (ii) PALM'S SHARE OF CONSOLIDATED AMT. Palm's share of the group's consolidated AMT for any year shall equal the excess, if any, of (A) the total consolidated AMT, over (B) the consolidated AMT for the year computed by excluding Palm's items of income, gain, deduction and loss, and Palm's credits. (iii) ADJUSTMENTS FOR ABSORPTION OF TAX ATTRIBUTES. Palm's share of the group's consolidated AMT shall be adjusted to reflect the absorption of losses, credits or other tax attributes, based on principles similar to those underlying the method of allocating regular federal income taxes described in section 1.1502-32(b)(3)(iv)(D) of the Treasury regulations. If, for any taxable year, the regular tax attributes allocable to members other than Palm that can be carried forward to the succeeding taxable year are less than those carryforwards would have been if Palm had not been a member of the group, then Palm's share of the group's consolidated federal income tax liability shall be increased to reflect the incremental absorption of the tax attributes of other members. Conversely, if Palm's regular tax attributes are used to offset taxable income of other members, or tax liability attributable to such income, then Palm's share of the group's consolidated federal income tax liability shall be decreased to reflect such use of Palm's tax attributes. The amount of the adjustment for absorbed credits shall equal the amount of those credits. The amount of the adjustment for absorbed losses shall equal the product of the absorbed losses and the highest marginal regular federal income tax rate in effect for the year in which the losses are absorbed. If the adjustment described in this Section 3(b)(iii) exceeds the amount determined in Section 3(b)(ii), the excess shall be credited against Palm's liability for other taxable years or, in the case of taxable years covered by returns filed after the public offering, Palm shall be entitled to receive the amount of such excess pursuant to Section 4(b). (c) OTHER TAXES. Palm's share of Taxes other than federal income taxes that are determined on a consolidated, combined, or unitary basis shall be determined by applying the principles underlying the allocation method described in section 1.1502-32(b)(3)(iv)(D) of the Treasury regulations. Thus, Palm's share of the Taxes will generally equal the Tax liability that Palm would have had if it had filed a separate return for the relevant period. Palm shall be required to pay 3Com to the extent that Palm's separate company liability is reduced by the absorption of losses, credits or -3- other tax attributes of other members. Conversely, 3Com shall compensate Palm to the extent that the absorption of Palm's losses, credits, or other tax attributes reduces the combined tax liability. 4. PAYMENT OF ALLOCATED TAX. (a) RETURNS FILED BEFORE PUBLIC OFFERING. Within 10 days after completion of the planned public offering of common shares of Palm, Palm shall pay to 3Com the net, cumulative amount of its share of the taxes assessed pursuant to Pre-Distribution Group Returns filed prior to the public offering. (b) RETURNS FILED AFTER PUBLIC OFFERING. Palm shall pay to 3Com Palm's share of any Tax liability assessed pursuant to a Pre-Distribution Group Return filed after the public offering referred to in Section 4(a) within 30 days after the filing of that return. Within that same period, 3Com shall make to Palm any payments required as a result of benefits realized by 3Com or other members of the 3Com Group from the use Palm's tax attributes. 5. REFUNDS. 3Com shall be entitled to receive any overpayment of Taxes shown on any Pre-Distribution Group Return, as originally filed. 6. ALLOCATION OF MINIMUM TAX CREDITS. When Palm leaves the 3Com Group, the group shall allocate to Palm a portion of its consolidated minimum tax credit equal to the ratio that (a) the cumulative amounts of consolidated AMT allocated to Palm pursuant to Section 3(b)(ii) bears to (b) the total amounts of consolidated AMT paid by the USR Group or 3Com Group for taxable years for which the group filed a Pre-Distribution Group Return. If the Treasury Department issues regulations that require an allocation of a different amount of consolidated minimum tax credit to Palm, Palm shall be required to pay (or entitled to receive) the amount by which its share of the consolidated minimum tax credit allocated pursuant to the regulations exceeds (or is less than) the amount that would have been allocated to Palm pursuant to this Section 6. 7. CARRYBACK OF POST-DISTRIBUTION TAX ATTRIBUTES OF PALM. If, for any taxable period beginning on or after the Distribution Date, Palm recognizes a loss, credit, or similar tax attribute that, under applicable law, can or must be carried back to a taxable period during which Palm joined in filing a Pre-Distribution Group Return, 3Com shall, at Palm's expense, file appropriate refund claims within a reasonable period after being requested by Palm. 3Com shall promptly remit to Palm any refunds received with respect to any tax attribute so carried back. 8. CONDUCT OF TAX CONTESTS. (a) SEPARATE PALM CLAIMS. Palm shall have sole and complete authority to contest any claim by a taxing authority arising from an examination of a return that includes only Palm (a "Separate Palm Claim"). (b) GROUP CLAIMS. 3Com shall be entitled to control the contest of any claim by a taxing authority arising from an examination of a Pre-Distribution Group Return (a "Group Claim"). 3Com -4- shall notify Palm of the commencement of any such examination and shall keep Palm apprised of the status of the examination. Palm shall be entitled to advise 3Com regarding the handling of claims that could affect Palm's allocable share of the consolidated, combined or unitary Tax liability, and 3Com shall not unreasonably reject Palm's advice. If a claim affects only Palm's share of the consolidated, combined or unitary Tax liability, and not that of any other member of the 3Com Group, Palm shall be entitled to prepare any written materials submitted to the taxing authority in defense against the claim. Neither Palm nor its representatives shall be entitled to attend meetings with representatives of the taxing authority without 3Com's consent. 3Com shall have sole authority to make decisions regarding the settlement of Group Claims. Palm shall bear any expenses it incurs in participating in the contest of a Group Claim. (c) COOPERATION. 3Com and Palm shall each provide the assistance reasonably requested by the other in conducting any tax contest, including execution of any powers of attorney or other appropriate documentation, attendance of administrative or judicial proceedings as requested, performance of necessary computations, and, subject to the confidentiality provisions of Section 14, provision of access to or furnishing books, records, tax returns, and supporting work papers. 9. REDETERMINED TAX LIABILITIES. (a) SEPARATE PALM CLAIMS. If a redetermination of Taxes results from a Separate Palm Claim, Palm shall pay any resulting increases in Tax liability and shall be entitled to receive any refunds related to a decrease in Tax liability attributable to the claim. (b) GROUP CLAIMS. Any Tax deficiency arising from a Group Claim shall be paid to the relevant taxing authority by 3Com, and 3Com shall be entitled to receive any tax refund arising from the contest of the Group Claim. Within 30 days after the final determination of the Group Claim, 3Com shall allocate the Tax liabilities for the affected periods, as redetermined, among the members of the 3Com Group that joined in filing the relevant Pre-Distribution Group Returns. In allocating the redetermined Tax liabilities, 3Com shall apply the allocation method prescribed by Section 3. If the amount of redetermined Tax liability allocated to Palm for any period exceeds the amounts previously paid by Palm to 3Com in respect of Palm's allocated Tax liability for that period, Palm shall pay such excess to 3Com within 10 days of receiving notice from 3Com of the amount due. If the amounts previously paid by Palm to 3Com in respect of Palm's allocated Tax liability for any period exceed the amount of redetermined Tax liability allocated to Palm for that period, 3Com shall pay such excess to Palm within 40 days after the final determination of the Group Claim that led to the redetermination of Tax liability. (c) INTEREST. If applicable law provides for interest on any Tax deficiency or refund to which Section 9(b) applies, then any payments made between Palm and 3Com pursuant to that Section as a result of the deficiency or refund shall also bear interest, computed at the same rate or rates and for the same period as the deficiency or refund bears interest. 10. RETENTION OF AND ACCESS TO RECORDS; COOPERATION AND ASSISTANCE. -5- (a) RETENTION OF AND ACCESS TO RECORDS. Each party shall retain all tax returns for periods beginning before the Distribution Date, together with all related reports, work papers, schedules or other documents or computer files, and, subject to the confidentiality provisions of Section 14, shall make these documents or files available to the other upon request. Neither party shall dispose of any of these documents or files without the other's permission. (b) COOPERATION AND ASSISTANCE. Subject to the confidentiality provisions of Section 14, 3Com and Palm shall provide each other with such cooperation, assistance, and information as either of them may reasonably request of the other with respect to the filing with any taxing authority of any tax return, amended return, claim for refund, or other document. With respect to any Pre-Distribution Group Return, such assistance shall include the timely submission by Palm to 3Com of pro forma tax returns for Palm, including a pro forma return for the tax period of Palm that will end on the Distribution Date. 11. PREPARATION OF TAX RETURNS; ESTIMATED PAYMENTS. (a) FILING OF RETURNS. 3Com shall prepare and timely file all Pre-Distribution Group Returns. Within 75 days after the close of each taxable period (including, if applicable, the period that ends on the Distribution Date), Palm shall, subject to the confidentiality provisions of Section 14: (1) furnish to 3Com draft tax returns for Palm and all supporting information and documentation useful in preparing the relevant Pre-Distribution Group Return; (2) allow 3Com access at any reasonable time after the Distribution Date to all tax returns of Palm and supporting papers for those returns; and (3) furnish to 3Com such additional tax information and documents as 3Com may reasonably request. Palm shall cooperate in connection with the preparation of any Pre-Distribution Group Returns. 3Com shall be responsible for any payments to the applicable taxing authorities required in connection with those returns. (b) AMENDED RETURNS. 3Com shall not amend any Pre-Distribution Group Return in a respect that would affect Palm's allocable share of the Tax liability for the period covered by the return without providing Palm an opportunity to review and comment on the proposed amended return. 3Com shall not unreasonably reject any comments provided by Palm on the proposed amended return. (c) ESTIMATED PAYMENTS. 3Com shall make all estimated payments to any taxing authorities required in connection with Pre-Distribution Group Returns, and all payments required in connection with requests for extensions of time to file those returns. After making such a payment, 3Com shall promptly notify Palm of any portion of the payment that 3Com believes in good faith to be attributable to Palm's share of the aggregate Tax liability, as determined under Section 3. Within 10 days after its receipt of such notice, Palm shall pay such amount to 3Com or advise 3Com of the basis for its disagreement. 12. INDEMNIFICATION. -6- (a) INDEMNITY OBLIGATIONS OF 3COM. 3Com shall indemnify Palm and hold Palm harmless from and against: (i) any liability, cost, or expense arising out of fraudulent or negligently prepared information, workpapers, documents, or other items used in the preparation of, or presented in, any return, amended return, or claim for refund prepared by 3Com; and (ii) any Tax liability, and related cost or expense, incurred or paid by Palm in excess of that portion of the Tax liability allocated to Palm by this Agreement. (b) INDEMNITY OBLIGATIONS OF PALM. Palm shall indemnify 3Com and its subsidiaries and hold them harmless from and against any liability for: (i) sales Taxes attributable to sales of products purchased by 3Com from Palm on or before the Distribution Date; (ii) customs duties or harbor maintenance fees on products exported or imported by 3Com on behalf of Palm; (iii) any Taxes resulting from the application to the Distribution of section 355(e) of the Internal Revenue Code by reason of an acquisition of Palm stock; (iv) any Taxes on income or gain recognized by 3Com or a subsidiary of 3Com as a result of the transfer of an asset to Palm or a subsidiary of Palm in preparation for the Distribution, provided that 3Com consulted with Palm regarding the transfer and its expected tax consequences and that, after such consultation, Palm agreed to the transfer; and (v) any interest or penalties related to Taxes described in this Section 12(b). 13. GROSS-UP FOR TAXES ON REQUIRED PAYMENTS. If the receipt or accrual of any payment required by this Agreement is subject to any Tax, the payor shall pay an additional amount so that the total amount received by the payee, net of any applicable Taxes, equals the amount of the required payment. 14. CONFIDENTIALITY OF DOCUMENTS AND INFORMATION. Any documents or information provided pursuant to this Agreement in connection with a tax contest or filing with a tax authority shall be provided or disclosed by the recipient only to those of its employees responsible for the tax contest or filing or to attorneys or accountants advising the recipient on these matters. Any wider dissemination of these documents or this information shall be allowed only if required by law or authorized by the party providing the documents or information. 15. DISPUTE RESOLUTION. -7- (a) If a dispute, controversy or claim ("Dispute") arises between the parties relating to the interpretation or performance of this Agreement, or the grounds for the termination hereof, appropriate senior executives (e.g. director or V.P. level) of each party who shall have the authority to resolve the matter shall meet to attempt in good faith to negotiate a resolution of the Dispute prior to pursuing other available remedies. The initial meeting between the appropriate senior executives shall be referred to herein as the "Dispute Resolution Commencement Date." Discussions and correspondence relating to trying to resolve such Dispute shall be treated as confidential information developed for the purpose of settlement and shall be exempt from discovery or production and shall not be admissible. If the senior executives are unable to resolve the Dispute within thirty (30) days from the Dispute Resolution Commencement Date, and either party wishes to pursue its rights relating to such Dispute, then the Dispute will be mediated by a mutually acceptable mediator appointed pursuant to the mediation rules of JAMS/Endispute within thirty (30) days after written notice by one party to the other demanding non-binding mediation. Neither party may unreasonably withhold consent to the selection of a mediator or the location of the mediation. Both parties will share the costs of the mediation equally, except that each party shall bear its own costs and expenses, including attorney's fees, witness fees, travel expenses, and preparation costs. The parties may also agree to replace mediation with some other form of non-binding or binding ADR. (b) Any Dispute which the parties cannot resolve through mediation within ninety (90) days of the Dispute Resolution Commencement Date, unless otherwise mutually agreed, shall be submitted to final and binding arbitration under the then current Commercial Arbitration Rules of the American Arbitration Association ("AAA"), by three (3) arbitrators in Santa Clara County, California. Such arbitrators shall be selected by the mutual agreement of the parties or, failing such agreement, shall be selected according to the aforesaid AAA rules. The arbitrators will be instructed to prepare and deliver a written, reasoned opinion stating their decision within thirty (30) days of the completion of the arbitration. The prevailing party in such arbitration shall be entitled to expenses, including costs and attorneys' and other professional fees, incurred in connection with the arbitration (but excluding any costs and fees associated with prior negotiation or mediation). The decision of the arbitrator shall be final and non-appealable and may be enforced in any court of competent jurisdiction. The use of any ADR procedures will not be construed under the doctrine of laches, waiver or estoppel to adversely affect the rights of either party. (c) Any Dispute regarding the following is not required to be negotiated, mediated or arbitrated prior to seeking relief from a court of competent jurisdiction: breach of any obligation of confidentiality; any claim where interim relief from the court is sought to prevent serious and irreparable injury to one of the parties or to others. However, the parties to the Dispute shall make a good faith effort to negotiate and mediate such Dispute, according to the above procedures, while such court action is pending. (d) Unless otherwise agreed in writing, the parties will continue to honor all commitments under this Agreement during the course of dispute resolution pursuant to the provisions of this Section 15 with respect to all matters not subject to such dispute, controversy, or claim. -8- 16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof. 17. GOVERNING LAW. This Agreement shall be construed in accordance with and all Disputes hereunder shall be governed by the laws of the State of California, excluding its conflict of law rules and the United Nations Convention on Contracts for the International Sales of Goods. The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have jurisdiction and venue over all Disputes between the parties that are permitted to be brought in a court of law pursuant to Section 15. 18. NOTICES. Notices, Demands, offers, requests or other communications required or permitted to be given by either party pursuant to the terms of this Agreement shall be given in writing to the respective parties to the following addresses: if to 3Com: 3Com Corporation 5400 Bayfront Plaza Santa Clara, California 95052 Attention: General Counsel Fax: (408) 326-6434 if to Palm: Palm, Inc. 5470 Great America Parkway Santa Clara, California 95052 Attention: General Counsel Or to such other address as the party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested. All other notices may also be sent by fax, confirmed by first class mail. All notices shall be deemed to have been given and received on the earlier of actual delivery or three (3) days from the date of postmark. 19. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. 20. BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives and successors, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. This Agreement may be enforced -9- separately by each member of the 3Com Group (defined, for this purpose, as provided in section 7.14 of the Master Separation and Distribution Agreement) and each member of the Palm Group. Neither party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other party, and any such assignment shall be void; provided, however, either party may assign this Agreement to a successor entity in conjunction with such party's reincorporation. 21. SEVERABILITY. If any term or any other provision of this Agreement is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible. 22. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. 23. AMENDMENT. No change or amendment will be made to this Agreement except by an instrument in writing signed on behalf of each of the parties to such agreement. 24. AUTHORITY. Each of the parties hereto represents to the other that (a) it has the corporate or other requisite power and authority to execute, deliver, and perform this Agreement, (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other actions, (c) it has duly and validly executed and delivered this Agreement, and (d) this Agreement is a legal, valid and binding obligation, enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and general equity principles. 25. INTERPRETATION. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. -10- IN WITNESS WHEREOF, the parties have caused this Tax Sharing Agreement to be duly executed as of the date first set forth above. 3COM CORPORATION PALM, INC. By: By: ----------------------------- -------------------------- Name: Name: ----------------------------- -------------------------- Title: Title: ----------------------------- -------------------------- EX-2.8 8 EXHIBIT 2.8 MASTER TRANSITIONAL SERVICES AGREEMENT BETWEEN 3COM CORPORATION AND PALM, INC. EFFECTIVE AS OF FEBRUARY 26, 2000 MASTER TRANSITIONAL SERVICES AGREEMENT This Master Transitional Services Agreement (the "Agreement") is effective as of February 26, 2000 (the "Effective Date"), between 3Com Corporation, a Delaware corporation ("3Com"), having an office at 5400 Bayfront Plaza, Santa Clara, California, 95052 and Palm, Inc., a Delaware corporation ("Palm"), having an office at 5470 Great America Parkway, Santa Clara, California, 95052. ARTICLE 1 DEFINITIONS For the purpose of this Agreement, the following capitalized terms shall have the following meanings: 1.1 ADDITIONAL SERVICES. "Additional Services" shall have the meaning set forth in Section 3.5. 1.2 ANCILLARY AGREEMENTS. "Ancillary Agreements" shall have the meaning set forth in the Master Separation and Distribution Agreement. 1.3 DISTRIBUTION DATE. "Distribution Date" shall have the meaning set forth in the Master Separation and Distribution Agreement. 1.4 IMPRACTICABLE. "Impracticable" shall have the meaning set forth in Section 3.3. 1.5 LOCALIZED VERSION. "Localized Version" means localized versions of the Software. 1.6 MASTER CONFIDENTIAL DISCLOSURE AGREEMENT. "Master Confidential Disclosure Agreement" shall mean that certain Master Confidential Disclosure Agreement between 3Com and Palm. 1.7 MASTER SEPARATION AND DISTRIBUTION AGREEMENT. "Master Separation and Distribution Agreement" shall mean that certain Master Separation and Distribution Agreement between 3Com and Palm. 1.8 SEPARATION DATE. Unless otherwise provided in this Agreement, or in any agreement to be executed in connection with this Agreement, the effective time and date of each transfer of property, assumption of liability, license, undertaking, or agreement in connection with the Separation shall be 12:01 a.m., Pacific Time, February 26, 2000 or such other date as may be fixed by the Board of Directors of 3Com (the "Separation Date"). 1.9 SERVICE(S). "Service(s)" shall have the meaning set forth in Section 3.1. 1.10 SOFTWARE. "Software" means 3Com's software program(s), in object code only, listed and described in the relevant Transition Service Schedule. 1.11 SOURCE CODE. "Source Code" means any human readable code, including interpreted code, of 3Com, listed and described in the relevant Transition Service Schedule. 1.12 SOURCE CODE DOCUMENTATION. "Source Code Documentation" means the manuals and other documentation that are reasonably necessary to use the Source Code licensed herein, including those items listed and described in the relevant Transition Service Schedule hereto. 1.13 SUBSIDIARY. "Subsidiary" of any Person means a corporation or other organization whether incorporated or unincorporated of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; provided, however, that no Person that is not directly or indirectly wholly-owned by any other Person shall be a Subsidiary of such other Person unless such other Person controls, or has the right, power or ability to control, that Person. For purposes of this Agreement, Palm shall be deemed not to be a subsidiary of 3Com. ARTICLE 2 TRANSITION SERVICE SCHEDULES This Agreement will govern individual transitional services as requested by Palm and provided by 3Com, the details of which are set forth in the Transition Service Schedules attached to this Agreement. Each Service shall be covered by this Agreement upon execution of a transition service schedule in the form attached hereto (each transition service schedule, a "Transition Service Schedule"). For each Service, the parties shall set forth, among other things, the time period during which the Service will be provided if different from the term of this Agreement determined pursuant to Article 4 hereof, a summary of the Service to be provided; a description of the Service; and the estimated charge, if any, for the Service and any other terms applicable thereto on the Transition Service Schedule. Obligations regarding each Transition Service Schedule shall be effective upon execution of this Agreement. This Agreement and all the Transition Service Schedules shall be defined as the "Agreement" and incorporated herein wherever reference to it is made. ARTICLE 3 SERVICES 3.1 SERVICES GENERALLY. Except as otherwise provided herein, for the term determined pursuant to Article 4 hereof, 3Com shall provide or cause to be provided to Palm the service(s) described in the Transition Service Schedule(s) attached hereto. The service(s) described -2- on a single Transition Service Schedule shall be referred to herein as a "Service." Collectively, the services described on all the Transition Service Schedules (including Additional Services) shall be referred to herein as "Services." 3.2 SERVICE BOUNDARIES. Except as provided in a Transition Service Schedule for a specific Service: (i) 3Com shall be required to provide the Services only to the extent and only at the locations such Services are being provided by 3Com for Palm immediately prior to the Effective Date; and (ii) the Services will be available only for purposes of conducting the business of Palm substantially in the manner it was conducted prior to the Effective Date. 3.3 IMPRACTICABILITY. 3Com shall not be required to provide any Service to the extent the performance of such Service becomes "Impracticable" as a result of a cause or causes outside the reasonable control of 3Com including unfeasible technological requirements, or to the extent the performance of such Services would require 3Com to violate any applicable laws, rules or regulations or would result in the breach of any software license or other applicable contract. 3.4 ADDITIONAL RESOURCES. Except as provided in a Transition Service Schedule for a specific Service, in providing the Services, 3Com shall not be obligated to: (i) hire any additional employees; (ii) maintain the employment of any specific employee; (iii) purchase, lease or license any additional equipment or software; or (iv) pay any costs related to the transfer or conversion of Palm's data to Palm or any alternate supplier of Services. 3.5 ADDITIONAL SERVICES. From time to time after the Effective Date, the parties may identify additional services that one party will provide to the other party in accordance with the terms of this Agreement (the "Additional Services"). Accordingly, the parties shall execute additional Transition Service Schedules for such Additional Services pursuant to Article 2. Except as set forth in Section 3.6, the parties may agree in writing on Additional Services during the term of this Agreement. 3.6 OBLIGATIONS AS TO ADDITIONAL SERVICES. Except as set forth in the next sentence, 3Com shall be obligated to perform, at a charge determined using the principles for determining fees under Section 5.1, any Additional Service that: (a) was provided by 3Com immediately prior to the Separation Date and that Palm reasonably believes was inadvertently or unintentionally omitted from the list of Services, or (b) is essential to effectuate an orderly transition under the Master Separation and Distribution Agreement unless such performance would significantly disrupt 3Com's operations or materially increase the scope of its responsibility under this Agreement. If 3Com reasonably believes the performance of Additional Services required under subparagraphs (a) or (b) would significantly disrupt its operations or materially increase the scope of its responsibility under this Agreement, 3Com and Palm shall negotiate in good faith to establish terms under which 3Com can provide such Additional Services, but 3Com shall not be obligated to provide such Additional Services if, following good faith negotiation, it is unable to reach agreement on such terms. -3- ARTICLE 4 TERM The term of this Agreement shall commence on the Effective Date and shall remain in effect until one (1) year after the Effective Date (the "Expiration Date"), unless earlier terminated under Article 7. This Agreement may be extended by the parties in writing, either in whole or with respect to one or more of the Services; provided, however, that such extension shall only apply to the Services for which the Agreement was extended. The parties shall be deemed to have extended this Agreement with respect to a specific Service if the Transition Service Schedule for such Service specifies a completion date beyond the aforementioned Expiration Date. The parties may agree on an earlier expiration date respecting a specific Service by specifying such date on the Transition Service Schedule for that Service. Services shall be provided up to and including the date set forth in the applicable Transition Service Schedule, subject to earlier termination as provided herein. ARTICLE 5 COMPENSATION 5.1 CHARGES FOR SERVICES. Palm shall pay 3Com the charges, if any, set forth on the Transition Service Schedules for each of the Services listed therein as adjusted, from time to time, in accordance with the processes and procedures established under Section 5.4 and Section 5.5 hereof. Such fees shall include the direct costs, as determined using the process described in such Transition Service Schedule, and indirect costs of providing the Services plus five percent (5%), unless specifically indicated otherwise on a Transition Service Schedule. However, if the term of this Agreement is extended beyond the Expiration Date as provided in Article 4, Palm will reimburse 3Com such costs plus ten percent (10%) for the Services unless the Transition Service Schedule for such Service indicates it is to extend beyond the Expiration Date. The parties also intend for charges to be easy to administer and justify and, therefore, they hereby acknowledge it may be counterproductive to try to recover every cost, charge or expense, particularly those that are insignificant or de minimus. The parties shall use good faith efforts to discuss any situation in which the actual charge for a Service is reasonably expected to exceed the estimated charge, if any, set forth on a Transition Service Schedule for a particular Service; provided, however, that the incurrence of charges in excess of any such estimate on such Transition Service Schedule shall not justify stopping the provision of, or payment for, Services under this Agreement. 5.2 PAYMENT TERMS. 3Com shall bill Palm monthly for all charges pursuant to this Agreement. Such bills shall be accompanied by reasonable documentation or other reasonable explanation supporting such charges. Palm shall pay 3Com for all Services provided hereunder within forty-five (45) days after receipt of an invoice therefor. Late payments shall bear interest at the lesser of 12% or the maximum rate allowed by law. 5.3 PERFORMANCE UNDER ANCILLARY AGREEMENTS. Notwithstanding anything to the contrary contained herein, Palm shall not be charged under this Agreement for any -4- obligations that are specifically required to be performed under the Master Separation and Distribution Agreement or any other Ancillary Agreement and any such other obligations shall be performed and charged for (if applicable) in accordance with the terms of the Master Separation and Distribution Agreement or such other Ancillary Agreement. 5.4 ERROR CORRECTION; TRUE-UPS; ACCOUNTING. The parties shall reasonably agree on a process and procedure for conducting internal audits and making adjustments to charges as a result of the movement of employees and functions between parties, the discovery of errors or omissions in charges, as well as a true-up of amounts owed. In no event shall such processes and procedures extend beyond two (2) years after completion of a Service. 5.5 PRICING ADJUSTMENTS. In the event of a tax audit adjustment relating to the pricing of any or all Services provided pursuant to this Agreement in which it is determined by a taxing authority that any of the charges, individually or in combination, did not result in an arm's-length payment, as determined under internationally accepted arm's-length standards, then the parties, including any 3Com subcontractor providing Services hereunder, may agree to make corresponding adjustments to the charges in question for such period to the extent necessary to achieve arm's-length pricing. Any adjustment made pursuant to this Section 5.5 at any time during the term of this Agreement or after termination of this Agreement and shall be reflected in the parties' legal books and records, and the resulting underpayment or overpayment shall create, respectively, an obligation to be paid in the manner specified in Section 5.2, or shall create a credit against amounts owed under this Agreement. ARTICLE 6 GENERAL OBLIGATIONS; STANDARD OF CARE 6.1 PERFORMANCE METRICS: 3COM. Subject to Sections 3.4 and any other terms and conditions of this Agreement, 3Com shall maintain sufficient resources to perform its obligations hereunder. Specific performance metrics for 3Com for a specific Service may be set forth in the corresponding Transition Service Schedule. Where none is set forth, 3Com shall use reasonable efforts to provide Services in accordance with the policies, procedures and practices in effect before the Effective Date and shall exercise the same care and skill as it exercises in performing similar services for itself. 6.2 DISCLAIMER OF WARRANTIES. 3COM MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE SERVICES, SOFTWARE OR OTHER DELIVERABLES PROVIDED BY IT HEREUNDER. 6.3 PERFORMANCE METRICS: PALM. Specific performance metrics for Palm for a specific Service may be set forth in the corresponding Transition Service Schedule. Where none is set forth, Palm shall use reasonable efforts, in connection with receiving Services, to follow the policies, procedures and practices in effect before the Effective Date including providing -5- information and documentation sufficient for 3Com to perform the Services as they were performed before the Effective Date and making available, as reasonably requested by 3Com, sufficient resources and timely decisions, approvals and acceptances in order that 3Com may accomplish its obligations hereunder in a timely manner. 6.4 TRANSITIONAL NATURE OF SERVICES; CHANGES. The parties acknowledge the transitional nature of the Services and that 3Com may make changes from time to time in the manner of performing the Services if 3Com is making similar changes in performing similar services for itself and if 3Com furnishes to Palm sixty (60) days written notice regarding such changes. 6.5 RESPONSIBILITY FOR ERRORS; DELAYS. 3Com's sole responsibility to Palm: (a) for errors or omissions in Services, shall be to furnish correct information, payment and/or adjustment in the Services, at no additional cost or expense to Palm; provided, Palm must promptly advise 3Com of any such error or omission of which it becomes aware after having used reasonable efforts to detect any such errors or omissions in accordance with the standard of care set forth in Section 6.1; and (b) for failure to deliver any Service because of Impracticability, shall be to use reasonable efforts, subject to Section 3.3, to make the Services available and/or to resume performing the Services as promptly as reasonably practicable. 6.6 GOOD FAITH COOPERATION; CONSENTS. The parties will use good faith efforts to cooperate with each other in all matters relating to the provision and receipt of Services. Such cooperation shall include exchanging information, performing true-ups and adjustments, and obtaining all third party consents, licenses, sublicenses or approvals necessary to permit each party to perform its obligations hereunder (including by way of example, not by way of limitation, rights to use third party software needed for the performance of Services). The costs of obtaining such third party consents, licenses, sublicenses or approvals shall be borne by Palm. The parties will maintain in accordance with its standard document retention procedures, documentation supporting the information relevant to cost calculations contained in the Transition Service Schedules and cooperate with each other in making such information available as needed in the event of a tax audit, whether in the United States or any other country. 6.7 ALTERNATIVES. If 3Com reasonably believes it is unable to provide any Service because of a failure to obtain necessary consents, licenses, sublicenses or approvals pursuant to Section 6.6 or because of Impracticability, the parties shall cooperate to determine the best alternative approach. Until such alternative approach is found or the problem otherwise resolved to the satisfaction of the parties, 3Com shall use reasonable efforts, subject to Section 3.3 and Section 3.4, to continue providing the Service. To the extent an agreed upon alternative approach requires payment above and beyond that which is included in 3Com's charge for the Service in question, the parties shall share equally in making any such payment unless they otherwise agree in writing. -6- ARTICLE 7 TERMINATION 7.1 TERMINATION. Palm may terminate this Agreement, either with respect to all or with respect to any one or more of the Services provided to Palm hereunder, for any reason or for no reason, at any time upon sixty (60) days prior written notice to 3Com. In addition, subject to the provisions of Article 16 below, either party may terminate this Agreement with respect to a specific Service if the other party materially breaches a material provision with regard to that particular Service and does not cure such breach (or does not take reasonable steps required under the circumstances to cure such breach going forward) within sixty (60) days after being given notice of the breach; provided, however, that the non-terminating party may request that the parties engage in a dispute resolution negotiation as specified in Article 16 below prior to termination for breach. 7.2 SURVIVAL. Those Sections of this Agreement that, by their nature, are intended to survive termination will survive in accordance with their terms. Notwithstanding the foregoing, in the event of any termination with respect to one or more, but less than all Services, this Agreement shall continue in full force and effect with respect to any Services not terminated hereby. 7.3 USER IDS, PASSWORDS. The parties shall use good faith efforts at the termination or expiration of this Agreement or any specific Service hereto to ensure that all applicable user IDs and passwords are canceled. ARTICLE 8 RELATIONSHIP BETWEEN THE PARTIES The relationship between the parties established under this Agreement is that of independent contractors and neither party is an employee, agent, partner, or joint venturer of or with the other. 3Com will be solely responsible for any employment-related taxes, insurance premiums or other employment benefits respecting its personnels' performance of Services under this Agreement. Palm agrees to grant 3Com personnel access to sites, systems and information (subject to the provisions of confidentiality in Article 13 below) as necessary for 3Com to perform its obligations hereunder. 3Com personnel agree to obey any and all security regulations and other published policies of Palm. ARTICLE 9 SUBCONTRACTORS 3Com may engage a "Subcontractor" to perform all or any portion of 3Com's duties under this Agreement, provided that any such Subcontractor agrees in writing to be bound by confidentiality obligations at least as protective as the terms of Article 13 regarding confidentiality below, and provided further that 3Com remains responsible for the performance of such -7- Subcontractor. As used in this Agreement, "Subcontractor" will mean any individual, partnership, corporation, firm, association, unincorporated organization, joint venture, trust or other entity engaged to perform hereunder. ARTICLE 10 INTELLECTUAL PROPERTY 10.1 ALLOCATION OF RIGHTS BY ANCILLARY AGREEMENTS. This Agreement and the performance of this Agreement will not affect the ownership of any copyrights or other intellectual property rights allocated in the Ancillary Agreements. 10.2 EXISTING OWNERSHIP RIGHTS UNAFFECTED. Neither party will gain, by virtue of this Agreement, any rights of ownership of copyrights, patents, trade secrets, trademarks or any other intellectual property rights owned by the other. 10.3 OWNERSHIP OF DEVELOPED WORKS. Except as set forth in Section 10.2, 3Com will own all copyrights, patents, trade secrets, trademarks and other intellectual property rights subsisting in the Software Deliverables (as defined in Section 11.1 below) and other works developed by 3Com for purposes of this Agreement. 10.4 LICENSE TO PREEXISTING WORKS. Palm grants 3Com a non-exclusive, worldwide, royalty-free license to use, copy, and make derivative works of, distribute, display, perform and transmit Palm's pre-existing copyrighted works or other intellectual property rights solely to the extent necessary to perform its obligations under this Agreement. ARTICLE 11 SOFTWARE LICENSE 11.1 SOFTWARE DELIVERABLE/LICENSE. Unless otherwise agreed by the parties under the Ancillary Agreements or any separate license or technology agreement, if 3Com supplies Palm with a deliverable that in whole or in part consists of software, firmware, or other computer code (referred to as a "Software Deliverable") as indicated in a Transition Service Schedule, such Software Deliverables will be supplied in object code form only and will be subject to the terms of this Article 11. In the event that such Software Deliverables are licensed to 3Com by third parties, Palm agrees to be bound by any different or additional conditions that are required by such third parties and are communicated in writing by 3Com to Palm. 11.2 DELIVERY AND ACCEPTANCE. (a) DELIVERY. 3Com agrees to deliver to Palm one (1): (i) master copy of the Software in object code form only (as specified on the relevant Transition Service Schedule of the Agreement) on the media described on the relevant Transition Service Schedule and (ii) Documentation for the Software on the media described in the relevant Transition Service Schedule -8- ((i) and (ii) collectively a "Complete Copy") as listed in the relevant Transition Service Schedule no later than ten (10) days after the Effective Date (or any other start date as specifically indicated in the relevant Transition Service Schedule). If Source Code is licensed under this Agreement, 3Com agrees to deliver one (1) copy of such Source Code no later than ten (10) days after the Effective Date (or any other start date as specifically indicated in the relevant Transition Service Schedule). Additional Software or Source Code may be added to this Agreement from time to time by execution by the parties of a Transition Service Schedule. (b) ACCEPTANCE OF SOFTWARE (NON-SOURCE CODE). Palm will have thirty (30) days from the date of receipt of a Complete Copy of the Software to evaluate the Software for conformity with the manuals and other documentation that 3Com makes available with the Software to end users or which are reasonably necessary to use the Software licensed herein, including those items listed and described in the relevant Transition Service Schedule hereto (the "Documentation") and specifications, and either accept, return for rework (provided the Software has not previously been reworked), or reject the Software. Palm shall accept the Software if it substantially conforms with Documentation and specifications. Palm will be entitled to test and evaluate the Software and 3Com hereby grants to Palm the right to use and reproduce the Software only to the extent necessary for Palm to perform its evaluation. Such license will include the right of Palm to use third party subcontractors bound by the relevant restrictions herein solely as necessary to achieve the foregoing. If Palm returns the Software for rework, 3Com will use reasonable commercial efforts to correct the identified defects and resubmit the Software for re-evaluation under the same acceptance procedure. In the event Palm rejects the Software a second time, this Agreement will terminate with respect to that Software. Payment due from Palm to 3Com under a Transition Service Schedule that includes Software to be licensed shall be reduced by the pro rata portion of compensation attributable to the Software unless the Software has been accepted by Palm in writing or Palm fails to reject the Software within such 30 day period. (c) ACCEPTANCE OF SOURCE CODE. The Source Code is provided for Palm's reference only and subject to the limitations below in Section 11.3. The Source Code may not be accepted or rejected according to the provisions above in Section 11.2(b). If Palm rejects the Source Code, Palm must destroy all copies of such rejected Source Code and promptly furnish evidence of such rejection and destruction to 3Com. 11.3 RIGHTS GRANTED AND RESTRICTIONS. (a) LICENSE TO SOFTWARE. Subject to the terms and conditions of this Agreement, 3Com hereby grants to Palm, under 3Com's intellectual property rights in and to the Software, a non-exclusive, nontransferable worldwide license to (a) use and display the Software for its own internal information processing services and computing needs, and to make sufficient copies as necessary for such use, and (b) use the Documentation in connection with the permitted use of the Software and make sufficient copies as necessary for such use. (b) LICENSE TO SOURCE CODE. Subject to the terms and conditions of this Agreement, 3Com hereby grants to Palm, under 3Com's intellectual property rights in and to the Software, a non-exclusive, nontransferable worldwide license to (a) use and reproduce (for archival -9- and back-up purposes only), and prepare derivative works of the Source Code, for the sole purpose of supporting the object code version of the Software (if such object code exists), or, if no object code exists, for the sole purpose of its own internal information processing services and computing needs and (b) to use Source Code Documentation in connection with the permitted use of the Source Code and make copies for archival and back-up purposes only. (c) RESTRICTIONS. Palm shall not itself, or through any Subsidiary, affiliate, agent or third party: (a) sell, lease, license or sublicense the Software, the Source Code, the Documentation or the Source Code Documentation; (b) decompile, disassemble, or reverse engineer the Software or Source Code, in whole or in part, except to the extent such restriction is prohibited by applicable law; (c) allow access to the Software or Source Code by any user other than Palm; (d) write or develop any derivative software or any other software program based upon the Software or Source Code; (e) use the Software or Source Code to provide processing services to third parties, or (f) otherwise use the Software or Source Code on a "service bureau" basis; or provide, disclose, divulge or make available to, or permit use of the Software or Source Code by any third party without 3Com's prior written consent. (d) CONFIDENTIALITY. The Source Code and Source Code Documentation are hereby deemed "Confidential Information" and subject to the terms and procedures of the Master Confidential Disclosure Agreement. The period of disclosure shall be one (1) year from the Effective Date of this Agreement, and the period of confidentiality shall be perpetual. (e) TRADEMARKS. Neither party is granted any ownership in or license to the trademarks, marks or trade names (collectively, "Marks") of the other party with respect to this Software. (f) OWNERSHIP. 3Com hereby reserves all rights to the Software, Source Code and Documentation, and any copyrights, patents, or trademarks, embodied therein or used in connection therewith, except for the rights expressly granted herein. (g) COPYRIGHT NOTICES. Palm agrees that it will not remove any copyright notices, proprietary markings, trademarks or trade names from the Software, Source Code, Documentation, or Source Code Documentation. (h) TECHNICAL ASSISTANCE AND TRAINING. 3Com agrees to provide technical assistance and training to Palm personnel only if such assistance is set forth in the relevant Transition Service Schedule. 11.4 AS-IS WARRANTY. (a) AS-IS WARRANTY. THE SOFTWARE AND SOURCE CODE PROVIDED HEREUNDER IS LICENSED ON AN "AS-IS" BASIS ONLY, WITHOUT ANY EXPRESS WARRANTIES OF ANY KIND. -10- (b) IMPLIED WARRANTY DISCLAIMER. 3COM MAKES NO WARRANTIES WHATSOEVER, EITHER EXPRESS OR IMPLIED, REGARDING THE SOFTWARE OR SOURCE CODE (INCLUDING DOCUMENTATION AND SOURCE CODE DOCUMENTATION), ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE. 11.5 MISCELLANEOUS. (a) NO OBLIGATIONS. NEITHER PARTY ASSUMES ANY RESPONSIBILITY OR OBLIGATIONS WHATEVER, OTHER THAN THE RESPONSIBILITIES AND OBLIGATIONS EXPRESSLY SET FORTH IN THIS AGREEMENT OR A SEPARATE WRITTEN AGREEMENT BETWEEN THE PARTIES (b) NON-RESTRICTIVE RELATIONSHIP. Nothing in this Agreement will be construed to preclude Palm from independently developing, acquiring or marketing computer software packages which may perform the same or similar functions as the Software provided by 3Com. ARTICLE 12 INFRINGEMENT DEFENSE Notwithstanding anything to the contrary in Article 13 below or the Master Confidential Disclosure Agreement, to the extent 3Com delivers or licenses any intellectual property to Palm after the Separation Date in performance of this Agreement, 3Com agrees to defend Palm and its directors, officers, employees and agents against any and all claims, actions or suits (any of the foregoing, a "Claim") incurred by or asserted against Palm based upon infringement of a third party patent or other intellectual property right. Palm agrees to notify 3Com promptly of any Claim and permit 3Com at 3Com's expense to defend such Claim and will cooperate in the defense thereof. 3Com agrees to pay any awards or settlement amounts arising from a Claim. Neither 3Com nor Palm will enter into or permit any settlement of any such Claim without the express written consent of the other party. Palm may, at its option and expense, have its own counsel participate in any proceeding that is under the direction of 3Com and will cooperate with 3Com and its insurer in the disposition of any such matter. ARTICLE 13 CONFIDENTIALITY The terms of the Master Confidential Disclosure Agreement between the parties shall apply to any Confidential Information (as defined therein) which is the subject matter of this Agreement. ARTICLE 14 LIMITATION OF LIABILITY -11- NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR ANY LOST PROFITS, LOSS OF DATA, LOSS OF USE, COST OF COVER, BUSINESS INTERRUPTION OR OTHER SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES, HOWEVER CAUSED, UNDER ANY THEORY OF LIABILITY, ARISING FROM THE PERFORMANCE OF, OR RELATING TO, THIS AGREEMENT. THE FOREGOING LIMITATION WILL NOT LIMIT 3COM'S OBLIGATIONS WITH RESPECT TO PAYMENT OF DAMAGES OF ANY KIND INCLUDED IN AN AWARD OR SETTLEMENT OF A THIRD PARTY CLAIM UNDER ANY INDEMNITY OR INFRINGEMENT DEFENSE PROVISIONS SPECIFIED HEREIN. ARTICLE 15 FORCE MAJEURE Each party will be excused for any failure or delay in performing any of its obligations under this Agreement, other than the obligations of Palm to make certain payments to 3Com pursuant to Article 5 hereof for services rendered, if such failure or delay is caused by Force Majeure. "Force Majeure" means any act of God or the public enemy, any accident, explosion, fire, storm, earthquake, flood, or any other circumstance or event beyond the reasonable control of the party relying upon such circumstance or event. ARTICLE 16 DISPUTE RESOLUTION 16.1 MEDIATION. If a dispute, controversy or claim ("Dispute") arises between the parties relating to the interpretation or performance of this Agreement or the Ancillary Agreements, or the grounds for the termination hereof, appropriate senior executives (e.g. director or V.P. level) of each party who shall have the authority to resolve the matter shall meet to attempt in good faith to negotiate a resolution of the Dispute prior to pursuing other available remedies. The initial meeting between the appropriate senior executives shall be referred to herein as the "Dispute Resolution Commencement Date." Discussions and correspondence relating to trying to resolve such Dispute shall be treated as confidential information developed for the purpose of settlement and shall be exempt from discovery or production and shall not be admissible. If the senior executives are unable to resolve the Dispute within thirty (30) days from the Dispute Resolution Commencement Date, and either party wishes to pursue its rights relating to such Dispute, then the Dispute will be mediated by a mutually acceptable mediator appointed pursuant to the mediation rules of JAMS/Endispute within thirty (30) days after written notice by one party to the other demanding non-binding mediation. Neither party may unreasonably withhold consent to the selection of a mediator or the location of the mediation. Both parties will share the costs of the mediation equally, except that each party shall bear its own costs and expenses, including attorney's fees, witness fees, travel expenses, and preparation costs. The parties may also agree to replace mediation with some other form of non-binding or binding ADR. -12- 16.2 ARBITRATION. Any Dispute which the parties cannot resolve through mediation within ninety (90) days of the Dispute Resolution Commencement Date, unless otherwise mutually agreed, shall be submitted to final and binding arbitration under the then current Commercial Arbitration Rules of the American Arbitration Association ("AAA"), by three (3) arbitrators in Santa Clara County, California. Such arbitrators shall be selected by the mutual agreement of the parties or, failing such agreement, shall be selected according to the aforesaid AAA rules. The arbitrators will be instructed to prepare and deliver a written, reasoned opinion stating their decision within thirty (30) days of the completion of the arbitration. The prevailing party in such arbitration shall be entitled to expenses, including costs and reasonable attorneys' and other professional fees, incurred in connection with the arbitration (but excluding any costs and fees associated with prior negotiation or mediation). The decision of the arbitrator shall be final and non-appealable and may be enforced in any court of competent jurisdiction. The use of any ADR procedures will not be construed under the doctrine of laches, waiver or estoppel to adversely affect the rights of either party. 16.3 COURT ACTION. Any Dispute regarding the following is not required to be negotiated, mediated or arbitrated prior to seeking relief from a court of competent jurisdiction: breach of any obligation of confidentiality; infringement, misappropriation, or misuse of any intellectual property right; any other claim where interim relief from the court is sought to prevent serious and irreparable injury to one of the parties or to others. However, the parties to the Dispute shall make a good faith effort to negotiate and mediate such Dispute, according to the above procedures, while such court action is pending. 16.4 CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in writing, the parties will continue to provide service and honor all other commitments under this Agreement and each Ancillary Agreement during the course of dispute resolution pursuant to the provisions of this Article 16 with respect to all matters not subject to such dispute, controversy or claim. ARTICLE 17 MISCELLANEOUS 17.1 ENTIRE AGREEMENT. This Agreement, the Master Separation and Distribution Agreement and the other Ancillary Agreements and the Exhibits and Schedules referenced or attached hereto and thereto constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof. 17.2 GOVERNING LAW. This Agreement shall be construed in accordance with and all Disputes hereunder shall be governed by the laws of the State of California, excluding its conflict of law rules and the United Nations Convention on Contracts for the International Sale of Goods. The Superior Court of Santa Clara County and/or the United States District Court for the Northern -13- District of California shall have jurisdiction and venue over all Disputes between the parties that are permitted to be brought in a court of law pursuant to Article 16 above. 17.3 DESCRIPTIVE HEADINGS. The headings contained in this Agreement, in any Exhibit or Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any Exhibit or Schedule but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an Article or a Section, Exhibit or Schedule, such reference shall be to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. 17.4 NOTICES. Notices, offers, requests, or other communications required or permitted to be given by either party pursuant to the terms of this Agreement shall be given in writing to the respective parties to the following addresses: if to 3Com : 3Com Corporation 5400 Bayfront Plaza Santa Clara, California 95052 Attention: General Counsel Fax: (408) 326-6434 if to Palm: Palm, Inc. 5470 Great America Parkway Santa Clara, California 95052 Attention: General Counsel or to such other address as the party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested. All other notices may also be sent by fax, confirmed by first class mail. All notices shall be deemed to have been given and received on the earlier of actual delivery or three (3) days from the date of postmark. 17.5 NONASSIGNABILITY. Except as specifically permitted under Article 10 above, neither party may, directly or indirectly, in whole or in part, whether by operation of law or otherwise, assign or transfer this Agreement, without the other party's prior written consent, and any attempted assignment, transfer or delegation without such prior written consent shall be voidable at the sole option of such other party. Notwithstanding the foregoing, each party (or its permitted successive assignees or transferees hereunder) may assign or transfer this Agreement as a whole without consent to an entity that succeeds to all or substantially all of the business or assets of such party. Without limiting the foregoing, this Agreement will be binding upon and inure to the benefit of the parties and their permitted successors and assigns. -14- 17.6 SEVERABILITY. If any term or other provision of this Agreement is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement will nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible. 17.7 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. If any term or other provision of this Agreement or the Exhibits or Schedules attached hereto is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible. 17.8 AMENDMENT. No change or amendment will be made to this Agreement except by an instrument in writing signed on behalf of each of the parties to such agreement. -15- IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed in duplicate originals by its duly authorized representatives. 3COM CORPORATION PALM, INC. By: By: ---------------------- --------------------------- Title: Title: ------------------- ------------------------ -16- TRANSITION SERVICE SCHEDULE TO MASTER TRANSITIONAL SERVICES AGREEMENT 1. TRANSITION SERVICE SCHEDULE #: ------------------- (To be inserted by responsible individual or department.) 2. FUNCTIONAL AREA: ------------------ 3. START/END DATE: The Services start on the Effective Date of the Master Transitional Services Agreement between 3Com Corporation ("3Com") and Palm Computing, Inc. ("Palm") to which this Transition Service Schedule is attached and end on February 1, 2001 unless otherwise indicated below. INDICATE BELOW IF OTHER START/END DATE: START DATE: ------------------ END DATE: ------------------ If Start and End dates vary by service and/or country, please indicate in Section 5 below. 4. SUMMARY OF SERVICES (Describe the service to be provided in appropriate detail.
- -------------------------------------------------------------- ------------------------------------------------------------ SERVICE NAME DESCRIPTION - -------------------------------------------------------------- ------------------------------------------------------------
5. LIST OF SERVICES TO BE PROVIDED PER COUNTRY AND SITE: (List all the services to be provided at each site. Enter Start Date and End Date if different than Section 3 above.)
- -------------------------- ----------------------- ----------------------- ----------------------- ------------------------ COUNTRY SITE SERVICE(S) START DATE END DATE - -------------------------- ----------------------- ----------------------- ----------------------- ------------------------ - -------------------------- ----------------------- ----------------------- ----------------------- ------------------------ - -------------------------- ----------------------- ----------------------- ----------------------- ------------------------
6. PERFORMANCE PARAMETERS/SERVICE LEVEL: (State minimum performance expected from each service, if applicable.): 7. ESTIMATED TOTAL COMPENSATION: ------------------------------------ 8. DESCRIBE COST METHODOLOGY AND COST DRIVERS AFFECTING ESTIMATED TOTAL COMPENSATION (Describe on an individual service basis if necessary): 9. DESCRIBE THE PROCESS BY WHICH THE COST OF SERVICES WILL BE ADJUSTED IN THE INSTANCE OF AN INCREASE/REDUCTION IN THE SERVICES PROVIDED: (Describe on an individual service basis if necessary.)
10. SOFTWARE: Will software be used or included with the Services to be provided under this Transition Service Schedule: ____ Yes ____ No If yes, will source code be provided: ____ Yes ____ No List software to be provided: SOFTWARE APPLICATION NUMBER OF LICENSES TO BE PROVIDED -------------------------------------------------------------------- --------------------------------------------------------------------
Upon execution of this Transition Service Schedule by both parties, this Transition Service Schedule is hereby deemed incorporated into and made part of that certain Master Transitional Services Agreement between 3Com Corporation and Palm Computing, Inc. 3COM CORPORATION PALM, INC. By: By: ---------------------------- ------------------------------- (Authorized Signature) (Authorized Signature Date: Date: -------------------------- ----------------------------- Name: Name: -------------------------- ----------------------------- Title: Title: ------------------------- ---------------------------- -2- EX-2.9 9 EXHIBIT 2.9 REAL ESTATE MATTERS AGREEMENT BETWEEN 3COM CORPORATION AND PALM, INC. FEBRUARY 26, 2000 TABLE OF CONTENTS
PAGE ---- ARTICLE I PROPERTY...................................................................1 Section 1.1 Leased Property..................................................1 Section 1.2 Shared Properties................................................1 Section 1.3 Headquarters Facility............................................2 Section 1.4 Obtaining the Lease Consents.....................................2 Section 1.5 Occupation by Palm...............................................3 Section 1.6 Obligation to Complete...........................................4 Section 1.7 Form of Transfer.................................................5 Section 1.8 Casualty; Lease Termination......................................6 Section 1.9 Tenant's Fixtures and Fittings...................................6 Section 1.10 Costs............................................................6 ARTICLE II MISCELLANEOUS.............................................................7 Section 2.1 Limitation of Liability..........................................7 Section 2.2 Entire Agreement.................................................7 Section 2.3 Governing Law....................................................7 Section 2.4 Notices..........................................................7 Section 2.5 Counterparts.....................................................8 Section 2.6 Binding Effect; Assignment.......................................8 Section 2.7 Severability.....................................................8 Section 2.8 Failure or Indulgence Not Waiver; Remedies Cumulative............8 Section 2.9 Amendment........................................................9 Section 2.10 Authority........................................................9 Section 2.11 Interpretation...................................................9 Section 2.12 Disputes.........................................................9 ARTICLE III DEFINITIONS..............................................................9
-i- REAL ESTATE MATTERS AGREEMENT This Real Estate Matters Agreement (this "AGREEMENT") is entered into on February 26, 2000 between 3Com Corporation, a Delaware corporation ("3COM"), and Palm, Inc., a Delaware corporation ("PALM"). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Separation Agreement (as defined below). RECITALS WHEREAS, 3Com has transferred or will transfer to Palm effective as of the Separation Date, substantially all of the business and assets of the Palm Business owned by 3Com in accordance with the Master Separation and Distribution Agreement dated as of December 13, 1999 between 3Com and Palm's predecessor corporation, Palm Computing, Inc., a California corporation (the "SEPARATION AGREEMENT"). WHEREAS, the parties desire to set forth certain agreements regarding real estate matters. NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows: ARTICLE I PROPERTY SECTION 1.1 LEASED PROPERTY (a) 3Com shall assign or cause its applicable Subsidiary to assign, and Palm shall accept and assume, or cause its applicable Subsidiary to accept and assume, 3Com's or its Subsidiary's interest in the Leased Properties, subject to the other provisions of this Agreement and (to the extent not inconsistent with the provisions of this Agreement) the terms of the Separation Agreement and the other Ancillary Agreements. Such assignment shall be completed on the later of: (i) the Separation Date; and (ii) the earlier of (A) the fifth (5th) business day after the relevant Lease Consent has been granted and (B) the date agreed upon by the parties in accordance with Section 1.6(a) below. (b) Subject to the completion of the assignment to Palm or its applicable Subsidiary of the relevant Leased Property, with respect to each Leased Property which is also a Shared Property, Palm shall grant or cause its applicable Subsidiary to grant to 3Com or its applicable Subsidiary a license to occupy that part of the relevant Leased Property identified in Section A of Schedule 1 of this Agreement currently occupied by 3Com or its applicable Subsidiary and 3Com shall accept or cause its applicable Subsidiary to accept the same. Such license shall be completed immediately following completion of the transfer of the relevant Leased Property to Palm or its applicable Subsidiary. SECTION 1.2 SHARED PROPERTIES 3Com shall grant or cause its applicable Subsidiary to grant to Palm or its applicable Subsidiary a license to occupy those parts of the Shared Properties identified in Section B of -1- Schedule 1 of this Agreement currently occupied by Palm or its applicable Subsidiary and Palm shall accept or cause its applicable Subsidiary to accept the same, subject to the other provisions of this Agreement and (to the extent not inconsistent with the provisions of this Agreement) the terms of the Separation Agreement and the other Ancillary Agreements. Such license shall be completed on the Separation Date. SECTION 1.3 HEADQUARTERS FACILITY 3Com shall grant to Palm a lease of those parts of the Headquarters Facility identified in Section C of Schedule 1 of this Agreement as leased and a sublease of those parts of the Headquarters Facility identified in Section C of Schedule 1 of this Agreement as subleased, and Palm shall accept the same, subject to the other provisions of this Agreement and (to the extent not inconsistent with the provisions of this Agreement) the terms of the Separation Agreement and the other Ancillary Agreements. Such lease and sublease shall be completed on the Separation Date. SECTION 1.4 OBTAINING THE LEASE CONSENTS (a) 3Com confirms that, with respect to each Leased Property, an application has been made or will be made by the Separation Date to the relevant Landlord for the Lease Consents required with respect to the transactions contemplated by this Agreement. (b) 3Com will use its reasonable commercial efforts to obtain the Lease Consents as to each Leased Property, but 3Com shall not be required to commence judicial proceedings for a declaration that a Lease Consent has been unreasonably withheld or delayed, nor shall 3Com be required to pay any consideration in excess of that required by the Relevant Lease or that which is typical in the open market to obtain the relevant Lease Consent. Palm shall cooperate as reasonably requested by 3Com to obtain the Lease Consents. (c) Palm and 3Com will promptly satisfy or cause their applicable Subsidiaries to satisfy the lawful requirements of the Landlord, and Palm will take or cause its applicable Subsidiary to take all steps to assist 3Com in obtaining the Lease Consents as to each Leased Property, including, without limitation: (i) if properly required by the Landlord, entering into an agreement with the relevant Landlord to observe and perform the tenant's obligations contained in the Relevant Lease throughout the remainder of the term of the Relevant Lease, subject to any statutory limitations of such liability; (ii) if properly required by the Landlord, providing a guarantee, surety or other security (including, without limitation, a security deposit) for the obligations of Palm or its applicable Subsidiary as tenant under the Relevant Lease, and otherwise taking all steps which are reasonably necessary and which Palm or its applicable Subsidiary is reasonably capable of doing to meet the lawful requirements of the Landlord so as to ensure that the Lease Consents are obtained; and (iii) using all reasonable commercial efforts to assist 3Com with obtaining the Landlord's consent to the release of any guarantee, surety or other security which 3Com or its -2- Subsidiary may have previously provided to the Landlord and, if required, offering the same or equivalent security to the Landlord in order to obtain such release. Notwithstanding the foregoing, (1) except with respect to guarantees, sureties or other security referenced in Section 1.4(c)(ii) above, Palm shall not be required to obtain a release of any obligation entered into by 3Com or its Subsidiary with any Landlord or other third party with respect to any Property and (2) Palm shall not communicate or permit its applicable Subsidiary to communicate directly with any of the Landlords unless Palm can show 3Com reasonable grounds for doing so. (d) If, with respect to any Leased Properties, 3Com and Palm are unable to obtain a release by the Landlord of any guarantee, surety or other security which 3Com or its Subsidiary has previously provided to the Landlord, Palm shall indemnify, defend, protect and hold harmless 3Com and its Subsidiary from and after the Separation Date against all losses, costs, claims, damages, or liabilities incurred by 3Com or its Subsidiary as a result of Palm's occupancy of the Leased Property with respect to such guarantee, surety or other security. SECTION 1.5 OCCUPATION BY PALM (a) Subject to compliance with Section 1.5(b) below, in the event that the Actual Completion Date for any Leased Property does not occur on the Separation Date, Palm or its applicable Subsidiary shall, commencing on the Separation Date, be entitled to occupy the relevant Property (except to the extent that the same is a Retained Part) as a licensee upon the terms and conditions contained in 3Com's Lease. Such license shall not be revocable prior to the date for completion as provided in Section 1.1(a) unless an enforcement action or forfeiture by the relevant Landlord due to Palm's or its applicable Subsidiary's occupation of the Property constituting a breach of 3Com's Lease cannot, in the reasonable opinion of 3Com, be avoided other than by requiring Palm or its applicable Subsidiary to immediately vacate the relevant Property, in which case 3Com may by notice to Palm immediately require Palm or its applicable Subsidiary to vacate the relevant Property. Palm will be responsible for all costs, expenses and liabilities incurred by 3Com or its applicable Subsidiary as a consequence of such occupation, except for any losses, claims, costs, demands and liabilities incurred by 3Com or its Subsidiary as a result of any enforcement action taken by the Landlord against 3Com or its Subsidiary with respect to any breach by 3Com or its Subsidiary of the Relevant Lease in permitting Palm or its applicable Subsidiary to so occupy the Property without obtaining the required Lease Consent, for which 3Com or its Subsidiary shall be solely responsible. Neither Palm nor its applicable Subsidiary shall be entitled to make any claim or demand against, or obtain reimbursement from, 3Com or its applicable Subsidiary with respect to any costs, losses, claims, liabilities or damages incurred by Palm or its applicable Subsidiary as a consequence of being obliged to vacate the Property or in obtaining alternative premises, including, without limitation, any enforcement action which a Landlord may take against Palm or its applicable Subsidiary. (b) In the event that the Actual Completion Date for any Leased Property does not occur on the Separation Date, whether or not Palm or its applicable Subsidiary occupies a Property as licensee as provided in Section 1.5(a) above, Palm shall, effective as of the Separation Date, (i) pay or cause its applicable Subsidiary to pay 3Com all rents, service charges, insurance premiums and other sums -3- payable by 3Com or its applicable Subsidiary under any Relevant Lease, (ii) observe or cause its applicable Subsidiary to observe the tenant's covenants, obligations and conditions contained in 3Com's Lease and (iii) indemnify, defend, protect and hold harmless 3Com and its applicable Subsidiary from and against all losses, costs, claims, damages and liabilities arising on account of any breach thereof by Palm or its applicable Subsidiary. (c) 3Com shall supply promptly to Palm copies of all invoices, demands, notices and other communications received by 3Com or its applicable Subsidiaries or agents in connection with any of the matters for which Palm or its applicable Subsidiary may be liable to make any payment or perform any obligation pursuant to Section 1.5(a) or (b), and shall, at Palm's cost, take any steps and pass on any objections which Palm or its applicable Subsidiary may have in connection with any such matters. Palm shall promptly supply to 3Com any notices, demands, invoices and other communications received by Palm or its applicable Subsidiary or agents from any Landlord while Palm or its applicable Subsidiary occupies any Property without the relevant Lease Consent. SECTION 1.6 OBLIGATION TO COMPLETE (a) If, with respect to any Leased Property, at any time the relevant Lease Consent is formally and unconditionally refused in writing, 3Com and Palm shall commence good faith negotiations and use commercially reasonable efforts to determine how to allocate the applicable Property, based on the relative importance of the applicable Property to the operations of each party, the size of the applicable Property, the number of employees of each party at the applicable Property and the potential risk and liability to each party in the event an enforcement action is brought by the applicable Landlord. Such commercially reasonable efforts shall include consideration of alternate structures to accommodate the needs of both parties and the allocation of the costs thereof, including entering into amendments of the size, term or other terms of the Relevant Lease, restructuring a proposed lease assignment to be a sublease and relocating one party. If the parties are unable to agree upon an allocation of the Property within fifteen (15) days after commencement of negotiations between the parties as described above, then either party may, by delivering written notice to the other, require that the matter be referred to the Chief Financial Officers of both parties. In such event, the Chief Financial Officers shall use commercially reasonable efforts to determine the allocation of the Property, including having a meeting or telephone conference within ten (10) days thereafter. If the parties are unable to agree upon the allocation of an applicable Property within fifteen (15) days after the matter is referred to the Chief Financial Officers of the parties as described above, the disposition of the applicable Property and the risks associated therewith shall be allocated between the parties as set forth in subparts (b) and (c) of this section below. (b) If, with respect to any Leased Property, the parties are unable to agree upon the allocation of a Property as set forth in Section 1.6(a), 3Com may by written notice to Palm elect to apply to the relevant Landlord for consent to sublease all of the relevant Property to Palm or its applicable Subsidiary for the remainder of the Relevant Lease term less three (3) days at a rent equal to the rent from time to time under the Relevant Lease, but otherwise on substantially the same terms and conditions as the Relevant Lease. If 3Com makes such an election, until such time as the relevant Lease Consent is obtained and a sublease is completed, the provisions of Section 1.5 will apply and, on the grant of the Lease Consent required to sublease the Leased Property in question, 3Com shall sublease or cause its applicable Subsidiary to sublease to Palm or its applicable Subsidiary the -4- relevant Property which sublease shall be for the term and rent set forth in the Relevant Lease and otherwise on the terms of the Relevant Lease. (c) If the parties are unable to agree upon the allocation of a Property as set forth in Section 1.6(a) and 3Com does not make an election pursuant to Section 1.6(b) above, 3Com may elect by written notice to Palm to require Palm or its applicable Subsidiary to vacate the relevant Property immediately or by such other date as may be specified in the notice served by 3Com (the "NOTICE DATE"), in which case Palm shall vacate or cause its applicable Subsidiary to vacate the relevant Property on the Notice Date but shall indemnify 3Com and its applicable Subsidiary from and against all costs, claims, losses, liabilities and damages in relation to the relevant Property arising from and including the Separation Date to and including the later of the Notice Date and date on which Palm or its applicable Subsidiary vacates the relevant Property, except for any costs, losses, damages, claims and liabilities incurred by 3Com or its Subsidiary with respect to any enforcement action taken by the Landlord against 3Com or its Subsidiary with respect to any breach by 3Com or its Subsidiary of the Relevant Lease in permitting Palm or its applicable Subsidiary to so occupy the Property without obtaining the required Lease Consent. Neither Palm nor its applicable Subsidiary shall be entitled to make any claim or demand against or obtain reimbursement from 3Com or its applicable Subsidiary with respect to any costs, losses, claims, liabilities or damages incurred by Palm or its applicable Subsidiary as a consequence of being obliged to vacate the Property or obtaining alternative premises, including, without limitation, any enforcement action which a Landlord may take against Palm or its applicable Subsidiary. SECTION 1.7 FORM OF TRANSFER (a) The assignment to Palm or its applicable Subsidiary of each relevant Leased Property shall be in substantially the form attached in Schedule 2, with such amendments which in the reasonable opinion of 3Com are necessary with respect to a particular Property, including, without limitation, in all cases where a relevant Landlord has required a guarantor or surety to guarantee the obligations of Palm or its applicable Subsidiary contained in the relevant Lease Consent or any other document which Palm or its applicable Subsidiary is required to complete, the giving of such guarantee by a guarantor or surety, and the giving by Palm or its applicable Subsidiary and any guarantor or surety of Palm's or its applicable Subsidiary's obligations of direct obligations to 3Com or third parties where required under the terms of any of the Lease Consent or any covenant, condition, restriction, easement, lease or other encumbrance to which the Property is subject. Such amendments shall be submitted to Palm for approval, which approval shall not be unreasonably withheld or delayed. (b) The licenses to be granted by Palm or its applicable Subsidiary to 3Com or its applicable Subsidiary, and 3Com or its applicable Subsidiary to Palm or its applicable Subsidiary, with respect to the Shared Properties shall be at the rental rates and terms set forth in Section B of Schedule 1 hereof. Rent shall be abated for the period from the Separation Date to March 1, 2000. The license shall be substantially in the form of the License Form, with such amendments as are, in the reasonable opinion of 3Com, necessary with respect to a particular Property. Such amendments shall be submitted to Palm for approval, which approval shall not be unreasonably withheld. (c) The lease and sublease to be granted to Palm with respect to the Headquarters Facility -5- shall be at a monthly rental rate of $3.72 per square foot full service gross including furniture and copier rental through February 28, 2001, $3.82 per square foot full service gross including furniture and copier rental from March 1, 2001 through February 28, 2002 and $3.93 per square foot full service gross including furniture and copier rental thereafter, and be for a term commencing on the Separation Date and expiring (i) February 28, 2003 as to Buildings 12 and 15 and the related common areas and (ii) August 1, 2002 as to Buildings 9 and 10 and the related common areas; provided, however, that in the event 3Com extends its underlying lease as to Buildings 9 and 10 or purchases the underlying fee interest in such property, the expiration date as to Buildings 9 and 10 and the related common areas shall be automatically extended to February 28, 2003. Either party may terminate the lease or sublease as to any of the buildings then subject to the lease or sublease upon six (6) months prior notice, which notice may be given at any time after December 31, 2000; provided, however, that any given termination notice may apply as to only one building and neither party may give a termination notice within thirty (30) days of any previous termination notice given by either party. The lease and sublease shall commence as to the various buildings within the Headquarters Facility in accordance with the schedule set forth in Section C of Schedule 1 hereof; provided, however, that the lease as to Building 15 shall not commence until such building is delivered to Tenant. Rent shall be abated for the period from the Separation Date to March 1, 2000. Such lease and sublease shall be substantially in the form of the lease and sublease forms attached hereto as Schedule 4 and shall include such amendments which in the reasonable opinion of 3Com are necessary with respect to a particular Property. Such amendments shall be submitted to Palm for approval, which approval shall not be unreasonably withheld or delayed. SECTION 1.8 CASUALTY; LEASE TERMINATION The parties hereto shall grant and accept assignments, leases, subleases or licenses of the Properties as described in this Agreement, regardless of any casualty damage or other change in the condition of the Properties. In addition, subject to 3Com's obligations in Section 5.6 of the Separation Agreement, in the event that 3Com's Lease with respect to a Leased Property or a Shared Property or 3Com's interest in the leased portion of the Headquarters Facility is terminated prior to the Separation Date, (a) 3Com or its applicable Subsidiary shall not be required to assign, sublease or license such Property, (b) Palm or its applicable Subsidiary shall not be required to accept an assignment, sublease or license of such Property and (c) neither party shall have any further liability with respect to such Property hereunder. SECTION 1.9 TENANT'S FIXTURES AND FITTINGS The provisions of the Separation Agreement and the other Ancillary Agreements shall apply to any trade fixtures and personal property located at each Property. The lease and sublease of the Headquarters Facility and the licenses as to the Shared Properties shall include the rental of the furniture at such Properties. SECTION 1.10 COSTS 3Com shall pay all reasonable costs and expenses incurred in connection with obtaining the Lease Consents, including, without limitation, Landlord's consent fees and attorneys' fees and any costs and expenses relating to re-negotiation of 3Com's Leases. -6- ARTICLE II MISCELLANEOUS SECTION 2.1 LIMITATION OF LIABILITY. IN NO EVENT SHALL ANY MEMBER OF THE 3COM GROUP OR PALM GROUP BE LIABLE TO ANY OTHER MEMBER OF THE 3COM GROUP OR PALM GROUP FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EACH PARTY'S INDEMNIFICATION OBLIGATIONS FOR LIABILITIES TO THIRD PARTIES AS SET FORTH IN THE INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT. SECTION 2.2 ENTIRE AGREEMENT. This Agreement, the Separation Agreement, the other Ancillary Agreements and the Exhibits and Schedules referenced or attached hereto and thereto, constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof. SECTION 2.3 GOVERNING LAW. This Agreement shall be construed in accordance with and all Disputes hereunder shall be governed by the laws of the State of California, excluding its conflict of law rules and the United Nations Convention on Contracts for the International Sale of Goods. The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have jurisdiction and venue over all Disputes between the parties that are permitted to be brought in a court of law pursuant to Section 5.9 of the Separation Agreement. Notwithstanding the foregoing, the applicable Property transfers shall be performed in accordance with the laws of the state in which the applicable Property is located. SECTION 2.4 NOTICES. Notices, demands, offers requests or other communications required or permitted to be given by either party pursuant to the terms of this Agreement shall be given in writing to the respective parties to the following addresses: if to 3Com: 3Com Corporation 5400 Bayfront Plaza Santa Clara, California 95052 Attention: General Counsel Fax: 408.326.6434 -7- if to Palm: Palm Computing, Inc. 5470 Great America Parkway Santa Clara, California 95052 Attention: General Counsel or to such other address as the party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested. All other notices may also be sent by fax, confirmed by first class mail. All notices shall be deemed to have been given and received on the earlier of actual delivery or three (3) days from the date of postmark. SECTION 2.5 COUNTERPARTS. This Agreement, including the Schedules and Exhibits hereto, and the other documents referred to herein, may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. SECTION 2.6 BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives and successors, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. This Agreement may be enforced separately by each member of the 3Com Group and each member of the Palm Group. Neither party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other party, and any such assignment shall be void; provided, however, either party may assign this Agreement to a successor entity in conjunction with such party's reincorporation. SECTION 2.7 SEVERABILITY. If any term or other provision of this Agreement or the Schedules or Exhibits attached hereto is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible. SECTION 2.8 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of either party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement or the Exhibits or Schedules attached hereto are cumulative to, and not exclusive of, any rights or remedies otherwise available. -8- SECTION 2.9 AMENDMENT. No change or amendment will be made to this Agreement or the Exhibits or Schedules attached hereto except by an instrument in writing signed on behalf of each of the parties to such agreement. SECTION 2.10 AUTHORITY. Each of the parties hereto represents to the other that (a) it has the corporate or other requisite power and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other action, (c) it has duly and validly executed and delivered this Agreement, and (d) this Agreement is a legal, valid and binding obligation, enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and general equity principles. SECTION 2.11 INTERPRETATION. The headings contained in this Agreement, in any Exhibit or Schedule hereto and in the table or contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any Schedule or Exhibit but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an Article or a Section, Exhibit or Schedule, such reference shall be to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. SECTION 2.12 DISPUTES. Any Disputes that arise under this Agreement shall be resolved in accordance with the provisions of Section 5.9 of the Separation Agreement. ARTICLE III DEFINITIONS The following terms, as used herein, shall have the following meanings: ACTUAL COMPLETION DATE means, with respect to each Property, the date upon which completion of the assignment, lease or sublease of that Property actually takes place. HEADQUARTERS FACILITY means Buildings 9, 10, 12 and 15 located at 3Com's campus at Santa Clara, California, as set forth in Section C of Schedule 1 of this Agreement, together with the non-exclusive right to use the Building 1 and Building 9 cafeterias, the Building 6 bistro cafe and the Building 5 annex, located on 3Com's campus upon the terms and subject to the restrictions set forth in the lease and sublease forms attached hereto a Schedule 4 . LANDLORD means the landlord under 3Com's Lease, and its successors and assigns, and includes the holder of any other interest which is superior to the interest of the landlord under 3Com's Lease. LEASE CONSENTS means all consents, waivers or amendments required from the Landlord or other third parties under the Relevant Leases to assign the Relevant Leases to Palm or its applicable Subsidiary. LEASED PROPERTIES means those Properties in Section A of Schedule 1 of this Agreement. -9- LICENSE FORM means the form license attached hereto as Schedule 3. PROPERTY means the Leased Properties, the Shared Properties and the Headquarters Facility. RELEVANT LEASES means those of 3Com's Leases with respect to which the Landlord's consent is required for assignment or sublease to a third party or which prohibit assignments or subleases. RETAINED PARTS means those parts of the Leased Properties which, following assignment to Palm or its applicable Subsidiary, are intended to be licensed to 3Com or its applicable Subsidiary. SHARED PROPERTIES means those Properties listed in (a) Section A of Schedule 1 as a Property involving a license back to 3Com and (b) Section B of Schedule 1 of this Agreement. 3COM'S LEASE means, in relation to each Property, the lease(s) or sublease(s) or license(s) under which 3Com or its applicable Subsidiary holds such Property and any other supplemental document completed prior to the Actual Completion Date. -10- IN WITNESS WHEREOF, each of the parties has caused this Real Estate Matters Agreement to be executed on its behalf by its officers thereunto duly authorized on the day and year first above written. 3COM CORPORATION By: ------------------------------ Name: ---------------------------- Title: --------------------------- PALM, INC. By: ------------------------------ Name: ---------------------------- Title: --------------------------- -11- SCHEDULE 1 Properties Section A: Leased Properties
- ----------------------------------------------------------------- Address License back Approximate to 3Com? Area to be (Y/N) licensed - ----------------------------------------------------------------- Tour Kupka A Y 5,200 18 Rue Hoche 92800 Paris La Defense, France - ----------------------------------------------------------------- 3180 139th Ave. SE, N Ste. # 200 Bellevue, WA - -----------------------------------------------------------------
Section B Shared Properties
- ----------------------------------------------------------------------------------------------------------------------------------- Location Address Current Additional Cost Per Current License PALM HC Square Footage Person Per Monthly Cost Expiration (@ $9.50 per Month Date sf per month)* - ----------------------------------------------------------------------------------------------------------------------------------- SANTA CLARA 5400 Bayfront Plaza, Bldg 1 5 $ 1,900 $ 9,500 12/31/00 Santa Clara, CA 95052 - ----------------------------------------------------------------------------------------------------------------------------------- SANTA CLARA (whse) 2940-2990 Mead Avenue #1 0 800 $ 880 12/31/00 *Note: cost = $1.10 psf Santa Clara, CA 95051 - ----------------------------------------------------------------------------------------------------------------------------------- SALT LAKE CITY 605 N. 5600 WEST 1 $ 1,900 $ 1,900 3/31/00 Salt Lake City, UT 84116 - ----------------------------------------------------------------------------------------------------------------------------------- CHICAGO 3800 Golf Rd. 11 910 $ 1,900 $ 29,545 8/31/00 Rolling Meadows, IL 60008 - ----------------------------------------------------------------------------------------------------------------------------------- ATLANTA, GA Six Concourse Pkwy # 1450 1 $ 1,900 $ 1,900 3/31/00 Atlanta, GA 30328-5346 - ----------------------------------------------------------------------------------------------------------------------------------- BLOOMINGTON, MN 7760 France Ave. S., 6th floor 1 $ 1,900 $ 1,900 3/31/00 Bloomington MN 55435 - ----------------------------------------------------------------------------------------------------------------------------------- VIENNA, VA 2070 CHAIN BRIDGE ROAD 1 $ 1,900 $ 1,900 3/31/00 Vienna, VA 22182 - ----------------------------------------------------------------------------------------------------------------------------------- WINNERSH 220 WHARFDALE ROAD 26 $ 1,900 $ 49,400 5/31/00 Winnersh, Wokingham Berkshire RG41 5TB England - ----------------------------------------------------------------------------------------------------------------------------------- MAARSEN, NETHERLANDS 3Com Benelux 2 $ 1,900 $ 3,800 3/31/00 PLANET PARK II PLANETENBAAN 118 3606 AK Maarssen Maarsen, Netherlands - ----------------------------------------------------------------------------------------------------------------------------------- MUNICH, GERMANY 3Com GmbH 8 100 $ 1,900 $ 16,150 3/31/00 MAX-PLANCK-STRASSE 3 D-85609 ASCHHEIM-DORNACH Germany - ----------------------------------------------------------------------------------------------------------------------------------- SOLNA, SWEDEN FROSUNDAVIKS ALLE 15, Box 1251 4 $ 1,900 $ 7,600 3/31/00 171 24 Solna, Sweden - ----------------------------------------------------------------------------------------------------------------------------------- ZURICH, SWITZERLAND 3Com (Schweiz) AG 1 $ 1,900 $ 1,900 3/31/00 54 THURGAUER STRASSE CH-8050 Zurich, Switzerland - ----------------------------------------------------------------------------------------------------------------------------------- DUBLIN, IRELAND 3Com Dublin 3 $ 1,900 $ 5,700 6/30/00 Ballycoolin Business Park Blanchardstown, Dublin 15, Ireland - ----------------------------------------------------------------------------------------------------------------------------------- MILAN, ITALY 3Com Italia S.p.A. 1 $ 1,900 $ 1,900 3/31/00 Via Michaelangelo Buonarroti, 1 20093 Cologno Monzese - ----------------------------------------------------------------------------------------------------------------------------------- HONG KONG 3Com Asia LTD 5 120 $ 1,900 $ 10,640 5/31/00 23F, Li Po Chun Chambers 89 Des Voeux Rd. Central Hong Kong - ----------------------------------------------------------------------------------------------------------------------------------- NORTH SYDNEY, AUSTRALIA 65 BERRY ST., level 12/13 4 $ 1,900 $ 7,600 3/31/00 Sidney, NSW, Australia 2060 - ----------------------------------------------------------------------------------------------------------------------------------- JAPAN 21F, Center Office 5 520 $ 1,900 $ 14,440 5/31/00 Bunkyo Green Court 2-28-8 Honkomagome Bunkyo-Ku, Tokyo Japan, 113-6591 - ----------------------------------------------------------------------------------------------------------------------------------- SINGAPORE (SALES OFFICE) 50 RAFFLES PLACE 4 $ 1,900 $ 7,600 5/31/00 #27-05/06 Singapore Land Tower 048623 Singapore - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Location Address Current Additional Cost Per Current License PALM HC Square Footage Person Per Monthly Cost Expiration (@ $9.50 per Month Date sf per month)* - ----------------------------------------------------------------------------------------------------------------------------------- SINGAPORE (MFG ) 3Com Technologies 5 284 $ 1,900 $ 2,198 5/31/00 3 Changi North ST. 2 498827 Singapore - ----------------------------------------------------------------------------------------------------------------------------------- MEXICO Paseo de las Palmas 1 $ 1,900 $ 1,900 3/31/00 405-903 Torre Optima, Pico 9 Mexico City, Mexico 11000 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL MONTHLY RENT FOR LICENSED PREMISES 89 $188,353 - -----------------------------------------------------------------------------------------------------------------------------------
Section C: Headquarters Facility
- ---------------------------- ----------------- -------------------- -------------------- Address Leased or Estimated Estimated Square Subleased? Area Commencement Date Footage - ---------------------------- ----------------- -------------------- -------------------- 5400 Bayfront Plaza, Leased 3/1/00 35,000 Bldg 12 Santa Clara, CA - ---------------------------- ----------------- -------------------- -------------------- 5400 Bayfront Plaza, Leased 11/15/00 35,000 Bldg. 15 Santa Clara, CA - ---------------------------- ----------------- -------------------- -------------------- 5400 Bayfront Plaza, Subleased 3/1/00 63,600 Bldg. 9 - ---------------------------- ----------------- -------------------- -------------------- 5400 Bayfront Plaza, Subleased 3/1/00 83,100 Bldg. 10 - ---------------------------- ----------------- -------------------- -------------------- Common Area Subleased 3/1/00 12,800 - ---------------------------- ----------------- -------------------- --------------------
SCHEDULE 2 Form Assignment for Leased Properties SCHEDULE 3 Form License for Shared Properties SCHEDULE 4 Form Lease and Sublease for the Headquarters Facility EX-2.10 10 EXHIBIT 2.10 MASTER CONFIDENTIAL DISCLOSURE AGREEMENT BETWEEN 3COM CORPORATION AND PALM, INC. EFFECTIVE AS OF FEBRUARY 26, 2000 MASTER CONFIDENTIAL DISCLOSURE AGREEMENT This Master Confidential Disclosure Agreement (the "Agreement") is effective as of February 26, 2000 (the "Effective Date"), between 3Com Corporation, a Delaware corporation ("3Com"), having an office at 5400 Bayfront Plaza, Santa Clara, California, 95052 and Palm, Inc., a Delaware corporation ("Palm"), having an office at 5470 Great America Parkway, Santa Clara, California, 95052. WHEREAS, the Board of Directors of 3Com has determined that it is in the best interest of 3Com and its stockholders to separate 3Com's existing businesses into two independent businesses; WHEREAS, as part of the foregoing, 3Com and Palm's predecessor, Palm Computing, Inc., a California Corporation, have entered into a Master Separation and Distribution Agreement (as defined below), which provides, among other things, for the separation of certain Palm assets and Palm liabilities, the initial public offering of Palm stock, the distribution of such stock, and the execution and delivery of certain other agreements in order to facilitate and provide for the foregoing; and WHEREAS, also as part of the foregoing, the parties further desire to enter into this Agreement to provide for the protection of their Confidential Information (as defined below). NOW, THEREFORE, in consideration of the mutual promises of the parties, and of good and valuable consideration, it is agreed by and between the parties as follows: ARTICLE 1 DEFINITIONS For the purpose of this Agreement the following capitalized terms are defined in this Article 1 and shall have the meaning specified herein: 1.1 ANCILLARY AGREEMENTS. "Ancillary Agreements" means the items and agreements listed in Section 2.1 of the Master Separation and Distribution Agreement and all agreements and documents contemplated by such agreements. 1.2 CONFIDENTIAL INFORMATION. (a) "Confidential Information" means business information, technical data, know-how and other information which is not otherwise in the public domain and of which the owner actively undertakes to restrict or control the disclosure to Third Parties in a manner reasonably intended to maintain its confidentiality, and which (i) the Disclosing Party disclosed to the Receiving Party or the Receiving Party had access to on or before the Separation Date, (ii) is the subject of any Transaction Agreement and known to or in the possession of the Receiving Party as of the Separation Date or (iii) is disclosed to the Receiving Party pursuant to any Transaction Agreement for a period of one (1) year after the Effective Date. Confidential Information may include information relating to, by way of example, research, products, services, customers, markets, -1- software, developments, inventions, processes, designs, drawings, engineering, marketing or finances, and may be in writing, disclosed orally or learned by inspection of computer programming code, equipment or facilities. (b) Confidential Information of Third Parties that is known to, in the possession of or acquired by a Receiving Party pursuant to a relationship with the Disclosing Party shall be deemed the Disclosing Party's Confidential Information for purposes herein. (c) Notwithstanding the foregoing provisions of this Section 1.2, Confidential Information shall exclude information that: (i) was in the Receiving Party's possession before receipt from the Disclosing Party and obtained from a source other than the Disclosing Party and other than through the prior relationship of the Disclosing Party and the Receiving Party before the Separation Date; (ii) is or becomes a matter of public knowledge through no fault of the Receiving Party; (iii) is rightfully received by the Receiving Party from a Third Party without a duty of confidentiality; (iv) is disclosed by the Disclosing Party to a Third Party without a duty of confidentiality on the Third Party; (v) is independently developed by the Receiving Party; or (vi) is disclosed by the Receiving Party with the Disclosing Party's prior written approval. 1.3 CONFIDENTIALITY PERIOD. "Confidentiality Period" means, (i) with respect to Confidential Information that is not Highly Confidential Information, five (5) years, and (ii) with respect to Highly Confidential Information, in perpetuity, after either (A) the Separation Date with respect to Confidential Information of the Disclosing Party that is known to or in the possession of the Receiving Party as of the Separation Date or (B) the date of disclosure with respect to Confidential Information that is disclosed by the Disclosing Party to the Receiving Party after the Separation Date. 1.4 DISCLOSING PARTY. "Disclosing Party" means the party owning or disclosing the relevant Confidential Information. 1.5 DISTRIBUTION DATE. "Distribution Date" has the meaning set forth in the Master Separation and Distribution Agreement. 1.6 HIGHLY CONFIDENTIAL INFORMATION. "Highly Confidential Information" means Confidential Information that is source code for products that are commercially released or for which substantial steps have been taken to commercialization. 1.7 MASTER SEPARATION AND DISTRIBUTION AGREEMENT. "Master Separation and Distribution Agreement" means that certain Master Separation and Distribution Agreement between 3Com and Palm. 1.8 PERSON. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, and a governmental entity or any department, agency or political subdivision thereof. 1.9 RECEIVING PARTY. "Receiving Party" means the non-owning party or recipient of the relevant Confidential Information. -2- 1.10 SEPARATION DATE. "Separation Date" means 12:01 a.m., Pacific Time, February 26, 2000, or such other date as may be fixed by the Board of Directors of 3Com. 1.11 SUBSIDIARY. "Subsidiary" of any Person means a corporation or other organization, whether incorporated or unincorporated, of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; provided, however, that no Person that is not directly or indirectly wholly-owned by any other Person shall be a Subsidiary of such other Person unless such other Person controls, or has the right, power or ability to control, that Person. For purposes of this Agreement, Palm shall be deemed not to be a subsidiary of 3Com. 1.12 THIRD PARTY. "Third Party" means a Person other than 3Com and its Subsidiaries and Palm and its Subsidiaries. 1.13 TRANSACTION AGREEMENTS. "Transaction Agreements" mean the Master Separation and Distribution Agreement and the Ancillary Agreements. ARTICLE 2 CONFIDENTIALITY 2.1 CONFIDENTIALITY AND NON-USE OBLIGATIONS. During the Confidentiality Period, the Receiving Party shall (i) protect the Confidential Information of the Disclosing Party by using the same degree of care, but no less than a reasonable degree of care, to prevent the unauthorized use, dissemination, or publication of the Confidential Information as Receiving Party uses to protect its own confidential information of a like nature, (ii) not use such Confidential Information in violation of any use restriction in any Transaction Agreement, and (iii) not disclose such Confidential Information to any Third Party, except as expressly permitted under this Agreement, in the Transaction Agreements or in any other agreements entered into between the parties in writing, without prior written consent of the Disclosing Party. 2.2 DISCLOSURE TO SUBLICENSEES. The Receiving Party has the right to disclose to its sublicensees permitted under a Transaction Agreement portions of Confidential Information as reasonably necessary in the exercise of the Receiving Party's sublicense rights under such Transaction Agreement, subject to the sublicensee's agreement in writing to confidentiality and non-use terms at least as protective of the Disclosing Party as the provisions of this Agreement. 2.3 CONTRACT MANUFACTURERS AND FOUNDRIES. The Receiving Party has the right to disclose to its contract manufacturers and foundries permitted under any Transaction Agreement portions of the Confidential Information as reasonably necessary in the exercise of the Receiving Party's "have made" rights under any Transaction Agreement, subject to the contract manufacturer's and foundry's agreement in writing to confidentiality and non-use terms at least as protective of the Disclosing Party as the provisions of this Agreement. -3- 2.4 RESIDUALS. Notwithstanding any other provision of this Agreement, the Receiving Party shall be free, and the Disclosing Party hereby grants to the Receiving Party, except as otherwise provided in this Section 2.4, the right, to use or exploit for any purpose and without restriction the Residuals resulting from access to or work with the Confidential Information of the Disclosing Party. "Residuals" means information retained in the unaided memory of an individual who has had access to Confidential Information. The Receiving Party shall have no obligation to pay royalties for any use of Residuals. However, this Section 2.4 does not grant the Receiving Party any rights under any patents or copyrights of the Disclosing Party. 2.5 COMPELLED DISCLOSURE. If the Receiving Party or any of its respective Subsidiaries believes that it will be compelled by a court or other authority to disclose Confidential Information of the Disclosing Party, it shall (i) give the Disclosing Party prompt written notice so that the Disclosing Party may take steps to oppose such disclosure, and (ii) cooperate with the Disclosing Party in its attempts to oppose such disclosure. If the Receiving Party complies with the above, it shall not be prohibited from complying with such requirement to disclose, but shall take all reasonable steps to make such disclosure subject to a suitable protective order or otherwise prevent unrestricted or public disclosure. 2.6 NO RESTRICTION ON DISCLOSING PARTY. Nothing in this Agreement shall restrict the Disclosing Party from using, disclosing, or disseminating its own Confidential Information in any way. 2.7 NO RESTRICTION ON REASSIGNMENT. This Agreement shall not restrict reassignment of the Receiving Party's employees. 2.8 THIRD PARTY RESTRICTIONS. Nothing in the Agreement supersedes any restriction imposed by Third Parties on their Confidential Information, and there is no obligation on the Disclosing Party to conform Third Party agreements to the terms of this Agreement. ARTICLE 3 WARRANTY DISCLAIMER EACH PARTY ACKNOWLEDGES AND AGREES THAT ALL CONFIDENTIAL INFORMATION IS PROVIDED ON AN "AS IS, WHERE IS" BASIS AND THAT NEITHER PARTY NOR ANY OF ITS SUBSIDIARIES HAS MADE OR WILL MAKE ANY WARRANTY WHATSOEVER, EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ENFORCEABILITY OR NON-INFRINGEMENT. ARTICLE 4 CONFIDENTIALITY OF AGREEMENT Each party agrees that the terms and conditions of the Transaction Agreements marked as confidential shall be treated as Confidential Information and that neither party will disclose such -4- terms or conditions to any Third Party without the prior written consent of the other party, provided, however, that each party may disclose such terms and conditions of such agreements marked as confidential: (a) as required by any court or other governmental body (subject to Section 2.5); (b) as otherwise required by law (subject to Section 2.5); (c) in confidence, to legal counsel of the parties, accountants, and other professional advisors; (d) in confidence to banks, investors and other financing sources and their advisors; (e) in connection with the enforcement of this Agreement or rights under this Agreement; or (f) in confidence, in connection with an actual or prospective merger or acquisition or similar transaction. ARTICLE 5 TERM AND TERMINATION 5.1 TERM. This Agreement shall remain in full force and effect unless and until terminated by the mutual written agreement of the parties. 5.2 SURVIVAL. Articles 2 (with respect to Confidential Information acquired or disclosed prior to the date of termination), 3, 4, 6, 7 and 8 shall survive any termination of this Agreement. ARTICLE 6 DISPUTE RESOLUTION 6.1 MEDIATION. If a dispute, controversy or claim ("Dispute") arises between the parties relating to the interpretation or performance of this Agreement or the grounds for the termination hereof, appropriate senior executives (e.g. director or V.P. level) of each party who shall have the authority to resolve the matter shall meet to attempt in good faith to negotiate a resolution of the Dispute prior to pursuing other available remedies. The initial meeting between the appropriate senior executives shall be referred to herein as the "Dispute Resolution Commencement Date." Discussions and correspondence relating to trying to resolve such Dispute shall be treated as confidential information developed for the purpose of settlement and shall be exempt from discovery or production and shall not be admissible. If the senior executives are unable to resolve the Dispute within thirty (30) days from the Dispute Resolution Commencement Date, and either party wishes to pursue its rights relating to such Dispute, then the Dispute will be mediated by a mutually acceptable -5- mediator appointed pursuant to the mediation rules of JAMS/Endispute within thirty (30) days after written notice by one party to the other demanding non-binding mediation. Neither party may unreasonably withhold consent to the selection of a mediator or the location of the mediation. Both parties will share the costs of the mediation equally, except that each party shall bear its own costs and expenses, including attorney's fees, witness fees, travel expenses, and preparation costs. The parties may also agree to replace mediation with some other form of non-binding or binding ADR. 6.2 ARBITRATION. Any Dispute which the parties cannot resolve through mediation within ninety (90) days of the Dispute Resolution Commencement Date, unless otherwise mutually agreed, shall be submitted to final and binding arbitration under the then current Commercial Arbitration Rules of the American Arbitration Association ("AAA"), by three (3) arbitrators in Santa Clara County, California. Such arbitrators shall be selected by the mutual agreement of the parties or, failing such agreement, shall be selected according to the aforesaid AAA rules. The arbitrators will be instructed to prepare and deliver a written, reasoned opinion stating their decision within thirty (30) days of the completion of the arbitration. The prevailing party in such arbitration shall be entitled to expenses, including costs and reasonable attorneys' and other professional fees, incurred in connection with the arbitration (but excluding any costs and fees associated with prior negotiation or mediation). The decision of the arbitrator shall be final and non-appealable and may be enforced in any court of competent jurisdiction. The use of any ADR procedures will not be construed under the doctrine of laches, waiver or estoppel to adversely affect the rights of either party. 6.3 COURT ACTION. Any Dispute regarding the following is not required to be negotiated, mediated or arbitrated prior to seeking relief from a court of competent jurisdiction: breach of any obligation of confidentiality; infringement, misappropriation, or misuse of any intellectual property right; any other claim where interim relief from the court is sought to prevent serious and irreparable injury to one of the parties or to others. However, the parties to the Dispute shall make a good faith effort to negotiate and mediate such Dispute, according to the above procedures, while such court action is pending. 6.4 CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in writing, the parties will continue to provide service and honor all other commitments under this Agreement and each Ancillary Agreement during the course of dispute resolution pursuant to the provisions of this Article 6 with respect to all matters not subject to such dispute, controversy or claim. ARTICLE 7 MISCELLANEOUS PROVISIONS 7.1 EXPORT RESTRICTIONS. Both parties shall adhere to all applicable laws, regulations and rules relating to the export of technical data, and shall not export or reexport any technical data, any products received from Disclosing Party, or the direct product of such technical data, to any proscribed country listed in such applicable laws, regulations and rules unless properly authorized. -6- 7.2 NO IMPLIED LICENSES. Nothing contained in this Agreement shall be construed as conferring any rights by implication, estoppel or otherwise, under any intellectual property right, other than the rights expressly granted in this Agreement with respect to Confidential Information. Neither party is required hereunder to furnish or disclose to the other any technical or other information. 7.3 INFRINGEMENT SUITS. Neither party shall have any obligation hereunder to institute any action or suit against Third Parties for misappropriation of any of its Confidential Information or to defend any action or suit brought by a Third Party that alleges infringement of any intellectual property rights by the Receiving Party's authorized use of the Disclosing Party's Confidential Information. 7.4 NO OTHER OBLIGATIONS. NEITHER PARTY ASSUMES ANY RESPONSIBILITIES OR OBLIGATIONS WHATSOEVER, OTHER THAN THE RESPONSIBILITIES AND OBLIGATIONS EXPRESSLY SET FORTH IN THIS AGREEMENT OR A SEPARATE WRITTEN AGREEMENT BETWEEN THE PARTIES. 7.5 ENTIRE AGREEMENT. This Agreement, the Master Separation and Distribution Agreement and the other Ancillary Agreements and the Exhibits and Schedules referenced or attached hereto and thereto constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof. Notwithstanding the foregoing, the parties agree that any agreements entered into between them on or after the Separation Date for the protection of specific Confidential Information shall supersede the terms of this Agreement with respect to such Confidential Information. 7.6 GOVERNING LAW. This Agreement shall be construed in accordance with and all Disputes hereunder shall be governed by the laws of the State of California, excluding its conflict of law rules and the United Nations Convention on Contracts for the International Sale of Goods. The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have jurisdiction and venue over all Disputes between the parties that are permitted to be brought in a court of law pursuant to Section 6 above. 7.7 INTERPRETATION. The headings contained in this Agreement, in any Exhibit hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any Exhibit but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an Article or a Section or an Exhibit, such reference shall be to an Article or Section of, or an Exhibit to, this Agreement unless otherwise indicated. 7.8 NOTICES. Notices, offers, requests or other communications required or permitted to be given by either party pursuant to the terms of this Agreement shall be given in writing to the respective parties to the following addresses: if to 3Com : -7- 3Com Corporation 5400 Bayfront Plaza Santa Clara, California 95052 Attention: General Counsel Fax: (408) 326-6434 if to Palm: Palm, Inc. 5470 Great America Parkway Santa Clara, California 95052 Attention: General Counsel or to such other address as the party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested. All other notices may also be sent by fax, confirmed by first class mail. All notices shall be deemed to have been given and received on the earlier of actual delivery or three (3) days from the date of postmark. 7.9 NONASSIGNABILITY. Neither party may, directly or indirectly, in whole or in part, whether by operation of law or otherwise, assign or transfer this Agreement, without the other party's prior written consent, and any attempted assignment, transfer or delegation without such prior written consent shall be voidable at the sole option of such other party. Notwithstanding the foregoing, each party (or its permitted successive assignees or transferees hereunder) may assign or transfer this Agreement as a whole without consent to a Person that succeeds to all or substantially all of the business or assets of such party as long as such Person agrees to accept all the terms and conditions set forth herein. Without limiting the foregoing, this Agreement will be binding upon and inure to the benefit of the parties and their permitted successors and assigns. 7.11 SEVERABILITY. If any term or other provision of this Agreement or the Exhibits attached hereto is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible. 7.12 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of either party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement or the Exhibits attached hereto are cumulative to, and not exclusive of, any rights or remedies otherwise available. -8- 7.13 AMENDMENT. No change or amendment will be made to this Agreement or the Exhibits attached hereto except by an instrument in writing signed on behalf of each of the parties to such agreement. 7.14 COUNTERPARTS. This Agreement, including the Ancillary Agreements and the Exhibits and Schedules hereto and thereto and the other documents referred to herein or therein, may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. -9- WHEREFORE, the parties have signed this Master Confidential Disclosure Agreement effective as of the date first set forth above. 3COM CORPORATION PALM, INC. By: By: ------------------------------------- ----------------------------- Name: Name: ----------------------------------- --------------------------- Title: Title: ---------------------------------- -------------------------- -10- EX-2.11 11 EXHIBIT 2.11 INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT BETWEEN 3COM CORPORATION AND PALM, INC. FEBRUARY 26, 2000 TABLE OF CONTENTS
PAGE ---- ARTICLE I. MUTUAL RELEASES; INDEMNIFICATION...........................................................................1 Section 1.1. Release of Pre-Closing Claims...............................................................1 Section 1.2. Indemnification by Palm.....................................................................2 Section 1.3. Indemnification by 3Com.....................................................................2 Section 1.4. Indemnification With Respect to Environmental Actions and Conditions........................3 Section 1.5. Reductions for Insurance Proceeds and Other Recoveries......................................4 Section 1.6. Procedures for Defense, Settlement and Indemnification of Third Party Claims................4 Section 1.7. Additional Matters..........................................................................5 Section 1.8. Survival of Indemnities.....................................................................6 ARTICLE II. INSURANCE MATTERS.........................................................................................6 Section 2.1. Palm Insurance Coverage During the Transition Period........................................6 Section 2.2. Cooperation and Agreement Not to Release Carriers...........................................7 Section 2.3. Palm Insurance Coverage After the Insurance Transition Period...............................7 Section 2.4. Responsibilities for Deductibles and/or Self-insured Obligations............................7 Section 2.5. Procedures With Respect to Insured Palm Liabilities.........................................8 Section 2.6. Insufficient Limits of Liability for 3Com Liabilities and Palm Liabilities..................8 Section 2.7. Cooperation.................................................................................8 Section 2.8. No Assignment or Waiver.....................................................................8 Section 2.9. No Liability................................................................................8 Section 2.10. Additional or Alternate Insurance...........................................................9 Section 2.11. Further Agreements..........................................................................9 Section 2.12. Matters Governed by Employee Matters Agreement..............................................9 ARTICLE III. MISCELLANEOUS............................................................................................9 Section 3.1. Entire Agreement............................................................................9 Section 3.2. Governing Law...............................................................................9 Section 3.3. Dispute Resolution..........................................................................9 Section 3.4. Notices....................................................................................10 Section 3.5. Parties in Interest........................................................................11 Section 3.6. Other Agreements Evidencing Indemnification Obligations....................................11 Section 3.7. Counterparts...............................................................................11 Section 3.8. Assignment.................................................................................11 Section 3.9. Severability...............................................................................11 Section 3.10. Failure or Indulgence Not Waiver...........................................................12 Section 3.11. Amendment..................................................................................12 Section 3.12. Authority..................................................................................12 Section 3.13. Interpretation.............................................................................12 -i- TABLE OF CONTENTS (Continued) PAGE ---- ARTICLE IV. DEFINITIONS..............................................................................................12 Section 4.1. 3Com Business..............................................................................12 Section 4.2. 3Com Facilities............................................................................12 Section 4.3. 3Com Group.................................................................................12 Section 4.4. 3Com Indemnitees...........................................................................13 Section 4.5. Action.....................................................................................13 Section 4.6. Affiliated Company.........................................................................13 Section 4.7. Assets.....................................................................................13 Section 4.8. Assignment Agreement.......................................................................13 Section 4.9. Coverage Amount............................................................................13 Section 4.10. Employee Matters Agreement.................................................................13 Section 4.11. Environmental Actions......................................................................13 Section 4.12. Environmental Conditions...................................................................13 Section 4.13. Environmental Laws.........................................................................14 Section 4.14. Hazardous Materials........................................................................14 Section 4.15. Indemnitee.................................................................................14 Section 4.16. Insurance Policies.........................................................................14 Section 4.17. Insurance Proceeds.........................................................................14 Section 4.18. Insurance Transition Period................................................................14 Section 4.19. Insured Palm Liability.....................................................................14 Section 4.20. IPO Date...................................................................................14 Section 4.21. IPO Liabilities............................................................................14 Section 4.22. IPO Registration Statement.................................................................14 Section 4.23. Liabilities................................................................................15 Section 4.24. Non-US Plan................................................................................15 Section 4.25. Palm Business..............................................................................15 Section 4.26. Palm Contracts.............................................................................15 Section 4.27. Palm Covered Parties.......................................................................15 Section 4.28. Palm Facilities............................................................................15 Section 4.29. Palm Group.................................................................................15 Section 4.30. Palm Indemnitees...........................................................................15 Section 4.31. Palm Liabilities...........................................................................15 Section 4.32. Person.....................................................................................15 Section 4.33. Pre-Separation Third Party Site Liabilities................................................15 Section 4.34. Release....................................................................................15 Section 4.35. Separation.................................................................................16 Section 4.36. Separation Agreement.......................................................................16 Section 4.37. Separation Date............................................................................16 Section 4.38. Shared 3Com Percentage.....................................................................16 -ii- TABLE OF CONTENTS (Continued) PAGE ---- Section 4.39. Shared Palm Percentage.....................................................................16 Section 4.40. Shared Percentage..........................................................................16 Section 4.41. Subsidiary.................................................................................16 Section 4.42. Tax Sharing Agreement......................................................................16 Section 4.43. Taxes......................................................................................16 Section 4.44. Third Party Claim..........................................................................16
-iii- INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT This Indemnification and Insurance Matters Agreement (this "AGREEMENT") is entered into on February 26, 2000 between 3Com Corporation, a Delaware corporation ("3COM"), and Palm, Inc., a Delaware corporation ("PALM"). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the ARTICLE IV below. RECITALS WHEREAS, 3Com and its Subsidiaries have transferred or will transfer to Palm and its Subsidiaries effective as of the Separation Date, substantially all of the assets of the Palm Business in accordance with the Master Separation and Distribution Agreement dated as of December 13, 1999 between 3Com and Palm's predecessor corporation, Palm Computing, Inc., a California corporation (the "SEPARATION AGREEMENT"). WHEREAS, the parties desire to set forth certain agreements regarding indemnification and insurance. NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements set forth below, the parties hereto agree as follows: ARTICLE I. MUTUAL RELEASES; INDEMNIFICATION SECTION 1.1. RELEASE OF PRE-CLOSING CLAIMS. (a) PALM RELEASE. Except as provided in SECTION 1.1(c) and SCHEDULE 1.1 to this Agreement, effective as of the Separation Date, Palm does hereby, for itself and as agent for each member of the Palm Group, remise, release and forever discharge the 3Com Indemnitees from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Separation Date, including in connection with the transactions and all other activities to implement any of the Separation, the IPO and the Distribution. (b) 3COM RELEASE. Except as provided in SECTION 1.1(c) and SCHEDULE 1.1 to this Agreement, effective as of the Separation Date, 3Com does hereby, for itself and as agent for each member of the 3Com Group, remise, release and forever discharge the Palm Indemnitees from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Separation Date, -1- including in connection with the transactions and all other activities to implement any of the Separation, the IPO and the Distribution. (c) NO IMPAIRMENT. Nothing contained in Section 1.1(a) or (b) shall impair any right of any Person to enforce the Separation Agreement or any other Ancillary Agreement (including this Agreement), in each case in accordance with its terms. (d) NO ACTIONS AS TO RELEASED CLAIMS. Palm agrees, for itself and as agent for each member of the Palm Group, not to make any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against 3Com or any member of the 3Com Group, or any other Person released pursuant to SECTION 1.1(A), with respect to any Liabilities released pursuant to SECTION 1.1(A). 3Com agrees, for itself and as agent for each member of the 3Com Group, not to make any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against Palm or any member of the Palm Group, or any other Person released pursuant to SECTION 1.1(B), with respect to any Liabilities released pursuant to SECTION 1.1(B). (e) FURTHER INSTRUMENTS. At any time, at the request of any other party, each party shall cause each member of its respective Group to execute and deliver releases reflecting the provisions hereof. SECTION 1.2. INDEMNIFICATION BY PALM. Except as otherwise provided in this Agreement, Palm shall, for itself and as agent for each member of the Palm Group, indemnify, defend (or, where applicable, pay the defense costs for) and hold harmless the 3Com Indemnitees from and against any and all Liabilities that any third party seeks to impose upon the 3Com Indemnitees, or which are imposed upon the 3Com Indemnitees, and that relate to, arise out of or result from any of the following items (without duplication): (i) the Palm Business, any Palm Liability or any Palm Contract; (ii) any breach by Palm or any member of the Palm Group of the Separation Agreement or any of the Ancillary Agreements (including this Agreement); and (iii) any IPO Liabilities. In the event that any member of the Palm Group makes a payment to the 3Com Indemnitees hereunder, and any of the 3Com Indemnitees subsequently diminishes the Liability on account of which such payment was made, either directly or through a third-party recovery, 3Com will promptly repay (or will procure a 3Com Indemnitee to promptly repay) such member of the Palm Group the amount by which the payment made by such member of the Palm Group exceeds the actual cost of the associated indemnified Liability. This SECTION 1.2 shall not apply to any Liability indemnified under SECTION 1.4. SECTION 1.3. INDEMNIFICATION BY 3COM. Except as otherwise provided in this Agreement, 3Com shall, for itself and as agent for each member of the 3Com Group, indemnify, defend (or, where applicable, pay the defense costs for) and hold harmless the Palm Indemnitees from and -2- against any and all Liabilities that any third party seeks to impose upon the Palm Indemnitees, or which are imposed upon the Palm Indemnitees, and that relate to, arise out of or result from any of the following items (without duplication): (i) the 3Com Business or any Liability of the 3Com Group other than the Palm Liabilities; and (ii) any breach by 3Com or any member of the 3Com Group of the Separation Agreement or any of the Ancillary Agreements (including this Agreement). In the event that any member of the 3Com Group makes a payment to the Palm Indemnitees hereunder, and any of the Palm Indemnitees subsequently diminishes the Liability on account of which such payment was made, either directly or through a third-party recovery, Palm will promptly repay (or will procure a Palm Indemnitee to promptly repay) such member of the 3Com Group the amount by which the payment made by such member of the 3Com Group exceeds the actual cost of the indemnified Liability. This SECTION 1.3 shall not apply to any Liability indemnified under SECTION 1.4. SECTION 1.4. INDEMNIFICATION WITH RESPECT TO ENVIRONMENTAL ACTIONS AND CONDITIONS. (a) INDEMNIFICATION BY PALM. Palm shall, for itself and as agent for each member of the Palm Group, indemnify, defend and hold harmless the 3Com Indemnitees from and against any and all Environmental Actions relating to, arising out of or resulting from Environmental Conditions (i) arising out of operations occurring on and after the Separation Date at any of the Palm Facilities, or (ii) on any of the Palm Facilities arising from an event causing contamination that first occurs on or after the Separation Date (including any Release of Hazardous Materials occurring after the Separation Date that migrates to any of the Palm Facilities), except to the extent that such Environmental Conditions arise out of the operations of the 3Com Group on and after the Separation Date. (b) INDEMNIFICATION BY 3COM. 3Com shall, for itself and as agent for each member of the 3Com Group, indemnify, defend and hold harmless the Palm Indemnitees from and against any and all Environmental Actions relating to, arising out of or resulting from any of the following items: (i) Environmental Conditions (x) existing on, under, about or in the vicinity of any of the Palm Facilities prior to the Separation Date, or (y) arising out of operations occurring on or before the Separation Date at any of the Palm Facilities; (ii) Except as arising out of the operations of the Palm Group on and after the Separation Date, Environmental Conditions on, under, about or arising out of operations occurring at any time, whether before or after the Separation Date, at any of the 3Com Facilities; and (iii) Pre-Separation Third Party Site Liabilities. (C) AGREEMENT REGARDING PAYMENTS TO INDEMNITEE. In the event an Indemnifying Party makes any payment to or on behalf of an Indemnitee with respect to an Environmental Action for -3- which the Indemnifying Party is obligated to indemnify under this SECTION 1.4, and the Indemnitee subsequently receives any payment from a third party on account of the same financial obligation covered by the payment made by the Indemnifying Party for that Environmental Action or otherwise diminishes the financial obligation, the Indemnitee will promptly pay the Indemnifying Party the amount by which the payment made by the Indemnifying Party, exceeds the actual cost of the financial obligation. SECTION 1.5. REDUCTIONS FOR INSURANCE PROCEEDS AND OTHER RECOVERIES. The amount that any party (an "Indemnifying Party") is or may be required to pay to any other Person (an "Indemnitee") pursuant to Section 1.2, 1.3 or 1.4, as applicable, shall be reduced (retroactively or prospectively) by any Insurance Proceeds or other amounts actually recovered from third parties by or on behalf of such Indemnitee in respect of the related loss. The existence of a claim by an Indemnitee for monies from an insurer or against a third party in respect of any indemnifiable loss shall not, however, delay any payment pursuant to the indemnification provisions contained herein and otherwise determined to be due and owing by an Indemnifying Party. Rather the Indemnifying Party shall make payment in full of the amount determined to be due and owing by it against an assignment by the Indemnitee to the Indemnifying Party of the entire claim of the Indemnitee for Insurance Proceeds or against such third party. Notwithstanding any other provisions of this Agreement, it is the intention of the parties that no insurer or any other third party shall be (i) entitled to a benefit it would not be entitled to receive in the absence of the foregoing indemnification provisions, or (ii) relieved of the responsibility to pay any claims for which it is obligated. If an Indemnitee has received the payment required by this Agreement from an Indemnifying Party in respect of any indemnifiable loss and later receives Insurance Proceeds or other amounts in respect of such indemnifiable loss, then such Indemnitee shall hold such Insurance Proceeds or other amounts in trust for the benefit of the Indemnifying Party (or Indemnifying Parties) and shall pay to the Indemnifying Party, as promptly as practicable after receipt, a sum equal to the amount of such Insurance Proceeds or other amounts received, up to the aggregate amount of any payments received from the Indemnifying Party pursuant to this Agreement in respect of such indemnifiable loss (or, if there is more than one Indemnifying Party, the Indemnitee shall pay each Indemnifying Party, its proportionate share (based on payments received from the Indemnifying Parties) of such Insurance Proceeds). SECTION 1.6. PROCEDURES FOR DEFENSE, SETTLEMENT AND INDEMNIFICATION OF THIRD PARTY CLAIMS. (a) NOTICE OF CLAIMS. If a 3Com Indemnitee or a Palm Indemnitee (as applicable) (an "INDEMNITEE") shall receive notice or otherwise learn of the assertion by a Person (including any Governmental Authority) who is not a member of the 3Com Group or the Palm Group of any claim or of the commencement by any such Person of any Action (collectively, a "THIRD PARTY CLAIM") with respect to which a party (an "INDEMNIFYING PARTY") may be obligated to provide indemnification to such Indemnitee pursuant to SECTION 1.2, 1.3 or 1.4, or any other section of the Separation Agreement or any Ancillary Agreement (including this Agreement), 3Com and Palm (as applicable) will ensure that such Indemnitee shall give such Indemnifying Party written notice thereof within 30 days after becoming aware of such Third Party Claim. Any such notice shall describe the Third Party Claim in reasonable detail. Notwithstanding the foregoing, the delay or -4- failure of any Indemnitee or other Person to give notice as provided in this SECTION 1.6(A) shall not relieve the related Indemnifying Party of its obligations under this ARTICLE I, except to the extent that such Indemnifying Party is actually and substantially prejudiced by such delay or failure to give notice. (b) DEFENSE BY INDEMNIFYING PARTY. An Indemnifying Party will manage the defense of and may settle or compromise any Third Party Claim. Within 30 days after the receipt of notice from an Indemnitee in accordance with SECTION 1.6(A) (or sooner, if the nature of such Third Party Claim so requires), the Indemnifying Party shall notify the Indemnitee that the Indemnifying Party will assume responsibility for managing the defense of such Third Party Claim, which notice shall specify any reservations or exceptions. (c) DEFENSE BY INDEMNITEE. If an Indemnifying Party fails to assume responsibility for managing the defense of a Third Party Claim, or fails to notify an Indemnitee that it will assume responsibility as provided in SECTION 1.6(A), such Indemnitee may manage the defense of such Third Party Claim; PROVIDED, HOWEVER, that the Indemnifying Party shall reimburse all such costs and expenses in the event it is ultimately determined that the Indemnifying Party is obligated to indemnify the Indemnitee with respect to such Third Party Claim. (d) NO SETTLEMENT BY INDEMNITEE WITHOUT CONSENT. Unless the Indemnifying Party has failed to manage the defense of the Third Party Claim in accordance with the terms of this Agreement, no Indemnitee may settle or compromise any Third Party Claim without the consent of the Indemnifying Party. (e) NO CONSENT TO CERTAIN JUDGMENTS OR SETTLEMENTS WITHOUT CONSENT. Notwithstanding any provision of this SECTION 1.6, no party shall consent to entry of any judgment or enter into any settlement of a Third Party Claim without the consent of the other party (such consent not to be unreasonably withheld) if the effect of such judgment or settlement is to (A) permit any injunction, declaratory judgment, other order or other nonmonetary relief to be entered, directly or indirectly, against the other party or (B) affect the other party in a material fashion due to the allocation of Liabilities and related indemnities set forth in the Separation Agreement, this Agreement or any other Ancillary Agreement. SECTION 1.7. ADDITIONAL MATTERS. (a) COOPERATION IN DEFENSE AND SETTLEMENT. With respect to any Third Party Claim that implicates both Palm and 3Com in a material fashion due to the allocation of Liabilities, responsibilities for management of defense and related indemnities set forth in the Separation Agreement, this Agreement or any of the Ancillary Agreements, the parties agree to cooperate fully and maintain a joint defense (in a manner that will preserve the attorney-client privilege with respect thereto) so as to minimize such Liabilities and defense costs associated therewith. The party that is not responsible for managing the defense of such Third Party Claims shall, upon reasonable request, be consulted with respect to significant matters relating thereto and may, if necessary or helpful, associate counsel to assist in the defense of such claims. -5- (b) SUBSTITUTION. In the event of an Action in which the Indemnifying Party is not a named defendant, if either the Indemnitee or the Indemnifying Party shall so request, the parties shall endeavor to substitute the Indemnifying Party for the named defendant. If such substitution or addition cannot be achieved for any reason or is not requested, the rights and obligations of the parties regarding indemnification and the management of the defense of claims as set forth in this ARTICLE I shall not be altered. (c) SUBROGATION. In the event of payment by or on behalf of any Indemnifying Party to or on behalf of any Indemnitee in connection with any Third Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee, in whole or in part based upon whether the Indemnifying Party has paid all or only part of the Indemnitee's Liability, as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third Party Claim against any claimant or plaintiff asserting such Third Party Claim or against any other person. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim. (d) NOT APPLICABLE TO TAXES. This Agreement shall not apply to Taxes (which are covered by the Tax Sharing Agreement). SECTION 1.8. SURVIVAL OF INDEMNITIES. Subject to SECTION 3.8, the rights and obligations of the members of the 3Com Group and the Palm Group under this ARTICLE I shall survive the sale or other transfer by any party of any Assets or businesses or the assignment by it of any Liabilities or the sale by any member of the 3Com Group or the Palm Group of the capital stock or other equity interests of any Subsidiary to any Person. ARTICLE II. INSURANCE MATTERS SECTION 2.1. PALM INSURANCE COVERAGE DURING THE TRANSITION PERIOD. (a) MAINTAIN COMPARABLE INSURANCE. Throughout the period beginning on the Separation Date and ending on the Distribution Date (i.e., the "INSURANCE TRANSITION PERIOD"), 3Com shall, subject to insurance market conditions and other factors beyond its control, maintain policies of insurance, including for the benefit of Palm or any of its Subsidiaries, directors, officers, employees or other covered parties (collectively, the "PALM COVERED PARTIES") which are comparable to those maintained generally by 3Com; PROVIDED, HOWEVER, that if 3Com determines that (i) the amount or scope of such coverage will be reduced to a level materially inferior to the level of coverage in existence immediately prior to the Insurance Transition Period or (ii) the retention or deductible level applicable to such coverage, if any, will be increased to a level materially greater than the levels in existence immediately prior to the Insurance Transition Period, 3Com shall give Palm notice of such determination as promptly as practicable. Upon notice of such determination, Palm shall be entitled to no less than 60 days to evaluate its options regarding continuance of coverage hereunder and may cancel its interest in all or any portion of such coverage as of any day within such 60 day period. -6- (b) REIMBURSEMENT FOR PREMIUMS. Palm shall promptly pay or reimburse 3Com, as the case may be, for premium expenses, and Palm Covered Parties shall promptly pay or reimburse 3Com for any costs and expenses which 3Com may incur in connection with the insurance coverages maintained pursuant to this SECTION 2.1, including but not limited to any subsequent premium adjustments. All payments and reimbursements by Palm and Palm Covered Parties to 3Com shall be made within thirty (30) days after Palm's receipt of an invoice from 3Com. SECTION 2.2. COOPERATION AND AGREEMENT NOT TO RELEASE CARRIERS. Each of 3Com and Palm will share such information as is reasonably necessary in order to permit the other to manage and conduct its insurance matters in an orderly fashion. Each of 3Com and Palm, at the request of the other, shall cooperate with and use commercially reasonable efforts to assist the other in recoveries for claims made under any insurance policy for the benefit of any insured party, and neither 3Com nor Palm, nor any of their Subsidiaries, shall take any action which would intentionally jeopardize or otherwise interfere with either party's ability to collect any proceeds payable pursuant to any insurance policy. Except as otherwise contemplated by the Separation Agreement, this Agreement or any Ancillary Agreement, after the Separation Date, neither 3Com nor Palm shall (and shall ensure that no member of their respective Groups shall), without the consent of the other, provide any insurance carrier with a release, or amend, modify or waive any rights under any such policy or agreement, if such release, amendment, modification or waiver would adversely affect any rights or potential rights of any member of the other Group thereunder. However, nothing in this SECTION 2.2 shall (A) preclude any member of any Group from presenting any claim or from exhausting any policy limit, (B) require any member of any Group to pay any premium or other amount or to incur any Liability, or (C) require any member of any Group to renew, extend or continue any policy in force. SECTION 2.3. PALM INSURANCE COVERAGE AFTER THE INSURANCE TRANSITION PERIOD. From and after expiration of the Insurance Transition Period, Palm shall be responsible for obtaining and maintaining insurance programs for its risk of loss and such insurance arrangements shall be separate and apart from 3Com's insurance programs. Notwithstanding the foregoing, 3Com, upon the request of Palm, shall use all commercially reasonable efforts to assist Palm in the transition to its own separate insurance programs from and after the Insurance Transition Period, and shall provide Palm with any information that is in the possession of 3Com and is reasonably available and necessary to either obtain insurance coverages for Palm or to assist Palm in preventing unintended self-insurance, in whatever form. SECTION 2.4. RESPONSIBILITIES FOR DEDUCTIBLES AND/OR SELF-INSURED OBLIGATIONS. Palm will reimburse 3Com for all amounts necessary to exhaust or otherwise satisfy all applicable self-insured retentions, amounts for fronted policies, deductibles and retrospective premium adjustments and similar amounts not covered by Insurance Policies in connection with Palm Liabilities and Insured Palm Liabilities. -7- SECTION 2.5. PROCEDURES WITH RESPECT TO INSURED PALM LIABILITIES. (a) REIMBURSEMENT. Palm will reimburse 3Com for all amounts incurred to pursue insurance recoveries from Insurance Policies for Insured Palm Liabilities. (b) MANAGEMENT OF CLAIMS. The defense of claims, suits or actions giving rise to potential or actual Insured Palm Liabilities will be managed (in conjunction with 3Com's insurers, as appropriate) by the party that would have had responsibility for managing such claims, suits or actions had such Insured Palm Liabilities been Palm Liabilities. SECTION 2.6. INSUFFICIENT LIMITS OF LIABILITY FOR 3COM LIABILITIES AND PALM LIABILITIES. In the event that there are insufficient limits of liability available under 3Com's Insurance Policies in effect prior to the Distribution Date to cover the Liabilities of 3Com and/or Palm that would otherwise be covered by such Insurance Policies, then to the extent that other insurance is not available to 3Com and/or Palm for such Liabilities an adjustment will be made in accordance with the following procedures: (a) Each party will be allocated an amount equal to their Shared Percentage of the lesser of (A) the available limits of liability available under 3Com's Insurance Policies in effect prior to the Distribution Date net of uncollectible amounts attributable to insurer insolvencies, and (B) the proceeds received from 3Com's Insurance Policies if the Liabilities are the subject of disputed coverage claims and, following consultation with each other, 3Com and/or Palm agree to accept less than full policy limits from 3Com's and Palm's insurers (the "COVERAGE AMOUNT"). (b) A party who receives more than its share of the Coverage Amount (the "OVERALLOCATED PARTY") agrees to reimburse the other party (the "UNDERALLOCATED PARTY") to the extent that the Liabilities of the Underallocated Party that would have been covered under such Insurance Policies is less than the Underallocated Party's share of the Coverage Amount. (c) This SECTION 2.6(a) shall terminate ten years following the Distribution Date. SECTION 2.7. COOPERATION. 3Com and Palm will cooperate with each other in all respects, and they shall execute any additional documents which are reasonably necessary, to effectuate the provisions of this ARTICLE II. SECTION 2.8. NO ASSIGNMENT OR WAIVER. This Agreement shall not be considered as an attempted assignment of any policy of insurance or as a contract of insurance and shall not be construed to waive any right or remedy of any member of the 3Com Group in respect of any Insurance Policy or any other contract or policy of insurance. SECTION 2.9. NO LIABILITY. Palm does hereby, for itself and as agent for each other member of the Palm Group, agree that no member of the 3Com Group or any 3Com Indemnitee shall have any Liability whatsoever as a result of the insurance policies and practices of 3Com and its Subsidiaries as in effect at any time prior to the Distribution Date, including as a result of the level or scope of any such insurance, the creditworthiness of any insurance carrier, the terms and conditions -8- of any policy, the adequacy or timeliness of any notice to any insurance carrier with respect to any claim or potential claim or otherwise. SECTION 2.10. ADDITIONAL OR ALTERNATE INSURANCE. Notwithstanding any provision of this Agreement, during the Insurance Transition Period 3Com and Palm shall work together to evaluate insurance options and secure additional or alternate insurance for Palm and/or 3Com if desired and cost effective. Nothing in this Agreement shall be deemed to restrict any member of the Palm Group from acquiring at its own expense any other insurance policy in respect of any Liabilities or covering any period. SECTION 2.11. FURTHER AGREEMENTS. The Parties acknowledge that they intend to allocate financial obligations without violating any laws regarding insurance, self-insurance or other financial responsibility. If it is determined that any action undertake pursuant to the Separation Agreement, this Agreement or any Ancillary Agreement is violative of any insurance, self-insurance or related financial responsibility law or regulation, the parties agree to work together to do whatever is necessary to comply with such law or regulation while trying to accomplish, as much as possible, the allocation of financial obligations as intended in the Separation Agreement, this Agreement and any Ancillary Agreement. SECTION 2.12. MATTERS GOVERNED BY EMPLOYEE MATTERS AGREEMENT. This ARTICLE II shall not apply to any insurance policies that are the subject of the Employee Matters Agreement. ARTICLE III. MISCELLANEOUS SECTION 3.1. ENTIRE AGREEMENT. This Agreement, the Master Separation Agreement, the other Ancillary Agreements and the Exhibits and Schedules attached hereto and thereto, constitutes the entire agreement between the parties with respect to the subject matter hereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof. SECTION 3.2. GOVERNING LAW. This Agreement shall be construed in accordance with and all Disputes hereunder shall be governed by the laws of the State of California, excluding its conflict of law rules and the United Nations Convention on Contracts for the International Sale of Goods. The Superior Court of Santa Clara County and/or the United States District Court for the Northern District of California shall have jurisdiction and venue over all Disputes between the parties that are permitted to be brought in a court of law pursuant to SECTION 3.3. SECTION 3.3. DISPUTE RESOLUTION. If a dispute, controversy or claim ("Dispute") arises between the parties relating to the interpretation or performance of this Agreement, or the grounds for the termination hereof, appropriate senior executives (e.g. director or V.P. level) of each party who shall have the authority to resolve the matter shall meet to attempt in good faith to negotiate a resolution of the Dispute prior to pursuing other available remedies. The initial meeting between the appropriate senior executives shall be referred to herein as the "Dispute Resolution Commencement Date." Discussions and correspondence relating to trying to resolve such Dispute shall be treated as -9- confidential information developed for the purpose of settlement and shall be exempt from discovery or production and shall not be admissible. If the senior executives are unable to resolve the Dispute within thirty (30) days from the Dispute Resolution Commencement Date, and either party wishes to pursue its rights relating to such Dispute, then the Dispute will be mediated by a mutually acceptable mediator appointed pursuant to the mediation rules of JAMS/Endispute within thirty (30) days after written notice by one party to the other demanding non-binding mediation. Neither party may unreasonably withhold consent to the selection of a mediator or the location of the mediation. Both parties will share the costs of the mediation equally, except that each party shall bear its own costs and expenses, including attorney's fees, witness fees, travel expenses, and preparation costs. The parties may also agree to replace mediation with some other form of non-binding or binding ADR. Any Dispute which the parties cannot resolve through mediation within ninety (90) days of the Dispute Resolution Commencement Date, unless otherwise mutually agreed, shall be submitted to final and binding arbitration under the then current Commercial Arbitration Rules of the American Arbitration Association ("AAA"), by three (3) arbitrators in Santa Clara County, California. Such arbitrators shall be selected by the mutual agreement of the parties or, failing such agreement, shall be selected according to the aforesaid AAA rules. The arbitrators will be instructed to prepare and deliver a written, reasoned opinion stating their decision within thirty (30) days of the completion of the arbitration. The prevailing party in such arbitration shall be entitled to expenses, including costs and attorneys' and other professional fees, incurred in connection with the arbitration (but excluding any costs and fees associated with prior negotiation or mediation). The decision of the arbitrator shall be final and non-appealable and may be enforced in any court of competent jurisdiction. The use of any ADR procedures will not be construed under the doctrine of laches, waiver or estoppel to adversely affect the rights of either party. Any Dispute regarding the following is not required to be negotiated, mediated or arbitrated prior to seeking relief from a court of competent jurisdiction: breach of any obligation of confidentiality; infringement, misappropriation, or misuse of any intellectual property right; any other claim where interim relief from the court is sought to prevent serious and irreparable injury to one of the parties or to others. However, the parties to the Dispute shall make a good faith effort to negotiate and mediate such Dispute, according to the above procedures, while such court action is pending. SECTION 3.4. NOTICES. Notices, offers, requests or other communications required or permitted to be given by either party pursuant to the terms of this Agreement shall be given in writing to the respective parties to the following addresses: if to 3Com: 3Com Corporation 5400 Bayfront Plaza Santa Clara, California 95052 Attention: General Counsel Fax: (408) 326-6434 if to Palm: -10- Palm, Inc. 5470 Great America Parkway Santa Clara, California 95052 Attention: General Counsel or to such other address as the party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice involving non-performance, termination, or renewal shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested. All other notices may also be sent by fax, confirmed by first class mail. All notices shall be deemed to have been given and received on the earlier of actual delivery or three (3) days from the date of postmark. SECTION 3.5. PARTIES IN INTEREST. This Agreement, including the Schedules and Exhibits hereto, and the other documents referred to herein, shall be binding upon 3Com, 3Com's Subsidiaries, Palm and Palm's Subsidiaries and inure solely to the benefit of the Palm Indemnitees and the 3Com Indemnitees and their respective permitted assigns, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. SECTION 3.6. OTHER AGREEMENTS EVIDENCING INDEMNIFICATION OBLIGATIONS. 3Com hereby agrees to execute, for the benefit of any Palm Indemnitee, such documents as may be reasonably requested by such Palm Indemnitee, evidencing 3Com's agreement that the indemnification obligations of 3Com set forth in this Agreement inure to the benefit of and are enforceable by such Palm Indemnitee. Palm hereby agrees to execute, for the benefit of any 3Com Indemnitee, such documents as may be reasonably requested by such 3Com Indemnitee, evidencing Palm's agreement that the indemnification obligations of Palm set forth in this Agreement inure to the benefit of and are enforceable by such 3Com Indemnitee. SECTION 3.7. COUNTERPARTS. This Agreement, including the Schedules and Exhibits hereto, and the other documents referred to herein, may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. SECTION 3.8. ASSIGNMENT. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives and successors, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. This Agreement may be enforced separately by each member of the 3Com Group and each member of the Palm Group. Neither party may assign this Agreement or any rights or obligations hereunder, without the prior written consent of the other party, and any such assignment shall be void; provided, however, either party may assign this Agreement to a successor entity in conjunction with such party's reincorporation. SECTION 3.9. SEVERABILITY. If any term or other provision of this Agreement or the Schedules or Exhibits attached hereto is determined by a nonappealable decision by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated -11- hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible. SECTION 3.10. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of either party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. SECTION 3.11. AMENDMENT. No change or amendment will be made to this Agreement except by an instrument in writing signed on behalf of each of the parties to this Agreement. SECTION 3.12. AUTHORITY. Each of the parties hereto represents to the other that (a) it has the corporate or other requisite power and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other action, (c) it has duly and validly executed and delivered this Agreement, and (d) this Agreement is a legal, valid and binding obligation, enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and general equity principles. SECTION 3.13. INTERPRETATION. The headings contained in this Agreement, in any Exhibit or Schedule hereto and in the table or contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any Schedule or Exhibit but not otherwise defined therein, shall have the meaning assigned to such term in this Agreement. When a reference is made in this Agreement to an Article or a Section, Exhibit or Schedule, such reference shall be to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. ARTICLE IV. DEFINITIONS SECTION 4.1. 3COM BUSINESS. "3COM BUSINESS" means any business of 3Com other than the Palm Business. SECTION 4.2. 3COM FACILITIES. "3COM FACILITIES" means all of the real property and improvements thereon owned or occupied at any time on or before the Separation Date by any member of the 3Com Group, whether for the 3Com Business or the Palm Business, excluding the Palm Facilities. SECTION 4.3. 3COM GROUP. "3COM GROUP" means 3Com, each Subsidiary and Affiliated Company of 3Com (other than any member of the Palm Group) immediately after the Separation -12- Date, after giving effect to the Non-US Plan and each Person that becomes a Subsidiary or Affiliate Company of 3Com after the Separation Date. SECTION 4.4. 3COM INDEMNITEES. "3COM INDEMNITEES" means 3Com, each member of the 3Com Group and each of their respective directors, officers and employees. SECTION 4.5. ACTION. "ACTION" means any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any federal, state, local, foreign or international governmental authority or any arbitration or mediation tribunal. SECTION 4.6. AFFILIATED COMPANY. "AFFILIATED COMPANY" of any Person means any entity that controls, is controlled by, or is under common control with such Person. As used herein, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities or other interests, by contract or otherwise. SECTION 4.7. ASSETS. "ASSETS" has the meaning set forth in SECTION 4.4 of the Assignment Agreement. SECTION 4.8. ASSIGNMENT AGREEMENT. "ASSIGNMENT AGREEMENT" means the General Assignment and Assumption Agreement attached as EXHIBIT C to the Separation Agreement. SECTION 4.9. COVERAGE AMOUNT. "COVERAGE AMOUNT" has the meaning set forth in SECTION 2.6(a) of this Agreement. SECTION 4.10. EMPLOYEE MATTERS AGREEMENT. "EMPLOYEE MATTERS AGREEMENT" means the Employee Matters Agreement attached as EXHIBIT E to the Separation Agreement. SECTION 4.11. ENVIRONMENTAL ACTIONS. "ENVIRONMENTAL ACTIONS" means any notice, claim, act, cause of action, order, decree or investigation by any third party (including, without limitation, any Governmental Authority) alleging potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, damage to flora or fauna caused by Environmental Conditions, real property damages, personal injuries or penalties) arising out of, based on or resulting from the Release of or exposure of any individual to any Hazardous Materials. SECTION 4.12. ENVIRONMENTAL CONDITIONS. "ENVIRONMENTAL CONDITIONS" means the presence in the environment, including the soil, groundwater, surface water or ambient air, of any Hazardous Material at a level which exceeds any applicable standard or threshold under any Environmental Law or otherwise requires investigation or remediation (including, without limitation, investigation, study, health or risk assessment, monitoring, removal, treatment or transport) under any applicable Environmental Laws. -13- SECTION 4.13. ENVIRONMENTAL LAWS. "ENVIRONMENTAL LAWS" means all laws and regulations of any Governmental Authority with jurisdiction that relate to the protection of the environment (including ambient air, surface water, ground water, land surface or subsurface strata) including laws and regulations relating to the Release of Hazardous Materials, or otherwise relating to the treatment, storage, disposal, transport or handling of Hazardous Materials, or to the exposure of any individual to a Release of Hazardous Materials. SECTION 4.14. HAZARDOUS MATERIALS. "HAZARDOUS MATERIALS" means chemicals, pollutants, contaminants, wastes, toxic substances, radioactive and biological materials, hazardous substances, petroleum and petroleum products or any fraction thereof. SECTION 4.15. INDEMNITEE. "INDEMNITEE" has the meaning set forth in SECTION 1.5(a) hereof. SECTION 4.16. INSURANCE POLICIES. "INSURANCE POLICIES" means insurance policies pursuant to which a Person makes a true risk transfer to an insurer. SECTION 4.17. INSURANCE PROCEEDS. "INSURANCE PROCEEDS" means those monies: (a) received by an insured from an insurance carrier; or (b) paid by an insurance carrier on behalf of the insured; from Insurance Policies. SECTION 4.18. INSURANCE TRANSITION PERIOD. "INSURANCE TRANSITION PERIOD" has the meaning set forth in SECTION 2.1 of this Agreement. SECTION 4.19. INSURED PALM LIABILITY. "Insured Palm Liability" means any Palm Liability to the extent that (i) it is covered under the terms of 3Com's Insurance Policies in effect prior to the Distribution Date, and (ii) Palm is not a named insured under, or otherwise entitled to the benefits of, such Insurance Policies. SECTION 4.20. IPO DATE. "IPO DATE" means the date on which Palm effects its initial public offering of common stock. Scheduled to occur on or before June 2, 2000. SECTION 4.21. IPO LIABILITIES. "IPO LIABILITIES" means any Liabilities relating to, arising out of or resulting from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information contained in the IPO Registration Statement or any preliminary, final or supplemental prospectus forming a part of a IPO Registration Statement. SECTION 4.22. IPO REGISTRATION STATEMENT. "IPO REGISTRATION STATEMENT" means the registration statement on Form S-1 pursuant to the Securities Act to be filed with the SEC registering the shares of common stock of Palm to be issued in the IPO, together with all amendments thereto. -14- SECTION 4.23. LIABILITIES. "LIABILITIES" has the meaning set forth in SECTION 4.15 of the Assignment Agreement. SECTION 4.24. NON-US PLAN. "NON-US PLAN" means the plan of reorganization described in EXHIBIT K of the Separation Agreement. SECTION 4.25. PALM BUSINESS. "PALM BUSINESS" means the business and operations of Palm, as described in the IPO Registration Statement and except as otherwise expressly provided herein, any terminated, divested or discontinued businesses or operations that at the time of termination, divestiture or discontinuation primarily related to the Palm Business as then conducted. SECTION 4.26. PALM CONTRACTS. "PALM CONTRACTS" has the meaning set forth in SECTION 4.23 of the Assignment Agreement. SECTION 4.27. PALM COVERED PARTIES. "PALM COVERED PARTIES" shall have the meaning set forth in SECTION 2.1(a) of this Agreement. SECTION 4.28. PALM FACILITIES. "PALM FACILITIES" means all of those facilities to be transferred to Palm on the Separation Date as set forth on Schedule 1 to the Real Estate Matters Agreement. SECTION 4.29. PALM GROUP. "PALM GROUP" means Palm, each Subsidiary and Affiliated Company of Palm immediately after the Separation Date or that is contemplated to be a Subsidiary or Affiliated Company of Palm pursuant to the Non-US Plan and each Person that becomes a Subsidiary or Affiliate Company of Palm after the Separation Date. SECTION 4.30. PALM INDEMNITEES. "PALM INDEMNITEES" means Palm, each member of the Palm Group and each of their respective directors, officers and employees. SECTION 4.31. PALM LIABILITIES. "PALM LIABILITIES" has the meaning set forth in SECTION 1.3 of the Assignment Agreement. SECTION 4.32. PERSON. "PERSON" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. SECTION 4.33. PRE-SEPARATION THIRD PARTY SITE LIABILITIES. "PRE-SEPARATION THIRD PARTY SITE LIABILITIES" means any and all Environmental Actions arising out of Hazardous Materials found on, under or about any landfill any waste, storage, transfer or recycling site and resulting from or arising out of Hazardous Materials stored, treated, recycled disposed or otherwise handled at such site prior to the Separation Date (whether for the operation of the Palm Business or for the operation of any past or presently (as of the date hereof) existing 3Com Business as operated on or before the Separation Date). SECTION 4.34. RELEASE. "RELEASE" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor -15- environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, groundwater, wetlands, land or subsurface strata. SECTION 4.35. SEPARATION. "SEPARATION" means the transfer and contribution from 3Com to Palm, and Palm's receipt and assumption of, directly or indirectly, substantially all of the Assets and Liabilities currently associated with the Palm Business and the stock, investments or similar interests currently held by 3Com in subsidiaries and other entities that conduct such business. SECTION 4.36. SEPARATION AGREEMENT. "SEPARATION AGREEMENT" means the Master Separation and Distribution Agreement dated as of December 13, 1999, of which this is an Exhibit thereto. SECTION 4.37. SEPARATION DATE. "SEPARATION DATE" means the effective date and time of each transfer of property, assumption of liability, license, undertaking, or agreement in connection with the Separation, which shall be 12:01 a.m., Pacific Time, February 26, 2000, or such date as may be fixed by the Board of Directors of 3Com. SECTION 4.38. SHARED 3COM PERCENTAGE. "SHARED 3COM PERCENTAGE" means 90%. SECTION 4.39. SHARED PALM PERCENTAGE. "SHARED PALM PERCENTAGE" means 10%. SECTION 4.40. SHARED PERCENTAGE. "SHARED PERCENTAGE" means the Shared Palm Percentage or the Shared 3Com Percentage, as the case may be. SECTION 4.41. SUBSIDIARY. "SUBSIDIARY" of any Person means a corporation or other organization whether incorporated or unincorporated of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; provided, however, that no Person that is not directly or indirectly wholly-owned by any other Person shall be a Subsidiary of such other Person unless such other Person controls, or has the right, power or ability to control, that Person. SECTION 4.42. TAX SHARING AGREEMENT. "TAX SHARING AGREEMENT" means the Tax Sharing Agreement, attached as EXHIBIT F to the Separation Agreement. SECTION 4.43. TAXES. "TAXES" has the meaning set forth in the Tax Sharing Agreement. SECTION 4.44. THIRD PARTY CLAIM. "THIRD PARTY CLAIM" has the meaning set forth in SECTION 1.5(a) of this Agreement. [SIGNATURES ON FOLLOWING PAGE] -16- IN WITNESS WHEREOF, each of the parties has caused this Indemnification and Insurance Matters Agreement to be executed on its behalf by its officers thereunto duly authorized on the day and year first above written. 3COM CORPORATION PALM, INC. By: By: ---------------------------------- --------------------------------- Name: Name: -------------------------------- ------------------------------- Title: Title: ------------------------------- ------------------------------ SCHEDULE 1.1 Section 1.1, Release of Pre-Closing Claims, shall not include any inter-company balances between Palm and 3Com existing as of the Separation Date. EX-27.1 12 EXHIBIT 27.1
5 1,000 9-MOS JUN-02-2000 FEB-25-2000 40,005 0 118,818 4,498 29,774 212,503 17,918 7,365 238,544 317,693 0 0 0 0 (79,532) 238,544 707,352 707,352 399,821 399,821 251,419 0 0 56,744 23,271 33,473 0 0 0 33,473 0.06 0.06
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